Q2 2024 Installed Building Products Inc Earnings Call

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Operator: Greetings and welcome to the Installed Building Products Fiscal 2024 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode.

Operator: Greetings and welcome to Installed Building Products' fiscal 2024 second quarter financial results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Speaker Change: Greetings and welcome to Installed Building Products Fiscal 2024 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference,

Darren Hicks: As a reminder, this conference is being recorded and is now my pleasure to introduce your host, Darren Hicks, Vice President of Investor Relations.

Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Darren Hicks, Vice President of Investor Relations.

Speaker Change: Please press star zero on your telephone keypad as a reminder. This conference is being recorded It is now my pleasure to introduce your host Darren Hicks vice president of investor relations. Please go ahead

Darren Hicks: Please go ahead. Good morning and welcome to Installed Building Products' second quarter 2024 conference call. Earlier today, we issued a press release on our financial results for the second quarter, which can be found in the Investor Relations section of our website.

Darren Hicks: Good morning, and welcome to Installed Building Products' second quarter 2024 earnings conference call. Earlier today, we issued a press release on our financial results for the second quarter, which can be found in the investor relations section of our website. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of the federal securities law. These forward-looking statements are based on management's current expectations and beliefs. These statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those described today.

Speaker Change: Good morning, and welcome to Installed Building Products second quarter 2024 earnings conference call. Earlier today, we issued a press release on our financial results for the second quarter, which can be found in the investor relations section of our website.

Darren Hicks: On today's call, management's prepared remarks and answers to your questions may contain for 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.

Speaker Change: 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.

Speaker Change: These four 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.

Darren Hicks: 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 Hicks: Please refer to the cautionary statements and risk factors in our SEC filings, including our annual report on Form 10-K. We undertake no duty or obligation to update any forward-looking statement as a result of new information or future events, except as required by federal securities laws. In addition, management refers to certain non-GAAP and adjusted financial measures on this call. You can find a reconciliation of such measures to the nearest gap equivalent in the company's earnings release and additional reconciliation for EBITDA and adjusted EBITDA for earlier fiscal years in our investor presentation, which is available in our investor relations section of our website.

Speaker Change: 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.

Darren 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 gap equivalent in the company's earnings release, an 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.

Speaker Change: except as required by federal securities laws. In addition, management refers to certain non-GAAP and adjusted financial measures on this call.

Speaker Change: You can find a reconciliation of such measures to the nearest gap equivalent in the company's earnings release and additional reconciliation for EBITDA and adjusted EBITDA for earlier fiscal years in our investor presentation, which are available on our investor relations section of our website.

Darren Hicks: This morning's conference call is hosted by Jeff Edwards, our chairman and chief executive officer, and Michael Miller, our chief financial officer, and joined by Jason Nicewanger, our chief administrative and sustainability officer.

Darren Hicks: This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer, and Michael Miller, our Chief Financial Officer, and joined by Jason Niswonger, our Chief Administrative and Sustainability Officer. I will now turn the call over to Jeff. Thanks, Darren.

Speaker Change: This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer, and Michael Miller, our Chief Financial Officer, and joined by Jason Niswonger, our Chief Administrative and Sustainability Officer. I will now turn the call over to Jeff.

Jeff Edwards: I will now turn the call over to Jeff. Thanks, Darren. Good morning to everyone joining us on today's call.

Jeffrey Edwards: 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. During the second quarter, we began the process of winding down the operations of a single branch that installed non-core building products into newly constructed commercial structures. We believe that excluding the financial results of this branch from our typical income statement metrics is useful in understanding and evaluating the results of our ongoing operations as it is non-core. As such, all income statement figures mentioned on this call exclude the aforementioned branch results and are thus net of disposition.

Jeff Edwards: 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. During the second quarter, we began the process of winding down the operations of a single branch that installed non-core building products into newly constructed commercial structures. We believe that excluding the financial results of this branch from our typical income statement metrics is useful in understanding and evaluating the results of our ongoing operations as is non-core. As such, all income statement figures mentioned on this call exclude the aforementioned branch results in our, thus net of dispositions.

Speaker Change: As such, all income statement figures mentioned on this call exclude the aforementioned branch results and are thus net of dispositions.

Jeff Edwards: Our second quarter sales results continued to reflect fundamental improvements in our single-family end market relative to the last 12 months and good sales growth in our multifamily end market. We believe our customers are committed to meeting new construction homeownership demand by continuing to build new single-family homes in the current macroeconomic backdrop. We expect our multifamily backlog to keep branches in core geographic markets busy in the near term, despite ongoing industry headwinds as it relates to multifamily unit starts. Longer term, we believe opportunities in our multifamily end markets remain a track. I encouraged by the positive same branch sales growth we achieved in our single family end market.

Jeffrey Edwards: Our second quarter sales results continue to reflect fundamental improvements in our single-family end market relative to the last 12 months and good sales growth in our multifamily end market. We believe our customers are committed to meeting new construction homeownership demand by continuing to build new single-family homes in the current macroeconomic backdrop. We expect our multifamily backlog to keep branches in core geographic markets busy in the near term despite ongoing industry headwinds as it relates to multifamily unit starts.

Speaker Change: Our second quarter sales results continue to reflect fundamental improvements in our single-family end market relative to the last 12 months and good sales growth in our multi-family end market.

Speaker Change: We expect our multifamily backlog to keep branches in core geographic markets busy in the near term, despite ongoing industry headwinds as it relates to multifamily unit starts. Longer term, we believe opportunities in our multifamily end markets remain attractive.

Jeffrey Edwards: Longer term, we believe opportunities in our multifamily end markets remain attractive, and I am encouraged by the positive same-branch sales growth we achieved in our single-family end market. The nearly 8% year-over-year increase during the quarter was the strongest increase in same-branch sales since the fourth quarter of 2022. Single family sales growth was supported by a growing proportion of sales from national production builders in the quarter. Our deep customer relationships, local market knowledge, and ability to align our pricing with the value we offer our customers were key to our second quarter single family sales results. Our multifamily installation sales growth continued to be resilient, with the apparent operational benefits of our centralized service-oriented model. On a same-branch basis, Multifamily sales in our installation segment increased 5%.

Jeff Edwards: The nearly 8% year-a-year increase during the quarter was the strongest increase in same branch sales since the fourth quarter of 2022. Our model thought family installation sales growth continued to be resilient with the apparent operational benefits of our centralized service-oriented model. On a same branch basis, model family sales and our installation segment increased 5%. In addition, across our branches, there continues to be an opportunity to sell IVPs, installation services in our markets that historically have not served multi-family customers. The sales growth results for our commercial installation segment reflects different dynamics in the two submarkets that make up our commercial end market.

Jeffrey Edwards: In addition, across our branches, there continues to be an opportunity to sell IBP's installation services in our markets that historically have not served Multifamily customers. The sales growth results for our commercial installation segment reflect different dynamics in the two sub-markets that make up our commercial end market. The heavy commercial market continues to experience healthy growth, while our light commercial market continues to experience some headwinds as the light commercial construction cycle tends to lag single-family construction. Excluding dispositions, commercial sales growth was modestly positive in the quarter.

Jeff Edwards: The heavy commercial market continues to experience healthy growth, while our light commercial market continues to experience some headwinds, as the light commercial construction cycle tends to lag single family construction activity. Excluding dispositions, commercial sales growth was modestly positive in the quarter. Strong profitability during the second quarter continued to reflect our strategic priority to apply our local market expertise to efficiently complete the most operationally and financially attractive jobs for our local business. As a result, our second quarter adjusted even a margin expanded to 18.5%. Acquisitions continue to be our top priority as we consider all of our options for capital allocation.

Jeffrey Edwards: Strong profitability during the second quarter continued to reflect our strategic priority to apply our local market expertise to efficiently complete the most operationally and financially attractive jobs for our local business. As a result, our second quarter adjusted EBITDA margin expanded to 18.5%. Despite our growth over the years, we believe meaningful opportunities still exist for us to expand our geographic presence and diversify the mix of building products we install across our national branch network. For example, an Oklahoma-based installer of insulation and a Massachusetts-based installer of gutters with combined annual revenue of approximately $14 million, and an Illinois-based installer of a diversified set of building products with annual revenue of approximately $20 million.

Speaker Change: 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 meaningful opportunities still exist for us to expand our geographic presence and diversify the mix of building products, we install our cros.

Jeff Edwards: Despite our growth over the years, we believe in meaningful opportunities still exist for us to expand our geographic presence and diversify the mix of building products we install across our national branch network.

Jeff Edwards: During the 2024 second quarter in July, we completed the following acquisitions: a North Carolina-based installer of insulation and other diversified building products serving single-family and multi-family customers with annual revenue over $6 million. An Oklahoma-based installer of insulation and a Massachusetts-based installer of gutters with combined annual revenue for approximately $14 million. And an Illinois-based installer of a diversified set of building products within your revenue for approximately $20 million. Today, we have acquired over $50 million of annual revenue, and we expect 2024 to be another favorable year of acquisition growth. We believe we are well positioned for another year of strong operational financial performance in 2024 as we continue to focus on profitability and effective capital allocation to drive earnings growth and value for our shareholders.

Speaker Change: National Branch network.

Speaker Change: During the 2020 for second quarter and in July we completed the following acquisitions in North Carolina based installer of installation and other diversified building products, serving single family and multifamily customers with annual revenue over $6 million.

Speaker Change: An Oklahoma based installer of installation and in Massachusetts based installer gutters with combined annual revenue of approximately $14 million and an Illinois based installer of a diversified set of building products with annual revenue of approximately $20 million to date, we have acquired over $50 million of annual revenue and we expect.

