Q1 2024 Installed Building Products Inc Earnings Call
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Operator: Good day, everyone, and welcome to the Installed Building Products Fiscal 2024 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star and 2.
Good day, everyone and welcome to the installed building products fiscal 2024 first quarter financial results Conference call.
Operator: At this time all participants are in a listen only mode.
Operator: Later, you will have the opportunity to ask questions. During the question and answer session.
Operator: I'm a registered to ask a question at any time by pressing the star and one on your telephone keypad you may with.
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Operator: Please note, today's call is being recorded, and I'll be standing by if you need any assistance. It is now my pleasure to turn the conference over to Darren Hicks, Managing Director of Investor Relations. Please go ahead.
Operator: Please note today's call's being recorded and I'll be standing by if she Danny assistance is that my pleasure to turn the conference over to Darren Hicks mentioned director of Investor Relations. Please go ahead.
Darren Thomas Hicks: Good morning, and welcome to Installed Building Products' first quarter 2024 earnings conference call. Earlier today, we issued a press release on our financial results for the first quarter, which can be found in the investor relations section of our website.
Darren Thomas Hicks: Good morning, and welcome to installed building products first quarter 2024 earnings conference call earlier today, we issued a press release on our financial results for the first quarter, which can be found in the Investor Relations section of our website.
Darren Thomas Hicks: On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of the Federal Securities Laws. These forward-looking statements are based on management's current expectations and beliefs. These statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those described today. Please refer to the cautionary statements and risk factors in our SEC filings, including our 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.
Darren Thomas Hicks: On today's call management's prepared remarks and answers to your questions may contain forward looking statements within the meaning of the federal Securities laws. These forward looking statements are based on management's current expectations and beliefs. These statements are subject to risks uncertainties and other factors that could cause actual results to differ materially from those.
Darren Thomas Hicks: Scrap today.
Darren Thomas Hicks: Please refer to the cautionary statements and risk factors in our SEC filings, including our annual report on Form 10-K.
Darren Thomas Hicks: 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.
Darren Thomas Hicks: 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 for EBITDA and adjusted EBITDA for earlier fiscal years in our investor presentation, which is available on 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.
Darren Thomas Hicks: In the company's earnings release, and additional reconciliation for EBITDA and adjusted EBITDA for earlier fiscal years in our Investor presentation, which are available on our Investor Relations section of our website.
Darren Thomas Hicks: 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 Walker, 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. Our first quarter sales results reflected fundamental improvements in our single family end market relative to the last 12 months and the continuation of healthy sales growth in our model family end market.
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.
Michael: Our first quarter sales results reflected fundamental improvements in our single family end market relative to the last 12 months and the continuation of healthy sales growth in our multifamily and market.
Jeffrey W. Edwards: We believe our customers are committed to meeting new construction home ownership demand by continuing to build new single-family homes in the current macroeconomic backdrop. We expect our MOLDA family backlog to keep branches in core geographic markets busy despite ongoing headwinds as it relates to MOLDA family unit starts.
Jeffrey W. Edwards: We believe our customers are committed to meeting new construction home ownership demand by continuing to build new single family homes in the current macroeconomic backdrop.
Jeffrey W. Edwards: We expect our multifamily backlog to keep branches in core geographic markets busy despite ongoing headwinds as it relates to multifamily unit starts.
Jeffrey W. Edwards: Longer term, we believe opportunities in our multifamily and commercial end markets remain attractive. I am encouraged by the positive same-branch sales growth we achieved in our single-family end market. The 2% year-over-year increase during the quarter was the first same-branch increase since the 2022 fourth quarter.
Jeffrey W. Edwards: Longer term, we believe opportunities in our multifamily and commercial end markets remain attractive.
Jeffrey W. Edwards: I am encouraged by the positive same branch sales growth, we achieved in our single family end market.
Jeffrey W. Edwards: The 2% year over year increase during the quarter was the first same branch increase since the 2022 fourth quarter.
Jeffrey W. Edwards: Single-family sales growth was supported by a growing proportion of sales from national production builders in the corridor. Our deep customer relationships, local market knowledge, and an ability to align our pricing with the value we offer our customers were key to our first quarter single-family sales results. Our multifamily installation sales growth continued to be resilient with the apparent operational benefits of our centralized services-oriented model. On a same branch basis, mall-to-family sales in our installation segment increased 13%.
Jeffrey W. Edwards: Single family sales growth was supported by a growing proportion of sales from national production builders in the quarter.
Jeffrey W. Edwards: Our deep customer relationships local market knowledge, and an ability to align our pricing with the value. We offer our customers were key to our first quarter single family sales results.
Jeffrey W. Edwards: Our multiple family installation sales growth continued to be resilient with the apparent operational benefits of our centralized services oriented model.
Jeffrey W. Edwards: On a same branch basis multifamily sales in our installation segment increased 13%.
Jeffrey W. Edwards: In addition, across our branches, there continues to be an opportunity to sell IBP's installation services in markets that historically have not served small-to-family customers. Strong profitability during the quarter continued to reflect our strategic priority to use our expertise to efficiently complete the most operationally and financially attractive jobs for our local business. We achieved record first quarter net profit margin and adjusted EBITDA margin for the three months ended March 31, 2024. I'm proud of our team's continued success, commitment to excellence, and ability to consistently meet the needs of our customers. To everyone at IBP, thank you for your commitment, your hard work, and a tough job always done well.
Jeffrey W. Edwards: In addition across our branches there continues to be an opportunity to sell ibp's installation services and markets that historically have not served multifamily customers.
Jeffrey W. Edwards: Strong profitability during the quarter continued to reflect our strategic priority to use our expertise to efficiently complete the most operationally and financially attractive jobs for our local business.
Jeffrey W. Edwards: We achieved record first quarter net profit margin and adjusted EBITDA margin for the three months ended March 31 2024.
Jeffrey W. Edwards: I'm proud of our team's continued success commitment to excellence and ability to consistently meet the needs of our customers to everyone. At IBP. Thank you for your commitment your hard work and a tough job always done well Act.
Jeffrey W. Edwards: Acquisitions continue to be our top priority as we consider all of our options for capital allocation. Despite our growth over the years, we believe a meaningful opportunity still exists for us to expand our geographic presence and diversify the mix of building products we install across our national branch network. During the 2024 first quarter and in April, we completed the following acquisitions: a Delaware-based installer of fireplaces into new single-family construction projects with annual revenue of approximately $5 million, and a North Carolina-based residential installer of insulation and complementary building products with annual revenue of over $6 million.
Jeffrey W. Edwards: Acquisitions continue to be our top priority as we consider all of our options for capital allocation. Despite.
Jeffrey W. Edwards: Despite our growth over the years, we believe a meaningful opportunity.
Jeffrey W. Edwards: Still exists for us to expand our geographic presence and diversify the mix of building products, we install across our National branch network.
Jeffrey W. Edwards: During the 2020 for first quarter and in April we completed the following acquisitions of Delaware based installer of fireplaces into new single family construction projects with annual revenue of approximately $5 million and a north Carolina based residential installer of insulation and complementary building products with annual revenue of over $6 million.
Jeffrey W. Edwards: Overall, while existing home inventories have increased from recent lows in 2022 based on average months of supply, the new single-family housing construction market remains healthy as newly constructed homes are effectively meeting the needs of a typical homebuyer. Additionally, the volume of multifamily units under construction continues to be near historically high levels, which is 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 earnings growth.
Jeffrey W. Edwards: Overall, while existing home inventories had increased from recent lows in 2022 based on average months of supply the new single family housing construction market remains healthy as newly constructed homes are effectively meeting the needs of a typical homebuyer.
Jeffrey W. Edwards: Additionally, the volume of multifamily units under construction continue to be near historically high levels, which is 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 earnings growth.
Jeffrey W. Edwards: Based on the U.S. Census Bureau, single-family starts year-to-date through March 2024 have increased by 27 percent, which we believe bodes well for future demand for our services. Additionally, there are a number of supportive dynamics for our industry that may help demand for our business grow longer term. Specifically, in April, the U.S. Department of Housing and Urban Development announced the adoption of energy efficiency standards for the construction of U.S. Housing and Urban Development and U.S. Department of Agriculture-financed housing. FHA-insured single-family and multifamily projects will be required to comply with the new, generally more stringent, energy efficiency standards. This requirement will become effective in 2025.
Jeffrey W. Edwards: Based on the U S census Bureau single family starts year to date through March 22024 have increased by 27%, which we believe bodes well for future demand for our services. Additionally, there are a number of supportive dynamics for our industry that may help demand for our business grow longer term.
Jeffrey W. Edwards: Specifically in April the U S Department of housing and urban development announced the adoption of energy efficiency standards for the construction of U S housing and urban development and U S Department of Agriculture financed housing FHA insured single family and multifamily projects will be required to comply with the new generally more stringent energy efficiency standards.
Jeffrey W. Edwards: We believe these new standards will be favorable for the environment as well as demand for our business. We intend to continue to focus on that which we can control, leveraging our strong customer relationships, experienced leadership team, national scale, and diverse product categories across multiple end markets to help the company navigate through any future changes in the U.S. housing construction market. I'm proud of our success thus far and continue to be 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 first quarter financial results.
Jeffrey W. Edwards: This requirement will become effective in 2025, we believe these new standards will be favorable for the environment as well as demand for our business.
Michael: We intend to continue to focus on that which we can control leveraging our strong customer relationships experienced leadership team national scale and diverse product categories across multiple end markets to help the company navigate through any future changes in the U S housing and construction market.
Michael: I'm proud of our success, thus far and continue to be excited by the prospects ahead for IBP and the broader installation and other product installation business.
Jeffrey W. Edwards: So with this overview I'd like to turn the call over to Michael to provide more detail on our first quarter financial results.
Michael Thomas Miller: Thank you, Jeff, and good morning, everyone. Consolidated net revenue for the first quarter increased 5% to $693 million, compared to $659 million for the same period last year. The increase in sales during the quarter was driven by growth in our residential and commercial end markets within our installation sector. Our single-family, same-brand sales increased 2%, and our multifamily, same-brand sales increased 13% during the first quarter. Although the components behind our price mix and volume disclosure have several moving parts that are difficult to forecast and quantify, the results of this quarter reflect our continued strategy of focusing on capturing the value of our installed services over job value. During the first quarter, price mix increased 3.8%, while volumes decreased 1.4%.
Michael: Thank you, Jeff and good morning, everyone consolidated net revenue for the first quarter increased 5% to $693 million compared to $659 million for the same period last year. The increase in sales during the quarter was driven by growth in our residential and commercial end markets within our installation segment.
Michael Thomas Miller: Our single family same branch sales increased 2% and our multifamily same branch sales increased 13% during the first quarter, although the components behind our price mix and volume disclosure have several moving parts that are difficult to forecast and quantified. The results. This quarter reflect our continued strategy of focusing on capturing the value.
