Q1 2025 Installed Building Products Inc Earnings Call
Greetings and welcome to the installed building products first quarter 2025 financial results Conference call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded it is now my pleasure to introduce Darren Hicks Vice President of Investor Relations. Please go ahead.
Speaker Change: Good morning, and welcome to installed building Products' first quarter 2025 earnings conference call earlier today, we issued a press release on our financial results for the first quarter, which can be found in the Investor Relations section of our website on today's call management's prepared remarks and answers to your questions may contain forward looking statements within the meaning of federal securities.
Speaker Change: Loss.
Speaker Change: These forward looking statements are based on management's current beliefs.
Speaker Change: And expectations and are subject to factors that could cause actual results to differ materially from those described today.
Speaker Change: Please refer to our SEC filings for cautionary statements and risk factors, we undertake no.
Speaker Change: No duty or obligation to update any forward looking statement as a result of new information or future events, except.
Speaker Change: As required by Federal Securities Laws. In addition management refers to certain non-GAAP and adjusted financial measures on this call.
Jason Nice: You can find a reconciliation of such non-GAAP measures to the nearest GAAP equivalent in the company's earnings release and Investor presentation, both of which are available in the Investor Relations section of our website. This mornings conference call is hosted by Jeff Edwards, Our Chairman and Chief Executive Officer, and Michael Miller, Our Chief Financial Officer, and we're also joined by Jason Nice work are.
Michael Miller: Administrative and sustainability officer, Jeff I will now turn the call over to you.
Michael Miller: Thanks, Darren and good morning to everyone joining us on today's call as usual I will start the call with some highlights and then turn the call over to Michael who will discuss our financial results and capital position in more detail before we take your questions.
Michael Miller: <unk> delivered solid first quarter financial results, reflecting our focus on maintaining a high level of installation services for our customers across the U S.
Michael Miller: Our core homebuilding customers continued to navigate industry wide housing affordability challenges and a slower than expected spring selling season.
Phil: Phil we continue to play our integral role in making homes and buildings as energy efficient and efficiently constructed as possible.
Phil: We expect housing demand to remain connected to changes in affordability and the macroeconomic backdrop. This year in the current environment, we're competing in from a strong financial position and our homebuilding customers are operating from a position of health as well, which helps to navigate the market uncertainty.
Phil: Longer term our view on demand for our installed service is unchanged. We believe long term trends across our residential commercial end markets are favorable as builders work to meet demand due to increased supply of houses or apartments and commercial structures.
Phil: B piece business model remains consistent and centered around the geographic and product and end market growth with a disciplined approach to capital allocation throughout our business, we believe that less than 10% of the diverse product speech buy and install our sourced outside of the U S. We are working with our suppliers to reduce any potential tariff impacts.
Phil: At present, we do not anticipate meaningful disruptions to our business.
Phil: Our business continues to generate strong operating cash flow and we remain committed to investing in growth and prudently returning capital to shareholders throughout economic cycles.
Phil: During the first quarter, we continued to grow through acquisition paid nearly $57 million in cash dividends or $2.07 per diluted share and repurchased approximately $34 million of our common stock as we pursue initiatives focused on achieving profitable growth and maximizing returns for our shareholders. We remain committed.
Phil: Doing the right thing for our employees customers and communities.
Phil: Looking at our first quarter sales performance consolidated sales decreased 1% and same branch growth was down 4%.
Phil: In our largest end market new single family installation sales were down relative to the same period last year, partially due to one less selling day and unusually difficult weather, which impacted our ability to complete jobs during the quarter.
Phil: On a same branch basis multifamily sales in our installation segment decreased 5% following a strong year over year comparison of a 13% increase in the first quarter of last year.
Phil: We continue to see strategic growth opportunities as our centralized service oriented model continues to partner with our existing branch network to broaden our geographic footprint and product offering in the multifamily end market.
Phil: On a same branch basis first quarter commercial sales and our installation segment declined modestly from the prior year strong same branch sales growth within our heavy commercial business was offset by a decrease in sales from our light commercial markets.
Phil: The strength in our heavy commercial end market was driven in part by successfully winning jobs in the rapidly growing data center construction industry.
