Q4 2023 Installed Building Products Inc Earnings Call

Operator: Greetings, and welcome to the Installed Building Products Fiscal 2023 Fourth Quarter Financial Results Call. At this time, all participants are in a listen-only mode.

Greetings and welcome to the installed building products fiscal 2023 fourth quarter financial results call.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

Operator: A 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Darren Hicks, Managing Director of Investor Relations for Installed Building Products. Thank you. You may begin.

I would now like to turn the conference over to your host Darren Hicks managing director of Investor Relations for installed building products. Thank you you may begin.

Darren Hicks: Good morning, and welcome to Installed Building Products' fourth quarter 2023 earnings 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 Law. 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 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. Tax Gap Except as required by federal securities laws.

Good morning, and welcome to installed building products fourth quarter 2023 earnings 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 meeting of the.

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.

Please refer to the cautionary statements and risk factors in our SEC filings, including our 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 and adjusted financial measures on this call you can find a reconciliation of such measures to the nearest GAAP equivalent in the company's earnings release and additional reconciliation of EBITDA adjusted EBITDA for early earlier fiscal years in our investor.

Darren Hicks: In addition, management refers to certain non-gap and adjusted financial measures on this call. You can find a reconciliation of such measures to the nearest gap equivalent in the company's earnings release and additional reconciliation for EBITDA and adjusted EBITDA for earlier fiscal years in our investor presentation, which is available in our investor relations section of our website. This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer, and Michael Miller, our Chief Financial Officer, and is joined by Jason Niswonger, our Chief Administrative and Sustainability Officer. I will now turn the call over to Jeff.

Presentation, which are available on our Investor Relations section of 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 long, our chief administrative and sustainability Officer I will now turn the call over to Jeff.

Jeffrey W. Edwards: 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 improved both sales and profitability in the fourth quarter, helping IBP achieve another year of record financial results, including record revenue, net income, and adjusted EBITDA. I'm proud of IBP's performance in 2023, as installation sales growth in our multifamily and commercial end markets more than offsets softer single-family sales growth throughout the year. Our installation teams worked efficiently to optimize the value we provide to our customers with each completed job, driving record annual net profit and adjusted EBITDA margins in 2023. The talent and commitment of our employees, combined with the strength of our business model, enabled the company to once again reach new heights in 2023. Throughout 2023, our acquisitions contributed positively to our financial results. We invested approximately $60 million in acquisitions while returning nearly $70 million to shareholders through dividends and share repurchase.

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 improved both sales and profitability in the fourth quarter, helping the IBP achieved another year of record financial results, including record revenue net income and adjusted EBITDA I'm proud of Ibp's performance in 2023 as installation sales growth in our multifamily and commercial end markets more than offset softer singles.

Families sales growth throughout the year.

Our installation teams worked efficiently to optimize the value, we provide to our customers, which with each completed job driving our record annual net profit and adjusted EBITDA margins in 2023.

The commitment of our employees combined with the strength of our business model enabled the company to once again reached new Heights in 2023.

Throughout 2023, our acquisitions contributed positively to our financial results, we invested approximately $60 million and acquisitions, while returning nearly $70 million to shareholders through dividends and share repurchases.

Jeffrey W. Edwards: I am pleased to report that for the 2024 first quarter, our Board of Directors has approved an increase to our regular quarterly cash dividend by 6% and declared an annual variable dividend of $1.60 per share, representing a $0.70 per share increase over last year's variable. On February 12, 2024, we celebrated the 10th anniversary of our public offering by ringing the closing bell at the New York Stock Exchange. Since our IPO in 2014, net revenue, net income, and adjusted EBITDA have grown at compound annual growth rates of 21 percent, 37 percent, and 31 percent, respectively. During this period, we completed almost 90 acquisitions, expanding our footprint across the United States and diversifying our revenue to additional end markets and product categories.

I'm pleased to report that for the 2024 first quarter. Our board of Directors has approved an increase to our regular quarterly cash dividend by 6% and declared an annual variable dividend of $1 60 per share representing a 70 cents per share increase over last year's variable dividend.

On February 12, 2024, we celebrated the 10th anniversary of our public offering by ringing the closing Bell at the New York Stock Exchange.

Since our IPO in 2014 net revenue net income and adjusted EBITDA have grown at compound annual growth rates of 21%, 37% and 31% respectively.

During this period, we completed almost almost 90 acquisitions, expanding our footprint across the United States and diversifying our revenue two additional end markets and product categories.

Jeffrey W. Edwards: As a result, IDP has transformed from a regional installer of insulation to one of the largest installers of building products in the country. The success of our growth strategies, combined with our disciplined approach to capital allocation, has created significant value for our shareholders. The credit for our accomplishments goes to the hard-working men and women across our roughly 250 branches throughout the United States and those who support them from our office in Columbus, Ohio.

As a result, IBP has transformed from a regional installer of installation to one of the largest installers of building products in the country.

Success of our growth strategies combined with our disciplined approach to capital allocation has created significant value for our shareholders.

Credit for our accomplishments goes to the hard working men and women across our roughly 250 branches throughout the United States and those who support them from our office in Columbus, Ohio.

Jeffrey W. Edwards: To everyone at IBP, thank you. As we continue to focus on profitable growth, we remain committed to doing the right thing for our employees, customers, communities, and shareholders. During 2023, we acquired eight companies with combined annual revenues of approximately $75 million, further expanding our product offering and geographic presence. We expect to acquire at least $100 million of annual revenue each year. However, acquisition timing is unpredictable, and certain acquisitions may change from their intended closing dates within a given calendar year. During the 2023 fourth quarter, we completed two acquisitions, including a North Dakota-based installer of fiberglass and spray-foam insulation in Malta for family, residential, and commercial customers with annual revenue of approximately $2 million, and a Florida-based installer of a diverse mix of building products to new residential construction projects in the Orlando market with annual revenue of approximately $16.5 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 relative to historical averages.

Everyone at IBP. Thank you as.

As we continue to focus on profitable growth, we remain committed to doing the right thing for our employees customers communities and shareholders.

During 2023, we acquired eight companies with combined annual revenue of approximately $75 million further expanding our product offering and geographic presence we.

We expect to acquire at least $100 million of annual revenue. Each year. However acquisition timing is unpredictable and certain acquisitions may change from their intended closing dates within the given calendar year.

During the 2023 fourth quarter, we completed two acquisitions, including a north Dakota based installer of fiberglass and spray foam insulation and multifamily residential and commercial customers with annual revenue of approximately $2 million.

Florida based installer, a diverse mix of building products to new residential construction projects in the Orlando market with annual revenue of approximately $16 $5 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 relative to historical averages. Additionally.

Jeffrey W. Edwards: Additionally, an elevated volume of multifamily units under construction continues to be supportive of our acquisition. We believe we are well positioned for another year of strong operational and financial performance in 2024 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, and the insulation installation industry has favorable opportunities ahead, including demand driven by the Inflation Reduction Act of 2022, in the Bipartisan Infrastructure Law, which is intended to improve energy efficiency in residential homes. IVP's strong customer relationships, experienced leadership team, national scale, and diverse product categories across multiple end markets will help the 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 product installation business. 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. Consolidated net revenue for the fourth quarter increased 5% to $721 million, compared to $687 million for the same period last year.

Additionally, an elevated volume of multi family units under construction continued to be supportive of our installation business.

We believe we are well positioned for another year of strong operational and financial performance in 2024, 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 has favorable opportunities ahead, including demand driven by the inflation reduction act of 2022.

By partisan infrastructure law, which are intended to improve energy efficiency in residential homes IBP strong customer relationships experienced leadership team national scale and diverse product categories across multiple end markets will help the company navigate future changes in the U S housing market.

I'm proud of our continued success and are excited by the prospects ahead for IBP and the broader insulation and other product installation business. So with this overview I would 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 consolidated net revenue for the fourth quarter increased 5% to $721 million compared to $687 million for the same period last year.

Michael T. Miller: The increase in sales during the quarter was driven by higher multifamily and commercial sales. However, partially upset by softer single-family cells within our installation, as we evaluate our performance on a year-over-year basis. Exceptional Growth Our Company Experience, 2022 set difficult comparisons this past year. Also, rising interest rates and the decrease in single-family housing units under construction were headwinds to our revenue opportunities, http://TheBusinessProfessor.com according to the U.S. Census Bureau in the fourth quarter of 2020. The housing units are under construction.

The increase in sales during the quarter was driven by higher multifamily and commercial sales, which was partially offset by softer single family's house within our installation segment.

As we evaluate our performance on a year over year basis, the exceptional growth of our company experienced in 'twenty 2022 said difficult comparisons. This past year also rising interest rates and the decrease in single family housing units under construction were headwinds to our revenue opportunity in 2023.

According to the U S census Bureau in the fourth quarter of 2023, the housing units under construction the sales pipeline for our installation services showed single family units were down 12% year over year, while our single family same brand sales were down 7%.

Michael T. Miller: Sales Pipeline for our installation showed single-family units were down 12% year-over-year, while our single-family St. Bradsdales were down. In the multi-family end market, industry units under construction were approved, or while our multi-family same brand sales were up approximately 30%. We are pleased with our performance relative to the market. Our focus on efficiency and job optimization led us to achieve record fourth-quarter profitability as measured by adjusted gross profit margin and adjusted net income margin. As the inflationary environment began to normalize in 2023, our ability to compete based on service and provide value to our customers helped to support a 240-basis point of Adjusted Gross Profit, 34.1% in the fourth quarter relative to the same period last year. Adjusted selling and administrative expense as a percent of fourth-quarter sales was up 160 basis points, primarily due to higher insurance and variable compensation related to higher gross profit and EBITDA performance from the prior year period.

And the multifamily end market industry units under construction were up 8%, while our while our multifamily same brand sales were up approximately 30%. We are pleased with our performance relative to the market opportunity.