Jeffrey Edwards: To date, we have acquired over $50 million in annual revenue, and we expect 2024 to be another favorable year of acquisition growth. Additionally, beyond the typical demand drivers, we believe the United States government incentives and plan mandates towards more stringent energy efficiency standards in new and existing single-family homes will be favorable for our business. To everyone at IVP, thank you for your commitment, your hard work, and a tough job always done well.

Speaker Change: 2024 to be another favorable year of acquisition growth.

Speaker Change: 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 and value for our shareholders.

Jeff Edwards: Based on the U.S. Census Bureau, single-family starts year to date through June 24 have increased by 16%. We believe that the current pace of starts growth supports a healthy market environment for our single family installation services. Additionally, beyond the typical demand drivers, we believe the United States government incentives and planned mandates towards more stringent energy efficiency standards and new and existing single-family homes will be favorable for our business. We intend to continue to focus on what we control, leveraging our strong customer relationships, experience 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.

Speaker Change: Based on the U S Census Bureau single family starts year to date through June 24 have increased by 16%. We believe the current pace of starts growth supports a healthy market environment for our single family installation services.

Speaker Change: Additionally, beyond the typical demand drivers, we believe in the United States government incentives and planned mandates towards more stringent energy efficiency standards, and new and existing single family homes will be favorable for our business.

Speaker Change: We intend to continue to focus on what 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 construction market.

Jeff Edwards: construction market. 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 IDP, thank you for your commitment, your hard work, and a tough job, always done well. I remain excited by the prospects ahead for IDP in the broader installation and other product installation business.

Speaker Change: I'm proud of our team's continued success commitment to excellence and ability to consistently meet the needs of our customers.

Speaker Change: Everyone at IBP. Thank you for your commitment your hard work and a tough job always done well I remain excited by the prospects ahead for I D P and the broader installation and other product installation business.

Jeffrey Edwards: I remain excited by the prospects ahead for IVP and the broader installation and other product installation business. Within that result, administrative expenses excluding variable compensation in the second quarter of 2024 were flat with the first quarter of 2024.

Michael Miller: So, with this review, I'd like to turn the call over to Michael to provide more detail on our second quarter financial results. Thank you, Jeff, and good morning, everyone. As Jeff noted earlier, all income statement references in my comments are net of dispositions. Consolidated net revenue for the second quarter increased 8% to $740 million, compared to $687 million for the same period last year. The increase in sales during the quarter was driven by growth in our new and existing residential markets. Our single-family same-brand sales increased 8%, while our multi-family same-brand sales increased 5% during the second quarter.

Speaker Change: So with this review I'd like to turn the call over to Michael to provide more detail on our second quarter financial results.

Michael Miller: Thank you, Jeff and good morning, everyone as Jeff noted earlier, all income statement references in my comments, our net of dispositions.

Michael Miller: Consolidated net revenue for the second quarter increased 8% to $740 million compared to $687 million for the same period last year.

Speaker Change: The increase in sales during the quarter was driven by growth in our new and existing residential markets.

Speaker Change: Our single family same branch sales increased 8%, while our multifamily same branch sales increased 5% during the second quarter.

Michael Miller: Although the components behind our price mix and volume disclosure have several moving parts that are difficult to forecast and quantify, we continue to experience top-line improvement from a 6.4% increase in price mix during the second quarter, which more than I've said modestly lighter job volumes down 1.4% relative to the second quarter last year. Our business achieved strong results in the second quarter as measured by an adjusted growth margin of 34.9%, adjusted net profit margin of 11.6%, and adjusted EBITDA margin of 18.5%. Adjusted selling and administrative expense as a percent of second quarter sales was 18.3% due to higher variable compensation related to higher growth profit and EBITDA performance from the prior year period.

Speaker Change: Although the components behind our price mix and volume disclosure have several moving parts that are difficult to forecast and quantified. We continue to experience top line improvement from a six 4% increase in price mix during the second quarter, which more than offset modestly lighter job volumes down one 4% relative to the second quarter last year.

Speaker Change: Our business achieved strong results from the second quarter as measured by an adjusted gross margin of 34, 9% adjusted net profit margin of 11, 6% and adjusted EBITDA margin of 18, 5%.

Speaker Change: Adjusted selling and administrative expense as a percent of second quarter sales was 18, 3% due to higher variable compensation related to higher gross profit and EBITDA performance from the prior year period.

Michael Miller: Within that result, administrative expenses, excluding variable compensation in the second quarter of 2024, were flat with the first quarter of 2024. Adjusted EBITDA for the 2024 second quarter increased 11.3% to a record $136.6 million, and adjusted EBITDA margin improved to 18.5%, compared to 17.9% 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%. For the 2024 second quarter, total same-branch incremental adjusted EBITDA margin was 29%. Adjusted net income per diluted share improved 14.5% to $3.02 per share. Although we do not provide comprehensive financial guidance, based on recent acquisitions, we expect third quarter of 2024, amortization expense of approximately $10 million, and full-year 2024 expense of approximately $42 million.

Speaker Change: Within that result administrative expenses, excluding variable compensation in the second quarter of 2024 was flat with the first quarter of 2024.

Jeffrey Edwards: Adjusted EBITDA for the 2024 second quarter increased 11.3% to a record $136.6 million, and adjusted EBITDA margin improved to 18.5% compared to 17.9% for the same period last year, with full year 2024 expense of approximately $42 million. Also, we continue to expect an effective tax rate of 25 to 27% for the full year ending December 31st, 2024. At June 30, 2024, we had a net debt to trailing 12-month adjusted EBITDA leverage ratio of 0.97 times, compared to 1.32 times at June 30, 2023, which is well below our stated target. IBP's Board of Directors approved a third quarter dividend of $0.35 per share, which is payable on September 30, 2024, to stockholders of record on September 15, 2024.

Speaker Change: Adjusted EBITDA for the 2020 for second quarter increased 11, 3% to a record $136 $6 million and adjusted EBITDA margin improved to 18, 5% compared to 17, 9% for the same period last year.

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

Speaker Change: For the 20 <unk> for the 2024 second quarter.

Speaker Change: Total same branch incremental adjusted EBITDA margin was 29%.

Speaker Change: Adjusted net income per diluted share improved 14, 5% to $3 <unk> per share.

Speaker Change: Although we do not provide comprehensive financial guidance based on recent acquisitions, we expect third quarter 2020 for amortization expense of approximately $10 million and full year 2024 expense of approximately $42 million. We would expect these estimates to change with any acquisitions we closed.

Michael Miller: 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% for the full year ending December 31, 2024.

Speaker Change: In future periods.

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

Michael Miller: Now, let's look at our liquidity position, balance sheet, and capital requirements in more detail. For the six months ended June 30th, 2024, we generated $164 million in cash flow from operations, compared to $138 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. Our second quarter net interest expense decreased to $8 million from $8.2 million from $9.8 million in the prior year period, primarily due to a greater amount of interest income from higher interest rates on higher balances of cash and cash equivalents relative to the year-go period.

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

Speaker Change: For the six months ended June 32024, we generated $164 million in cash flow from operations compared to $138 million in the prior year period the.

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

Speaker Change: Our second quarter net interest expense decreased to $8 2 million from $9 $8 million in the prior year period, primarily due to a greater amount of interest income from higher interest rates and higher balances of cash and cash equivalents relative to the year ago period.

Michael Miller: At June 30th, 2024, we had a net debt to trailing 12-month adjusted EBITDA leverage ratio of 0.97 times compared to 1.32 times at June 30th, 2023, which is well below our stated target of two times. At June 30th, 2024, we had $355 million in working capital, excluding cash equivalents, capital expenditures, and total incurred finance leases for the three months ended June 30th, 2024, where approximately $22 million combined, which was approximately 3% of revenue, roughly in line with the same period last year. With our strong liquidity position and modest financial leverage, we continued to expand the business through acquisition and return capital to shareholders.

Speaker Change: At June 32024, we had a net debt to trailing 12 month adjusted EBITDA leverage ratio of <unk> 97 times compared to 132 times at June 32023, which is well below our stated target of two times.

Speaker Change: At June 30th 2024, we had $355 million and working capital, excluding cash and cash equivalents capital expenditures and total incurred finance leases for the three months ended June 30th 2024 were approximately $22 million combined which is approximately 3% of revenue rough.

Speaker Change: In line with the same period last year.

Speaker Change: With our strong liquidity position and modest financial leverage we continue to expand the business through acquisition and return capital to shareholders.

Michael Miller: During the 2024 second quarter, IVP repurchased 215,000 shares of its common stock at a total cost of $46 million. At June 30th, 2024, the company had over $250 million available under its stock repurchase program. IVP's board of directors approved the third quarter dividend of $0.35 per share, which is payable on September 30th, 2024, to stockholders of record on September 15th, 2024. The third quarter dividend represents a 6% increase over the prior year period.

Speaker Change: During the 2024 second quarter IBP repurchased 215000 shares of its common stock at a total cost of $46 million at June 32024, the company had over $250 million available under its stock repurchase program.

Speaker Change: <unk> Board of directors approved a third quarter dividend of 35 per share, which is payable on September 32024 to stockholders of record on September 15th 2024.

Speaker Change: Third quarter dividend represents a 6% increase over the prior year period.

Jeff Edwards: With this overview, I will now turn the call back to Jeff for closing remarks. Thanks, Michael. I'd like to conclude our prepared remarks by once again thanking IVP employees for their hard work, dedication, and commitment to our company. Our success over the years is made possible because of you.