Phil: Based on our current backlog, we expect growth in heavy commercial sales to continue throughout this year.
Phil: During the first quarter cash flow from operating activities increased 9% to $92 million, which primarily reflected.
Phil: That doesn't management of working capital.
Phil: Acquisitions continue to be our top priority as we consider all of our options for capital allocation.
Phil: Despite our growth over the years, we believe are 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.
Phil: During the 2025 first quarter and in May of 2025, we completed the following the acquisitions of South Carolina based installer of a diverse mix of after paint products, including closet shelving shower doors mirrors, primarily in the new residential end market with annual revenue of nearly $6 million and a Wisconsin based installer of spray foam.
Phil: Air barrier products in the commercial end market with annual revenue of nearly $4 million.
Phil: To date, we have acquired over $10 million of annual revenue and although deal timing is hard to predict we expect to acquire over $100 million in annual revenue in 2025.
Phil: Based on the U S census Bureau single family starts year to date through March 2025 have decreased by 6%. We continue to believe that our business is supported by a fundamental under supply of residential housing and gradual building code adoption for the purpose of improved energy efficiency across the U S.
Phil: Our strong customer relationships experienced leadership team national scale and diverse product categories across multiple end markets are advantages when navigating the ebbs and flows of demand related to the U S construction market.
Phil: The uncertainty around tariffs inflation and consumer sentiment influences prevailing market conditions, and our industry and many others. We remain focused on profitability and effective capital allocation to drive earnings growth and value for our shareholders.
Phil: I'm proud of our team's continued success and commitment to doing an excellent job for our customers to everyone. At IBP. Thank you I remain encouraged by our competitive positioning and optimistic about the prospects ahead for IDP and the broader installation and other building product installation business. So with this overview I'd like to turn the call over to.
Phil: Michael to provide more detail on our first quarter financial results.
Michael Miller: Thank you, Jeff and good morning, everyone consolidated net revenue for the first quarter decreased 1% to $685 million compared to $693 million for the same period last year.
Michael Miller: The modest decrease in sales during the quarter reflected single digit declines across all of our core end markets, partially offset by revenue from recent acquisitions same branch sales were down 4% for the first 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 achieved a one 5% increase in price mix. During the first quarter. This result was offset by a five 6% decrease in job volumes relative to the first quarter of last year.
Michael Miller: With respect to profit margins in the first quarter, our business achieve adjusted gross margin of 32, 7% down from 33, 9% in the prior year period the.
Michael Miller: The margin headwind during the quarter was in part related to higher vehicle insurance and depreciation expense.
Michael Miller: Adjusted selling and administrative expense as a percent of first quarter sales was 21% compared to 19% in the prior year period.
Michael Miller: The increase was due primarily to lower sales and higher administrative wages and higher facility costs.
Michael Miller: Of the $6 million increase in adjusted selling and administrative expense $4 $4 million was due to acquisitions and startup expenses.
Michael Miller: Adjusted EBITDA for the 2025 first quarter decreased to $102 million, reflecting an adjusted EBITDA margin of 15% and adjusted net income decreased to $58 million or $2.08 per diluted share.
Michael Miller: Although we do not provide comprehensive financial guidance.
Michael Miller: Based on recent acquisitions, we expect second quarter 2025 amortization expense of approximately $10 million and full year 2000, and twenty-five expense of approximately $40 million.
We would expect these estimates to change with any acquisitions, we closed in future periods.
Michael Miller: Also we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31 2025.
Michael Miller: Now, let's look at our liquidity position and balance sheet and capital requirements in more detail for.
Michael Miller: For the three months ended March 31, 2025, we generated $92 million in cash flow from operations compared to $85 million in the prior year period, the year over year the year over year increase in operating cash flow was primarily associated with improvements in working capital, which more than offset lower net income.
Michael Miller: At March 31, 2025, we had a net debt to trailing 12 month adjusted EBITDA leverage ratio of 1.17 times compared to <unk> 97 times at March 31, 2024, which remains well below our stated target of two times at March 31 2025.
Michael Miller: We had $351 million in working capital.
Michael Miller: Excluding cash and cash equivalents capital expenditures and total incurred finance leases for the three months ended March 31, 2025 were approximately $21 million combined which was approximately 3% of revenue.