Our focus on efficiency and job optimization led us to achieve record fourth quarter profitability as measured by adjusted gross profit margin adjusted net income margin and adjusted EBITDA margin.

Is the inflationary environment began to normalize in 2023, our ability to compete based on service and provide value to our customers helped to support at 240 basis point improvement in adjusted gross profit margin to <unk>.

34, 1% in the fourth quarter relative to the same period last year.

Adjusted selling and administrative expense as a percent of fourth quarter sales was up 160 basis points to 18, 3% due primarily to higher insurance and variable compensation related to higher gross profit and EBITDA performance from the prior year period.

Michael T. Miller: Despite a higher adjusted selling and administrative expense ratio in the fourth quarter, adjusted net income margin, 10.7%, compared to 10.1% in the prior year, and Justin Ibiza for the 2023 fourth quarter, increased 11% to a fourth quarter record of $128 million, and adjusted EBITDA margin reached a fourth quarter record of $17.8 million. 2013 University of Georgia College of Agricultural and Environmental Sciences UGA Extension Office of Communications and Communications Continue to target full-year, long-term, same-branch, incremental adjusted EBITDA margin in the range of 20 to 25. For the 2023 full year, total same-branch incremental adjusted EBITDA margins were substantially above our target. Although we do not provide comprehensive financial guidance, based on recent acquisitions, we expect first quarter 2024 amortization of approximately $10.5 million, and the full year 2024 expense of approximately $40.9 million. We would expect these estimates to change with any acquisitions. Also, we continue to expect an effective tax rate of 25 to 27% for the full year ending December 31st, 2000.

Despite a higher adjusted selling and administrative expense ratio in the fourth quarter. Adjusted net income margin improved to 10, 7% from 10, 1% in the prior year period.

Adjusted EBITDA for the 2023 fourth quarter.

Increased 11% to a fourth quarter record of $128 million and adjusted EBITDA margin reached a fourth quarter record of 17, 8% compared to 16, 8% for the same period last year.

We continue to target full year long term same branch incremental adjusted EBITDA margins in the range of 20% to 25%.

For the 2023 full year total same branch incremental adjusted EBITDA margins were substantially above our target range.

Although we do not provide comprehensive financial guidance based on recent acquisitions, we expect first quarter 2020 for amortization expense of approximately $10 $5 million and full year 2020 for expensing of approximately $49 million. We would expect these estimates change with any acquisitions, we closed in future.

Periods.

So we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31 2024.

Now, let's look at our liquidity position and balance sheet and capital requirements in more detail.

Michael T. Miller: Now, let's look at our liquidity position, balance sheet, and capital requirements in more detail. For the 12 months ended December 31st, 2023, we generated $340 million in cash flow from operations, an all-time annual record, compared to $278 million in the prior year period. The year-over-year increase in operating cash flow was primarily associated with higher net income and effective management of working capital.

For the 12 months ended December 31, 2023, we generated $340 million in cash flow from operations and all time annual record compared to $278 million in the prior year period.

Year over year increase in operating cash flow was primarily associated with higher net income and effective management of working capital.

During the fourth quarter interest rates increased year over year, but through interest rate swap agreements, we have fixed the interest rate on $400 million of our existing variable rate debt until December 2028, limiting our interest rate exposure.

Michael T. Miller: During the fourth quarter, interest rates increased year over year, but through interest rate swap agreements, we have fixed the interest rate on $400 million of our existing variable rate debt until December 2028, limiting our interest rate exposure. Additionally, we have no significant debt maturities until 2008, our fourth quarter net interest expense. $7.8 million from $9.9 million in the prior year period due to the term loan repricing in August 2023 and the higher rate of interest we earned on cash and cash equivalents invested throughout the quarter. At December 31st, 2023, we had a net debt to adjusted annual EBITDA leverage ratio of one times, compared to one and a half times at December 31st, 2022, which is well below our stated target. At December 31st, 2023, we had $337 million in working capital.

We have no significant debt maturities until 2028, our fourth quarter net interest expense decreased to $7 $8 million from $9 $9 million in the prior year period due to the term loan repricing in August 2023, and the higher rate of interest we earned on cash and cash equivalents invested throughout the quarter.

At December 31, 2023, we had a net debt to adjusted annual EBITDA leverage ratio of one time.

Baird to one and a half times at December 31, 2022, which is well below our stated target of two times at.

At December 31, 2023, we had $337 million and working capital, excluding cash and cash equivalents.

Capital expenditures in total incurred finance leases for the year ended December 31, 2023 were approximately $65 million combined which was approximately 2% of revenue roughly in line with the same period last year.

With our strong liquidity position asset light business model and modest financial leverage we continue to focus on expanding through acquisition and returning capital to shareholders.

Our goal of acquiring $100 billion of annual revenue each year is unchanged Ibp's board of directors approved the first quarter dividend of 35 per share which is payable on March 31 2024.

Michael T. Miller: Capital expenditures and total incurred finance leases for the year end of December 31, 2023 were approximately $65 million combined, approximately 2% of revenue, roughly in line with the same period last year. With our strong liquidity position, asset-light business model, and modest financial leverage, we continue to focus on expanding through acquisition. Returning Capital to Shareholders. Our goal is to acquire $100 million dollars of annual revenue each year. IBP's Board of Directors approved the first quarter dividend of $0.35 per share, which is payable on March 31, 2024, to stockholders at a record on March 15th, 2024.

Stockholders of record on March 15th 2020 for the first quarter given dividend represents a 6% increase over the prior year period.

Also as a part of our established dividend policy today, we announced that our board has declared a $1 60 per share annual variable dividend 70 cents per share increase over the variable dividend, we paid last year.

The 2020 for variable dividend amount is based on the cash flow generated by our operations with consideration for planned cash obligations acquisitions and other factors as determined by the board.

The variable dividend will be paid concurrent with the regular quarterly dividend on March 31, 2024 to stockholders of record on March 15th 2024.

We are committed to continuing to grow the company, while returning excess capital to shareholders through our dividend policy and the opportunistic share repurchases.

The board of directors authorized a new stock buyback program, which expands our repurchase capability to $300 million of our outstanding common stock up from $200 million in the previous program.

Michael T. Miller: The first quarter dividend represents a 6% increase over the prior year period. Also, as a part of our established dividend policy, today we announced that our board has declared a $1.60 per share annual variable dividend, a $0.70 per share increase over the variable dividend we paid last year. The 2024 Variable Dividend Amount was based on the cash flow generated by our operations with consideration of the plan, cash, obligations, acquisitions, and other factors as determined by the board. The variable dividend will be paid concurrently with the regular quarterly dividend on March 31, 2024 to stockholders of record on March 15, 2024.

The new authorization replaces the previous program and is in effect through March one 2025.

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.

Thank you if you'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 queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys in the interest of time, we ask that you each.

Michael T. Miller: We are committed to continuing to grow the company while returning excess capital to shareholders through our dividend policy and opportunistic share repurchase. The Board of Directors authorized a new stock buyback program, which expands our repurchase capability. $300 million of our outstanding common stock, up from $200 million in the previous program. The new authorization replaces the previous program and is in effect through March 1, 2025.

Keep to one question and one follow up thank you our.

Our first question comes from the line of Susan Macquarie with Goldman Sachs. Please proceed with your question.

Good morning, everyone and congrats on a great quarter.

Thanks Sue.

And my second question is if we think about 2023, you saw some really nice price mix that came into the business. Despite all the headwinds that you had in there as you think about the outlook for 'twenty four how are you thinking about the set up there can you talk just generally to the different moving pieces and any thoughts on price specifically as the.

Jeffrey W. Edwards: With this overview, I will now turn the call back to Jeff for closing. 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: Operator, let's open up the call for questions. Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

<unk>, perhaps what the offsets on ongoing inflation.

So this is a this is Michael yeah, our view really hasn't changed very much as it relates to price.

Susan Marie Maklari: You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 2. In the interest of time, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Susan Maklari with Goldman Sachs. Please proceed with your question. Good morning, everyone, and congrats on a great quarter. Good morning. Thanks, dude.

Price mix going into 'twenty four.

If you take out the high inflationary periods that we experienced in 'twenty, two and really that was partly in 'twenty. One 'twenty two and you know still catching up a little bit coming into 'twenty three.

We really have consistently run price mix and sort of the mid to low single digit pace and that's consistent with our expectation of sort of a fairly benign inflationary environment across the products that we install so there's nothing that we see right now that would change that I mean material, particularly fibers.

Michael T. Miller: My first question is, you know, if we think about 2023, you saw some really nice price mix that came into the business despite all the headwinds that you had. As you think about the outlook for 2024, how are you thinking about the setup there? Can you talk just generally about the different moving pieces and any thoughts on price specifically as the manufacturers perhaps look to offset some ongoing inflation? This is Michael.

<unk> continues to be tight.

We believe that as we progress through the year in the back half of the year that.

The material might loosen up a little bit but.

That also depends a lot on what happens with the single family market, which we currently feel very constructive about well and loosen up is irrelevant.

Michael T. Miller: Yeah, our view really hasn't changed very much as it relates to price mix going into 24. You know, if you take out the high inflationary period that we experienced in 22, and really that was partially in 21, 22, and you are still catching up a little bit. The Bulletproof Executive 2013, We really have consistently run price mix at sort of a mid-to-low single-digit pace, and that's consistent with our expectation of sort of a fairly benign inflationary environment across the products that we install, so there's nothing that we see right now that would change that. I mean, you know, material, particularly fiberglass, continues to be tight, and we believe that as we progress through the year, in the back half of the year, that the material might loosen up a little bit, but that also depends a lot on what happens with the single-family market, which we currently feel very constructive about.

And finally, a very relative you know.

We're still not without even as recently as the third and fourth quarter of last year at times, having to you know kind of go fend for ourselves based on how tight the market is so.

Uh huh.

It's healthy in that regard, yes, yes, it's the market deals I'm very.