Michael Thomas Miller: <unk> of our installed services over job value.
Michael Thomas Miller: During the first quarter price mix increased three 8% while volumes decreased one 4%.
Michael Thomas Miller: Our business achieved record results in the first quarter as measured by adjusted net profit margin, which was 10.1%, and adjusted EBITDA margin, which was 16.9%. Our adjusted gross margin improved 200 basis points year over year to 33.9% in the first quarter as a result of pricing stability and improved operating cost efficiency. Adjusted Selling and Administrative Expense as a Percent of First Quarter Sales was up 110 basis points to 19% due to higher variable compensation related to higher gross profit and EBITDA performance from the prior year period. However, administrative expenses in the first quarter of 2024 were unchanged from the fourth quarter of 2023.
Michael Thomas Miller: Our business achieved record results in the first quarter as measured by adjusted net profit margin, which was 10, 1% and adjusted EBITDA margin, which was 16, 9%. Our adjusted gross margin improved 200 basis points year over year to 33, 9% in the first quarter as a result of pricing stability.
Michael Thomas Miller: It improved operating cost efficiencies adjusted selling and administrative expense as a percent of first quarter sales.
Michael Thomas Miller: It was up 110 basis points to 19% due to higher variable compensation related to higher gross profit and EBITDA performance from the prior year period.
Michael Thomas Miller: Administrative expenses in the first quarter of 2024 were unchanged for the fourth quarter of 2023.
Michael Thomas Miller: Adjusted EBITDA for the 2024 first quarter increased 12% to a first quarter record of $117 million. The adjusted EBITDA margin reached a first quarter record of 16.9% compared to 15.9% 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 percent. For the 2024 first quarter, the total same-branch incremental adjusted EBITDA margin of 50% was substantially above our target range. Adjusted net income for diluted shares improved by 15% to $2.47.
Michael Thomas Miller: Adjusted EBITDA for the 2020 for first quarter increased 12% to a first quarter record of $117 million and adjusted EBITDA margin reached a first quarter record of 16, 9% compared to 15, 9% for the same period last year.
Michael Thomas Miller: We continue to target full year long term same branch incremental adjusted EBITDA margin in the range of 20% to 25%.
Michael Thomas Miller: For the 2024 of course for the 2024 first quarter. The total same branch incremental adjusted EBITDA margin of 50% was substantially above our target range.
Michael Thomas Miller: Adjusted net income per diluted share improved 15% to $2.47.
Michael Thomas Miller: Although we do not provide comprehensive financial guidance based on recent acquisitions, we expect second-quarter 2024 amortization expense of approximately $10.3 million and full-year 2024 expense of approximately $41.3 million. We would expect these estimates to change with any acquisitions we close in future periods. Also, we continue to expect an effective tax rate of 25 to 27 percent for the full year ending December 31st, 2024.
Michael Thomas Miller: Although we do not provide comprehensive financial guidance based on recent acquisitions, we expect second quarter 2020 for amortization expense of approximately $10 $3 million and full year 2024 expense of approximately $41 $3 million.
Michael Thomas Miller: We would expect these estimates to change with any acquisitions, we closed in future periods.
Michael Thomas Miller: Also we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31 2024.
Michael Thomas Miller: Now, let's look at our liquidity position, balance sheet, and capital requirements in more detail. For the three months ended March 31st, 2024, we generated $85 million in cash flow from operations compared to $74 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. In March, we successfully completed the repricing of our $500 million term loan fee facility.
Michael Thomas Miller: Now, let's look at our liquidity position balance sheet and capital requirements in more detail for the three months ended March 31, 2024, we generated $85 million in cash flow from operations compared to $74 million in the prior year period.
Michael Thomas Miller: The year over year increase in operating cash flow was primarily associated with higher net income and effective management of working capital.
Michael Thomas Miller: In March we successfully completed the repricing of our $500 million term loan B facility, our new term loan.
Michael Thomas Miller: Our new term loan has more favorable financial terms compared to our previous term loan, while extending the expiration date to 2031. The new term loan's expiration date further staggers the repayment timing of our long-term debt, and we have no significant debt maturities until 2028. Furthermore, 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 Thomas Miller: As more favorable financial terms compared to our previous term loan while extending the expiration date to 2031 the.
Michael Thomas Miller: The new term loans exploration date further stagger through repayment timing of our long term debt and we have no significant debt maturities until 2028. Furthermore, through interest rate swap agreements, we have fixed the interest rate on $400 million of our existing variable rate debt until December 2028, limiting art.
Michael Thomas Miller: Interest rate exposure.
Michael Thomas Miller: Our first quarter net interest expense increased to $11.9 million from $9.7 million in the prior year period. The $11.9 million in net interest expense includes a $4.1 million non-recurring write-off of capitalized loan costs related to the Term Loan Fee Facility repricing and a greater amount of interest income from higher interest rates on higher balances of cash and cash equivalents relative to the year-ago period. As of March 31st, 2024,
Michael Thomas Miller: Our first quarter net interest expense increased to $11 9 million from $9 $7 million in the prior year period.
Michael Thomas Miller: The $11 $9 million and net interest expense includes a $4 $1 million nonrecurring writing write off of capitalized loan costs related to the term loan b facility repricing and a greater amount of interest income from higher interest rates and higher balances of cash and cash equivalents relative to the year ago.
Michael Thomas Miller: Period.
Michael Thomas Miller: At March 31 2024.
Michael Thomas Miller: We had a net debt to trailing 12-month adjusted EBITDA leverage ratio of 0.97 times compared to 1.42 times at March 31, 2023, which is well below our stated target of two times. As of March 31, 2024, we had $340 million in working capital, excluding cash and cash equivalents. Capital expenditures and total incurred finance leases for the three months ended March 31, 2024 were approximately $23 million combined, which was approximately 3% of revenue compared to 2% for the same period last year.
Michael Thomas Miller: We had a net debt to trailing 12 month adjusted EBITDA leverage ratio of <unk> 97 times compared to 142 times at March 31, 2023, which is well below our stated target of two times at.
Michael Thomas Miller: At March 31, 2024, we had $340 million and working capital, excluding cash and cash equivalents capital expenditures and total incurred finance leases for the three months ended March 31, 2024, or approximately $23 million combined which was approximately three <unk>.
Michael Thomas Miller: Percent of revenue compared to 2% for the same period last year with our strong liquidity position and modest financial leverage we continue to expand the business through acquisition and return capital to shareholders.
Michael Thomas Miller: With our strong liquidity position and modest financial leverage, we continue to expand the business through acquisitions and return capital to shareholders. IBP's Board of Directors approved a second quarter dividend of $0.35 per share, which is payable on June 30, 2024, to stockholders of record on June 15, 2024. The second quarter dividend represents a 6% increase over the prior year period. With this overview, I will now turn the call back to Jeff for closing remarks.
Michael Thomas Miller: Ibp's Board of directors approved a second quarter dividend of 35 per share, which is payable on June 32024 to stockholders of record on June 15th 2020 for the second quarter dividend represents a 6% increase over the prior year period.
Michael Thomas Miller: With this overview I will now turn the call back to Jeff for closing remarks.
Jeffrey W. Edwards: Thanks, Michael. I'd like to conclude our prepared remarks by once again thanking IVP 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 to questions.
Jeff: 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.
Operator: Thank you. At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star and 1 to ask a question. And we'll take our first question today from Michael Ruh, from J.P. Morgan.
Speaker Change: Thank you at this time, if you'd like to ask a question. Please press the star and one on your telephone keypad you may remove yourself from the queue at any time by pressing star to once again it is star and one to ask a question.
Michael Jason Rehaut: And we'll take our first question today from Michael root with Jpmorgan.
Michael Jason Rehaut: Thanks. Good morning, everyone. Thanks for taking my questions.
Michael Jason Rehaut: Thanks, Good morning, everyone. Thanks for taking my questions.
Michael Jason Rehaut: Hmm.
Michael Thomas Miller: I wanted to start with, you know, the encouraging trends in single-family residential, which as you mentioned in your prepared remarks, turned positive for the first time in four quarters. Um, you know, how do you see that trending for the rest of the year? Obviously, there's some pretty good starch data that you referenced. And just kind of curious about the mix between large builders and small builders, if you're seeing any difference there in terms of your customer set.
Michael Jason Rehaut: Wanted to start with.
Michael Thomas Miller: The encouraging trends in our single family residential as you mentioned in your prepared remarks, turning positive for the first time in four quarters.
Michael Thomas Miller: How do you see that trending for the rest of the year, obviously, there's some pretty good you know.
Michael Thomas Miller: Starts data.
Michael Thomas Miller: You referenced.
Michael Thomas Miller: And just kind of curious also on the mix between.
Michael Thomas Miller: Large builders and small builders, if youre seeing any difference there in terms of your customer set.
Michael Thomas Miller: And lastly, if you could kind of also hit on backlogs for multifamily, you know, how do you view that in terms of health, you know, maybe as you look out for the rest of the year?
Michael Thomas Miller: And lastly, if you could kind of also hit on.
Michael Thomas Miller: Backlog for multifamily.
Michael Thomas Miller: How do you view that in terms of their health.
Michael Thomas Miller: Maybe as you look out through the rest of the year.
Michael Thomas Miller: Sure, Mike. This is Michael. Thanks for the question. Yes, we feel very good about the inflection in single-family, quite frankly. The trend continues to improve throughout the quarter and into the second quarter, particularly with the production builders. As we previously stated, it's our belief that the vast majority of growth in single-family will come this year from production builders, and we're definitely seeing that in our overall revenue from production builders. I think it's worth noting that when the public builders that have reported so far their first quarter results, you know, backlog is up, you know, 16%, 17%, and orders are up, you know, over 30%.
Speaker Change: Sure Mike This is.
Michael: This is Michael.
Speaker Change: Thanks for the question, Yes, we feel very good about the inflection in single family quite frankly.
Michael Thomas Miller: That trend continued to improve through the quarter and into the second quarter, particularly with the production builders as we previously stated it's our belief that the vast majority of growth in single family will come this year from production builders and we're definitely seeing that in our overall.
Michael Thomas Miller: Revenue with the production builders I think it's worth noting that when the public builders that have reported so far their first quarter results backlog is up.
Michael Thomas Miller: <unk>, 17% orders were up.
Michael Thomas Miller: Over 30% Whats interesting is historically, we could rely specifically on sort of backlog of orders as indicators of demand from the production builders.
Michael Thomas Miller: What's interesting is that historically, we could rely specifically on sort of backlog and orders as indicators of demand from the production builders, but because, as we all know, there's been a leaning toward more spec inventory from those builders, which doesn't really show up in these numbers, that creates even more opportunity than what we think is there. And that is a direct result of, I think, what we're seeing, even though it's only three months of information from the Census Bureau.
Michael Thomas Miller: Because as we all know there has been a leaning in towards more spec inventory from those builders, which doesn't really show up in these numbers that creates even more opportunity than what we think is there.