Michael Miller: With our strong liquidity position and modest financial leverage we continue to prioritize expanding the business through acquisition and returning capital to shareholders. During the 2025 first quarter IBP repurchased 200000 shares of its common stock at a total cost of $34 million at March 31, 2000 and <unk>.
Michael Miller: 25, the company had approximately $466 million available under our stock repurchase program.
Michael Miller: I V piece board of directors approved a second quarter dividend of 30, <unk> 37 per share which is payable on June 32025 to stockholders of record on June 13th 2025, the second 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.
Jeff Edwards: Thanks, Michael I'd like to conclude our prepared remarks by once again thanking IBP employees for their hard work and commitment to our company. Our success over the years is made possible because of all of your operator, let's open up the call for questions.
Jeff Edwards: Thank you we will now be conducting a question and answer session.
Speaker Change: I would like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue.
Speaker Change: The first part two to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the snarky.
Speaker Change: Your first question comes from Stephen Kim with Evercore ISI. Please go ahead.
Speaker Change: Hi, This is a T shirt on for Steve Thanks for taking the question.
Speaker Change: I just wanted to get an idea of how you're managing that labor force in this pressure and demand environment.
Speaker Change: Yeah.
Michael Miller: Oh, Hi, this is Michael good morning.
Michael Miller: You know I think you really have to break it down into the various labor components in terms of the installed labor versus the sales force and then the G&A labor.
Michael Miller: Store labor really fluctuates and consistently with the volume of jobs. So our intention is really never to hold crews when it comes to the installed labor there is an exception.
Michael Miller: To that statement and it would be times like we had in the first quarter, where you had you know both the California fires and some of the severe weather in the bottom half of the country. In those instances you will hold labor because you know that it's a temporary situation, but when you're in a situation where there is.
Michael Miller: A prolonged headwind relative to volume.
Michael Miller: You would then obviously you adjust your install labor to meet that demand expectation as it relates to the sales force I mean generally speaking you're not adjusting your sales force.
Michael Miller: In terms of head count unless it's a situation where you expect to have significant prolonged headwinds as it relates to volume in terms of the G&A Labor force.
Michael Miller: We're constantly looking to optimize that and have the right head count and right people doing the right things within G&A I would say that you know clearly a focus of ours has been to make sure that you know we have optimization within the G&A ranks and that's obviously something that.
Michael Miller: We're continuing to focus on and we'll focus on and would expect to see some reduction reductions in the G&A our workforce as we're going forward here through the rest of the year.
Michael Miller: Great. Thank you and if I could just one more follow up on.
Michael Miller: The multi family side came it was touched upon briefly in the prepared remarks about can you talk about how the CQ team is helping to branches manage through pressure in that end market.
Michael Miller: Sure. That's a great question as you know units under construction right now are down 20% from their peak last year. So from March of last year to margins. This year, which is a huge headwind and we are extremely proud of what the team.
Michael Miller: I was able to do with you know a 20% headwind having multifamily revenue only down 5% is in part a direct result of the benefits that we're seeing from seat you as I think everyone on the call knows CQ does not manage all of our multifamily revenue they only manage around 45% of our.
Michael Miller: Multifamily revenue and they continue to show a positive results.
Michael Miller: On the multifamily revenue that they're they're managing their backlog continues to be very solid.
Michael Miller: So we feel very strongly that we will continue to outperform the multifamily opportunity that being said, we believe that units under construction needs to come down at least another 10% in order to stabilize relative to historical trends based on current.
Michael Miller: When he starts rates, although we do think multifamily starts it bottomed.
Michael Miller: As I'm sure everybody realizes multifamily starts year to date.
Michael Miller: As reported by the census Bureau are up 9%. So we think that's encouraging for multifamily the multifamily industry in 'twenty six, but we do think that the headwinds for multifamily for us and for the industry will persist through 2025.
Speaker Change: Thanks for that at it Steve I just wanted to follow up real quickly you mentioned, the California fire and the weather impacts in the quarter on residential sing Pam I was wondering if you could.
Speaker Change: Quantify roughly how large are each of those was yes as a headwind in the quarter and do you expect to see.