Very comfortable in terms of I mean, it's things are tight things you know theres always a unique challenges, but given the backdrop.

That we see in single family and what we're hearing from not just the fiberglass suppliers, but all of our suppliers are.

We're very encouraged.

Okay, Alright, that's helpful color.

Then.

Turning to the incremental margin. It was obviously really impressive last year as well as you think about the operating conditions and does the setup over not just even in 'twenty four but just looking further out what would you need to see to give you confidence to raise that range or did change where you are.

Michael T. Miller: Well, and loosen up is a relative term. I mean, very relative. You know, it's, we're still not without, even as recently as, you know, third and fourth quarter of last year, at times having to, you know, kind of go fend for ourselves based on how tight the market is, so, www.plastics-car.com, It's healthy in that regard, yeah, it's, the market feels very comfortable in terms of, I mean, it's, things are tight, things, you know, there's always unique challenges, but given the backdrop that we see in single family, and, you know, what we're hearing from, not just the fiberglass suppliers, but all of our suppliers, we're very encouraged. Okay, all right, that's helpful color.

That business can fundamentally operate and how do you think about the different puts and takes to that.

Well, obviously we.

<unk> performed well above our targeted incremental margins. This year there was definitely some.

Don't Wanna say unique but factors that contributed to that I mean, if you look on an annual basis.

You know over the course of the past couple of years I mean, both 22 and 'twenty three or you know very solid incremental margin same branch incremental margin years for us and we feel very good going into 'twenty four and.

Michael T. Miller: And then turning to the incremental margin, it was obviously, you know, really impressive last year as well. As you think about the operating conditions and the setup over not just 24, but just looking further out, what would you need to see to give you confidence to raise that range or to change where you think the business can fundamentally operate? And how do you think about the different puts and takes on that?

You know, obviously, we don't provide guidance.

But we're feeling.

Good that we will have we will continue to have above the top end of the range of incremental margins. When we look back this time next year.

Okay, Alright, thank you and good luck with everything great. Thank you.

Thank you. Our next question comes from the line of Stephen Kim with Evercore ISI. Please proceed with your question.

Michael T. Miller: Well, obviously, we performed well above our targeted incremental margins this year. There were definitely some, I don't want to say unique, but factors that contributed to that. I mean, if you look on an annual basis, you know, over the course of the past couple of years, both 22 and 23 were, you know, very solid incremental margins, same branch incremental margin years for us, and we feel very good going into 24. Obviously, we don't provide guidance, but we feel good that we will continue to have above the top end of the range incremental margins when we look back this time next year. Okay. All right. Thank you, and good luck with everything.

Yeah, Thanks, very much guys good results.

Wanted to ask you a couple of longer.

Longer term questions if I could.

The commercial business was very strong had a nice year of growth here you talked about a management change last quarter that you've made there and I was wondering if you could give us a little bit of an update on that and in particular, how that positions that the commercial side of your business for growth.

As we look ahead and over the next couple of years.

What is is what we saw in 2023, you know kind of representative.

Or is that sort of you know what kind of a one off kind of a year that that that's the kind of color that I was looking for.

Stephen Kim: Great. Thank you. Our next question comes from the line of Stephen Kim with Evercore ISI. Please proceed with your question. Yeah, thanks very much, guys. Good results.

Sure. Stephen This is Michael Thanks for that question.

We are extremely proud of what was accomplished in a heavy commercial business, particularly the heavy commercial business not just the overall commercial business.

Michael T. Miller: I wanted to ask you a couple of longer-term questions, if I could. The commercial business was, you know, very strong and had a nice year of growth here. You talked about a management change last quarter that you'd made there, and I was wondering if you could give us a little bit of an update on that, and in particular, how that positions the commercial side of your business for growth as we look ahead and over the next couple of years. Is what we saw in 2023, you know, kind of representative, or that sort of, you know, kind of a one-off kind of year? That's the kind of color that I was looking for.

This year.

It really was a year or two as sort of a stabilized that business and start bringing it back up to acceptable margin levels I would say that it's still not.

At company margins and we believe there's still room for improvement.

But just to give you a sense of the benefit we received from the heavy commercial business in the year and in the quarter. They.

They actually added roughly 100 basis points and gross margin improvement to the overall business. So.

Michael T. Miller: Sure, Stephen. This is Michael. Thanks for that question. And we are extremely proud of what was accomplished in the heavy commercial business, particularly the heavy commercial business, not just the overall commercial business. This year, you know, it really was a year to sort of stabilize that business and start bringing it back up to acceptable margin levels. I would say that it's still not at company margins, and we believe there's still room for improvement. But just to give you a sense of the benefit we've received from the heavy commercial business throughout the year and in the quarter, they actually added roughly 100 basis points of gross margin improvement to the overall business. So the good news is that they did that. The bad news is that they came from such a low point to get to where they are.

Wow.

Is that the bad news is they came from such a low point.

They acquire but we do not think that that's transitory and that's sustainable so that benefit will remain we believe as we continue to go through 'twenty. Four now we will not we do not expect that we'll see a strong of a sales growth in the commercial business, particularly in the heavy commercial business in 'twenty four.

But what we're really managing towards and that business is maximum continuing to maximize profitability and getting the margins up to closer to company averages and we would much rather have that themselves.

Jeffrey W. Edwards: But we do not think that that's transitory and that it's sustainable. So that benefit will remain, we believe, as we continue to go through 24. But we do not expect that we'll see as strong of a sales growth in the commercial business, particularly in the heavy commercial business, in 24.

In this Jeff, but we made I mean, just to be clear we made it.

Change in the leadership of that business line.

Not last year, but the prior year, but I mean, these are long duration contracts and a lot of cases you know.

Some of which we were we were suffering through kind of the hyperinflation.

It wouldn't allow us to improve kind of our pricing in that regard, but it's also just a change in mentality to Michael's point in terms of driving for profitability as opposed to sales.

Jeffrey W. Edwards: But what we're really managing towards in that business is continuing to maximize profitability and getting the margins up to closer to company averages. And we would much rather have that than sales. You know, Jeff, but we made, I mean, just to be clear, we made the change in the leadership of that business find not last year but the prior year. But I mean, these are long-duration contracts in a lot of cases, some of which we were suffering through kind of hyperinflation and wouldn't allow us to improve, you know, our pricing in that regard.

The fact that it's dead fish doesn't meet what are called back in our shelf.

As a matter of fact, though and I think we could go back to grow the business yeah.

Definitely you see it as a great opportunity in 'twenty four.

It's going to look across the business in the what we call. The end markets. We believe that through 2000 and for the greatest opportunity for organic growth will be the single family market right now.

Now I want it back that up a little bit and just say our multifamily backlogs continue to be very strong extremely strong while we would at a macro level expect that multifamily.

Jeffrey W. Edwards: But it's also just a change in mentality to Michael's point in terms of driving for profitability as opposed to sales. Now, the fact that it's been fixed doesn't mean we're gonna crawl back into our shell, as a matter of fact, though, and I think we could go back to growing the business. Yeah, I definitely see it as a great opportunity in 24.

Starts.

To come down fairly significantly you know call it 12% to 13% from 23, we have a lot of confidence around our ability to continue to take market share and continue to perform on the existing backlog that we have such that we continue to perform much better than the market opportunity on them.

Jeffrey W. Edwards: I mean, you know, as we look across the business and at what we call the end markets, we believe that through 24, the greatest opportunity for organic growth will be in single-family homes. Now, I want to back that up a little bit and just say, our multifamily backlogs are very strong, extremely strong. But we would, on a macro level, expect the multifamily starts to come down fairly significantly, call it 12% to 13% from 23%. We have a lot of confidence around our ability to continue to take market share and continue to perform on the existing backlog that we have, such that we continue to perform much better than the market opportunity on the market. But single family clearly, you know, as everyone's talking about, there's this tremendous, share.

My family side.

But single family clearly.

Everyone is talking about them.

Tremendous potential there this year.

Yeah.

And so I think that our that all makes sense you know switching so switching to the resi side of your business a multifamily the backlogs being very strong I think you had previously said you expected that to sort of be a driver to your business. All throughout 2024 pretty much can you talk about the margin profile. There I mean, obviously the margins had.

Been extremely strong.

Your margins in the quarter and end of year, we're strong in and kind of above I believe what you had sort of said was your sort of a long term.

Outlook for gross margins of 30 to 32, you're running well above that was curious is if we would have what you would attribute that to is that something where you still feel 30 to 32 is the right range or maybe given some things that you've seen we could screwed that up a little bit just trying to get some color on your outlook.

Stephen Kim: Yeah. And so, you know, I think that all makes sense, you know, switching to the resi side of your business, the multifamily, the backlogs being very strong. I think you had previously said you expected that to sort of, you know, be a driver of your business all throughout 2024, pretty much. Can you talk about the margin profile there?

For gross margins, whether it's changing maybe going up a little higher and whether multifamily is playing a role in what we're seeing right now.

Yes, that's a great question and I would say that we are definitely encourage that.

Michael T. Miller: I mean, obviously, the margins have been extremely strong. Your margins in the quarter and the year were strong and kind of above, I believe, what you had sort of said was your sort of a long-term outlook for gross margins of 30 to 32. You know, you're running well above that.

You know the gross margin improvement has been solid.

There is no doubt, though that.

As we expect to happen and certainly as even happened in January as we get higher growth rates from the production builders the big National builders.

Michael T. Miller: What's curious is if we would, what you would attribute that to, is that something where you still feel 30 to 32 is the right range, or maybe, given some things that you've seen, we could scoot that up a little bit? Just trying to get some color on your outlook for gross margins, whether it's changing, maybe going up a little higher, and whether multifamily is playing a role in what we're seeing Yeah, that's a great question. And I would say that, you know, we are definitely encouraged that the gross margin improvement has been solid. There's no doubt, though, that... As we expect to happen, and certainly happened in January, as we get higher growth rates from the production builders, the big national builders, which is great business, we love that business, and we saw, you know, good growth with that in January relative to the regional and local guys, we would expect that that would put pressure on gross margin, but ultimately, the EBITDA margin contribution is similar.