Michael Thomas Miller: And that is a direct result of I think what we're seeing even though it's only three months of information from the census Bureau, and as Jeff pointed out in his prepared remarks.
Michael Thomas Miller: And as Jeff pointed out in his prepared remarks, you know, a single family starts up 27 percent for the first quarter. All that is just a really strong indication to us that we're going to continue to have this very positive inflection in single-family homes as we go through the course of the year. And what's interesting, too, and we talked about this last quarter as well, is that one of the first things that we do from an installation perspective is insulation.
Michael Thomas Miller: <unk> family starts up 27% for the first quarter. All of that is just really strong indication to us that we're going to continue to have this very positive inflection in single family as we go through the course of the year.
Michael Thomas Miller: And what's interesting too and we talked about this last quarter as well or is that one of the first things that we do from an installation perspective is installation and then the other products come later in the build cycle of a home and that has absolutely been the case within our revenue we saw very strong growth overall.
Michael Thomas Miller: And then the other products come later in the build cycle of the home. And that has absolutely been the case within our revenue. We saw very strong growth overall in our fiberglass insulation growth and total insulation growth in the quarter. And that trend, again, continued to accelerate as we went into the second quarter. So that strength is very positive.
Michael Thomas Miller: In our fiberglass installation growth and total installation growth in the quarter and that trend again continued to accelerate as we went into the second quarter. So that that strength is very positive.
Michael Thomas Miller: Other products quite frankly were weak in the quarter, which is exactly what we would've expected and will expect strength from the other products as we go towards the back half of the year and houses get completed on the multifamily side I mean as we've talked.
Michael Jason Rehaut: You know, the other products, quite frankly, were weak in the quarter, which is exactly what we would have expected. And we'll expect strength from the other products as we go towards the back half of the year and houses get completed. On the multifamily side, I mean, as we've talked, we do think that the multifamily market is going to be challenging for, you know, in 2025. Clearly, the number of multifamily units under construction continues to be at a highly elevated pace.
Michael Jason Rehaut: We do think that the multifamily market is going to be challenging for in 2025, clearly multifamily units under construction continues to be at a highly elevated pace.
Michael Jason Rehaut: You know, we were very pleased with the same brand sales growth that we achieved in multifamily during the quarter. And you know, our backlogs continue to be strong. And we believe there continues to be, particularly as we go into 2025, a lot of opportunity for us to gain share in markets that are core markets for us in single-family homes, but we are significantly underpenetrated in the multifamily opportunity. And, you know, our team is doing an excellent job of going after those opportunities, both from an insulation perspective and from the other products that we install so that we can significantly increase our take per unit in a multifamily
Michael Jason Rehaut: We were very pleased with the.
Michael Jason Rehaut: Same brand sales growth that we achieved in multifamily during the quarter, our backlogs continue to be strong.
Michael Jason Rehaut: And we believe there is continues to be particularly as we go into 'twenty five.
Michael Jason Rehaut: Lot of opportunity for us to gain share in markets that are core markets for us in single family, but we are significantly underpenetrated in the multifamily opportunity and our team is doing an excellent job of.
Michael Jason Rehaut: Going after those opportunities both from an installation and from the other products that we install so that we can increase significantly or.
Michael Jason Rehaut: Take per unit in a multifamily project. So overall, we feel very good about it we acknowledge there's definitely headwinds in multifamily we believe that for us and some of the initiatives that we've taken over the years as it relates to multifamily will be able to.
Michael Jason Rehaut: So overall, I mean, we feel very good about it. We acknowledge there are definitely headwinds in multifamily. We believe that for us and some of the initiatives that we've taken over the years as it relates to multifamily, we'll be able to, you know, resist, if you will, some of those headwinds in multifamily, particularly as it comes into 2025. But there's no doubt that there will be a challenge there. Fortunately, you know, single family housing, as we said, it's, you know, looks very solid. And, you know, that is 60% of our overall revenue. So when you have such a strong outlook for 60% of your revenue, it's easy to be confident.
Michael Jason Rehaut: Resist if you will some of those headwinds and multifamily, particularly as it comes into 'twenty five.
Michael Jason Rehaut: No doubt that there will be a challenge there Fortunately single family as we said it's a law.
Michael Jason Rehaut: Looks very solid and that.
Michael Jason Rehaut: That is 60% of our overall revenue. So when you have such a strong out of the outlook for 60% of your revenue it's easy to be confident.
Michael Jason Rehaut: Right. No, no, that makes a lot of sense.
Speaker Change: Right no that makes a lot of sense and I appreciate the detailed answer there Michael.
Michael Thomas Miller: And I appreciate the detailed answer there, Michael. You know, secondly, you know, your price mix remains positive. You highlighted this quarter and, not only this quarter, but perhaps the expectation over the next few quarters for the larger production builders to really drive the single-family residential business, which, as you have highlighted, is sometimes a headwind to mix. You know, also, and perhaps also a slight headwind to gross margins, all else equal. This quarter, gross margins were very solid; you're basically now effectively four quarters in a row of plus or minus 34%.
Michael Jason Rehaut: Secondly.
Michael Thomas Miller: Your price mix remained positive.
Michael Thomas Miller: You highlighted this quarter than not.
Michael Thomas Miller: Not only this quarter, but perhaps the expectation over the next few quarters for the production larger production builders.
Michael Thomas Miller: To really drive the single family residential business, which has you have highlighted that as sometimes the headwind to mix.
Michael Thomas Miller: <unk>.
Michael Thomas Miller: You also.
Michael Thomas Miller: And perhaps also a slight headwind to gross margins all else equal.
Michael Thomas Miller: You had this quarter.
Michael Thomas Miller: The gross margins were very solid you basically now.
Michael Thomas Miller: <unk> four quarters in a row of plus or minus 34%.
Michael Thomas Miller: So I'd love to get your sense of, you know, on the price mix front and the gross margin front. You know, it's a positive type of gross margin here, your take on those being sustainable, you know, price mix, how might that be impacted as well by, you know, a bigger portion potentially of production builders, just any thoughts over the next couple of quarters as those trends continue to unfold.
Speaker Change: So I'd love to get your sense.
Michael Thomas Miller: On the price mix front and the gross margin front.
Michael Thomas Miller: It's a positive type of gross margins here.
Michael Thomas Miller: If you take on those being sustainable.
Michael Thomas Miller: Price mix, how might that be impacted as well by.
Michael Thomas Miller: Bigger.
Michael Thomas Miller: Portion potentially a production builders.
Michael Thomas Miller: Just any thoughts, though over the next couple of quarters.
Michael Thomas Miller: Trends continue to unfold.
Michael Thomas Miller: Yeah, our perspective is definitely consistent there, that we do, as I said, and we continue to expect this trend to continue in terms of the growth within the production builder business at a rate much higher than the other end markets that we serve, that will be a headwind to price mix. Obviously, it's a contributor to volume, so they sort of offset one another.
Speaker Change: Yes, our perspective is definitely consistent there that we do as I said and we continue to expect this trend to continue in terms of the growth within the production builder business at a rate much higher than the other end markets that we serve that that will be a headwind to price mix, obviously, its a contributor to volume so.
Michael Thomas Miller: They sort of offset one another and as we've previously talked about that that work does come in at a lower gross margin. So we would expect that over time.
Michael Jason Rehaut: And as we've previously talked about, that work does come in at a lower gross margin, so we would expect that over time, it would pressure gross margin. But, as we've talked about before, it does come in at a good EBITDA contribution margin in that sort of 20% to 25% range that we've talked about for incrementals. So we feel very good that the business is performing exactly as we've expected in terms of the improvement in single family revenue, particularly as it relates to the production builders, you know, installation coming first, and then the other products to come in the back half of the year.
Michael Jason Rehaut: Would pressure gross margin, but as we've talked about before it does come in at a good EBITDA contribution margin and that sort of 20% to 25% range that we've talked about for Incrementals. So we feel very good that the business is performing exactly as we expected in terms of the <unk>.
Michael Jason Rehaut: Movement in the single family revenue, particularly as it relates to the production builders installations coming first and then the other products to come in the back half of the year and then we also feel very good about the.
Michael Jason Rehaut: And then we also feel very good about the performance, as I said, of the multi-family business. And quite frankly, on the commercial side, even though our disclosed metric for commercial sales growth on a same-branch basis was slightly down this quarter, that was really driven by our light commercial business, which we flagged last quarter as we expected it to be weak. We do expect it to be weak through the rest of the year, but our heavy commercial business continues to perform well, both from a revenue growth perspective and from a margin perspective. So the recovery in that business is very solid and continues to perform well. So the business is, as I said, it's running the way we expect it to be running, and we
Michael Jason Rehaut: <unk> performance as I said of the multifamily business and quite frankly on the commercial side, even though our disclosed metric.
Michael Jason Rehaut: Great. Thanks so much. I appreciate it.
Michael Jason Rehaut: For commercial sale.
Michael Jason Rehaut: Sales growth on a same branch basis was slightly down.
Michael Jason Rehaut: This quarter that was really driven by our light commercial business, which we flagged last quarter that we expected it to be weak.
Michael Jason Rehaut: We do expect it to be weak through the rest of the year, but our heavy commercial business continues to perform well both from a revenue growth and from a margin perspective. So the recovery in that business is very solid and continues to perform well. So the business is as I said.
Michael Jason Rehaut: It's running the way, we expect it to be running and we feel very good about that.
Michael Jason Rehaut: Great. Thanks, so much I appreciate it.
Michael Jason Rehaut: Sure.
Stephen Kim: Our next question will come from Stephen Kim with Evercore ISI.
Michael Jason Rehaut: Our next question will come from Stephen Kim with Evercore ISI.
Stephen Kim: Yeah, great. Thanks very much.
Stephen Kim: Yeah, great. Thanks, very much just as a cleanup to what Mike just asked about the production builders. One question I had is do you have a preference generally between builders.
Stephen Kim: Spec.
Stephen Kim: Production versus their build to order production.
Stephen Kim: That's a great question and I mean, obviously, they all need to be insulated and insulated to the same.
Stephen Kim: Cove, depending upon the code in their market, but a very nice thing about spec inventory is the consistency associated with it. So that you have a very level production schedule.
Jeffrey W. Edwards: Just as a follow-up to what Mike just asked about the production builders, one question I had is, do you have a preference, generally, between builders' spec production versus their build-to-order production?
Jeffrey W. Edwards: That's a great question, and obviously they all need to be insulated and insulated to the same code, depending upon the code in their market, but a very nice thing about spec inventory is the consistency associated with it, so that you have a very level production schedule, whereas built-to-order sometimes has a lot of variability in it, and the smoothness of the spec building really helps balance out demand and the labor as we're providing I don't know if you want to add anything to that.
Stephen Kim: Whereas built to order, sometimes has a lot of variability in it.