Speaker Change: Fully recover that and <unk> or just how to how do we how should we be thinking about that going forward outlook there.
Speaker Change: Yeah, I mean, the the last day as you know call it $10 million to $12 million a day as loss. So you know for the year, we have one less selling day. So that you know, we don't really necessarily make that up in terms of the weather impact we estimate that that was on a net basis, because we did make some of it up in March was probably another 10 to 20.
Speaker Change: Unfortunately, you know theres, a little bit longer tail on that than there normally would be for a couple of reasons. One the continued softness or the softness in single family combined with the fact that it wasn't just that we couldnt get to the job site. It was that all the other trades couldn't get to the job sites as well. So it's just sort of pushed out the Rick.
Speaker Change: Covered if you will of that additional revenue.
Speaker Change: I think it'll be sort of measured throughout the second quarter and third quarter basically that we catch up on that lost revenue opportunity.
Speaker Change: Okay, great. Thanks, a lot guys sure.
Speaker Change: Next question, Michael Rehaut with J P. Morgan. Please go ahead.
Alex: Hi, This is Alex on for Mike. Thanks for taking my question.
Alex: I want to ask related to <unk> and single family. How do you view between end markets like production regional like local and custom as well as the different regional areas. How do you sort of you the trends in those specific end markets.
Speaker Change: Well there.
Alex: I would say that.
Alex: You know in the quarter right, our regional and local builder business was slightly better than the production builder or public builder business, we kind of think of the production builder business being aligned with the public's.
Alex: In the fourth quarter call last year, we mentioned that one of the things that we do every quarter is we measure orders and backlog at all of the production builders are public builders.
Alex: Bind with either their guidance or consensus relative to their revenue when we compare that to a weight that based on our revenue with those public builders as we mentioned in the fourth quarter call.
Alex: You know a couple of months ago.
Alex: That based on that those numbers are estimates it came out to be a plus 3% for us on single family revenue with the public builders doing that same analysis. This quarter, it's a minus 3% on the single family side with the public builders. So we think that's a fairly key or a fairly.
Alex: Decent indicator of where where the publics will be at least based on People's expectations. Now we would probably expect that we're going to continue to see the regional and local builder doing slightly better.
Alex: Than that just given our footprint and our experience with them. You know there is been a you know relative strength in a very in a weak market.
Alex: With some big custom homebuilders, obviously, the custom builders are less susceptible to some of the.
Alex: Macro economic uncertainty and current rate environment, just given the nature of the customer there in terms of.
Alex: You know on a regional basis for single family and I think it's a lot of people have talked about this in Florida is very weak you know, Texas for US is still pretty solid the west coast is solid.
Alex: We feel good about the northeast and Midwest quite frankly, they seem to be pretty solid as well.
Alex: Mid Atlantic is good not great.
Alex: But you know clearly our expectations for single family on a macro level just like everyone else's has changed in the past couple of months, where I think we were all constructively at least flat.
Alex: Modestly up whereas I would say that will be at best flat, probably down you know mid to low single digits on the single family side This year.
Speaker Change: There's still just a lot of sense I appreciate all the color on that and then I'll ask my follow up was curious all material prices throughout the year and then into 'twenty six.
Alex: You view, those especially with more of like insulation supply coming online.
Alex: I mean, the environment continues to be very benign yeah, it's healthy.
Alex: But its certainly probably not.
Alex: Right.
Alex: With the exception of course of you know Theres a lot of uncertainty around the tariff impacts Fortunately you know.
Alex: We source.
Alex: No.
Alex: Very large portion over 90% of what we buy we sourced domestically based.
Alex: Based on what we're what's been announced a combined with working with our suppliers and negotiating with our suppliers for the things that we don't source domestically.
Alex: We estimate that the impact of the tariffs could be you know anywhere between $10 million to $20 million, which is about 1% of cost of sales for us. So it's a pretty nominal impact, but it's still there and you know obviously, we will work to pass on any of those cost.
Alex: To our customers, but you know clearly it's not the best operating environment. When it comes to any kind of an increased cost in an environment, where you know you're seeing headwinds from a volume perspective.