Speaker Change: With this overview I will now turn the call back to Jeff for closing remarks.

Speaker Change: 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 your.

Operator: Operator, let's open up the call for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker Change: Operator, let's open up the call for questions.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Stephen Kim: Your first question comes from Stephen Kim with Evercore ISI. Please go ahead. Thanks very much, guys. Thanks for all the color.

Speaker Change: Your first question comes from Stephen Kim with Evercore ISI. Please go ahead.

Analyst: Thanks very much, guys. Thanks for all the color, but as usual, we have additional questions. I guess my first one was, if you could speak to any verticals that maybe slowed a little bit in the quarter that's worth calling out, or maybe missed your internal projections, any verticals. And then, broadly, when we think about fiberglass, curious if you could talk about how the price pass-through is going.

Stephen Kim: Thanks, very much guys.

Speaker Change: Thanks for all the color.

Michael Miller: Excuse me, but as usual, we have additional questions. I guess my first one was if you could speak to any verticals that maybe slowed a little bit in the quarter that's worth calling out or maybe missed your internal projections, any verticals. And then broadly, when we think about fiberglass, curious if you could talk about how the price pass-through is going like my sense is it's going well, but wanted to get your sense and then also what you think the potential is for a third increase this year.

Stephen Kim: But excuse me, but as usual we have additional questions. I guess my first one was if you could speak to any verticals.

Speaker Change: Maybe slowed a little bit in the quarter, that's worth calling out or maybe missed your internal projections.

Speaker Change: Any any any verticals and then broadly.

Speaker Change: When we think about fiber glass I'm curious if you could talk about how the price pass throughs going my sense is it's going well, but wanted to get your sense and then also what.

Analyst: My sense is it's going well, but wanted to get your sense and then also what you think the potential is for a third increase this year. Okay, great. That's fine. I don't know what the word is, but you know what I mean by the Chevron case.

Speaker Change: What you think the potential is for our third increase this year.

Speaker Change: Okay.

Michael Miller: Stephen Goodmond, this is Michael. So, on the first part of that question relative to the verticals, I would say that all lines of business, all end markets are performed very much in line with our expectations. But, as we have highlighted in previous quarters, clearly the weakest part of the business right now is the like commercial business, which naturally cycles behind single-family development. So we would expect, as we go into the latter half of this year and the early part of next year, given the strength that we've seen in single family, that that business would start to recover.

Speaker Change: Stephen Good morning. This is Michel so on the first part of that question relative to the verticals I would say that you know all lines of business. All end markets performed very much in line with our expectations, but.

Speaker Change: But as we have highlighted in previous quarters, clearly the weakest part of the.

Speaker Change: The business right now is the light commercial business with which naturally cycles behind single family development. So we would expect as we go into the latter half of this year and the early part of next year given the strength that we've seen in single family that that business would start to recover but I would say that across the board the bid.

Michael Miller: But I would say that across the board, the business performed as expected from a revenue perspective and actually performed better than we expected from a gross margin perspective.

Speaker Change: <unk> performed as.

Speaker Change: As expected from a revenue perspective, it actually performed better than we expected from a gross margin perspective, I don't know if you want to talk about.

Michael Miller: I don't know if you want to talk about that.

Jeff Edwards: Stephen, hi, this is Jeff. In terms of material, material tightness, and pricing, it is still a very tight market. We expect it to continue to stay that way probably through the end of the year. Obviously, it's an environment in which manufacturers have been able to realize price, and it's one in which we try to at least make up the ground that we need to make up.

Speaker Change: Steve and I this is Jeff.

Speaker Change: In terms of material material tightness in pricing. It it is still a very tight market. We expect it to continue to stay that way probably to the end of the year.

Speaker Change: Obviously, it's an environment in which manufacturers have been able to realize price and its one in which where we tried to at least make up the ground that we need to make up you know I can speculate as to whether there's a third one or not it's a little late in the year I suppose.

Stephen Kim: I can speculate as to whether there's a third one or not. It's a little late in the year, I suppose. So maybe I won't speculate. Okay, great.

Speaker Change: So maybe I won't speculate.

Speaker Change: Yeah.

Speaker Change: [laughter], Okay, great that's fine.

Stephen Kim: That's fine. I guess Mike, you talked a little bit about the incentive comp.

Speaker Change:

Speaker Change: I guess, Mike you talked a little bit about the.

Speaker Change: Our incentive comp I assume that was maybe weighing a little bit on the the.

Stephen Kim: I assume that was maybe weighing a little bit on the incremental, organic, or organic incrementally, but a margin wondering if there was anything else maybe to call out because that came in a little lower than we were expecting. And then with respect to the HUD mandate on single family, you know, the energy code HUD mandate, which is coming next year. I guess I just curious to hear if you could address that and your thoughts around that we've been guiding questions as to whether or not we might see FHSA follow on. And there's been also questioning around whether or not all of this just may disappear.

Speaker Change: Incremental organic or organic incremental EBITDA margin.

Speaker Change: I'm wondering if there was anything else maybe to call out because that came in a little lower than we were expecting and then with respect to the HUD mandate on single family the.

Speaker Change: The energy code HUD mandate, which is coming next year I guess I was just curious to hear if you could address that and your thoughts around that.

Speaker Change: Been gaining questions as to whether or not we might see FHFA follow on.

Speaker Change: And there's been also questioning around whether or not all of this just may disappear.

Stephen Kim: You know, maybe due to the Chevron, you know, the ruling around the Chevron. I don't know what the word is, but you know what I mean by the Chevron case. And then the potential for us ever public and sweet, maybe to do all this.

Speaker Change: Maybe due to the chevron.

Speaker Change: Ruling around the Chevron.

Speaker Change: Uh huh.

Speaker Change: I don't know what the word is but what I mean by the Chevron case and then.

Analyst: And then there is the potential for a Republican majority maybe to just undo all this. So, just curious if we could talk about the HUD mandate process. Ultimately, it still benefits the builder because they have the tax credit that will more than offset the cost of going to the 21 Energy Code. And I think everyone believes that it is going to stay and will still continue to be available. It does make economic sense for them and, obviously, for the homeowner as well.

Speaker Change: The the potential for us to have Republican sweep, maybe just start to do all of that so just curious if you could talk about the HUD mandate properly.

Jeff Edwards: So just curious if you could talk about the HUD mandate problem. I mean, as far as we know and as far as everything that we've heard, that, you know, the process is continuing. You know, we believe that there might be some pushback relative to the timing of implementation, but it's very difficult for us to speculate what was happened in a, you know, change in the political environment. So, as far as we know and as far as our customers are working, we're all sort of working towards this getting put in place. And you know, ultimately it still benefits the builder because they have the tax credit that will more than offset the cost of going to the 21 Energy Code.

Speaker Change: I mean as far as we know and as far as everything that we've heard that the process is continuing.

Speaker Change: We believe that there might be some push back relative to the timing of implementation, but it's very difficult for us to speculate what would happen in a change in the political environment. So as far as we know and as far as our customers are working we're all sort of working towards this.

Speaker Change: Getting put in place and.

Speaker Change: Ultimately it still benefits to builder because they had the tax credit that will more than offset the costs that go into the 'twenty one energy codes so that.

Jeff Edwards: So that I think everyone believes is going to stay and will still continue to be available. So it does make economic sense for them, and obviously for the homeowner as well. So we think, regardless of the political outcome, that, you know, logic and economics will continue to push forward, getting more. Bill that was building to the 21-Energy Code.

Speaker Change: That I think everyone believes is going to stay.

Speaker Change: We're still continuing to be available so it doesn't make economic sense for them and obviously for the for the homeowner as well. So we think regardless of the political outcome lots.

Analyst: We think, regardless of the political outcome, that logic and economics will continue to. The Operating Environment for Multi-Family Construction. Okay. I got it. That's helpful. And then just on the disposition, maybe just a little more color on what that non-core product line was. And then, if we think about the rest of your footprint, any other opportunities or plans for additional dispositions? Last four or five quarters now, plus or minus 34%, which is, you know, solidly above your long-term or longer-term goal, you know, where I think, you know, 32%, you know, I guess long-term outlook, 30 to 32. So it seems like you're consistently exceeding that, and I think a quarter or two ago, Certainly going above 35 percent is probably not likely, but staying in a 32 to What would you say the odds are of maybe exceeding that?

Speaker Change: Logic and economics will continue to push forward getting more.

Speaker Change: Builders building to the 'twenty, one energy code in terms of your margin question.

Michael Miller: In terms of your margin question, you know, adjusted gross margin and both adjusted EBIT down margin and all of our comments are net of dispositions. You know, we're very strong from our perspective, quite frankly, and, you know, the selling, adjusted selling and administrative leverage, you know, that was higher, I should say the cost that were higher on a relative basis to revenue was really all driven by variable compensation. And if you look at it on a quarter, three-quarter basis basically, that number has been quite in line for the past three quarters as a percentage of revenue.

Speaker Change: Adjusted gross margin and <unk>.

Speaker Change: Adjusted EBITDA margin in all of our comments are net of dispositions.

Speaker Change: You know, where we're very strong from our perspective quite frankly and.

Speaker Change: The selling adjusted selling and administrative leverage.

Speaker Change: You know that.

Speaker Change: It was hot or.

Speaker Change: I should say the costs that were higher on a relative basis. The revenue was really all driven by variable compensation and if you look at it on a you know.

Speaker Change: Or three quarter basis basically.

Speaker Change: That number has been quite in line with.

Speaker Change: For the past three quarters as a percentage of revenue.