Great business, we love that business and we saw.

Good growth with that in January relative to the regional and local guys. We would expect that that would put pressure on gross margin.

But ultimately the EBITDA margin contribution is similar but in terms of overall in the gross margin side. The team has done a phenomenal job of really focusing on.

Providing as much customer value and service as possible to enhance profitability.

You know at <unk>.

Across the company so as we look at the business, particularly through 'twenty four and if I look at say the fourth quarter of 'twenty three I mean, we've been able to work very hard to get the multifamily margins up because historically you know several years ago. They would have been a drag on margin our team has done a great.

Job of not having them be a drag on overall margin and the other thing that helped us, particularly in the fourth quarter is that while the rate of growth was better for the insulation products than the other products. The other products, which we've talked about several times do have lower margins than installation.

Michael T. Miller: But in terms of overall gross margin, the team has done a phenomenal job of really focusing on providing as much customer value and service as possible to enhance profitability, you know, across the company. So, as we look at the business, particularly through 24, and if I look at, say, the fourth quarter of 23, I mean, we've been able to work very hard to get the multifamily margins up because, you know, historically, you know, several years ago, they would have been a drag on margin. Our team has done a great job of not having them be a drag on overall margin.

But their margin improvement was better than considerably better than the margin improvement in insulation and as a consequence did help was a benefit to gross margin again, we don't think that's transitory either and that that's sustainable so it definitely makes us feel confident around.

The gross margin being closer to the 32 than 30.

Michael T. Miller: And the other thing that helped us, particularly in the fourth quarter, is that while the rate of growth was better for the insulation products than the other products, the other products, which we've talked about several times, do have lower margins than insulation, but their margin improvement was better than, considerably better than the margin improvement in insulation, and, as a consequence, did help, and was a benefit to gross margin. Again, we don't think that's transitory either and that it's sustainable, so it definitely makes us feel confident around, you know, the gross margin being closer to 32 than 30. That, if I could just follow up there, these non-insulation products, the margin improvement, you think it's sustainable. Can you give a little more color or some examples of sort of what drove that and why it's sustainable? I think there are several things.

That if I could just follow up there these non insulation products the margin improvement.

Do you think it's sustainable can you give a little more color on sort or some examples of sort of what drove that and why it's sustainable.

I think there are several things that the you know the.

The inflationary environment, becoming more benign availability of material, becoming more normalized and honestly I mean, we say it a lot but it absolutely is true. It's the performance of the team I mean, our field team has executed so.

So effectively in times that have been very difficult when we think about what's happened over the past couple of years between Covid the supply disruptions. This.

This year the challenges that the single family presented that we're all well aware of I mean, the team has just done an outstanding job and their focus on profitability.

Michael T. Miller: It's the inflationary environment becoming more benign, the availability of materials becoming more normalized. And honestly, I mean, you know, we say it a lot, but it absolutely is true. It's the performance of the team.

We believe is reflective clearly in the numbers.

Great. Thanks, so much guys.

Okay.

Thank you. Our next question comes from the line of Joe <unk> with Deutsche Bank. Please proceed with your question.

Michael T. Miller: I mean, our field has executed so effectively in times that have been very difficult. When we think about what's happened over the past couple of years between COVID, the supply disruptions, you know, this year, the challenges that single family presented that we're all well aware of. I mean, the team has just done an outstanding job, and their focus on profitability, we believe, is reflected clearly in the numbers. Great. Thanks so much, guys.

Hey, good morning, everybody. Thanks for taking the question and congrats on the results.

Right.

I'm trying to think through where do you expect the most.

The strength in year over year sales growth within single family for the year, maybe if you could just talk about what you've seen in starts in the fourth quarter and into January in the data.

Maybe expect that to.

Come to your stage of construction right.

Felicia part.

Joel Ehlersmeyer: Thank you. Thank you. Our next question comes from the line of Joel Ehlersmeyer with Deutsche Bank. Please proceed with your question. Hey, good morning everybody.

And then also in the context of what the comps were last year I think you've previously spoken to <unk> being the maybe the easiest comp so maybe it might take into the second quarter before we really see single family starts to expand year over year.

Michael T. Miller: Thanks for taking the question and congrats on the results. [inaudible] I'm trying to think through where to expect the most, in year-over-year sales growth within single-family homes for the year. Talked about, www.cdc.gov.au Yeah, that's Michael that I think that's right.

Yeah. That's this is Mike with that I think that's right. Although what I would say is that you know as we just started the year obviously, but.

It is starting to play out exactly as we would have expected in the sense that we're seeing because if you look at the products that we install on the residential side generally speaking installation is the first thing that we do and then the other products some of them. After what we call after paint right. So after that the house has been paid it painted so.

Michael T. Miller: Although what I would say is that, you know, as we, you know, just started the year, obviously, but, It is starting to play out exactly as we would have expected, in the sense that we're seeing, because if you look at the products that we install on the residential side, generally speaking, insulation is the first thing that we do. And then the other products, some come after what we call after paint, right? So after the house has been painted.

Those are much later in the cycle. So what we expect to see in you know certainly through the rest of the first quarter and going into the second quarter is that we'll see.

Better sales opportunity if you will on the single family side installation, where we will see weakness from a volumes perspective is going to be in the other products until those later cycle installed products come in more towards the back half of the year. So the year from a single family perspective is starting to play out.

Michael T. Miller: So those are much later in the cycle. So what we expect to see through, you know, certainly through the rest of the first quarter and going into the second quarter, is that we'll see, you know, better sales opportunities, if you will, on the single family side in insulation, where we'll see weakness from a volumes perspective is going to be in the other products, until those later cycle installed products come in more towards the back half of the year. So the year from the single family perspective is starting to play out exactly as we would have expected it to, in terms of the improvement that we're seeing with the big national builder sales relative to the regional and local guys. And then the insulation revenue is starting to improve at a better rate relative to what we're seeing in the other products. As we do our planning for 24, you know, we always start sort of with a macro forecast for single family and multifamily. And, you know, our expectation is that single-family starts are going to be in that one to 1.1 million, one to 1.1 million range.

Exactly as we would've expected it to in terms of the improvement that we're seeing with the big national builder sales relative to the regional and local guys.

And then the installation revenue is starting to improve at a better rate relative to what we're seeing in the other products as we do our planning for 'twenty four.

Always start sort of with the macro forecast for single family and multifamily.

And our expectation is that single family starts are going to be in that one to $1 1 million, a one to $1 $1 million range.

And which would represent.

Zen sort of mid single digit growth in single family. We do believe that that growth is going to be weighted more heavily.

Michael T. Miller: And, you know, which would represent sort of mid-single-digit growth in single-family homes. But we do believe that that growth is going to be weighted more heavily, much more heavily, towards the big production builders, which is why we made the comment about the impact on gross margin in the answer to the previous questions. And then on the multifamily side, we think that, you know, starts are going to probably be down, you know. 12, maybe 15%, you know; it's roughly 400,000 or so.

Much more heavily towards the big production builders, which is why we made the comment about the impact on gross margin and the answer to the previous questions and then on the multifamily side. We think that starts are going to probably be down you know 12.

12, maybe 15%.

You know, it's a roughly 400000 or so.

But again as we said we feel very good about our backlog what the team is doing there.

Michael T. Miller: But again, as we said, we feel very good about our backlog, and what the team is doing there. And, you know, one of the things that our multifamily team is doing is really expanding the cross-sell of other products, not just insulation. And that's really helping support our confidence around their ability to grow above market in that end market for us. Yeah, a lot of good detail in there, and a good call out for the CQ guys down in Florida.

And you know one of the things that our multifamily team is doing is really expanding the cross sell of the other products not just installation and that's really helping support our confidence around their ability to grow above market.

In that end market for us.

Yeah, a lot of good detail on there and a good callout for the guys down in Florida.

Maybe if we could pivot to price in the early part of the year here do we do we think that maybe the exit rate for <unk> is reaching that full realization of the price increase and are you seeing.

Michael T. Miller: Maybe if we could pivot to price in the early part of the year here, do we think that maybe the exit rate for 1Q is reaching that full realization of the price increase? And are you seeing better support for pricing from the labor tightness or from the material conditions tightness? Well, definitely, it's false, um, as is always the case.

Better support for pricing from the labor tightness or from the material conditions tightened as conditions.

Oh, yes definitely it's both.

Michael T. Miller: It's always been, I mean, when it's material, when it's announced material price increases, as everyone on this call can appreciate, there has been, and the market has taken a price increase. www.globalonenessproject.org. Generally speaking, people are stronger around that because labor inflation and labor tightness are a constant, always there, but clearly, our ability to show up on time and perform is a function of our ability to I would say that all just to add to it. I mean, it takes a very, uh... long, static market for there not always to be some degree of some kind of price taking going on. It just does, based on the length of the contract, based on the number of customers, based on the type of product we're doing, and everything else.

As is always the case, it's always been I mean.

When it's material when it's announced material price increases as everyone. On this call can appreciate there has been in the market has taken a price increase.

You know generally speaking people are stronger around that because the labor inflation and labor tightness as a constant are always there.

But clearly our ability to show up on time and perform is a function of our ability to attract retain and train labor.

Yes.

I appreciate it thanks, guys I would say that all just to add to it I mean it takes a.

A very.

Long static market for they're not always to be so.

Some degree of kind of.

Pricing, taking going on it just does based on length of contract based on number of customers based on type of product, we're doing and everything else that at.

Michael T. Miller: The further we get away from an increase in a healthy environment like this, the better conditions are for it to be kind of really normalized for us. Makes sense. Thanks a lot.

The further we get away from net increase and in a healthy environment like this.