Speaker Change: There's been a lot of sense just a quick follow up on that would you say that the sourcing is like your individual sourcing is uniquely like it more domestic or that's industry wide.
Alex: That's pretty representative.
Alex: The products that we handle in the industry that we compete and that's pretty representative.
Alex: The industry.
Alex: Yeah, and I would say that there are some of our suppliers like for example, our big suppliers of spray foam.
Alex: You know Theres a lot of talk about MDI and the costs of some of the inputs for spray foam going up that are sourced internationally. The bulk of our spray foam suppliers source their products and their chemicals domestically, so they're not susceptible necessarily too.
Alex: Some of those restrictions now one thing that we haven't factored into that $10 million to $20 million and you know I think is really uncertain as to what the implications will be.
Alex: Is what if any.
Alex: So we feel fortunate that our suppliers are sourcing their materials domestically, but because the other vendors maybe sourcing their materials internationally, we don't know what the impact that will be on the overall price in the market I mean, theoretically a domestic distributor supplier.
Alex: Or would increase their price those goods if the price of the <unk>.
Alex: Internationally sourced goods are going up because of tariffs.
Alex: Right, Yeah that makes a lot of sense I appreciate all the color on that.
Alex: Sure.
Alex: Please ask one question and one follow up question.
Speaker Change: Next question comes from Susan Mcclary with Goldman Sachs. Please proceed.
Susan Mcclary: Good morning, everyone.
Speaker Change: Good morning Sue.
Speaker Change: Okay.
Speaker Change: Just wondering about the gross margin it sounds like there were some one time or are sort of unique.
Speaker Change: The unique.
Speaker Change: Things that came through in the first quarter that may have been factors to that so I guess can you talk a bit about what we saw in the first quarter and then how youre thinking about the setup for this year given your focus on profitability and the service that you offer relative to the environment that we are in when it starts coming down.
Susan Mcclary: Yeah. Thanks for that question Sue so.
Susan Mcclary: Within cost of goods sold are our our fleet expenses basically for the installed fleet. So that includes depreciation fuel.
Susan Mcclary: And vehicle insurance because of the decline in sales and the increase in depreciation and increase in vehicle insurance that was a headwind to the gross margin in the first quarter of about 60 basis points.
Susan Mcclary: You know what those costs are not fixed they certainly don't there's not variable relative to the volume of jobs very quickly. So they have a very lagging effect from a variability perspective, then as we had mentioned in the fourth quarter call as well.
Susan Mcclary: Both spray foam and the other segment. So again, that's our distribution and manufacturing segment, which naturally has a lower gross margin had better sales growth relative to the install segments. So as a consequence of those two things combined had about another 30 basis points.
Susan Mcclary: Headwinds to gross margin in the quarter.
Susan Mcclary: Going forward through the rest of the year I mean, we <unk>.
Susan Mcclary: Have talked about on a full year basis, our adjusted gross margin being in that range of 32 to 34.
Susan Mcclary: Obviously in the first quarter, we were at the lower end of that range. Historically, the first quarter is the lowest gross margin quarter, because it's our lowest volume quarter, we would expect that to be the case through the rest of the twenty-five as well however, I would caveat that and say that you know we believe that.
Susan Mcclary: As we said in answer to the previous questions that there will definitely be headwinds to volumes and demand for single family and multifamily throughout 'twenty five.
Michael: Okay. That's very helpful color and Michael and then you know what.
Michael: Just thinking about price mix and I appreciate the comments that you've already given but it's good to see that that's holding positive even with a tough comp in there.
Michael: Think about just the set up for this year can you talk about your ability to continue to see the benefits of that coming through an end to keep that positive.
Michael: Yeah quite honestly, it's really lapping increases from still increases that happened in the back half of last year. So you know as we said relative to material costs that are very benign we would expect that pricing would be very benign.
Michael: As well.
Michael: And you know that we wouldn't continue to see.
Michael: Positive benefits throughout the year.
Michael: Okay. Thank you good luck with everything.
Michael: Sure.
Michael Dahl: Next question, Michael Dahl with RBC capital markets. Please go ahead.
Michael Dahl: Alright, Thanks for taking my question.