Michael Miller: And if you look at us, gene 8 excluding variable compensation, right, they've been flat for the past couple of quarters.

Speaker Change: And if you look at just G&A dollars, excluding variable compensation right they've been flat for the past couple of quarters.

Jeff Edwards: The only thing I'd like to add over to 2021 code is, I mean, backing up from the politics for a moment, it wasn't created just kind of willy-nilly. It's created because, you know, it's good for the environment and saves energy ultimately, and it's been well known that from in terms of insulation, as kind of a payback as it relates to home energy costs and kind of the effects of, you know, against the environment, that the insulation is probably, if not the most effective way to combat some of those things, is certainly up there in the top tiers.

Speaker Change: And the only thing I'd like to add on to 2021 code is backing up in the politics for a moment. It wasn't created just kind of Willy Nilly. It's created because it's good for the environment and it saves energy ultimately in and its been as.

Speaker Change: Well known that from in terms of installation as kind of the payback as it relates to home energy costs and kind of the effects of.

Speaker Change: Against the environment that the installation is probably if not the most effective way to combat some of those things is certainly up there.

Speaker Change: Top tiers.

Stephen Kim: Okay. Great.

Speaker Change: Okay, great. Thanks, very much guys.

Stephen Kim: Thanks very much, guys.

Speaker Change: Yeah.

Adam Baumgarten: Next question, Adam Baumgarten with Delman and Associates.

Speaker Change: Next question, Adam Baumgarten with Zelman and Associates. Please go ahead.

Michael Miller: Please go ahead. Hey guys, thanks for taking my questions. First, I'm a family just kind of how we think about the back half of the year. It's decelerated a bit, but still positive. Maybe to expect positive same-source sales growth and multi-family in the back half at this point.

Adam Baumgarten: Hey, guys. Thanks for taking my questions.

Speaker Change: First on multifamily just kind of how we think about the back half of the year, it's decelerated a bit but still positive maybe do you expect positive same store sales growth in multifamily in the back half at this point.

Michael Miller: Well, I just know we don't provide guidance, but I would say a couple of things on the level. So one of the things that we look at are units under construction relative to start. And if you look at that on a single-family basis, it's currently running somewhere on seven to eight months, which is consistent with kind of long-term trends sort of pre-COVID. So we would say that cycle times have completely normalized in single-family. Maybe you can prove a little bit above normal in single-family construction market on multi-family, as I think everybody on the call is probably aware the units under construction or the backlog continues to be quite elevated.

Speaker Change: But no we don't provide guidance.

Speaker Change: But I would say a couple of things on the multifamily side.

Speaker Change: <unk>.

Speaker Change: <unk>.

Speaker Change: The backlogs are still at a highly elevated level. So one of the things that we look at our units under construction relative to starts.

Speaker Change: If you look at that on a single family basis. It's currently running somewhere around seven to eight months, which is consistent with kind of long term trends sort of pre COVID-19. So we would say that cycle times have completely normalized in the single family, maybe improved a little bit above normal.

Speaker Change: Family construction market on multifamily as I think everybody on the call is probably aware the units under construction or in the backlog continues to be quite elevated you know normal in.

Michael Miller: Normal in that market would be more like 20 to 23 months of starts. Currently, it's running around 28 to 29 months of starts. So, you know, construction or units under construction still need to come down probably 25 to 30% to normalize given the current start level. And, you know, that creates a significant headwind for the industry. And for us, you know, we feel good about our ability to continue to gain market share and improve the cross-cell of other products in multi-family. But clearly, that significant of readjustment in the units under construction is going to have an impact on our multi-family sales.

Speaker Change: That market would be more like 20 to 23 months of starts.

Speaker Change: Currently it's running around 28 to 29 months of starts so construction.

Speaker Change: Construction of units under construction still need to come down probably 25% to 30% in normalized given the current starts level.

Speaker Change: And you know that creates a significant headwind for the industry and for <unk> for us.

Speaker Change: We feel good about our ability to continue to gain market share and improve the cross sell of other products in multifamily, but clearly that significant of a readjustment in the units under construction is going to have an impact on our multifamily itself I would say that the.

Michael Miller: I would say that the what's maybe change from our perspective relative to that is we think that the normalization of the units under construction is going to happen sooner. Then we may have expected, say, three to six months ago, but that also means that we'll come to a stabilization period sooner than we had expected, meaning that we will be able to then focus on just continuing to gain market share and seeing revenue growth in multi-family from market share gains versus overall market growth.

Speaker Change: What's maybe changed from our perspective relative to that is we think that the.

Speaker Change: Normalization of the units under construction is going to happen sooner.

Speaker Change: Then.

Speaker Change: We may have expected say three to six months ago, but that also means that we'll come to a stabilization period sooner than we had expected meaning that we will be able to then focus on just continuing to gain market share and seeing revenue grow within multifamily from market share gains versus overall market growth.

Michael Miller: So, that was a long-winded way of not answering your question. But because we don't provide guidance, but I do think that, you know, there is a good chance that if... Multi-family units under construction comes in for the full year between 600,000 and 700,000 completions that we will get to that more normalized 20 to 23 months, which in essence then creates a stable operating environment for multi-family construction. Okay, got it. That's helpful.

Speaker Change: So that was a long winded way of not answering your question because we don't provide guidance, but I do think that.

Speaker Change: There is a good chance that if.

Speaker Change: Multifamily units under construction comes in for the full year between 600000, and 700000 completions that we will get to that more normalized 20% to 23 months, which in essence, then creates a stable.

Speaker Change: Operating environment for multifamily construction.

Speaker Change: Okay got it no. That's helpful. And then just just on the disposition, maybe just a little more color on what that noncore product line was and then if we think about the rest of your footprint any other opportunities or plans for additional dispositions.

Michael Miller: And then just on the disposition, maybe just a little more color on what that non-core product line was. And then, if we think about the rest of your footprint, any other opportunities or plans for additional dispositions?

Jeff Edwards: Absolutely not. All of our other branches are performing, you know, to our expectations or even exceeding our expectations. This was a one-off deal that obviously, in hindsight, we wish we hadn't done. It is a non-core product. We really don't install it in any of our locations. And it was in to the commercial and multi-family vertical. And, you know, the good news is it's behind us now.

Speaker Change: Absolutely not all of our other branches are performing.

Speaker Change:

Speaker Change: Two our expectations are even exceeding our expectations. This was a one off deal that obviously in hindsight, we wish we hadn't done it.

Speaker Change: It is a non core product.

Speaker Change: Really don't install it in any of our locations and it was into the commercial and multifamily vertical and you.

Speaker Change: The good news is it is behind us now.

Michael Rehaut: Okay, thank you.

Speaker Change: Okay. Thank you.

Speaker Change: Yeah.

Michael Rehaut: Next question, Michael Rehault. Which AP Morgan? Please go ahead.

Speaker Change: Next question, Michael Rehaut with Jpmorgan. Please go ahead.

Michael Rehaut: Hi, thanks.

Michael Rehaut: Alright, thanks, and good morning, everyone.

Michael Rehaut: Good morning, everyone. I wanted to hit first on the gross margins. You know, you're talking about basically, you know, last four or five quarters now, plus or minus 34%, which is, you know, soundly above your long term or longer term goal. You know, where I think, you know, 32%, you know, I guess long term outlook, 30 to 32. So it seems like you're, you know, consistently exceeding that. And I think a quarter or two ago, you know, you kind of alluded to likely strength in this metric, perhaps, you know, continued strength around these levels. Maybe, you know, through the end of this year, and not giving forward guidance, but not necessarily kind of saying, there's no drivers that would necessarily, you know, push this down materially from current levels in the near term, at least.

Michael Rehaut: Good morning.

Speaker Change: It hit first on the gross margin you know you're talking about.

Michael Rehaut: Yeah.

Speaker Change: Last four five quarters now.

Speaker Change: After minus 34%, which is solidly above your.

Speaker Change: The long term or longer term our.

Speaker Change: Goal.

Speaker Change: You know, where I think 32%.

Speaker Change: I guess, the long term outlook, 30% to 32, so it seems like you're.

Speaker Change: Certainly exceeding that and I think a quarter or two ago.

Speaker Change: You kind of alluded to likely strength in this metric, perhaps you know continued strength around these levels. Maybe you know through the end of this year, you can not giving forward guidance, but not yes, but basically kind of thing there's no drivers that would necessarily.

Speaker Change: Pushed this down materially from current levels in the near term at least I was wondering if that is still your thought around this metric.

Michael Miller: I was wondering if that is still your thought around this metric that, you know, this 34% level can persist. I know you've talked about maybe negative mix, starting to a way at this metric. But, you know, any thoughts around, you know, the next several quarters, what might push it lower? Or do you feel perhaps a little increasingly comfortable that this level can be maintained in the near to medium term?

Speaker Change: That 34% level can persist.

Speaker Change: I know you've talked about maybe negative mix.

Speaker Change: Starting to eat away at at this metric.

Speaker Change: But any thoughts around you know the next several quarters.

Speaker Change: Might push it lower or do you feel perhaps a little increasingly comfortable that this level can be maintained in the near to medium term.

Michael Miller: Yeah, thanks. Thanks for that question. What I would say around was margin is that, you know, it just a gross margin in the quarter net of dispositions was 34.9%. Well, it's just called 35. And you're right; in the previous quarters, we've been running around 34%. So we certainly don't expect it to go above the 35%, but to say for the near term. And, you know, really for the back half of the year, for it to be more in a 32 to 34% range as opposed to the 30 to 32, I think is reasonable. You know, we have had in the quarter, quote unquote, mix head ones as we've talked on multiple quarters about the impact of the growth in production builder business.