Jeffrey W. Edwards: And the smoothness of the spec building really helps balance out demand and.
Jeffrey W. Edwards: The labor as we're providing it to the job site. So all.
Jeffrey W. Edwards: All things being equal, we would probably lean more towards back, but it's all good business and clearly it's a business we want to go after.
Jeffrey W. Edwards: Well, I would just say, I mean, despite the uptick in interest rates, you know, or change in sentiment, let's say, from the Fed and the uptick in interest rates, it's been encouraging. You know, there was a momentary kind of, you know, little stutter in traffic, but in conversations with the production builders and that, which has been disclosed, I've heard that, you know, the traffic count now is still being characterized as kind of a B plus.
Speaker Change: Yeah, well I would just say.
Jeffrey W. Edwards: Despite the uptick in interest rates.
Jeffrey W. Edwards: Or change in sentiment, let's say from the fed and up to you've taken interest rates has been encouraging.
Jeffrey W. Edwards: There was a momentary kind of.
Jeffrey W. Edwards: Stutter in traffic, but in conversations with the production builders in that which has been disclosed.
Jeffrey W. Edwards: <unk>.
Jeffrey W. Edwards: The traffic count now is still being characterized as kind of a b plus we didn't really talk about that in the first question. This is the first question but.
Jeffrey W. Edwards: We didn't really talk about that in the first question, you know, since it was the first question, but the fact of the matter is, and it's been kind of consistently up and to the right a bit, and that helps with planning in that regard as to builds, too. Yeah.
Jeffrey W. Edwards: The fact of matter is and it's been kind of consistently up into the right a bit and thats that helps with planning in that regards as to builds to yes exactly.
Stephen Kim: Yeah, I get that sense as well about your grade scale, gauging the market conditions. But one question about the spec allowing you to have greater consistency and smoothness and all that.
Jeffrey W. Edwards: Yeah Yeah.
Speaker Change: I get that sense as well.
Stephen Kim: About your great scale.
Stephen Kim: Gauging the market conditions, but the one question about the spec are allowing you to have greater consistency and smoothness and all of that.
Stephen Kim: I'm curious as to whether or not that reflects itself or is included in the way you sort of bid on jobs or sort of negotiate with the largest spec production builders. Would it be fair to think that maybe the benefit that you get from there is something that finds its way into your pricing conversations and that maybe you try to split the difference, and basically, it's a win-win? Is that a way to think about it, or is this something that just really doesn't enter into the pricing conversation?
Stephen Kim: Curious as to whether or not that reflects itself or is it included in the way you are sort of bid on jobs or sort of negotiate with the largest spec production builders would it be fair to think that.
Stephen Kim: Maybe the benefit that you get from there is something that finds its way into your pricing conversations in that maybe you tried to split the difference and basically it's a win win is that a way to think about it or is this something that just really doesn't enter into the pricing conversation.
Jeffrey W. Edwards: No, it really doesn't enter into the pricing conversation. It's more of just an overall picture, you know; they give us their production schedules of what they expect and when they expect. Now, that's not a guarantee; it's just an expectation to allow us to plan. And then, you know, we would bid based on that. I would say, though, that, as you would expect, we target, as you would expect, certain builders in certain markets based on where we believe they have the right subdivisions, they're selling the right product, and a product that we think will sell at a good, solid pace so that we stay busy and active with them. So it's a combination of a lot of things, but it doesn't really reflect in the overall pricing structure,
Speaker Change: No it really doesn't enter into the pricing conversation, it's more of just overall.
Jeffrey W. Edwards: They gave us their production schedules of what they expect and when they expect.
Jeffrey W. Edwards: That's not a guarantee its just an expectation to allow us to plan and then we would bid based on that I do I would say, though that.
Jeffrey W. Edwards: We target as you would expect certain builders in certain markets based on where we believe they have the right subdivisions theyre selling the right product and product that we think will.
Jeffrey W. Edwards: Sell it at good solid pace, so that we stay busy inactive with them. So it's a combination of a lot of things, but it doesn't really reflect in the overall pricing structure quite frankly.
Stephen Kim: Okay, that's interesting. Um, the second question relates to code changes. So, um...
Speaker Change: Okay that's interesting.
Speaker Change: The second question relates to code changes so.
Stephen Kim: I know that you alluded to, you know, the recent USDA HUD actions there, sort of migrating to a 2021 code by next year. I'm curious as to whether or not you could quantify for us, like, you know, what kind of a benefit you think that might be for your revenues on a per home basis? You know, as you were to sort of, I know that you've got homes that are being built to all different kinds of standards.
Speaker Change: I know that you alluded to the recent USDA HUD.
Stephen Kim: Actions, there sort of migrating to a 2021 code.
Stephen Kim: By by next year.
Stephen Kim: I'm curious as to whether or not you could quantify for us like you know what kind of benefit you think that might be for your revenues on a per home basis.
Stephen Kim: If you were to sort of I know that you've got.
Stephen Kim: The homes that are being built all all different kinds of standards I know theres a lot of diversity and yet you also probably I would imagine kind of no on average for where you build a what that might represent and I'm wondering if you think it's kind of in that kind of 10% ish type range.
Stephen Kim: I know there's a lot of diversity, yet you also probably, you know, I would imagine kind of know on average for where you build, what that might represent. And I'm wondering if you think it's kind of in that kind of 10 percent-ish type range once the new changes go into effect. And whether or not you think that a further migration to 2024 would be incrementally beneficial to you, or if it would actually be no better than 2021.
Stephen Kim: Once the new changes go into effect.
Stephen Kim: And whether or not you think that a further migration to 2024 would be incrementally beneficial to you or if it actually would be no better than 2021.
Jeffrey W. Edwards: Yeah, so we would expect that any migration to 24 would not necessarily be incrementally different from 21. But to answer the first part of your question, yeah, we would agree with your assessment that when we look at the whole country and our estimate for, you know, looking at the various codes that the country and municipalities jurisdictions are on, combined with then balancing out a little bit, because there are plenty of builders in certain jurisdictions that might be on the 2009 code that are actually already building to the 21 code. So there is a bit of an art, if you will, in terms of estimating it.
Stephen Kim: Yes, so we would expect that any migration to 'twenty four would not be incrementally different necessarily from 'twenty one.
Jeffrey W. Edwards: But to answer the first part of your question, Yes, we would agree with your assessment that if when we look at the whole country and our estimate for looking at the various codes that country and municipalities jurisdictions are on combined with then balancing out a little bit because there are plenty of builders <unk>.
Jeffrey W. Edwards: Are in jurisdictions that might be on the 2009 code that are actually already building into the 'twenty. One codes. So there is a bit of art.
Jeffrey W. Edwards: If you will in terms of estimating it.
Jeffrey W. Edwards: We do think that, if you look at our single family insulation revenue, that it is probably, you know, a low double digits, call it 10%, benefit that we would experience by going, you know, the whole country going to the 21 code. Now, that being said, there are some people because they're already building the 21 code that there's zero benefit. And in some markets where they're at the nine code and building just to that code, where it could be 20% plus some kind of a benefit.
Jeffrey W. Edwards: Do think that from a if you look at our single family.
Jeffrey W. Edwards: Installation revenue that it is probably <unk>.
Jeffrey W. Edwards: Low double digits call it 10% benefit that we would experience by going the whole country go into the 'twenty. One coat now that being said there are some because they are already building into 'twenty, one code that theres zero benefit and in some markets where they are at the nine code and building just to that code, where it could be 20% plus kind of a benefit.
Stephen Kim: Yep, I got it. Okay, that's very helpful, guys. I appreciate all the color.
Speaker Change: Yup I got it okay. That's very helpful guys I appreciate all the color.
Stephen Kim: Sure, sure.
Stephen Kim: Sure.
Trey Grooms: Our next question will come from Trey Grooms with Stephen.
Stephen Kim: Okay.
Stephen Kim: Our next question will come from Trey Grooms with Stephens.
Trey Grooms: Hey, thanks for taking the question. Maybe you could talk a little bit about, you know, the thoughts on recent price increases we've seen from manufacturers, how that's going so far? And, you know, as far as timing and looking at the price cost, should that drive it higher, you know, in 2Q? Or could it take a little longer to flow through?
Trey Grooms: Hey, Thanks for taking the question.
Trey Grooms: Maybe could you talk a little bit about.
Trey Grooms: The thoughts on <unk>.
Trey Grooms: Recent price increases we've seen from manufacturers.
Trey Grooms: How that's going so far in <unk>.
Trey Grooms: Timing and.
Trey Grooms: Looking at the price cost.
Trey Grooms: Should that drive it higher.
Trey Grooms: <unk> or could it take a little longer to flow through.
Jeffrey W. Edwards: Trace, this is Jeff. Yeah, as you know, all four manufacturers have announced them at this point. One of those manufacturers has kind of delayed, at least in terms of their announcement, both the amount and also the timing of the increase. More than likely, you know, others may well follow. We'll see. Again, the market is really pretty tight from a supply standpoint still. And, you know, as you know, Knoss is bringing on a plant in Texas, not too long in the future, but it will provide a little bit of relief.
Jeff: Trace this is Jeff.
Jeffrey W. Edwards: You know all four manufacturers at this point are announced.
Jeffrey W. Edwards: One of those manufacturers has kind of delayed at least in terms of their announcement.
Jeffrey W. Edwards: Both slightly the amount, but also the timing.
Jeffrey W. Edwards: On the increase.
Jeffrey W. Edwards: More than likely others may will follow we'll see.
Jeffrey W. Edwards: Again the market is.
Jeffrey W. Edwards: Really pretty tight from a supply standpoint.
Jeffrey W. Edwards: Still.
Jeffrey W. Edwards: As you know can also bring in on a plant in.
Jeffrey W. Edwards: In Texas.
Jeffrey W. Edwards: Too long here in the future but.
Jeffrey W. Edwards: It will provide a little bit of relief, but to say that all sudden theres a free flow of material that there isn't support more than likely for this increase would be probably a misstatement.
Jeffrey W. Edwards: But to say that all of a sudden there's a free flow of material and that there isn't support more than likely for this increase would be a mistake. And we and others will obviously have to react to that, you know.
Jeffrey W. Edwards: Yes.
Jeffrey W. Edwards: And we and others will obviously have to react in that.
Jeffrey W. Edwards: So the price increase.
Jeffrey W. Edwards: Sure.
Jeffrey W. Edwards: Okay.
Speaker Change: Thanks for that and then Jeff maybe if you could.
Speaker Change: Updating us on.
Trey Grooms: your capital allocation. I mean, in the quarter, you did a few deals, you know, so you raised the dividend, no buybacks in the quarter. But, you know, can you talk about maybe the M&A pipeline and, you know, with no buyback in the quarter, maybe how you're kind of balancing those three kinds of uses of cash, if you could?
Jeffrey W. Edwards: Your capital allocation in the quarter you.
Trey Grooms: It did a few deals.