Tell me that the better the better conditions are for it to be kind of a real normalized for us.

Kenneth Zener: Sure. Thank you. Our next question comes from the line of Ken Zener with Seaport Research Partners. Please proceed with your question. Good morning, everybody. Good morning.

Makes sense, thanks, a lot.

Sure.

Thank you. Our next question comes from the line of Ken Zenner with Seaport Research Partners. Please proceed with your question.

Good morning, everybody.

Good morning, good morning, Ken.

Michael T. Miller: So, Michael, you said if a single family starts out mid-single, you know, probably positive after QQ, I believe you said you have confidence that when you look back on this year, operating leverage is going to be above the high end of your long-term range. Did I hear you correctly? I didn't say above that it was going to be closer to $25,000 than $25,000. Okay, thanks for the clarification. So what gives you that confidence that you're not going to be going to Home Depot, is it really just, you know, what you're seeing from the public builders or the fact that we're just going through this base? And, you know, or is it the fact that this commercial isn't this?

So Michael you said starts single family starts are up mid single.

Probably positive after QQ I believe you said you have confidence that when you look back on this year.

Operating leverage is going to be above the high end of your long term range is.

Is that did I hear you correctly.

I didn't say above I, just said that it was going to be closer to 25 and 20.

Okay.

Thank you for the clarification.

Why.

Gives you that confidence that you're not going to be go into home depot that is it primarily just what youre seeing from the public builders or the fact that we're just going through the space.

And the.

Or is it the fact that commercial is it this.

Michael T. Miller: risk factor that it was in the past. That's a fairly bold statement for you guys, I would say. It's really all of the above.

Risk factor that it was in the past.

That's a fairly bold statement for you guys I would say.

But it's really all of the book, we feel good about what we're starting to see in it and it's just starting.

Michael T. Miller: We feel good about what we're starting to see, and it's just starting. So we think that we'll feel the full benefit of the single family recovery in the back half of the year. But we were very pleased to see the strength in the national builder business at the start of this year, right? So we feel good about that.

We think that we would feel the full benefit of the single family recovery in the back half of the year, but we were very pleased to see the strength in the Nash.

National builder business.

The start of this year right. So we feel good about that we feel good about the backlogs in the multifamily business. We feel good about the progress we're making on the other product margins because as you know we've talked on several calls before they can weigh on margins.

Michael T. Miller: We feel good about the backlogs and the multifamily. We feel good about the progress we're making on the other product margins, because, as we've talked about on several calls before, they can weigh on margins, and they impact price mix, disclosures, all that kind of stuff. So those are all... What are you feeling bad about?

The impact price mix disclosures, all that kind of stuff. So that's those are what are you feeling bad about.

Michael T. Miller: To be honest with you, make no mistake, we do go to Home Depot occasionally, but it's already built in the numbers from last year, right? So it won't be worse, it'll be better, right? And it's not, you know, it could be a trucking issue, right? So you just never know, right? Things like that, but I'll let you answer what we do have. I brought a car.

To be honest with you when maintenance is no mistake.

Depot occasionally I mean, it's already built in the numbers last year right. So it won't be worse there'll be better right and it's nice to be a trucking issue right. So you just never know right yet things like that but.

Yes.

Hi, Brian.

Michael T. Miller: Yeah. Yeah. No, it's honestly, Ken, I mean, when we look at the backdrop right now, and we're good, it's good. It is good.

Okay.

[laughter].

No honestly, Ken I mean, when we look at the backdrop right now.

Good. It's good is good I mean, Jeff.

Michael T. Miller: I mean, I think... I, looking back on when you started the business, I believe in 1977, Edwards Installation, I'm starting to think that the parallels are very similar in the sense that, as Michael is saying, and you guys agree, things are good; they're not bad. The idea of disinflation from the current levels, we're not seeing it in your material inputs, we're not seeing it in your labor. What can you share some of your broad thoughts about, you know, when the economy is this strong and you know you're running so many different operations? Just give us some of that perspective that you might have, you recall it from, you know, what was an inflationary period when you started the business and how that Okay, so, um, let's be clear. I was 14.

Hi.

Looking back when you started the business I believe in 1977 Edwards installation.

I'm starting to think that the parallels are very similar in the sense that as Michael was saying and you guys agree with things are good they're not that the idea of just inflation from the current levels, we're not seeing it in your material inputs, we're not seeing it in your labor.

What can you share some of your broad thoughts about when the economy is.

Drawing and you are running so many different operations just give us some of that perspective that you might have.

If you recall it from what were they.

Inflationary period, when he started the business.

And how that might impact.

Concerns you have separate from what Michael has addressed.

Okay. So.

Let's be clear I was 14.

Jeffrey W. Edwards: Okay. It was actually my cousin, so I don't want anybody listening to the call to get scared because they'd be wondering how old I was at this point, you know, when retirement day was coming up. I'm 61.

Hi.

Hey, Mike.

Anybody who listen to the call to get scared because they'd be wondering how old I was.

Well in retirement.

61, but.

Jeffrey W. Edwards: But, uh, I can remember some of those times, but I would say that, you know, having grown up around a father that was in the real estate business and myself that has been in real estate and this business for the last, you know, almost 40 years, I think all of us would look at this environment and say it's pretty healthy. In fact, I was on a call for a different matter this morning, and you know, this is like the first year in three or four where we weren't really worried about something at this point in the year. Yeah, Whether it was a doubling of interest rates, whether it was a pandemic, whether it was material supply issues, you name it.

Remember some of those times, but I would say that having grown up around her father that was in the real estate business and myself that was in the real estate business and this business for the last.

Almost 40 years.

I think all of US would look at this environment.

Hey, it's pretty healthy in fact, I was on a call for different manner. This morning.

Like the first year in three or four where we werent really worried about something at this point in time in the year, where there was a doubling of interest rates, whether it was a pandemic whether it was an impending recession.

It was material supply issues.

Jeffrey W. Edwards: Yeah. So. Does that run counter-intuitive though?

Yeah.

So.

Does that run counter though I mean, you guys are operating your business well and Michael if you could quantify what the kind of drag.

Jeffrey W. Edwards: I mean, you guys are operating your business well. And Michael, if you could quantify the kind of drag we've seen from commercial, you talked about 100 basis points lift this year. It'd be nice to have some kind of context if you could provide that.

Over the last couple of years, we've seen from commercial you talked about 100 basis points lift.

This year it would be nice to have some kind of context, if you could provide that but it is interesting I think you guys are in a very unique position capturing price and labor right. We can see a forward curve of demand. So that you guys are special but it does raise questions I think for.

Michael T. Miller: But it is interesting, I think you guys are in a very unique position, capturing price and labor, right? We can see your forward curve of demand, so that's, you guys are special, but it does raise questions, I think, for people's expectations around... Yeah, monetary policy. Because things are so good.

People's expectations around.

Yes.

Monetary policy.

Michael T. Miller: That's it. Yeah, I think that's true. I mean, clearly, you know, none of us know what the Fed's going to do.

Thank you Michelle good that's it.

Yeah.

I think that's true I mean clearly.

None of US know what the fed is going to do I think the market has been extremely resilient as it relates to rates and the builders ability to buy down rates and I think they've been particularly the national builders that you know obviously have a capital advantage over the regional and local guys.

Michael T. Miller: I think the market has been extremely resilient, as it relates to rates and the builder's ability to buy down rates. I think it's particularly the national builders that, you know, obviously have a capital advantage over the regional and local guys. You know, we've been very surprised. I mean, I think Jeff said it.

It's been very surprising I mean, I think Jeff said it perfectly.

Michael T. Miller: Perfectly, if we look back on the past three or four years at this time of the year, we've always had something we were facing that felt like a wall. And we don't have a wall right now in business and elsewhere. Yeah, so that's not to discount some of the geopolitical things that are going on now. We're in two wars, and we've got a messy political situation and an election coming up Right? Thank you. Thank you. Our next question comes from the line of Mike Dahl with RBC Capital Markets. Please proceed with your question. All right, thanks for taking my questions. If I listen to the comments they just made, the comments about the incrementals, comments about improvement and margins, in particular on the heavy side, which should persist. I appreciate the gesture. Public Builder Mix, or I think I do.

Perfectly is that if we look back for the past three or four years at this time of the year. We've always it's something we were facing that was.

Felt like a wall and we don't have a wall right now in the business and elsewhere. So that's not to discount some of the geopolitical things that are going on now we're in two wars and we've got a massive political situation and intellectual coming up right but.

But business wise things Phil.

As good as they have and what we feel really good about the things we can control.

Right.

Thank you.

Thank you. Our next question comes from the line of Mike Dahl with RBC capital markets. Please proceed with your question.

Okay.

Alright, Thanks for taking my questions I guess just.

But if I listen to the comments that you do.

<unk> made the comments about the incrementals.

Comments about improvement in margins in particular and in the heavy side, which should persist.

I appreciate the.

Public builder mix or I think I do maybe maybe it comes down to you.

Michael Wood: Maybe it comes down to you explaining the order of magnitude to us, but I guess it's still not entirely clear why your gross margins would come down as meaningfully in this environment as to get back to the 30 to 32. So maybe you can elaborate on how big of a mix impact that is. The public-builder dynamic will be, I mean, if it shifts a little bit in terms of the public mix, it doesn't seem like that's really going to drive enough or, I don't know, it seems like the margins are going to stay above what you're articulating. Well, keep in mind that, you know, we are over-indexed in the single family business to production builders, as you would expect, right, just given our scale, size, and ability to service customers of that size. And the pricing to those builders tends to be much tighter, given the efficiency and cost to service those builders.

Explain order of magnitude tough but.

I guess, it's still not entirely clear why your margins your gross margins would come down as meaningfully in this environment.

As to get back to that 30 to 32 so.

Maybe maybe you can elaborate on how big of a mix impact.

Public.

Builder dynamic will be I mean, if it shifts a little bit in terms of public mix it doesn't seem like that.