Speaker Change: Yeah. Thanks, Thanks for that question, what I would say around gross margin is that adjusted gross margin in the quarter net of dispositions was 34, 9%. So let's just call. It 35 and Youre right in the previous quarters, we've been running around 34%. So we certainly don't expect it to go above the 35%.

Speaker Change: But to say for the near term.

Speaker Change: And you know really for the back half of the year for it to be more in the 32% to 34% range as opposed to the 30 to 32 I think is reasonable.

Speaker Change: We have had in the quarter.

Speaker Change: Quote unquote mix headwinds as we've talked on multiple quarters about the impact of the growth in production builder business.

Michael Miller: I would say that, you know, we've been doing an excellent job improving the efficiency of completing jobs for the production builders, which has been helping, you know, gross margin improvement as it relates there. And we had very strong growth with the production builders in the quarter. Our sales to production builders was approximately 20% in the quarter, with production builders in about 5% with the regional local builders, which is actually consistent with what we've been talking about that, you know, the regional local guys, we're going to have a good year, but nothing in comparison to what the production builders had.

Speaker Change: I would say that.

Speaker Change: We've been doing an excellent job improving the efficiency.

Speaker Change: Completing jobs for the production builders, which has been helping.

Speaker Change: You know gross margin improvement as it relates there.

Speaker Change: We had very strong growth with the production builders in the quarter ourselves to the production builders was up approximately 20% in the quarter with production builders and about 5% with the regional and local builders, which is actually consistent with what we've been talking about that you know the regional and local guys. We're going to have a good.

Speaker Change: Year, but nothing in comparison to what the production builders had and that the vast majority of the growth in starts would be coming from their production builders and we're certainly seeing that play out, but I think it's reasonable to assume that for the near to medium term that are you know.

Michael Miller: And that vast majority of the growth and starts would be coming from the production builders, and we're certainly seeing that play out. But I think it's reasonable to assume that, you know, for the near to medium term that, you know, there's. is certainly going above the 35% is probably not likely, but staying in a 32% to 34% range for the near-to-medium term is reasonable.

Speaker Change: Yes.

Speaker Change: Certainly going above the 35% is probably not likely but staying in at 32% to 34% range for the near to medium term is reasonable.

Michael Rehaut: Great. That's very helpful. Appreciate that.

Speaker Change: Great Great No. That's very helpful. I appreciate that I guess second question, maybe just around the M&A backdrop, you've kind of highlighted.

Michael Rehaut: I guess second question, maybe just around the M&A backdrop. You've kind of highlighted, you know, doing about 50 million in annualized revenues so far a year today. Last year, you kind of, you know, missed the 100 million target by a little bit.

Speaker Change:

Speaker Change: Doing about 50 million in annualized revenues, so far year to date.

Speaker Change: Last year, you kind of you know me.

Speaker Change: The 100 million target.

Speaker Change: By a little bit.

Michael Rehaut: You know, how would you characterize the pipeline and the opportunity set in front of you today, maybe versus six or twelve months ago?

Speaker Change: How would you characterize that.

Speaker Change: The pipeline and the opportunity set in front of you today, maybe versus six or 12 months ago.

Jeff Edwards: So, you know, I think if I recall right, you kind of reiterated the 100 million of outlook for this year, but what would you say the odds are of maybe exceeding that? And, you know, is the M&A kind of outlook or pipeline increasing, decreasing, you know, saying the same? You know, any kind of change in how you're thinking about, you know, what you might do this year or next year. Yeah, so this is Jeff. What I would say, and how we're guilty of saying it's robust all the time, but we're also guilty of saying that they're lumpy. But really, versus six or 12 months ago, this is, and first is really historically speaking, this is one of the best pipelines we've really ever had.

Speaker Change: You know I think you're right.

Speaker Change: I recall right you kind of reiterated the $100 million outlook for this year, but.

Speaker Change:

Speaker Change: What would you say the odds are maybe exceeding that and you know it is the M&A kind of outlook or.

Analyst: And, you know, is the M&A kind of outlook or pipeline increasing, decreasing, you know, staying the same, you know, any kind of change? Great. Thanks so much.

Speaker Change: Pipeline, increasing decreasing staying the same.

Speaker Change: He kind of change in.

Speaker Change: How youre thinking about.

Speaker Change: What you might do this year and next year.

Speaker Change: Yes. So this is Jeff.

Speaker Change: What I would say, we're guilty of saying its robust all the time, but we're also ability to saying that they are lumpy, but really versus six or 12 months ago. This is and versus really historically speaking. This is one of the best pipelines.

Speaker Change: <unk> ever had.

Jeff Edwards: And, you know, but for a larger deal, you know, 30 plus million dollars that blew up at the last part of last year, last year would have ended up being a pretty good year to at least certainly exceeding 100 million. You know, going forward, again, we feel really great about the prospector in the pipeline and the deals that are kind of even already signed up to L.O.I.; it just depends on timing really. And I guess if you look at all that over a long, you know, a rolling period of time as opposed to counting calendar days, you probably still hit the numbers.

Speaker Change: And.

Speaker Change: But for a larger deal.

Speaker Change: 30, plus million dollars of blew out but the last part of last year last year would've been ended up being a pretty good year to at least certainly exceeding $100 million.

Speaker Change: You know going forward again, we feel really great about the prospects are in the pipeline are the deals that are kind of even already signed up to LOI. It just depends on timing really.

Speaker Change: Yes, if you look at all of it over the long in a rolling period of time as opposed to counting calendar days.

Speaker Change: Probably still hit the numbers.

Jeff Edwards: Yeah.

Mike Dow: Great. Thanks so much.

Speaker Change: Great. Thanks, so much sure.

Michael Miller: Next question, Mike Dow, with RBC Capital Markets, please go ahead. I think we're taking my questions. Just on the price mix in the quarter, I know there's a lot of moving pieces in the part to be specific, but can you give us a ballpark sense of kind of a composition of two price versus the moving pieces on next? We definitely got a price in the quarter. And, you know, given the acceleration in single family, same branch revenue being higher than multi family, same branch revenue, just when factoring in those two components, you know, the way that our price mix is determined it would say that we got more price than we didn't mix.

Michael Dahl: Next question is from Mike Dahl with RBC Capital Markets. Please go ahead. Okay, helpful. And then just back on the disposed branch, I mean, as a standalone, it seemed like there were maybe some issues in terms of kind of negative net revenue, negative adjusted EBITDA, pretty big negative adjusted EBITDA that then you're adding back. And I think you called it the process of winding down, then also said it's behind you. So maybe just a little more specifically on why the results were so pressured, because that was kind of a big adjustment for the total company results, and then I'm hesitant to even call it a branch. I mean, really, it's a product line. Oh my God, I had missed that comment.

Speaker Change: Next question, Mike Dahl with RBC capital markets. Please go ahead.

Mike Dahl: Hi, Thanks for taking my questions.

Mike Dahl: Just on the price mix in the quarter I know, there's a lot of moving pieces and it's hard to be too specific but can you give us a ballpark sense of.

Speaker Change: That's kind of the composition of.

Speaker Change: <unk> credits versus the moving pieces on mix.

Speaker Change: We definitely got price in the quarter and.

Mike Dahl: Given the acceleration in single family same branch revenue.

Speaker Change: Being higher than multifamily same branch revenue just when factoring in those two components.

Speaker Change: The way that our price mix is determined it would say that we got more price than we did mix because of the higher growth rate from a single family.

Michael Miller: Just because of the higher growth rate from single family.

Michael Miller: Okay, helpful. And then just back on the disposed branch, I mean that as a standalone, it seemed like there were maybe some issues in terms of kind of negative net revenue, negative adjustity, but pretty big negative adjusted. You saw that, then you're adding back, and I think you called it the process of winding down and also said it's behind you. So maybe just a little more specifically on why the results were so pressured because that was kind of a big adjustment to the total company results.

Speaker Change: Okay helpful.

Speaker Change: And then just back on the disposed brands I mean that is at.

Speaker Change: Standalone it seemed like there were maybe some some issues.

Speaker Change: In terms of kind of negative net revenue negative adjusted EBITDA pretty big negative adjusted EBITA.

Speaker Change: EBITA that then you are adding back and I think you called it the process of winding down then also said it's behind you. So maybe just a.

Speaker Change: A little more specifically on why the results were so pressure.

Speaker Change: That was kind of a big adjustment.

Speaker Change: For the total company results and then.

Michael Miller: And then secondly, on a go forward basis. Are there still going to be lingering impacts into the second half here? Just any additional color you could provide to the health home? Yeah, we expect that the operations will be fully wound down by the beginning of next year, but that going forward will have a material impact; immaterial, excuse me, very important distinction there. And immaterial impact on our results going forward. Part of the reason that the adjustments were so large in this quarter is because we made the decisions to dispose of the location and, you know, kind of take care of and clean up all of the issues that were there.

Speaker Change: Secondly on a go forward basis.

Speaker Change: Are there still going to be lingering impacts into the second half.

Speaker Change: Here just any additional color you could provide the helpful.

Speaker Change: Yes, we expect that the operations will be fully wound down by the beginning of next year, but that going forward. It will have a material impact immaterial excuse me.

Speaker Change: Very important distinction there an immaterial impact on our results going forward part of the reason that the adjustments were so large in this quarter is because we made the decisions to dispose of the location and.

Speaker Change: Kind of take care of and clean up all of the issues that were there. This is a.