Speaker Change: And we can talk through kind of the cadence a little bit more I mean, I appreciate the comments around the changing macro views.
Speaker Change: Yeah, you are a large supplier was talking about down low to mid teens in U S resi yeah.
Speaker Change: Yesterday in their installation business your peers seem to be indicating pretty sharp declines in Q I.
Speaker Change: I think both those are probably a combination of some of the single family and multifamily but okay.
Speaker Change: Can you just talk through kind of near term cadence.
Speaker Change: How you would expect that volume progression to look, particularly on the resi side, but then I'm also curious.
Speaker Change: The blend of heavy versus commercial you were still down in the quarter on commercial overall, so maybe just talk through that that part of it as well how that blends out.
Speaker Change: Sure.
Speaker Change: We don't provide guidance, but we definitely do think that there are going to be.
Speaker Change: Headwinds in the residential side, both single family multifamily and <unk>.
Speaker Change: Through the year not just in the second quarter. So we think that those headwinds are going to persist unless there's some significant change in consumer confidence, we do think particularly on the single family side and as we said to the answer to an earlier question. We do think that multifamily starts have bottomed, we think that given the.
Jeff Edwards: Affordability issue that exists with single family. It does play into the strengths of multifamily in terms of People's need for housing, but looking to multifamily as a temporary step before they do buy a single family home as Jeff said in his prepared remarks, we feel very.
Jeff Edwards: Very confident about the long term prospects of the core residential business.
Jeff Edwards: Business and.
Jeff Edwards: So we feel very good about that but.
Jeff Edwards: But again, we're going to have headwinds in drought 25 in our opinion as it relates to both single family and multifamily as it relates to the commercial business I mean, the heavy commercial business is performing exceedingly well.
Jeff Edwards: That business was up over 14% in the quarter and we're continuing to see a very strong solid backlogs and bidding in that business.
Jeff Edwards: And we suffered through a lot of pain in that business for a couple of years and are really pleased to see how well the team is just performing and executing.
Jeff Edwards: In the heavy commercial side offsetting that was a little over 10% decline in our light commercial business as you can tell from those differences or light commercial business is still.
Jeff Edwards: <unk> larger than the heavy commercial business, although that will probably slip by the end of the year given the current sales trends that we expect and we do expect the light commercial business, which is the you know the worst performing part of our business. Our end market right now to continue to be weak we would expect some recovery as we go into sort of the back half.
Jeff Edwards: For the year, but when we think of it on a full year basis. The light commercial business will definitely be the weakest part of our end market segments.
Speaker Change: Okay. That's very helpful. Second question, maybe just digging into the margins a little bit more.
Speaker Change: So the I guess those impacts from like the vehicle.
Speaker Change: Particular, presumably it works in both directions. So you would have benefited from it when sales were up and now sales are down so it's getting spread across it.
Speaker Change: Smaller base, so when we think about that.
Speaker Change: Through the year is.
Speaker Change: Is that something that's going to pressure your your decrementals like Theres, a lot going on right with Nick.
Speaker Change: And with that but how do you think about the decrementals in the environment.
Speaker Change: Yeah, there's no doubt that it provides a headwind to the to the decrementals because.
Speaker Change: We.
Speaker Change: That in essence, those costs are relatively fixed.
Speaker Change: And we've talked a lot about decrementals and variable costs and we we like to think of all of course being variable over time, but the reality is is that when you're looking over say a 12 to 18 month timeframe. Some of your costs are fixed there is certain insurance costs that are fixed in essence.
Speaker Change: Brand facility costs are basically fixed.
Speaker Change: And so when we think it over sort of 12 months timeframe.
Speaker Change: We think of there being no I'm thinking of our total cost structure now not just cost of goods sold but that roughly 10% of our cost structure is fixed about 15% of our cost structure is lagging variable. So it it takes time before it adjust to changes in volume and then about 75% of our overall costs.
Speaker Change: <unk> are directly variable the largest components of that being a material and the installed labor.
Speaker Change: So you know when you're in a situation when you have.
Speaker Change: Volumes decline when you had an expectation for volumes being flat or up.
Speaker Change: You know the fixed and lagging variable component of your cost structure you know.
Speaker Change: Yeah.