Trey Grooms: So you raised the dividend no buybacks in the quarter, but.
Trey Grooms: Can you can you talk about maybe the M&A pipeline and with no buyback in the quarter, maybe how you're you're kind of balancing.
Jeffrey W. Edwards: I don't say this a lot, but I would say that the pipeline is robust, though I think we've also said at times that there's not an absolute rhythm to these things, and sometimes they're bumping along, sometimes they even fail in diligence. We've had a couple of deals, that doesn't happen all that often, but a couple of deals over the last six or eight months that didn't quite get there, and it's disappointing on the one hand because you spent a lot of time on it, and you thought you were close to the finish line, but there's certainly not a lack of opportunity yet, both as what we call regular way deals, which are kind of fiberglass installers that we'd like to install or like to acquire, but also in other products and even in some cases kind of adjacencies that we'd like to really take a hard look at.
Jeffrey W. Edwards: Those three kind of.
Jeffrey W. Edwards: Uses of cash if you could.
Jeffrey W. Edwards: I don't say this law, but I would say that the pipeline is robust.
Jeffrey W. Edwards: So I think we've also said at times that the the scale.
Jeffrey W. Edwards: There's not an absolute rhythm to these things and sometimes.
Jeffrey W. Edwards: They're bumping along sometimes even fail in diligence we've had a couple of deals that doesn't happen all that often but the couple of deals.
Jeffrey W. Edwards: Over the last over the last six or eight months that didn't quite get there and.
Jeffrey W. Edwards: It's disappointing on the one hand, you'd spent a lot of time on it than you thought you were close to finish line, but.
Jeffrey W. Edwards: There is certainly not a lack of opportunity out there.
Jeffrey W. Edwards: Both skin as what we call regular way deals, which are kind of fiberglass installers that wed like to install or like to acquire but also in our other products and even in some cases kind of adjacencies that wed like to really take a hard look at.
Trey Grooms: And just out of curiosity, when they don't get there, is that generally due to valuation expectations kind of being out of whack, or are there other reasons?
Jeffrey W. Edwards: Okay.
Speaker Change: Just out of curiosity when when they don't get there.
Trey Grooms: Is that generally due to valuation expectations kind of being out of whack or or is there other reasons.
Jeffrey W. Edwards: Usually, other reasons. Because I'm saying these deals are down the road, even from an LOI perspective.
Speaker Change: Usually other reasons because I'm, saying these deals are down the road, even from an LOI perspective.
Jeffrey W. Edwards: And there's something that we don't want to inherit, let's just say. Whether it's a business practice or something else, right? And it could be financial performance. And it could be financial performance, even during the diligence period.
Jeffrey W. Edwards: There is something that we don't want to inherit let's just say, whether it's a business practice or something else right. So that it can be financial before and it could be financial performance, even during the diligence period.
Trey Grooms: Got it. Okay, so no real change to the pipeline and the outlook here for deals. Appreciate it. Thank you.
Speaker Change: Got it okay. So no real change to the pipeline and the outlook here for deals.
Trey Grooms: Yes.
Trey Grooms: I appreciate it thank you.
Jeffrey W. Edwards: And I think we are looking a little harder at some adjacencies that we think make sense, so.
Trey Grooms: We are looking a little harder in some adjacencies, we think makes sense. So.
Jeffrey W. Edwards: Okay.
Trey Grooms: Okay. Any color you want to give us on that?
Jeffrey W. Edwards: Color you want to give us on that.
Jeffrey W. Edwards: Probably not at this point. Okay. When we close on one, you can read about it, right? Fair enough, fair enough. Thanks a lot. Good luck.
Speaker Change: Probably not at this point.
Jeffrey W. Edwards: Okay.
Jeffrey W. Edwards: When we closed on one you can read about it right.
Jeffrey W. Edwards: Fair enough fair enough. Thanks, a lot good luck.
Susan Marie Maklari: Our next question will come from Susan Maklari of Goldman Sachs.
Jeffrey W. Edwards: Our next question will come from Susan Mcclary with Goldman Sachs.
Susan Marie Maklari: Thank you. Good morning, everyone. Good morning, Sue.
Susan Marie Maklari: Thank you good morning, everyone. Good morning Sue.
Susan Marie Maklari: My first question is, going back to the gross margin, Michael, you mentioned that we will see a ramp in some of those other products as we move through the year. As you look at the backlog and you think about the shift that's going to come through the business, you know, installation of some of those other products, what does that imply in terms of that gross margin performance? And then, also, any implications as we think about the light commercial getting a bit weaker and the heavy commercial perhaps staying fairly healthy?
Susan Marie Maklari: My first question is going back to the gross margin you know Michael you mentioned that we will see a ramp in some of those other products as we move through the year as you look at the backlog and you think about.
Susan Marie Maklari: That's going to come through the business installation to some of those other products what does that imply in terms of that gross margin performance and then also any implications as we think about the like commercial getting a bit weaker and the heavy commercial perhaps staying fairly healthy.
Michael Thomas Miller: Yeah, see, that's a great question. On the other products, as we've talked before, they do have a lower gross margin than insulation. And actually, you know, we saw a good improvement in the gross margin of the other products during the first quarter, but it was actually better on insulation than it was on the other products. So that improvement did help gross margin during the quarter. We would expect that as we go through the quarter, or, excuse me, through the year, and the other products continue to get installed in houses that we've already insulated, that that would weigh on gross margin.
Michael: Yes, that's a great question on the other products as we've talked before they do have lower gross margin.
Michael Thomas Miller: Then installation and actually.
Michael Thomas Miller: We saw good improvement in the gross margin of the other products during the first quarter, but it was actually better on insulation.
Michael Thomas Miller: Then it was on the other products so that improvement.
Michael Thomas Miller: It helped gross margin during the quarter, we would expect that as we go through the quarter in the or excuse me through the year and the other products continue to get.
Michael Thomas Miller: Get installed in houses that we've already insulated.
Michael Thomas Miller: That would weigh on gross margin however.
Michael Thomas Miller: However, we believe that there's... A lot of room to continue to increase through 24 on the single family side, and it will definitely be a balance between the installation growth relative to the other product growth. As long as, and this is what we expect will continue to happen, is that we continue to have strong relative single-family, or excuse me, well, single-family insulation growth relative to other products, it'll just be more a question of them sort of catching up, quite frankly, you know, and weighing a little bit on gross margin, but we feel pretty good about, you know, the ability of the insulation business to continue to grow on the single-family side to continue to grow at a pretty decent rate now, so that's positive.
Michael Thomas Miller: We believe that there is.
Michael Thomas Miller: A lot of room to continue to increase through 24 in the single family side and it will definitely be a balance between the installation growth relative to the other product growth so as.
Michael Thomas Miller: As long as is and this is what we expect will continue to happen is that we continue to have strong relative single family excuse me, while single family insulation growth relative to other products. It will just be more a question of them sort of catching up quite frankly.
Michael Thomas Miller: And weighing a little bit on gross margin, but we feel pretty good about.
Michael Thomas Miller: The ability of the insulation business to continue to grow on the single family side.
Michael Thomas Miller: To continue to grow at a pretty decent right now.
Michael Thomas Miller: That's positive on the commercial side.
Michael Thomas Miller: On the commercial side, you know, the light commercial business is a very good-margin business, but the continued improvement in the heavy commercial business, we believe, will continue to offset the weakness in the light commercial business from a gross margin perspective.
Michael Thomas Miller: The light commercial business is a very good margin business, but the continued improvement in the heavy commercial business.
Michael Thomas Miller: I believe we will continue to offset the weakness in the light commercial business from a gross margin perspective.
Susan Marie Maklari: Okay, that's great color. And then maybe when we also think about the conditions on the ground, you know, the move to the production builders and the spec building in there, what does that imply in terms of SG&A and your ability to leverage some of that overhead cost?
Speaker Change: Okay. That's great color and then maybe one we also think about the conditions on the ground there.
Susan Marie Maklari: Then move to the production builders in the spec building in there what does that imply in terms of SG&A and your ability to leverage some of that overhead cost.
Michael Thomas Miller: Yeah, that's a good question. I mean, we do get much better selling leverage and G&A leverage from the volume from the production builders, which is why, even though the gross margin is tighter, we feel good about the EBITDA margin contributions. So, you know, we should get more OPEX leverage. As we pointed out in our prepared remarks, the first quarter G&A expense was basically exactly as much as it was in the fourth quarter of 23.
Speaker Change: Yes, that's a good question I mean, we do get much better selling leverage and G&A leverage from the volume from the production builders, which is why even though the gross margin is tighter.
Michael Thomas Miller: We feel good about the EBITDA margin contributions so.
Michael Thomas Miller: We should get more opex leverage as we pointed out in our prepared remarks, the first quarter G&A expense was basically exactly as much as it was in fourth quarter of 'twenty three.
Michael Thomas Miller: And, you know, that's the way that G&A runs, especially when the business is continuing to perform. There's no reason to reduce G&A, say, at the branch level, you know, when the business is continuing to perform, even though we're, you know, the first quarter is always our lowest seasonal quarter in the year.
Michael Thomas Miller: And that's the way that G&A run.
Michael Thomas Miller: Especially when the business is continuing to perform there is no reason to reduce G&A is there at the branch level.
Michael Thomas Miller: When it is continuing to perform even though.
Michael Thomas Miller: First quarter is always our lowest seasonal quarter in the year.
Susan Marie Maklari: Okay, that's great, Culler. Thank you, Michael, and good luck with everything. Thank you.
Speaker Change: Okay. That's great color. Thank you Michael and good luck with everything.
Susan Marie Maklari: Our next question will come from Ken Zenter with Seaport Research Partners.
Susan Marie Maklari: Our next question will come from Ken <unk> with Seaport Research partners.
Kenneth Robinson Zener: Good morning, everybody good morning.
Kenneth Robinson Zener: Good morning.
Kenneth Robinson Zener: I'd like to take a little step back here and talk about your business, growth prospects relative to your business mix. So when you guys slide where you're looking at established versus developed markets, your take is four and a half thousand on established markets versus 2.2 thousand on, you know, developing markets.
Kenneth Robinson Zener: I'd like to just take a little step back here and talk about your business growth prospects relative to your business mix. So.
Kenneth Robinson Zener: Slide we're looking at established versus developed markets Youre takes four to $5000.
Kenneth Robinson Zener: Established markets versus 2.2 thousand.
Kenneth Robinson Zener: On.
Kenneth Robinson Zener: Developing markets.
Kenneth Robinson Zener: What is, you know, starts are up, let's say, 5% or 10%, whatever the number is. I'm really interested in the ratio of how you think your non-insulation penetration is augmenting what we see in terms of just the baseline of starts, because you obviously have a lot of room there to grow in a lot of these smaller categories that are different than insulation. Do you guys tend to get, let's say, a 20% lift to, you know, what we see in starts from that penetration? Or could you just kind of walk us through that a little bit here as you guys continue to focus on that M&A?