Michael Miller: This is again a non-core branch completely out of anything else that we do that has, quite frankly, never been profitable. I'm hesitant to do gold or branch. I mean, really, it's product, aren't I? Yeah. Yeah, sure it's located in the branch, but within them we're exiting the product line in which we don't really participate. And quite frankly, we've done over 200 acquisitions since the first time this has happened. I think that's a pretty dark day track record.

Speaker Change: Again, a noncore.

Speaker Change: The branch.

Speaker Change: The out of anything else that we do that has quite frankly never been profitable.

Speaker Change: It is difficult to branch I mean really its product line yeah.

Speaker Change: Private brands. So yes sure it's located in a branch, but within that we're exiting a product line in which we don't really participate exactly.

Speaker Change: And quite frankly, we've done over 200 acquisitions. This is the first time. This has happened I think that's a pretty darn good track record.

Michael Miller: And just as a quick follow-up, since it's being backed out of EBITHA but not gross margin and SG&A, does that imply that the way you report adjusted gross margin and SG&A would have otherwise been higher? And if you could give us a sense for, you know, if that was the reason that your SG&A was higher than expected, like did more of the cost flow through that, you know, any sense of that breakdown? Yeah, it was just the table. I mean, we wanted to try and make it concise enough in terms of the tables that we put in to show the adjustment. But, as I said in answer to a previous question, the adjusted gross margin in the quarter excluding dispositions would have been 34.9%.

Speaker Change: Okay.

Speaker Change: Just as a quick follow up since its beginning.

Speaker Change: Backed out of EBITDA, but not gross margin and SG&A does that imply that.

Speaker Change: Your the way you report adjusted gross margin and SG&A would have otherwise been.

Speaker Change: Higher end, if you could give us a sense for that.

Speaker Change: That was the reason that part of the reason that your your SG&A was.

Speaker Change: It was higher than expected did more of the cost flow through that.

Speaker Change: Any sense that breakdown.

Speaker Change: It was just the table I mean, we wanted to try and make it a concise enough in terms of the tables that we put into to show the adjustment.

Speaker Change: But as I said in answer to a previous question. The adjusted gross margin in the quarter, excluding dispositions would have been 34, 9%. So.

Michael Miller: So it impacted; it negatively impacted basically hold on to the executive. Okay, I had missed that comment.

Speaker Change: Hacked it negatively impacted basically all lines of the income statement.

Speaker Change: Alright.

Michael Rehaut: Thank you.

Speaker Change: That comment thank you.

Ruben Garner: Next question, Ruben Garner with Benchmark Company, please go ahead.

Speaker Change: Great.

Speaker Change: Next question Reuben Garner with benchmark company. Please go ahead.

Ruben Garner: Thank you.

Ruben Garner: Good morning, guys. So sorry to harp on this; just a clarification on the commercial front. Is the run rate of revenue and profit loss that the students stripped out in the second quarter the right way to think about on a go for basis, meaning it added, you know, seven million EBITDA to take that business out? Was it losing that much money on a quarterly basis? There's lost that much money in the second quarter, yes. And it is commercial. So our same branch commercial revenue, excluding the disposition, was basically flat in the quarter and not negative.

Reuben Garner: Thank you good morning, guys.

Speaker Change: Alright.

Reuben Garner: So sorry to harp on this but just a clarification on the commercial front is the run rate of.

Speaker Change: Revenue and profit loss, that's been stripped out in the second quarter, the right way to think about.

Speaker Change: On a go forward basis, meaning it added.

Speaker Change: $7 million EBITDA, but to take that business out as it was it losing that much money.

Speaker Change: On a quarterly basis.

Speaker Change: Not that much money in the second quarter, yes, and it is commercial so our same branch commercial revenue, excluding the disposition was basically flat in the quarter and not negative.

Ruben Garner: Okay, and then you guys typically compare your volume performance to kind of the completions environment for the two end markets. You guys are, you know, not quite national yet. There's some MSAs that you're not in.

Speaker Change: Okay and then.

Speaker Change: You guys typically compare your your volume performance to kind of the the completions, yes environment for the two end markets you guys are.

Speaker Change: Not quite a national yet there are some msas that you are not and is there anything geographic holes that you would call out.

Michael Miller: Is there anything geographical that you would call out that may lead to differences between your performance and the completions environment broadly? I'm glad you asked that question, though, because I think it's important that we've tried to stress this: looking at our same branch revenue compared to completions in any one quarter is not as impactful or useful as looking at it over a longer period of time. So, if you look on the year today for the first six months of the year, our same brand sales grew, you know, 4.7, so-called 5%, and our single family completions were about 1%, right?

Speaker Change: That may lead to differences between your performance and the completions environment.

Speaker Change: Broadly.

Speaker Change: I'm glad you asked that question because I think it's important and we've tried to stress. This is that looking at.

Speaker Change: Our same branch revenue compared to completions in any one quarter is not as impactful useful is looking at it over a longer period of time.

Speaker Change: If you look on a year to date for the for the first six months of the year. Our same branch sales grew four 7% so call it 5%.

Speaker Change: And multi or single family completions were up about 1% right. So that delta of about 400 basis points that sort of mid single digit is very consistent with what we've always talked about sort of being at a mid single digit number above completions I will say on the multifamily side right now.

Michael Miller: So, that delta of about 400 basis points, that sort of mid single digit, is very consistent with what we've always talked about sort of being at a mid single digit number above completions. I will say on the multi-family side right now that one, as you know, over the past, several more than several quarters, we've had stellar growth in same branch multi-family sales growth, but I would say just given the dynamics of what we were talking about earlier about multi-family units under construction, there is going to be for some period of time, I think. A disconnect between our multi-family same brand sales growth and multi-family completions until the market normalizes at a more reasonable level, which we think, you know, in terms of the units under construction relative starts, which we think is going to happen, you know, maybe like this year, most likely, first quarter of next year.

Speaker Change: That one as you know over the past.

Speaker Change: Several more than several quarters, we've had stellar growth in same branch multifamily sales growth, but I would say just given the dynamics of what we were talking about earlier about multifamily units under construction there is going to be for some period of time I think a disconnect between our multi.

Speaker Change: Our family same brand sales growth and multifamily completions until the market normalizes at a more reasonable level, which we think.

Speaker Change: The units under construction relative starts, which we think is going to happen maybe like this year, most likely first quarter of next year.

Michael Miller: And if I could just sneak in a quick follow-up there, guys, the multi-family impact to mix on a go-forward basis as single-family, you know, recovers and multi-family fades, can you just remind us how that plays out? It makes the mix component weaker; it's a headwind to the max because a single-family job, you know, can be a tenth of or even a hundred of what a multi-family job is.

Analyst: And if I could just sneak in a quick follow-up there, guys, the multifamily impact on the mix on a going forward basis as single family, you know, recovers and multifamily fades. Can you just remind us how that plays out? And, you know, to be honest with you, that gets reflected in variable compensation. And they're getting rewarded for continuing to do that. Going back to the period when you had, you know, increased exposure and gross mortgage, and you called it out, SG&A leveraged at the time, but like, you talked about not wanting to mess up your customer's pricing structure, Jeff. I believe you talked about, well, you have to price given that experience. Does that really suggest that you're?

Speaker Change: And if I could just sneak in a quick follow up there got the.

Speaker Change: <unk> family impact to mix on a go forward basis as single family.

Speaker Change: Recovers in multifamily states can you just remind us how that plays out.

Speaker Change: It it makes the mixed component.

Speaker Change: Weaker it's a headwind to the next because the single family job it can be a 10th of or even hundreds of what a multifamily jumbos.

Ruben Garner: Great, thanks, guys. Good luck on board. Thank you.

Speaker Change: Great. Thanks, guys. Good luck going forward.

Speaker Change: Thank you.

Kenneth Zener: Next question, can Zenner with Seaport Research Partners please go ahead.

Speaker Change: Next question, Ken Zenner with Seaport Research partners. Please go ahead.

Speaker Change: Okay.

Kenneth Zener: Good morning, everybody. Great panel. Just a couple questions here. Given the strength of growth from the large builders, and you're a guest record gross margin adjusted. Can you talk to why that is not a drag as that happened, you know, in the beginning of the pandemic, even your exposure to certain customers? It seems to be somewhat counterintuitive. Can you talk to why that is playing out that way? Our field team is doing an incredible job of managing production and making sure they are aligning the value of our services, you know, with our customers. And, you know, to be honest with you, that gets reflected then in variable compensation, and they're getting rewarded for continuing to do that.

Ken Zenner: Good morning, everybody.

Ken Zenner: Good morning.

Speaker Change: Just a couple of questions here.

Speaker Change: Given the strength of growth from the large builders.

Speaker Change: And your.

Speaker Change: Guests record gross margin adjusted.

Speaker Change: Can you talk to why that is not a drag as that happened.

Speaker Change: In the beginning of the pandemic given your exposure to certain customers. It seems to be somewhat counter intuitive can you talk to why that is playing out that way.

Speaker Change: Our field team is doing an incredible job of managing production and making sure. They were aligning the value of our services.

Speaker Change: With our customers.

Speaker Change: To be honest with you that gets reflected then in variable compensation and they're getting rewarded for continuing to do that.

Jeff Edwards: Going back to the period when you had, you know, increased exposure and gross margin, you called it out, you know, SGA leverage at the time. But like, is that, you know, you talked about not wanting to mess up your customers' pricing structure? Jeff, I believe you talked about, well, you have to price given that experience. It seems that large builders to get leverage; however, there's really two of you guys that are so dominant in the service, you know, installation space. Does that really suggest that you're pricing discipline, right, you margins, uh, it's sustainable in that sense, if they don't have a wide variety of, uh, you know, bids to choose from, because it does seem to be a rather distinct shit, especially this quarter, uh, given the growth for sake of the public's and your actual, stronger gross margins, because of that.