That's really going to drive enough or.

I don't know just tell but it seems like the margins are going to stay above above what you're articulating.

Well.

Keep in mind that you know.

We are over indexed in the single family business to production builders as you would expect right just given our scale size and ability to service customers of those size of that size and the pricing to.

To those builders tends to be much tighter given the efficiency.

Cost to service those builders, it's great work, but it definitely impacts gross margins and our belief is that you're going to see.

Michael T. Miller: It's great work, but it definitely impacts gross margins. And our belief is that you're going to see, You know, if let's just say there is a mid single-digit growth in single family. We wouldn't be surprised if, you know, 80, 90% of that comes from the National Building, so our over-weighting on that then just continues to over-weight those builders. And again, the gross margin on that work is much tighter, so You know, we definitely think it's going to have an impact there, but that's from our perspective. It's expected, it's great work, and you know, I'd say bring it on. Okay. Yeah, I mean, look, no doubt the public is outgrowing it.

If let's just say there is a mid single digit growth in single family.

We wouldn't be surprised if you know 80% 90% of that comes from the national builders. So our over weighting on that that just continues to overweight to to those to those builders and again the gross margin on that work is a much tighter so.

We definitely think it's going to have an impact there, but that's from our perspective, it's expected. It's great work and you know I'd say bring it on.

Okay.

Yeah, I mean look no doubt the publics are outgrowing, but I think if you look at the public builder commentary, you're only guiding to deliveries kind of mid single digits to high single digits.

Michael T. Miller: But I think if you look at the public builder commentary, they're only guiding to deliveries kind of mid single digits to high single digits. So if the market's up mid single, it doesn't necessarily seem like it's going to be that, That big of a shift, but I hear you. In terms of the Multifamily Dynamic.

If the market's up mid single.

It doesn't necessarily seem like it's going to be that.

That big of a shift, but I hear you.

In terms of the.

Multifamily dynamics.

Michael T. Miller: Um, if we look at permits, multifamily permits are down north of 20% on a rolling 12-month basis, and you're certainly starting to see that come through in the early stages. So, when you talk about the down 12 to 15, I guess just to clarify, is that your opportunity, given you think you can take share against that, is that your specific market exposures may be down less than that, or is that truly a market view? Yeah, that's an outlook for, that's a macro outlook for the entire market, not certainly specific to us, but we do believe that you're seeing, and you know, there's a lot of assumptions in there, particularly that you're going to see the Fed at some point during the year reduce rates, but some of the dynamics for, like if we think about our perspective when we were in the third quarter going into the fourth quarter, the She used a very technical language... And, you know, when we're sitting here now, some of those headwinds have definitely subsided relative to multifamily.

If we look at permits multifamily permits are down north of 20% on a rolling 12 month basis, and you are certainly starting to see that come through in the start so when you talk about that.

Down 12% to 15, I guess just to clarify is that your opportunity. Given you think you can take share against that is that your specific market exposures may be down less than that or.

Truly a mark you and yes.

That's an outlook for that as a macro outlook for the entire market not certainly specific to us.

But we do believe that Youre seeing and you know assuming there's a lot of assumptions in there, particularly that youre going to see the fed at some point during the year reduce rates with some of the dynamics for like if we think about our perspective, when we were in the third quarter going into the fourth quarter, the headwinds and <unk>.

<unk> family were fears.

To use a very technical term and when we're sitting here now some of those headwinds have definitely subsided relative to multifamily and we think theres going to continue to be there's going to be.

Michael T. Miller: And we think there's going to continue to be, a more constructive environment for multifamily in 24 than we would have expected three to six months ago, given the headwinds that multifamily was experiencing. So we're just, I guess, we're not negative on multifamily if everybody else is. Well, in part, you mentioned it earlier, it's partly, you know, we say take, share, which is accurate in some ways. It's almost like if you refine the way we're saying that to say, what we're really doing is we're entering either product lines or entering markets that we're not in. I mean, this isn't us necessarily taking share in a market that we're in.

More constructive environment for multifamily in 'twenty four than we would've expected three to six months ago, given the headwinds that multifamily was experiencing so we're just I guess, we're not negative on multifamily as everybody else's.

Well in part you mentioned it earlier, it's partly we say take share.

Which is accurate in some ways, it's almost like if you refine the way we are saying that to say what we're really doing is we're entering either product lines are entering markets that were not in I mean.

This is in us taking share necessarily in a market that we're in exactly just us beginning to offer the kind of the CQ services and a lot of the other things, we install and markets.

Michael T. Miller: This is just us beginning to offer the kind of CQ services and a lot of the other things we install in markets, you know, in our jobs that we didn't previously do so. Right, right. Exactly. Okay. It's not that we're in there and we're with sharp elbows all the time; it's us kind of coming to them with what we believe.

Jobs, we previously didn't do so right exactly.

Okay.

I appreciate it.

It's not we're in there and work with sharp elbows all the time.

What's kind of coming to them with what we believe is one of our original premises and that is that we think that general contractors and builders would rather deal with fewer subs to get these greater number of nuisance products done and that's true for multifamily.

Michael T. Miller: It's one of our original premises, and that is that we think that general contractors and builders would rather deal with fewer subs to get these greater number of nuisance products done. And that's true for multifamily general contractors slash developers, just like it has been, we believe, rings true with all of our builders over the years. Okay, great. Thank you. Thank you. Our next question comes from the line of Mike Rehaut with J.P. Morgan. Please proceed with your question. Hi guys, Doug Wardlaw on for Mike.

Contractors slashed developer just like it has been we.

We believe rang true with all of our builders over the years.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Mike Rehaut with Jpmorgan. Please proceed with your question.

Hi, guys, Doug Wardlaw on for Mike.

Michael T. Miller: Obviously, you guys are very constructive about single-family, as are your suppliers, and, you know, very positive about it for the upcoming year. I'm just curious, in terms of your acquisition strategy, has the kind of positivity and optimism in the market changed how you're looking at your criteria for acquisitions? And has it changed kind of what the pipeline has looked like thus far? This is Jeff.

Obviously, you guys are very constructive about single family suppliers.

Positive for it.

For the upcoming year I'm, just curious in terms of your acquisition strategy.

Kind of positivity and optimism in the market changed how youre looking at kind of your criteria for acquisitions.

And how does it change kind of what the pipeline how does it look like thus far.

This is Jeff So I will say is always that the pipeline is robust.

Jeffrey W. Edwards: I will say, as always, that the pipeline is robust. I would say that whereas we would have had more or less an internal suspicion or prohibition on commercial acquisition, I think our attitude, as we have fixed kind of what we've fixed over the last couple of years, I think we would alter our stance at this point and say that the market for commercial acquisition, to us, has now, at this point, kind of opened up. So I would say that that's really an additive component. We'll continue, for the most part, let's say, to play within the spaces that we have historically. You know, as you know, we made a distribution acquisition a number of years ago that's performed very well.

I would say that whereas we would have had more or less a day.

Internal at least likely either suspicion of prohibition on commercial acquisition I think our attitude USB fixed kind of what we fixed over the last.

A couple of years I think we would alter our stance at this point and say that.

The market for commercial acquisition to US is now at this point kind of opened up.

So I would say that that's really an additive component will.

We will continue for the most part let's say to play within the spaces that we have historically.

As you know we made a distribution acquisition number of years ago.

That's performed very well so that's not the space again that we're a buy.

Jeffrey W. Edwards: So that's not a space, again, that we're not, by any means, on the industrial side of kind of the insulation install side of things. As long as it, you know, kind of involves material purchase and a labor component that typically, and it's a product that we could install, typically buy direct that continues to be on kind of the watch list. This is Michael.

By any means.

And could continue to potentially look in that direction.

Not long ago, two we acquired a business that as at least a component of their business was more.

On the industrial side of kind of the insulation install side of things so.

As long as it kind of involves.

<unk>.

Material purchase and a labor component that typically and it's a product that we can install.

Typically by direct that continues to be on kind of.

The watch list.

Michael T. Miller: I just wanted to clarify a couple of other questions, just to be clear. When we're thinking of, you know, incremental margins on Spain Branch, incremental margins on a full year basis for 24, we do not, we still believe that incrementals are going to be in that 20 to 25 range. But just given the confidence that we have in all the things that we've talked about on the call so far, it's reasonable to assume that we're going to come in a little bit closer to 25 than we would closer to 20. Thank you. Our next question comes from the line of Adam Baumgartner with Zellman & Associates. Please proceed with your question.

This is Michael I, just wanted to clarify a couple of other questions just to be clear.

When we're thinking of you.

Incremental margins on the same branch incremental margins on a full year basis for 'twenty. Four we do not we are still believe that incrementals are going to be in that 20 to 25 range, but just given the confidence that we have and all the things that we've talked about on the call. So far you know it.

It's reasonable to assume that we're going to come in at a little little bit closer to 25, then we would closer to 20.

Thank you. Our next question comes from the line of Adam Baumgarten with Zelman and Associates. Please proceed with your question.

Adam Michael Baumgarten: Hey, guys, thanks for taking my question. Just maybe think about weather impact, potentially in January, just as we think about the first quarter. I know you guys don't guide explicitly, but sort of what you're seeing there and if that's going to have any material impact. Yeah, that's a great question. I really appreciate you asking it. Because January was, you know, we did lose days in January, for sure, to the weather, really, across the country.

Hey, guys. Thanks for taking my question, just maybe thinking about weather impact.

Initially in January just as we think about the first quarter I know you guys don't guide explicitly but.

Sort of what Youre seeing there and if thats going to have any material impact.

Yeah, that's a great question and I really appreciate you asking it because January was we did lose days in January for sure to the weather really across the country.