Kenneth Robinson Zener: What is it.
Kenneth Robinson Zener: Youre up lets say, 5% or 10 or whatever the number is I'm really interested in a ratio of how you think your <unk>.
Kenneth Robinson Zener: Non insulation penetration is.
Kenneth Robinson Zener: As augmentin.
Kenneth Robinson Zener: What we see in terms of just the baseline of starts because you obviously have a lot.
Kenneth Robinson Zener: Room, there to grow and a lot of these smaller.
Kenneth Robinson Zener: Categories that are different that installation do you guys tend to get let's say, a 20% lift too.
Kenneth Robinson Zener: What we see in starts from that penetration or could you give us.
Kenneth Robinson Zener: Just kind of walk us through that a little bit here as you guys continue to focus on that M&A category.
Michael Thomas Miller: Well, again, it's highly dependent on the market and the products that we're installing because it's not as if we take an installation-only market and then the next day start installing all of the other products. And on that slide that you're referencing, where we have twice the sales per permit in a mature market or a developed market or an established market relative to a developing market, there are multiple things that go into that.
Kenneth Robinson Zener: Well.
Kenneth Robinson Zener: And it's highly dependent on the market and the products that we're installing because it's not as if.
Michael Thomas Miller: We take our installation only market and then the next day started installing all of the other products and on that slide that youre referencing wherever you have twice the sales per permit.
Michael Thomas Miller: In a mature market or a developed market established market relative to a developing market. There are multiple things that go into that it's not just the fact that we have greater penetration of the end products, but what we find is that when we have a greater penetration of all.
Michael Thomas Miller: It's not just the fact that we have greater penetration of the end products, but what we find is that when we have a greater penetration of all of the products, we also have a much higher market share in that market. And as a consequence, you have a higher revenue per permit in that individual market. So there are a lot of things that impact it.
Michael Thomas Miller: The products right. We also have much higher market share in that market and as a consequence, you have a higher revenue per permit in that individual market. So there are a lot of things that impact there, but if youre thinking of adding.
Michael Thomas Miller: But if you're thinking of adding, say, one or two of the other products into a market, it takes a while to build up the market share to get. And it's rare that we would have this identical market share that we have in installations with the other products. So it's going to be – there are a lot of puts and takes there, but it's something that's going to add, call it, over time, 5%, 10%, 20% revenue to that overall brand. Well, theoretically, it is possible to have the same share of those products. It is.
Michael Thomas Miller: Say, one or two of the other products into a market. It takes a while to build up the market share to get and it's rare that we would have the identical market share that we have an installation with the other products. So you know it's going to be there are a lot of puts and takes there, but I mean, it's something that's gonna add call it over time.
Michael Thomas Miller: 510, 20% revenue to that overall brand theoretically it is possible to have the same share in those products and in some markets, we opened more warm and those products and the.
Kenneth Robinson Zener: And in some markets, we over-perform in those products, in the products other than installation. And I guess the other comment I'd make is when you closed out your question, Ken, you said it was an M&A strategy. I would say this is as much of an organic strategy, probably more than it is an M&A strategy in a lot of ways. In a lot of ways. When it's an M&A strategy, it's a really small tuck-in acquisition that then grows.
Kenneth Robinson Zener: Products other than installation right, but I guess the other common.
Kenneth Robinson Zener: Comment I'd make is when you closed out your question, Ken you said as an M&A strategy I would say this is as much of an organic growth strategy, probably more than it is an M&A strategy.
Kenneth Robinson Zener: And a lot of way.
Kenneth Robinson Zener: When it's an M&A strategy, it's a real small tuck in acquisition that then grows.
Michael Thomas Miller: The Organic Office. Not always, but a lot of times.
Kenneth Robinson Zener: Organic not always but a lot of times.
Kenneth Robinson Zener: All right, appreciate that. And then, I know you touched on fiberglass price trends a little bit. But with volume recovery, can you talk about the potential upside/downside risks related to tight supply and how you feel you're mitigating potential risks of having to go to, you know, third-party supplier channels if, you know, volume increases? Again, we don't see any margin surprises.
Speaker Change: Alright, I appreciate that and then I know you touched on fiberglass price trends a little bit.
Kenneth Robinson Zener: But with volume recovering can you talk about the potential upside downside.
Kenneth Robinson Zener: Related to tight supply.
Kenneth Robinson Zener: And how you feel youre mitigating.
Kenneth Robinson Zener: Potential risks of having to go to.
Kenneth Robinson Zener: Third party supplier channels.
Kenneth Robinson Zener: Volume increases.
Kenneth Robinson Zener: Yeah.
Kenneth Robinson Zener: Again, we don't expect any margin surprises.
Michael Thomas Miller: Yeah, I mean, we actually, you know, I think we learned a lot of lessons from the last couple of years in terms of just how tight the budget was and the stress that it caused on the organization. And we've done a lot of things internally to improve our operational efficiency in terms of material management, material ordering, and also working very closely with our suppliers to make sure that we're as efficient as we can in terms of getting the materials that we need.
Speaker Change: Yes, I mean, we actually I think we learned a lot of lessons from the last couple of years in terms of just how tight material wise in distress at a cost in the organization and we've got a lot of things internally to improve our operational efficiency in terms of material management and material ordering and also worked.
Michael Thomas Miller: Very closely with our suppliers.
Michael Thomas Miller: To make sure that we're as efficient as we can in terms of getting the materials that we need.
Michael Thomas Miller: You know, we feel very good about our ability to do that and to manage the process. You know, are things tight, and are they probably going to get tighter, particularly as the single family continues to ramp up? Yes. But, you know, we think some of the investments we've made in people and procedures around that have really improved our ability to mitigate the necessity of going to alternative sources.
Michael Thomas Miller: We feel very good about our ability to do that and to manage the process are things going to are things tighten or they'd probably going to get tighter, particularly as the single family continues to ramp up yes, but we think some of the investments we've made in people and procedures around that it really improved our ability to mitigate the necessity.
Michael Thomas Miller: We are going to alternative sources for particularly fiberglass. It doesn't mean, there aren't hiccups right of course, I mean, we still have that.
Michael Thomas Miller: It doesn't mean there aren't hiccups though, I mean we still have that, to Michael's point it's a combination of Jeff Hire and actually Brad Wheeler, our COO, who was not at the time our COO, we're kind of juggling this ball and we've added a wingman and so neither one of them now are having to handle it, we've got a guy full time kind of playing traffic cop as it relates to fiberglass.
Michael Thomas Miller: We to Michael's point.
Michael Thomas Miller: A combination of Jeff higher internationally, Brad Wheeler, our COO, who was not at the time we're.
Michael Thomas Miller: We're kind of juggling. This ball we've added a wing man and so neither one of them now are having to handle that we've got a guy fulltime Turner play traffic cop as it relates to fiberglass.
Kenneth Robinson Zener: Could you perhaps be a little more specific, realizing, you know, if there's a secret sauce, you don't want to give it away, but from the outside, if supply is tight, you know, you just couldn't get it, or is it that you're bidding more in line with your known supply? Thank you very much.
Speaker Change: Could you perhaps be a little more specific.
Kenneth Robinson Zener: If there is a secret sauce, you don't want to give it away but from.
Kenneth Robinson Zener: From the outside supply tight you just couldnt get it or is it that you're bidding.
Kenneth Robinson Zener: More in line with your known supply could you expand a little bit. Thank you very much.
Kenneth Robinson Zener: Yes, we are, you know, as we've talked on numerous occasions, you know, we always want to value our services properly and align that with an appropriate amount of volume, and an appropriate amount of volume comes with knowing what our supply is going to be and making sure we're focusing on servicing the customers that are our highest priority. So it is a question of just understanding where supply is going to be and what volume of work we want to do. But I would say this, that supply...
Speaker Change: Yes, we are.
Kenneth Robinson Zener: Okay.
Kenneth Robinson Zener: Talks at numerous occasions.
Kenneth Robinson Zener: <unk>.
Kenneth Robinson Zener: We always want to value our services properly and align that with an appropriate amount of volume and an appropriate amount of volume comes with knowing what our supply is going to be and making sure. We're focusing on servicing the customers that are our highest priority. So it is a key.
Kenneth Robinson Zener: <unk>, just understanding where supply is going to be and what the volume of work, we want to do but I would say this.
Michael Thomas Miller: But I would say this: supply, though, is definitely not curtailing our bidding activity and landing jobs for those jobs that we want to bid on and want to get. It's an important part.
Kenneth Robinson Zener: Supply, though is definitely not curtailing our.
Michael Thomas Miller: Bidding activity and adding jobs for those jobs that we want to bid, but I want to get right.
Michael Thomas Miller: It's an important clarification.
Speaker Change: Thank you.
Michael Thomas Miller: Hmm.
Michael Glaser Dahl: Our next question will come from Mike Dahl with RBC Capital Markets.
Michael Thomas Miller: Our next question will come from Mike Dahl with RBC capital markets.
Michael Glaser Dahl: Morning, thanks for taking my questions. Can I go back to the mix dynamic a little bit? And I just want to be clear, because I understand the narrative and expectation for the production builder mix. But quite frankly, if we look at the starts growth on the single family side, it's not all that different from what the public builders are reporting. So it does seem like the privates are actually holding their own better than a lot of people might have expected. So in your quarter, and what was reflected in the gross margin in the quarter, were you already seeing a meaningful shift towards production builders, or is that something that you're still trying to talk about as kind of a prospective, haven't seen it yet, but keep in mind, we still do expect this through the year and into next year?
Michael Glaser Dahl: Good morning, Thanks for taking my questions.
Michael Glaser Dahl: Can I go back to the mix dynamic a little bit and I just wanted to be clear because I.
Michael Glaser Dahl: And then the narrative and expectation for the production.
Michael Glaser Dahl: Builder mix, but quite frankly, if we look at the starts growth.
Michael Glaser Dahl: Family side, it is not all that different than what the public builders are reporting so it does seem like the privates are actually.
Michael Glaser Dahl: Either one better than a lot of people might have.
Michael Glaser Dahl: So in your in your quarter end, what was reflected in the gross margin in the quarter, where you already see.
Michael Glaser Dahl: Coal shift towards production builders or is that something that youre still trying to talk about is kind of a prospective havent seen it yet but keep in mind, we still do expect this through the year and into next year.
Michael Thomas Miller: Yeah, I think there's a two-part answer to that question. We saw an inflection towards production builders in January, and we're continuing to see that inflection. It's our belief that while the starts being up 27% in the first quarter is sort of reflective of backlogs and orders from the builders, starts, right, would be fully reflective not just of orders or backlogs but also spec, right? So the spec building shows up in starts, but it doesn't show up in backlogs and orders.
Michael Glaser Dahl: Yes, I think there's two.
Michael Thomas Miller: Part answer to that question, we saw the inflection towards production builders in January and we're continuing to see that inflection.