Speaker Change: Going back to the period when you had increased exposure and gross margin you called it out SG&A leverage at the time, but like.

Speaker Change: Is that you talked about not wanting to divest up to your customers' pricing structure, Jeff I believe you talked about well you have to price given that experience.

Speaker Change: It seems that as that.

Speaker Change: Okay.

Speaker Change: Large large builders to get leverage however, there's really two of you guys that are so dominant in the service installation space.

Speaker Change: Does that really suggest that your.

Speaker Change: Pricing discipline.

Speaker Change: Margin.

Speaker Change: <unk>.

Speaker Change: Is sustainable in that sense, if they don't have.

Speaker Change: A wide.

Speaker Change: Variety of.

Speaker Change: No.

Speaker Change: To choose from.

Speaker Change: Because it does seem to be a rather distinct <expletive>, especially this quarter.

Michael Miller: give you the growth for the sake of the public and your actual stronger gross margins because, Well, there, this is Michael, I'll start that, and Jeff can finish, but there are a lot of puts and takes into, you know, gross margin. And while we had strong growth with the big public builders, and they are our largest customers, understood. You talked about yourself, Michael, you said, you know, it could be understood that you got more price than mix, given that that's reported a little differently than when your peers do, but Yeah, if we just look at, say, single family, so single family by you.

Speaker Change: Given the growth, we're seeing the publics and your actual stronger gross margins because of that.

Michael Miller: Well, there, this is Michael. I'll start that in just a few minutes. There are a lot of puts and takes into, uh, you know, gross margin. And while we had strong growth with the big public builders and they are our largest customers, I mean, it is a relatively small percentage of our overall revenue. And so, um, you know, but I do think that our team has done a great job of trying to align price and cost. And also to be as efficient as possible in the field, which, uh, is really beneficial for us. So, um, but I would also say that at the local level, um, there's not just contractors that are bidding for work.

Speaker Change: Well there this is Michael I'll start that and Jeff can finish, but there are a lot of puts and takes into <unk>.

Jeff: Gross margin and while we had strong growth with the big public builders and they are our largest customers I mean, it is a relatively small percentage of our overall revenue so.

Jeff Edwards: But I do think that our team has done a great job of trying to align pricing costs and also to be as efficient as possible in the field, which is.

Speaker Change: He is really beneficial for us so.

Speaker Change: But I would also say that at the local level.

Speaker Change: There is not just to contractors that are bidding for work I mean, there's it's still extremely competitive environment and.

Michael Miller: I mean, there's, it's still an extremely competitive environment. And, um, I say, I would say, although there's whether they're public or regional local builders have choices, and you all have to differentiate ourselves, um, service. All right.

Speaker Change: I would say all builders, whether they're public or regional and local builders have choices.

Speaker Change: I'll have to differentiate ourselves.

Speaker Change: Service.

Speaker Change: Alright.

Michael Miller: I mean, I know I think I understand the question, but I'm going to still give a bit. I mean, I know our answer that says that we get rewarded for performing is a little fuzzy, but I've been in the rooms. And there are certain bigger builders that do, you know, I think really believe that and preach that because there are people even more than others that say. So we get more highly price-only competitive situations sometimes, for sure, but there's just as many large builders in some of our larger markets that are much more concerned about making sure that they get jobs insulated in past inspections when they need them to keep the volume.

Speaker Change: I got it.

Speaker Change: I think I understand the question, but I'm going to still give them a bit and I know our answer that says that we get rewarded for performing it's a little fuzzy, but I've been in the rooms and theres certain bigger builders did do I think really believed that and preach that.

Speaker Change: To their people even more than others, let's say so does it mean, we get.

Speaker Change: More highly priced only competitive situations, sometimes for sure but.

Jeff: There's just as many large builders and some of our larger markets that are much more concerned about making sure that they get jobs insulated in past inspections, when they need them to keep the volume.

Michael Miller: Understood. You talked about you, Michael, you said, you know, it could be understood that you got more price than mix, given that that's reported a little differently than when you're peers, but is that to say, you know, my calculation, is that to say price was positive and mix perhaps was negative? Could you comment on just the positive negative component of that variable? Both price and mix were positive, right? And if we look at, you know, my comment was really more that there was more price than mix, but they were both solid. Thank you.

Michael Miller: Understood.

Michael: You talked about Michael you said.

Michael: It can be understood that you've got more price than mix given that that's reported a little differently.

Speaker Change: One of your peers, but.

Speaker Change: Is that just say.

Speaker Change: My calculation is that the sale price was positive and mix, perhaps with negative could you comment on just that positive negative component of that that variable.

Michael Miller: Both.

Speaker Change: Rice and mix or.

Michael Miller:

Speaker Change: Positive right and if we look at.

Speaker Change: Yeah.

Speaker Change: Yeah.

Michael: My comment was really more of that there was more price than mix, but they were both solid.

Speaker Change: Thank you.

Phil Ng: Next question, Phil Ng with Jefferies, please go ahead. Hey guys, your commentary on going forward still sounds pretty upbeat. Certainly, housing starts have been a little job here in the last few months. We're right staying a bit more elevated. No, certainly we're talking about potential rate cuts. So I'm just curious, what are you hearing from your customers? You know, are they managing their business any differently? Are you seeing any slowdown in quoting activity at all? Yeah, we're so very busy. I mean, I think it's clear that the growth rate in starts is coming down. The public that have reported so far that their orders are up of like five, six percent.

Phil: Next question, Phil <unk> with Jefferies. Please go ahead.

Phil: Hey, guys Youre commentary going.

Speaker Change: Going forward it still sounds pretty upbeat certainly housing starts have been a little choppy over the last few months.

Speaker Change: Great staying a bit more elevated now certainly were talking about potential rate cuts. So I'm. Just curious what are you hearing from your customers are managing their business any differently are you seeing any slowdown in quoting activity at all.

Speaker Change: I mean, we're still very busy I mean, I think it's clear that the growth rate in starts.

Speaker Change: Coming down.

Speaker Change: Publics that have reported so far I think their orders are up five 6%, so still still growth, but not the kind of growth that we were seeing earlier in the year.

Phil Ng: So still, still growth but not the kind of growth that we were seeing earlier in the year. So, I mean, honestly, a mid-single-digit single-family growth environment is extremely healthy for us and for the industry. And if we continue a multi-year path in that kind of a market, we feel very good about our ability to perform.

Speaker Change: I mean honestly.

Speaker Change: Mid single digit single family growth environment.

Jeff: Is extremely healthy for us and for the industry and if we continue a multiyear path in that kind of a market. We feel we feel very good about our ability to perform.

Jeff Edwards: Clearly, there are significant headwinds, as we talked about earlier, relative to multi-family. But if we do get to a stabilized level, you know, based on the current starts, you know, say early '25 as opposed to even back half of '25, we think that creates a more stable operating environment for us and for the industry. And on the multi-family side, again, it really allows us to focus on what we're doing very well: gaining market share, not just with insulation, but also with the enterprise.

Speaker Change: Clearly there is there are significant headwinds as we talked about earlier relative to multifamily, but if we do get to a stabilized level based.

Speaker Change: Based on the current starts.

Speaker Change: You know say early 'twenty five as opposed to EBIT back half of 'twenty five we think that creates a more stable operating environment for us and for the industry and on the multifamily side again really allows us to focus on what we're doing very well is gaining market share not just with <unk>.

Jeff: Installation, but also with the other products that we're going to make that comment too I mean, we're just.

Jeff Edwards: I was going to make that comment, too. I mean, we're just a little different than just the general multi-family market. As we said in our prepared remarks, both because we're not, we're not penetrated, you know, from a geographic perspective everywhere that we are capable of doing multi-family work yet. And we continue through one of our operations that, you know, has kind of built itself into a bidding and quoting and managing machine for those branches. Continues to really, you know, deliver a great pipeline of projects that we can bid on and hopefully get the work from.

Speaker Change: We're a little different than just the general multifamily market as we said in our prepared remarks, both because we're not we're not penetrated from a geographic perspective everywhere that we are capable of doing multifamily work, yet and we continue through.

Speaker Change: One of our operations.

Speaker Change: Built itself into a bidding and quoting them and managing machine for those branches continues to.

Speaker Change: Really you know deliver a great pipeline of projects that we can we can bid on and hoping to get to work for them.

Michael Miller: Gotcha. And in Michael, I appreciate you don't guide per se, but I think earlier conversations in the year, perhaps mid-single digit volume grew up for your business organically. I think your comments were teams plausible, achievable, you know, appreciating there's a lag in starting completion cycle times and all that great stuff. Are you expecting volumes to kind of inflect? You know, what kind of path do you see? Is that mid-single digit framework still a good way to think about it for the fourth full year? Yeah, we just look at single families, a single family volumes in the quarter root mid-single digits.

Speaker Change: Got you and then Michael I. Appreciate you don't guide per Se, but I think earlier conversations in the year, perhaps mid single digit volume growth for your business organically I think your comments were teams plausible achievable.

Jeff: There's a lag and start and completion cycle times and all that great stuff.

Speaker Change: Are you expecting volumes to kind of inflect what kind of.

Speaker Change: Path do you see is that mid single digit framework still a good way to think about it fruitful year.

Jeff: Yes, if we just look at say single families. So single family volumes in the quarter were up mid single digits.

Michael Miller: Yeah.