Michael T. Miller: You know, California has obviously had an unprecedented amount of rain, which is, you know, a big operation for us here in February. But, you know, we still feel good about the first quarter and, you know, our performance there. But we would expect to see the typical seasonal decline from fourth quarter to first quarter. In the first quarter, you know, and that's typically sort of a mid single-digit sort of decline from fourth quarter to first quarter. So, and that definitely has been impacted by January, which was definitely weather-impacted. And all of the things that we're talking about in terms of the strength of single-family housing, you know, the continued performance of multifamily in the commercial business. You know, those all weaken in the first quarter.

California's obviously had an unprecedented amount of rain, which is no big operations for us here in February.

We still feel good about the first quarter and our performance there.

But we would expect to see the typical seasonal decline from fourth quarter to first quarter.

In the first quarter and that's been typically sort of a mid single digit sort of decline from fourth quarter to first quarter. So and that is definitely has been impacted by January which was definitely weather impacted and all of the things that we're talking about in terms of the strength of single family. The continued performance of multi.

Our family in the commercial business.

Those all weakened in the first quarter and as you all know that's typically our weakest quarter, both from a sales and a profitability perspective, and we would continue to expect that and the real benefit from this shift in single family just giving the timing between you know start to when we do our install work is real.

Michael T. Miller: And as you all know, that's typically our weakest quarter, both from a sales and a profitability perspective. And we would continue to expect that. And the real benefit from this shift in single-family homes, just giving the timing between, you know, start to when we do our installation work is really gonna be, you know, second quarter, back half of the year opportunity for us. But, that being said, we were very encouraged to see what was going on with the National Builders in January. Despite the weather,

Are you going to be a second quarter back half of the year opportunity for us, but that being said, we're very encouraged to see them what was going on with the national builders in January.

Michael T. Miller: Okay, got it. Thanks. And then just some heavy commercials.

Despite the weather.

Okay got it thanks, and then just on heavy commercial I think you talked about growth moderating in that in that business do you still expect growth in 24 on an absolute basis.

Michael T. Miller: I think you talked about growth moderating in that business. Do you still expect growth in 24 on an absolute basis? Yes.

Yes.

Michael T. Miller: Okay, thank you. Thank you. Our next question comes from the line of Keith Hughes with Truist Securities. Please proceed with your question. Oh, thank you. Questions really about product availability. And you just talk about the near term as you've been saying, and do you anticipate any potential shortages, particularly as a single family kicks into gear later this year? It's tight. It's not the way it was the last time.

Okay. Thank you.

Thank you. Our next question comes from the line of Keith Hughes with Truth Securities. Please proceed with your question.

Oh, Thank you questions.

Really about product availability and could you just talk near term what you been saying do you anticipate any potential shortly particularly a single family kicks into gear later this year.

Scott This is Jeff.

Keith Hughes: You know, and then it got a little better last year even, too, but... You know, I think we'll get through this, let's just put it that way, right? And we're not, as you know, Keith, we're only maybe four months away or so from a little bit of supply getting added. You know, there's always stuff that can't happen.

It.

It's tight it's not the way it was the last.

And then there was there was it got a little better last year, even two but.

You know I think as we'll get through it let's just put it that way right and we're not as you know Keith we're only maybe four months away or so from a little bit of supply getting added.

There's always stuff that can happen.

Jeffrey W. Edwards: I mean, there was a brief issue with the plant here recently, but I think they're backed up and running. And So, it's tight. I mean, it's kind of, in some ways, healthy tight, but, really, a lot of times, it's a skew that's not available that throws off, like, that would cause us to buy out of, you know, out of distribution, let's say, or be below it. A lot of times, it might be the way in which an order got composed, and we're missing one skew, and And I think, both in industry and by ourselves. Yeah, and Jeff makes a very important point here, relative to the skews or the type of insulation that's being required. This shift to more of a production builder business is very good for material availability because they are very standard in terms of what gets installed, so it's a very regular white product.

Brief issue with that play up here recently, I think they're back up and running and.

So it's tight.

In some ways healthy type but.

And really a lot of times, it's it's a SKU that is not available that throws off the hook.

It would cause us to buy out a lot of distribution lets say I hope you below a lot of times it might be the way in which an order got compose and we mentioned one SKU.

We were that tie in or.

We got a freight issue or something else, but I think that we should be pretty good.

And a pretty good shape and I think both in industry and ourselves yeah, Jeff makes a very important point.

Point here relative to the to the Skus or the type of installation that's being required this shift to more of a production builder business is very good for material availability because they are very standard in terms of what gets installed. So it's very regular way product when we're doing a lot of <unk>.

Michael T. Miller: When we're doing a lot of custom work and multifamily work, and some of the light commercial work that we do, those tend to be less standardized products, and they need to be more customized made, and their availability is less. So, the fact that we're going to have the highest efficiency products for the manufacturers as this happens, we believe is good for material availability. You know, mineral, as an example, it's six months out, but you've got to plan that way.

Custom work in multifamily work and some of the light commercial work that we're doing those tend to be less standardized products and they need to be more customized made and their availability is less so the fact that we're going to have the highest efficiency products for the manufacturers as this happens we believe is good for.

Real availability.

You know mineral as an example, it's six months out.

But you've got to plan that way.

Keith Hughes: Yeah, right, right. And Okay, that's all I have. Thank you very much.

Right right.

And.

Okay. That's all thank you very much okay. Thanks.

Reuben Garner: Okay, thanks. Thank you. Our next question comes from the line of Reuben Garner with The Benchmark Company. Please proceed with your question. Thanks. Good morning, everybody.

Thank you. Our next question comes from the line everyone Garner with the benchmark company. Please proceed with your question.

Thanks, Good morning, everybody.

Michael T. Miller: I hate to beat a dead horse, but kind of a follow-up on the gross margin outlook for this year. I guess that would imply some pretty material leverage on the SG&A front. Can you just kind of talk about the mechanics there?

I hate to beat a dead horse, but a kind of a follow up on the gross margin outlook for this year.

I guess that would imply.

Some pretty material leverage on the SG&A front can you just kind of talk about the.

The mechanics, there where do we see that on the selling expenses line will you get more leverage just on admin expenses in general.

Michael T. Miller: Where do we see that on the selling expenses line? And will you get more leverage just on admin expenses in general? And that'd be a couple of hundred basis points to kind of offset the gross margin headwind. Am I thinking about that the right way?

And that'd be a couple of few hundred basis points to kind of offset the gross margin headwind or am I thinking about that the right way.

Michael T. Miller: Yeah, it's a combination of selling expenses, primarily commissions. And I assume what you're asking about is the shift to production builders away from, you know, that they're at a higher growth rate than the others, correct? Correct. Yep. So it's a combination of branch administrative costs that we leverage and, primarily, selling commissions that we leverage. So, SG&A. Okay. And then, you know, last year, the Inflation Reduction Act, there was some talk about it, but it didn't seem to really have a material impact.

Yeah, it's a combination of the selling expense, primarily commissions and I assume what you're asking about is the shift to the production builders away from there.

They are at a higher growth rate than the others correct correct Yep Yep.

It's a combination.

Branch administrative costs that we leverage and primarily selling connections that we leverage.

So SG&A.

Okay.

And then you know last year in place and reduction Act.

There was some talk about it but it didn't seem to really have a material impact we've kind of heard recently that maybe that's starting to get some traction at the state and local level any updated thoughts. There are you hearing builders looking to take advantage of that in a bigger way or or maybe is that still kind of far out and having a major impact.

Michael T. Miller: We've kind of heard recently that maybe that's starting to get some traction at the state and local level. Any updated thoughts there? Are you hearing builders looking to take advantage of that in a bigger way? Or maybe it's still kind of far out from having a major impact? I mean, it's having an impact, but I would say not a major impact. It's still slow.

I mean is having an impact, but I would say not a major impact it's still slow I mean, getting the construction industry to change practices.

Michael T. Miller: I mean, getting the construction industry to change practices is not a quick thing. It takes a lot of time and a lot of effort, but we believe, ultimately, particularly as we look at the opportunity for insulation and the energy efficiency benefits associated with it, that, long-term, the trend there is extremely constructive for us and the industry. Fair enough. Thanks, guys. Congratulations on the strong close of the year. Good luck in 24 and see you next week.

Is not a quick thing.

It takes a lot of time and a lot of effort, but we believe ultimately, particularly as we look at the opportunity for insulation and energy efficiency benefits associated with installation that that long term. The trend there is extremely constructive and four for us.

You know our the industry.

Fair enough. Thanks, guys. Congrats on a strong close to the year. Good luck in 'twenty four.

Reuben Garner: Great. Thank you. Our next question comes from the line of Philip Ng with Jeffreys. Please proceed with your question. Hey guys.

See you next week.

Sounds great.

Yeah.

Thank you. Our next question comes from the line of Philippines with Jefferies. Please proceed with your question.

Hey, guys.

Philip Ng: You know, ConsenSys is calling for housing starts to be kind of flattish for the full year because they're calling for multi-family to be down, single-family to be up, call it mid-single digits. Michael, if I heard you correctly, you're expecting multi-family to be up because of share gains in your over-indexed public builders. You referenced mid-single digit volumes a few times. Is that a good number in terms of thinking about your growth profile? And maybe, and perhaps it comes in stronger, given your exposure?

Consensus is calling for housing starts to be kind of flattish for the full year, because youre, calling for multifamily would be down single family to be up call. It mid single digit Michael If I heard you correctly, you are expecting in multifamily be up because of share gains and you're over indexed to the public builders.

You reference mid single digit volumes, a few times is that a good bogey in terms of thinking about your growth profile and maybe perhaps it comes in stronger.

Given your exposure.

Michael T. Miller: Yeah, just to clarify on that, we definitely expect that multifamily starts are going to be down. And so, if you think of, say, single-family homes in the million to million-one range and multifamily around 400, right, I mean, that basically is flat to what happened last year for starts at a million four, 20 or so. So, we are aligned with that flatness, if you will, in total starts because single family will be better. We think that single digits and multifamily will be down, you know, double digits, basically. Now, that's the macro environment.