Michael Thomas Miller: It's our belief that the while the starts being up 27% in the first quarter is sort of reflective of backlogs and orders from the builders.
Michael Thomas Miller: Starts right would be fully reflective not just of orders or backlogs, but also stack right. So the spec building shows up in starts but it doesn't show up in backlogs and orders. So as a consequence, it's our belief that the production builders, which are heavy the ones.
Michael Thomas Miller: So as a consequence, it's our belief that the production builders, which are heavy, the ones that are heavy on specs, are going to have, their starts numbers are stronger than what they're reporting, right? Because of that, and because specs don't show up in really much of anything other than permits and starts, right? And then obviously completions and sales when it comes to the end, right? And so from our perspective, what you're seeing in backlog and order reporting from the builders is somewhat understating the level of starts that they're creating at this time because of that spec inventory.
Michael Thomas Miller: Our heavy spec are going Theres. There starts numbers are stronger than what they're reporting because of that that specs don't show up and really much of anything other than permits and starts right and obviously completions themselves. When it comes to the yeah, right and so from our perspective.
Michael Thomas Miller: What youre seeing in backlog and order a recording from the builders is somewhat understating.
Michael Thomas Miller: The level of starts that they're creating at this time because of that spec inventory. So we again, but I don't want to dismiss the importance of the regional and local builders because they are still building along at a good pace. It's just that they're not accelerating at the rate that the production builders are.
Michael Thomas Miller: So again, but I don't want to dismiss the importance of the regional and local builders because they're still building along at a good pace. It's just that they're not accelerating at the rate that the production builders are.
Michael Thomas Miller: Okay, yeah, got it. I mean, I hear you. Yeah, it seems like it seems like the privates might be holding on a little bit better.
Speaker Change: Okay got.
Speaker Change: Got it.
Michael Thomas Miller: I hear you.
Michael Glaser Dahl: Not that that's a bad thing, right? Just from a marketing standpoint, we want to make sure that setting. And then, on the multifamily dynamic, units under construction did just reflect a negative. I think if we look at the rate of kind of starts versus completions and run that out, like you're probably going to be in a position where units under construction are, you know, into the fourth quarter and into 25 down, you know, 20 percent, then 25 probably down 25, 30 percent in terms of units under construction.
Michael Thomas Miller: Yeah.
Michael Thomas Miller: Seems like it seems like the privates might be holding a little bit better.
Michael Glaser Dahl: Right.
Michael Glaser Dahl: Just from a margin standpoint, I want to make sure that.
Speaker Change: Got it.
Michael Glaser Dahl: And then on the multifamily units.
Michael Glaser Dahl: Units under construction did just come back negative.
Michael Glaser Dahl: Great.
Michael Glaser Dahl: Kind of starts versus completions and run that out.
Michael Glaser Dahl: Youre, probably going to be in a position where units under construction are.
Michael Glaser Dahl: In the fourth quarter and into 25 down 20% 25, probably down 25 30 percentage in terms of under construction. So I know that came with her bag, but again from kind of a level setting exercise when you talked about challenges next year.
Michael Glaser Dahl: So, I know this hits you with a lag, but again, from kind of a level-setting exercise, when you talk about challenges next year, what environment are you thinking about as far as your baseline for how much of a headwind that could be?
Michael Glaser Dahl: What environment are you thinking about as far as your baseline for how much of a headwind that could be to you.
Michael Thomas Miller: Well, I think the macro environment is definitely going to have a significant headwind similar to, you know, what your thinking is. Right, we would expect that multifamily, certainly from a permits and starts perspective, is going to normalize to historical trends this year, right? It already is, although permits in the first quarter for multifamily have averaged about 430, which, you know, arguably is above trend. And we would expect that, you know, going into 25 in the first part, you know, certainly the first quarter, you're still going to have some carryover of the units under construction.
Michael Glaser Dahl: Well I think the macro environment is definitely going to have a significant headwind similar to.
Michael Thomas Miller: You know what.
Michael Thomas Miller: Your your thinking is right, where you would expect that multifamily.
Michael Thomas Miller: Certainly from a permits and starts perspective is going to normalize to historical trends.
Michael Thomas Miller: This year it already is although permits in the first quarter for multifamily have averaged about $4 30, which arguably is above trend.
Michael Thomas Miller: And we would expect that going into 25 in the first part certainly the first quarter, you're still going to have some carryover.
Michael Thomas Miller: The units under construction.
Michael Thomas Miller: So, you know, I think the whole industry is going to be facing a market in 25 that looks more like what multifamily has looked like for the 10 years prior to COVID. And honestly, that's a very good environment for us to be in. Clearly, it's an adjustment for the market to go through, but what we believe and what gives us a lot of optimism is it's happening at the same time that single-family housing is accelerating in the right direction.
Michael Thomas Miller: So I think the whole industry is going to be facing a.
Michael Thomas Miller: Uh huh.
Michael Thomas Miller: A market in 'twenty five that looks more like what multifamily has looked like for the 10 years prior to Covid.
Michael Thomas Miller: That's honestly, that's a very good environment for us to be and clearly it's an adjustment for the market to go through but what we believe and what gives US a lot of optimism is it happening at the same time that single family is accelerating in the right direction and again you know single family is by far our largest end market.
Michael Thomas Miller: And again, single family is by far our largest end market, at 60%, and multifamily, 15, 16, 17%. So we feel very good about the ability of the single family strength to offset the headwinds on the multifamily side. And, as we said earlier, our ability to perform above the market opportunity by gaining market share in multifamily, particularly through the cross-selling of other products.
Michael Thomas Miller: At 60% and multifamily as you know 15, 16, and 17%. So we feel very good about the ability of the single family strained to offset the headwinds on the multifamily side and as we said earlier, our ability to perform above the market opportunity.
Michael Thomas Miller: By gaining market share in multifamily, particularly with through the cross selling of other products.
Speaker Change: Okay. Thanks for that sure.
Jeffrey Patrick Stevenson: Our next question will come from Jeffrey Stevenson with Loop Capital.
Michael Thomas Miller: Our next question will come from Jeffrey Stevenson with loop capital.
Jeffrey Patrick Stevenson: Hey, thanks for taking my questions today and congrats on the next quarter. So Mike, you talked about opportunities for multi-family share gains in 2025 from expanding your successful centralized model from your CQ insulation acquisition and key IBP markets. How long will it take to get this centralized model for things like bidding, labor, and payments across your branch footprint, and do you have a long runway?
Jeffrey Patrick Stevenson: Hi, Thanks for taking my questions today, and congrats on a nice quarter.
Jeffrey Patrick Stevenson: Thank you so much you talked about opportunities for multi family share gains in 2025 from expanding your successful centralized model from your <unk> installation acquisition in key IBP markets.
Jeffrey Patrick Stevenson: How long will it take to get the centralized model for things like bidding and labor and payments are across your branch footprint and do you have a long runway.
Michael Thomas Miller: We do have a pretty long runway, you know; there are plenty of our markets that don't use CQ or have the benefit of CQ that already have great relationships and multifamily marketing. So we would never put that model into those markets. We would let them continue to be kind of independent, if you will, of the CQ model, so to speak. But the team at CQ has identified markets that have great opportunities for them, where we have strong single-family market share and, you know, lower, weak multifamily market share. And they're working on performing on that strategy each and every day, and they're making incremental progress every single month on expanding their sort of bidding and managing network within that identified portion of our footprint.
Jeffrey Patrick Stevenson: We do have a pretty long runway.
Michael Thomas Miller: There are plenty of our markets that don't.
Michael Thomas Miller: You see Q or having the benefit of C. Q.
Michael Thomas Miller: That are already have is great.
Michael Thomas Miller: <unk> chips and multifamily market.
Michael Thomas Miller: So we would never put that model into those markets, we would like them to continue to be kind of independent if you will of the CQ model so to speak but the.
Michael Thomas Miller: The team at <unk> has identified markets that have great opportunity for them, where we have strong single family market share and a lower week multifamily market share and they are working on performing on that strategy, each and every day and theyre, making incremental progress every single month.
Michael Thomas Miller: Expanding their sort of bidding in managing network within that identify portion of our footprint.
Michael Thomas Miller: That's right.
Michael Thomas Miller: You know, I mean, it's really, it's really a, you know, if we make a smaller acquisition in a market, let's say that we weren't in, it's a matter of, of kind of growth of the branch, really, you know, and it's really a labor thing. So one of the gentlemen that's been in business for a long time that works for us, you know, ends up, you know, one of the sayings is, you know, he who has the labor wins, right?
Michael Thomas Miller: Yes.
Michael Thomas Miller: It's really.
Michael Thomas Miller: A smaller acquisition in the market, let's say that we werent in its a matter of kind of growth of the branch really yet.
Michael Thomas Miller: No.
Michael Thomas Miller: It's really a labor thing.
Michael Thomas Miller: So one.
Michael Thomas Miller: Gentlemen, it's been a business for a long time that works for US you know ends up you wanted to stains as he left he who has the labor wins right.
Michael Thomas Miller: And, you know, if you have the work, you can get the labor. But if you get the work, you've got to get the labor. And so it's just, it takes a little bit of time. But that's really kind of the play that we're running with CQ and those.
Michael Thomas Miller: If you have the work you can get the labor, but if you get the work you've got to get the labor and so it's just it takes a little bit of time, but that's really the kind of the play that we're running with CQ in those markets.
Jeffrey Patrick Stevenson: Okay, great, that's a good color. And then I was wondering if you could talk about the opportunity with spray foam over the coming years, given the long-term industry demand tailwinds from changes in building codes. And then, on top of that, the tight fiberglass supply environment. Yeah, that's our belief.
Speaker Change: Okay, Great no that's good color.
Jeffrey Patrick Stevenson: And then I was wondering if you could talk about the opportunity with spray foam over the coming years, given the long term industry demand tailwind from changes in building codes.
Jeffrey Patrick Stevenson: On top of that the tight fiberglass supply environment.
Michael Thomas Miller: Yeah, it's our belief that, you know, particularly if the whole country doesn't effectively go to the 21 Energy Code, that it will definitely mean greater penetration of spray foam. It's yet to fully be seen exactly what that will look like, whether it's a hybrid home that's, you know, part fiberglass, part spray foam. You know, we do think that fiberglass will continue to remain the dominant product for residential insulation, but we definitely can see a pathway toward greater usage of spray foam.
Speaker Change: Yes, it is our belief that.
Michael Thomas Miller: Particularly if the whole country doesn't asking it effectively go to the 'twenty one energy code that it will definitely mean.
Michael Thomas Miller: Mean, greater penetration of spray foam.
Michael Thomas Miller: Yet to fully be seen exactly what that will look like whether it's a hybrid home that's heart fiberglass parts spray foam.
Michael Thomas Miller: We do think that fiberglass will continue to remain that.