Michael Miller: Okay, but in terms of the broader framework in terms of your demand overall, is that still a good way to think about the year, or maybe some moderation just given some of the stuff that we've seen recently? Yeah, I mean, where the, from a bi-respected where we're going to find some headwinds will be, particularly in the light. and commercial business. And, you know, we expect that that will continue to have the like commercial business; we'll continue to have headwinds, really, you know, again, through the back half of this year and should be on a much better footing in 25.

Michael Miller: Okay.

Speaker Change: But in terms of the broader framework in terms of your demand overall is that still a good way to think about the year or maybe some moderation just given some of the chop that we've seen recently, yeah, I mean, where are the from a volume perspective, where we're going to find some headwinds will be.

Speaker Change: Particularly in the light commercial business.

Michael Miller: Yeah.

Speaker Change: We expect that that will continue to have the light commercial business will continue to have headwinds really.

Michael Miller: Dan.

Speaker Change: Through the back half of this year it.

Speaker Change: Should be on a much better footing.

Michael Miller: 25.

Michael Miller: Okay.

Michael Miller: Can you remind us like how much of your commercial business is like versus heavy, the splits? Sure. So, you know, roughly 10% of total revenue is like commercial, and 7% is heavy commercial.

Speaker Change: Okay can you remind us like how much of your commercial business is light versus heavy the splits.

Jeff: Sure. So you know roughly.

Michael Miller:

Michael Miller: Okay.

Michael Miller: Roughly 10% of total revenue is light commercial, and 7% is heavy. Yeah, so the opportunities, if you will, from a capital allocation perspective. And, you know, we feel very confident that we can accelerate the M&A platform or pipeline of deals above our $100 million target and, at the same time, continue to repurchase shares on a more consistent basis. Now, nothing significant. We really expect for the back half of the year, until it's fully disposed of, that it'll have an immaterial impact on results going forward. 2012 University of Georgia College of Agricultural and Environmental Sciences, www.keithhughes.com This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation. Copyright 2020, New Thinking Allowed Foundation.

Speaker Change: Roughly 10% of total revenue is light commercial and 7% is heavy commercial.

Michael Miller: Okay.

Michael Miller: Appreciate it, color guys.

Speaker Change: I appreciate the color guys.

Susan Maklari: Next question, Susan Maklari with Goldman Sachs; please go ahead. Thank you.

Michael Miller: Next question, Susan Macquarie with Goldman Sachs. Please go ahead.

Michael Miller: Good morning, everyone. My first question is on the ancillary products. Can you talk a bit about how they performed in the quarter, and that's something that you've talked about increasingly coming through in the back half of this year? Are we still on track with that, and just how should we think about the implications that we'll have from a margin perspective as we think about the upcoming next several quarters? Yeah. So, the sales growth in the other products was, you know, fairly consistent with insulation, although insulation was, you know, a tad, they were consistent, I would say, we would expect that the other products would see just becoming later in the cycle time that they would see probably higher growth than insulation.

Speaker Change: Thank you good morning, everyone.

Michael Miller: So.

Speaker Change: My first question is on the ancillary products can you talk a bit about how they performed in the quarter and that's something that you've talked about increasingly coming through in the back half of this year are we still on track with that and just how should we think about the implications that will have from a margin perspective, as we think about the upcoming next several quarters.

Michael Miller: Yeah. So the.

Michael Miller: Sales growth in the other.

Michael Miller: <unk> was.

Speaker Change: Fairly consistent with installation of that installation was.

Speaker Change: A tad.

Michael Miller: They were consistent I would say, we would expect that the other products would see.

Michael Miller: Just be coming later in the cycle time that they would see probably higher growth than installation I would say, though that you know the story, if you will relative to the.

Michael Miller: I would say, though, that, you know, the story, if you will, relative to the other products as it relates to the, you know, residential piece of our business, a single family multifamily, new residential piece of our business that we're continuing to make progress in improving the growth margin in those products. There's still, you know, considerably lower than insulation, but, you know, we're continuing to make forward progress there. And it's one of the reasons why, you know, we think in the near to medium term, as we were saying earlier, that, you know, growth margins, you know, well, probably not growth from here, 32 to 34 band in the near term, probably make some sense.

Michael Miller: The other products as it relates to the you know.

Speaker Change: Residential piece.

Speaker Change: Piece of our business is single family multifamily new residential piece of our business that we're continuing to make progress in improving the gross margin of those products. There is still considerably lower than installation, but we're continuing to make forward progress there.

Michael Miller: One of the reasons why we think in the near to medium term as we were saying earlier that gross margins.

Michael Miller: Well, probably not grow from here and at 32 to 34 band in the near term probably makes some sense.

Michael Miller: Okay.

Michael Miller: Okay. And then my follow-up is, you did buy some stock this quarter. I think this is the biggest repurchase you've had since 2022. Can you just talk a bit about the decision to do that? And how should we be thinking about perhaps further share buybacks in the future? Yes. And we will continue to do it. We believe that as we continue to mature as a public company, and we continue to generate very strong free cash flow, that it gives us a lot of opportunities, if you will, from a capital allocation perspective. And, you know, we feel very confident that we can currently support a even accelerated M&A platform or pipeline of deals, you know, above our $100 million target, and at the same time, continue to repurchase shares on a more consistent basis.

Speaker Change: And then my follow up is you did buy some stock this quarter.

Speaker Change: Biggest repurchase you've had since 2022 can you just talk a bit about the decision to do that and how we should be thinking about perhaps further share buybacks over there in the future.

Michael Miller: Yes, and we will continue to do it we believe that as we continue to mature as a public company and we continue to generate very strong free cash flow that it gives us a lot of them.

Michael Miller: Opportunities if you will from a capital allocation perspective, and we feel very confident that we can.

Michael Miller: Currently support a even accelerated M&A platform our pipeline of deals.

Michael Miller: Above our $100 million target and at the same time continue to repurchase shares on a more consistent basis.

Keith Hughes: Okay, thank you, and good luck with everything. Thank you.

Speaker Change: Okay. Thank you and good luck with everything.

Michael Miller: Kim.

Keith Hughes: Next question, Keith Hughes, with true, with securities, please go ahead. Thank you. Just some details on this grant you're getting out of. Are there going to be any appreciable asset sales that you are going to anticipate from this move to close it? Yeah, nothing significant. We really expect for the back half of the year until it's fully disposed that it'll have an in-material impact on results going forward. And I think that would include Rita Dahl. You know, there's something about a hundred percent settlement in the language of the plus release without all taken care of the quarter acts of the impact in the seventh month.

Michael Miller: Next question Keith Hughes with truly Securities. Please go ahead.

Michael Miller: Alright, thank you.

Speaker Change: Some details on this grants you're getting out of there going to be any appreciable office sales.

Michael Miller: But.

Speaker Change: Up on this.

Speaker Change: To close it.

Michael Miller: No nothing significant we really cut back for the back half of the year until it's fully disposed that it'll be it'll have an immaterial impact on results going forward.

Speaker Change: And I assume that would include EBITDA, there's something about the unfavorable contract settlement.

Michael Miller: And the language in the press release without all taken care of in the quarter as no impact on the second one.

Michael Miller: Great. And that often is why the quarterly EBITDA contribution was so negative.

Michael Miller: Greg.

Michael Miller: And why.

Michael Miller: Quarterly EBITDA contribution was so negative.

Michael Miller: Okay, and what can tell us what product line this is as you're getting out? I know it's not core, but specifically what? It's it's not core. Okay.

Speaker Change: Okay, and what can you tell us what product line. This is has it been out I know, it's noncore, but specifically what.

Michael Miller: It's it's.

Speaker Change: <unk> Court.

Michael Miller: Okay.

Michael Miller: And this is the other, but your discussion on share report just I know you did some in the quarter. Have you thought internally about and access the dividend? How much would go that way? Have you thought about the question? Yeah, I mean, if you look over the past, say, five years and from a capital allocation perspective, roughly 60 percent or almost $550 million went to acquisition, and you know, 20 percent or almost $200 million went to share repurchases, and then about $160 million went to the dividend. So I think, as we've said, the number one priority will continue to be MNA, than share repurchases, and then the dividend.

Michael Miller: And so there's another.

Speaker Change: Your discussion on share repurchase I know you did some in the quarter.

Michael Miller:

Speaker Change: Have you thought internally about it.

Speaker Change: The dividend how much would go that way.

Speaker Change: Are you thinking about it is the question.

Michael Miller: Yes, I mean, if you look over the past say five years and from a capital allocation perspective, roughly 60% or almost $550 million went to acquisitions.

Michael Miller: You know, 20% or almost $200 million went to share repurchases.

Michael Miller: And then about $160 million went to.

Michael Miller: Two the dividends. So I think as we said the number one priority we will continue to be M&A and share repurchases and then the dividend.

Michael Miller: Thank you. And as we said in answer to Sue's question, it's our belief that, you know, we will be more consistent in regular share repurchases on a go-forward basis. Thank you. Sure.

Michael Miller: Okay.

Michael Miller: As we said in answer to <unk> question, it's our belief that.

Michael Miller: We will be more consistent.

Michael Miller: Regular share repurchases on a go forward basis.

Michael Miller: Okay.

Michael Miller: Sure.

Jeff Edwards: I would like to turn the floor over to Jeff Edwards for closing remarks. Thank you for your questions, and I look forward to our next quarterly call. Thank you.

Michael Miller: I would like to turn the floor over to Jeff Edwards for closing remarks.

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

Michael Miller: Thank you.

Operator: This concludes today's teleconference.

Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

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Michael Miller: Okay.

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