Yeah, just just to clarify on that we definitely expect that multifamily starts are going to be down and so if you think of let's say single family in the millions of millions one range and multifamily around 400, right I mean that basically is flat to what happened.

Last year for starts at a million for 20 years or so so.

We are aligned with that flatness, if you will and in total starts because single family will be better yeah. We think mid single digits and multifamily will be down double digits basically now that's the macro environment. We believe based on our backlogs and what we see that.

Michael T. Miller: We believe, based on our backlogs and what we see, that we will not be down in multifamily. We will continue to see, you know, solid growth there, maybe not as good as we've experienced over the past several years and several quarters. But we believe we will continue to experience growth in 24 in the multifamily business. So unbalanced is mid-single digit volume growth for you guys, a good way to think about your profile and, as I heard you correctly, might still be down in one key, maybe it affects positively. That's kind of a build out of the shape of the year. Yeah, that's right.

We will not be down in multifamily will continue to see solid growth there maybe not as good as what we've experienced over the past several years and several quarters, but we believe we will continue to experience growth in 24 in.

In the multifamily business.

So on balance is mid single digit volume growth for you guys.

A good way to think about your profiling and I heard you correctly might still be down in <unk> maybe.

Obviously, that's kind of the build out the shape of the year.

Michael T. Miller: I mean, obviously, there are a lot of things that depend on that. But, you know, and we think that volume growth comes primarily from the national building. Okay, that's helpful. And I think thinking bigger picture, and I couldn't help Jeff, Michael, how constructive you guys are on single family, longer term, and certainly this year as well. You know, certainly, we saw some bottlenecks during the pandemic when we had explosive starts, and there were certain bottlenecks. Those have been alleviated quite a bit, but installation supply is still fairly tight. When we look at 2025 and beyond, you know, how challenging will that be?

Yeah, that's right.

Obviously, there are a lot of things that depend on that but you.

And we think that volume growth comes primarily from the national builders.

Okay. That's helpful and then.

And then thinking bigger picture and I couldn't help Jeff Michael how constructive you guys are on single family longer term and certainly this year as well.

You know certainly we saw some bottlenecks during the pandemic, we had explosive start and there are certain bottlenecks.

Those have alleviated quite a bit but inflation.

<unk> fairly tight when we look at the 2025 and beyond.

You know how how challenging would that be do you think you're going to still pretty see pretty steady growth and not to say that's a bad thing for you guys. It's been actually pretty good overall from a cash flow earnings, but just kind of help us think through now.

Michael T. Miller: And do you think you're going to still see pretty steady growth? And not to say that's a bad thing for you guys, it's actually pretty good overall from cash flow earnings, but just kind of help us think through, you know, when we look at 2025 and beyond, your ability as an industry to service some of that demand. Well, obviously, it's going to, I appreciate the question. It's obviously going to depend upon where the demand is coming from. But based on our current expectations that the national builders, production builders are going to continue to take share. You know, I think that material will continue to be tight.

Now when we look at 2025 and beyond.

Your ability in any industry.

The service some of that demand.

Well, obviously, it's got it I appreciate the question its obviously going to depend upon where the demand is coming from but based on our current expectations that the national builders production builders are going to continue to take share.

You know I think that material will continue to be tight and you know some of them as we answered to the previous question the mix of what's being installed for that shift towards the production builders doesn't benefit availability if you will.

Michael T. Miller: And, you know, some of what we answered to the previous question, the mix of what's being installed for that shift towards production builders doesn't benefit availability, if you will. We do believe that there, as I think everybody on this call appreciates, Knopf is adding some additional capacity this year. We believe as we progress out to twenty five and twenty six, that some of the other manufacturers will probably add additional capacity as well that will be productive for the industry. So, you know, that continued, you know, mid single-digit growth. One is necessary from a housing perspective, just in terms of the availability of housing.

We do believe that there.

You know as I think everybody on this call appreciates cough is adding some additional capacity. This year, we believe as we progress out to 25 and 26 that some of the other manufacturers will probably add additional capacity as well.

That will be productive for the industry. So you know that continued mid single digit growth.

One is necessary from a housing perspective I'm just in terms of the availability of housing, but we absolutely believe the industry is going to be able to manage effectively and that kind of an environment.

Michael T. Miller: But we absolutely believe the industry is going to be able to manage effectively in that kind of environment. Oh, wow. Appreciate the call. Thank you. Thank you. Our final question comes from the line of Noah McCusco with Stephen Gink. Please proceed with your question. Good morning.

Okay. Appreciate the color. Thank you Sir.

Thank you. Our final question comes from the line of normal scope with Stephens Inc. Please proceed with your question.

Noah McCusco: Thanks for taking my questions and congrats on the strong results. So, first, you know, I think the big story of 23 was value over volume, and you clearly see that in the results.

Good morning, Thanks for taking my questions and congrats on the strong results.

So.

So first you know I think the big story of 23 was value over volume, we clearly see that in adults and as we look to 'twenty 'twenty four with the improving demand backdrop, especially on single family do you think that there's an opportunity to unlock volume.

Jeffrey W. Edwards: And as we look to 2024 with the improving demand backdrop, especially for single-family homes, do you think that there's an opportunity to unlock volume from potential customers that maybe didn't describe the value of your services in 23, but now, as things kind of ramp up, they'll, you know, you're able to sort of, again, unlock that kind of volume? Sure. Both make sense, yeah.

Some potential customers that maybe.

Didn't ascribe value to your services in 'twenty, three but now as things kind of ramp up though.

You're able to sort of again I'm, mark that kind of volume.

Sure.

Okay that makes sense yeah.

Jeffrey W. Edwards: But we see it more as growing with our existing customers, their volume, as opposed to chasing new customers that don't fully value our services. Okay. But don't you think that those customers that didn't buy your services might shift here as demand improves? Or do you think it'll just be the same story? Oh, it typically does.

But we see it more as to growing with our existing customers their volume as opposed to chasing new customers that don't fully value our services.

Okay got you.

You don't think that those customers that didnt buy your services is it that that might shift here is.

And improves.

I think it will just be the same story.

It typically does not know for sure.

Jeffrey W. Edwards: Yeah, for sure. For sure. Okay. And then, second question, just a more macro view, just wanted to get your view more on the macro and the consequences of, you know, if we do see the Fed begin to lower rates in the back half of the year, you know, clearly, I think that'd be a positive overall for single families. But to what extent do you think existing home sales sort of maybe coming off the bottom could compete with new demand? And then, a second point to that, you know, there's been a lot of talk on this call about, you know, you're seeing a lot more demand from the larger production builders. But if and when rates fall, does that allow smaller and more local players to participate more heavily in the market? Well, theoretically, yes.

For sure Okay, and then a second question just more macro just wanted to get your view more on the macro and the consequences. If we do see the fed begin to lower rates in the back half of the year.

Clearly I think that'd be a positive overall for single family, but to what extent do you think existing home sales.

Sort of maybe coming off the bottom could compete with new demand and then a second point to that you know you you theres been a lot of talk on this call about you know you're seeing a lot more demand from the larger production builders, but if and when rates fall does that.

Does that allow the smaller and more local players to participate more heavily in the market.

Well, it's theoretically yes, I think one of the advantages that the production.

Michael T. Miller: I think one of the advantages that the production builders, the big builders have a lot of advantages, but one of their, I think, key advantages going into 24 is their land position. I think you saw what happened in 23. A lot of the regional and local guys used up a lot of their land and are now in a spot where they maybe don't have, even though the demand might be there, they might not have the land to build on. Now I need to clarify something. I don't want to be super negative about the regional and local guys because they are the largest part of our business. They're still very constructive and positive, and we're very pleasantly surprised that they're as constructive and positive as they are, given the environment.

The production builders to big builders have a lot of advantages but.

One of their I think key advantages going into 'twenty or their land position I think you saw what happened in 2003 is.

A lot of the regional local guys used up a lot of their land position.

And now are in a spot where they maybe don't have the even though the demand might be there they might not have the land to build now I need to be to clarify something I don't want to be super negative on the regional and local guys because we know they.

They are the largest part of our business there is still very constructive and positive.

And we are.

Very pleasantly surprised that there is constructive and positive as they are.

Just given the environment, but if the fed is I think most people are expecting does decide to lower rates in the back half of the year I do think it continues to be good for housing.

Michael T. Miller: But if the Fed, as I think most people are expecting, does decide to lower rates in the back half of the year, I do think it will continue to be good for housing. I don't think they're going to lower rates enough that it really unlocks the 3% mortgages that so many people with existing homes have, that it's going to present a..., www.installedbuildingproductsinc.com. It's a healthier environment for housing affordability when you have a more historical mix of existing homes and new homes. Right now, as we mentioned in our prepared remarks, new home sales as a percentage of overall home sales are at a very high level because of the things that we all know about.

I don't think theyre going to have lower rates enough that it really unlocks the 3% mortgages that so many people with existing homes have that is going to present a.

Competitive alternatives, if you will to new home construction and quite frankly, even if it does the demand for housing is solid.

And I think there is plenty of room for both the existing home market and the new home market, given the availability or the demand for housing quite frankly.

You know, it's a healthier environment when for housing affordability when you have.

Operator: Yep, that all makes sense, and it's helpful. Appreciate the time, and good luck with the rest of the year. Thank you. Thank you. Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Edwards for final comments. Thank you for your questions, and I look forward to our next quarterly call. Thanks. Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

The more historical mix of.

Existing homes and new homes.

Right now as we mentioned in our prepared remarks, I mean, the new home sales as a percentage of overall home sales.

As you know at a very high level because of the things that we all know about on this call.

Yes that all makes sense.

Helpful. I appreciate the time and good luck with the rest of the year.

Okay. Thank you.

Thank you.

Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. Edwards for final comments.

Thank you for your questions and I look forward to our next quarterly call.

Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.