Michael Thomas Miller: Dominant product for residential installation, but we definitely can see a pathway towards greater usage spray foam, but to be clear spray foam is the most technical thing that we install.
Michael Thomas Miller: But to be clear, you know, spray foam is the most technical thing that we install, and it requires the highest trained installers that we have, and it also requires fairly expensive equipment that is on a very long lead time. And as a consequence, you can't just flip the switch overnight and then convert things to spray foam. It is a transition, and it takes time, which is why, you know, we think the way that the FHA, VA, and potentially Fannie and Freddie coming in and requiring installation of the 21 Energy Code being pushed out, if you will, to, you know, probably 25, 26, is constructive because it gives the industry time to size up, if you will, for this new spray foam opportunity. Great, thank you. Our next question will come from Keith Hughes with Truist. Thank you. Just back to multifamily real quick. You gave your view of the market, which has been
Keith Brian Hughes: And it requires the highest trained installers that we have and it also requires.
Keith Brian Hughes: Fairly expensive equipment that is on a very long lead time and as a consequence, you cant just flip the switch overnight and then convert things too.
Keith Brian Hughes: Spray foam is a transition and it takes time, which is why we think that the way that the FHA, VA and potentially Fannie and Freddie coming and requiring installed to the 'twenty one energy code being pushed out if you will to probably.
Keith Brian Hughes: Probably $25 26 is constructive because it gives the industry time to size up if you will for this new spray foam opportunity.
Michael Thomas Miller: Okay.
Keith Brian Hughes: Great. Thank you.
Keith Brian Hughes: Our next question will come from Keith Hughes with Truist. Thank you.
Michael Thomas Miller: Our next question will come from Keith Hughes with Truest.
Keith Brian Hughes: Thank you.
Keith Brian Hughes: The multifamily real quick you gave your view of the market, which has been pretty consistent.
Keith Brian Hughes: In terms of units I guess on margin the margin your competitors recording and multifamily was just.
Keith Brian Hughes: Screaming Hot given it was such a hot market.
Keith Brian Hughes: And that's obviously going to come off.
Keith Brian Hughes: Can you quantify or Directionally give us what.
Keith Brian Hughes: Is that part of your future medicine.
Keith Brian Hughes: What that could potentially do to margins.
Keith Brian Hughes: EBITDA.
Michael Thomas Miller: Yeah, I mean, our team has done a great job of maintaining the margin profile within the work that we're bidding on. I mean, clearly, as the market gets tighter, there'll, you know, continue to be some pressure there. But, you know, our team is doing an excellent job of really identifying the right jobs, the right opportunities, and making sure that we get paid for the value that our services provide. You know, I would say that, you know, there have been a couple of questions around this.
Keith Brian Hughes: Yes, I mean, our team has done a great job of maintaining the margin profile within the work that we're bidding I mean, clearly as the market gets tighter.
Michael Thomas Miller: We continue to be some pressure there, but our team is doing an excellent job of really identifying the right jobs at the right opportunities and making sure that we get paid for the value that our services provide.
Michael Thomas Miller: I would say that.
Michael Thomas Miller: Got a couple of questions around this we have consistently talked about full year adjusted gross margins in that 30% to 32% range admittedly, we have been consistently for multiple quarters above that level.
Michael Thomas Miller: You know, we have consistently talked about full-year adjusted gross margins in that 30% to 32% range. However, admittedly, we have consistently been above that level for multiple quarters. But, you know, our thinking long-term relative to that 30% to 32% really is informed by, one, this growth in production and the builder business that we've been talking about. And that, you know, multifamily, you know, again, as it goes back to a more normalized level of, call it, you know, 300,000 to 400,000 units, there will probably be some level of pricing pressure there. But our team has done an excellent job of resisting that. And, you know, I think our performance in that business demonstrates their ability to be successful.
Michael Thomas Miller: But our thinking long term relative to that 30% to 32%.
Michael Thomas Miller: Really it's informed by one this growth in production builder business that we've been talking about and that multifamily.
Michael Thomas Miller: Again, it goes back to a more normalized level of call. It three to 400000 units.
Michael Thomas Miller: There will probably be some level of pricing pressure there, but our team has done an excellent job.
Michael Thomas Miller: Resisting that and you know I think our performance in that business it demonstrates their ability to be successful.
Speaker Change: Okay, great. Thank you sure.
Keith Brian Hughes: Thank you. Thank you. Our next question will come from Phil Ng with Jeffrey. Hey, good morning. This is actually Colin on for Phil. Thank you for taking my question.
Michael Thomas Miller: Our next question will come from Phil <unk> with Jefferies.
Keith Brian Hughes: Okay.
Philip H. Ng: Our next question will come from Phil Ng with Jeffrey. Hey, good morning. This is actually Collin on for Phil. Thank you for...
Colin: Hey, good morning. This is actually calling on for Phil. Thank you for taking my question I just wanted to go to price mix. It was strong in the quarter, especially with that mix headwind from the production builder side I guess, just with the manufacturers and housing price increases any color as to how those conversations have gone for you to your customer base going forward should we expect the contribution from <unk>.
Colin: And to really build into Q any color there as to how youre thinking about pricing going forward.
Philip H. Ng: Yeah, so when we think about the quarter, I mean, it seems like a long time ago. But the market did take prices, material price increases, in the first quarter. And obviously, which I think our team has done a great job of doing is, you know, we're trying to match selling price, installation price, with that increase in material price, which then comes through the price mix calculation. To the extent that, as Jeff said, we think that there's, you know, material continues to be tight.
Speaker Change: Yes, so when we think about the quarter I mean, it seems like a long time ago, but the.
Philip H. Ng: The market did take price material price increases in the first quarter and obviously.
Philip H. Ng: I think our team has done a great job of doing is we're trying to match.
Philip H. Ng: Selling price install price with that increase in material price, which then comes through the price mix calculation.
Philip H. Ng: To the extent that and as Jeff said, we think that there is.
Michael Thomas Miller: It's a little early to tell what's going to happen with this next announced price increase, but, you know, we will work with our customers to make sure that there's a fair balance between rising material prices and where we're going from an installation price perspective. Now, that being said, we would continue to expect price to be positive as we go through the year. It's just the mix component that will weigh on the price mix because, you know, obviously, we had strong performance in multifamily, same-brand sales growth in the quarter, but it is decelerating from the rates that we saw in previous quarters. And as the single family production builder business ramps up and takes the reins of growth, if you will, from multifamily, that will, you know, impact the price mix, the mix component of the price mix calculation.
Philip H. Ng: Material continues to be tight it's a little early to tell what's going to happen with this next announced price increase but we will work with our customers to make sure that there is a fair balance between rising material prices and where we're going from an install price perspective.
Michael Thomas Miller: Being said, we would continue to expect price to be positive as.
Michael Thomas Miller: As we go through the year, it's just the mix component that will weigh on the price mix because.
Michael Thomas Miller: Obviously, we had strong performance in multifamily same branch sales growth in the quarter, but it is decelerating.
Michael Thomas Miller: From the rates that we saw in previous quarters and as single family production builder business ramps up and takes the reins of growth. If you will from multifamily that will impact negatively.
Michael Thomas Miller: Negatively the price mix the mix component of the price mix calculation.
Speaker Change: Great. Thank you for the color and good luck for the rest of the year.
Speaker Change: Thank you. Thank you.
Michael Thomas Miller: Okay.
Adam Michael Baumgarten: Our next question will come from Adam Baumgarten with Zellman & Associates.
Michael Thomas Miller: Our next question will come from Adam Baumgarten, with Zelman and associates.
Adam Michael Baumgarten: Hey, good morning, guys. You talked about residential, same branch growth, accelerating year-to-date. Have you seen, maybe on a monthly basis, positive year-over-year volumes in single-family at this point?
Adam Michael Baumgarten: Hey, good morning, guys.
Adam Michael Baumgarten: You talked about residential same branch growth accelerating year to date have you seen maybe on a monthly basis positive year over year volumes in single family at this point.
Michael Thomas Miller: Yeah, and I mean, April was, as you may or may not know, April was a weird month because it had two extra selling days in it, but even adjusting for those two extra selling days, you know, we felt very good about the single-family growth in April.
Adam Michael Baumgarten: Yes.
Adam Michael Baumgarten: I mean April is.
Michael Thomas Miller: You may or May not know April was a weird month, because it had two extra selling days in it but even adjusting for those two extra selling days.
Michael Thomas Miller: We felt very good about the single family growth in in April.
Adam Michael Baumgarten: Okay, got it. And then just on the manufacturer price increases, you know, we've got two effectively this year so far, do you expect further increases maybe in the back half of the year at this point, given the tightness?
Michael Thomas Miller: Okay got it and then just on the manufacturer price increases we've got to effectively this year. So far do you expect further increases maybe in the back half of the year at this point with given the tightness.
Speaker Change: Got it.
Jeffrey W. Edwards: If Jeff Heyer were in the room and able to answer, he would probably say something along the lines of, they may not be able to help themselves. But there probably are inflationary pressures still, so is there a chance? Yes, I think so.
Jeffrey Patrick Stevenson: Jeff Heier work.
Jeffrey W. Edwards: In the room unable to answer he would probably say something along the lines of they may not be able to help themselves but.
Jeffrey W. Edwards: Okay.
Jeffrey W. Edwards: Probably as inflationary pressures still so is there a chance, yes, I think so.
Adam Michael Baumgarten: Okay, got it. And then, just lastly for me, anything weather-wise that impacted the quarter negatively and maybe pushed some of the volume out into subsequent quarters?
Jeffrey W. Edwards: Okay got it and then just lastly for me just any thing weatherwise that impacted the quarter negatively and maybe pushed some of the volume out into subsequent quarters.
Michael Thomas Miller: Yeah, I mean, you know, the weather in January and February was a little challenging, but March was much better. So I would say nothing of significance that really moved Boeing one way or another.
Speaker Change: Yes, I mean, you know weather in January.
Michael Thomas Miller: January and February was a little challenging but March was much better.
Michael Thomas Miller: So I would say nothing of significance that really move volumes, one way or another.
Adam Michael Baumgarten: Okay, great. Thanks. Best of luck.
Speaker Change: Okay, great. Thanks Best of luck sure.
Jeffrey W. Edwards: That will conclude today's question and answer session. I will now turn the call over to Jeff Edwards for any additional closing remarks.
Adam Michael Baumgarten: That will conclude today's question and answer session I will now turn the call over to Jeff Edwards for any additional or closing remarks.
Operator: Thank you for your questions, and I look forward to our next quarterly call.
Jeffrey W. Edwards: Thank you for your questions and I look forward to our next quarterly call. Thank you.
Operator: This does conclude today's program. Thank you for your participation. You may now disconnect.
Jeffrey W. Edwards: This does conclude today's program. Thank you for your participation you may now disconnect.
Operator: Okay.
Operator: Okay.
Operator: [music].
Operator: Okay.
Operator: [music].