Speaker Change: Really presents a significant headwind to our margins.
Speaker Change: Margins into decremental margins and that obviously came through in our same branch incremental EBITDA margin decremental margin in the quarter as is everyone. So.
Okay. Thank you very much.
Trey Grooms: Next question Trey Grooms with Stephens. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Hey, good morning, everyone. Thanks for taking my questions.
Speaker Change: I guess the starch on on maybe working capital and free cash flow you guys put up some good free cash flow in the quarter I'm seeing improvements in working capital.
Speaker Change: Do you think this is our this is kind of year over year improvement continues as we kind of look through the year.
Speaker Change: With the outlook you have for demand or how should we be thinking about that.
Speaker Change: Yes.
Speaker Change: It's one of the great things about this business is that when you are in a volume challenged if you will environment the balance sheet naturally shrinks and you generate good free cash flow and given our commentary around what we think volumes are going to be like through.
Speaker Change: On a full year basis, we would expect that we would continue to generate good free cash flow.
Speaker Change: Yep and.
Speaker Change: And then on on the M&A side.
Speaker Change: You know you still have a target of 100 million revenue for.
Speaker Change: For this year.
Speaker Change: Clearly up to a little slower start maybe and I know these things can be lumpy, but have you seen any change it all up there in the kind of in the <unk>.
Speaker Change: Pipeline as you know.
Speaker Change: The outlook has gotten maybe a little more chat.
Speaker Change: Challenged and demand has.
Speaker Change: <unk> been a little weak or any any change in the appetite on the.
Speaker Change: M&A side from sellers.
Jeff Edwards: No. This is Jeff, but no not not really not at all there just like you said and we've said before they are kind of lumpy.
Jeff Edwards: We're not you don't control the timing a lot of times, but theres plenty of still kind of.
Jeff Edwards: Active.
Jeff Edwards: Negotiations and candidates out there.
Jeff Edwards: The M&A is absolutely our priority.
Speaker Change: Yep sure Okay got it.
Jeff Edwards: I'll pass it on thanks.
Jeff Edwards: Sure.
Jeff Edwards: Next question, Phil <unk> with Jefferies. Please proceed.
Jeff Edwards: Hey, guys. This is Maggie Miller on for Phil.
Jeff Edwards: First just going back to price mix, you know that piece is putting up maybe you could break out the price versus mix component.
Jeff Edwards: Of that and how you see it specifically that the mix piece trending through the year.
Jeff Edwards: And I know you've called out a relatively benign cost environment, so far but if we continue to see these demand headwinds.
Jeff Edwards:
Jeff Edwards: And they're there.
Jeff Edwards: <unk> capacity coming online how do you think about the risk that fiberglass pricing falls and in your ability to hold price and that type of backdrop.
Speaker Change: So all of this is Mike I'll talk to the first part of that question and then Jeff can kind of talk to the second part of that question. Although I would say, we don't expect fiberglass pricing to decline.
Jeff Edwards:
Jeff Edwards: You know as as we've talked on numerous calls the price mix disclosure for US is a very complicated disclosure and there are a lot of moving pieces to it what I would say is a couple of things you know it does not include the price mix and volume disclosures do not include the heavy commercial business.
Jeff Edwards: Alright, so the fact that that business is very solid pricing is very good and is up it is not reflected in the price of mix calculation, what youre seeing in the price mix calculation is as I mentioned.
Jeff Edwards: And the answer to a previous question is there's definitely carryover pricing from last year that is keeping that positive if you will.
Jeff Edwards: Combined with the fact that.
Jeff Edwards: The production as I mentioned earlier that the regional and local builders are performing slightly better than the public builders within our revenue base.
Jeff Edwards: Just given the nature of our customers there.
Jeff Edwards: What is presenting a challenge, though to the price mix calculation at least the way that we disclose it is that you know the multifamily sales being down slightly more than the other components of price mix is obviously a headwind to that so.
Jeff Edwards: What our expectation would be and I sort of alluded to this in the answer to.
Jeff Edwards: You know one of the other questions is that.
Jeff Edwards: If things sort of stay the way that they are right in terms of you know a little bit more pressure on while significantly better than the overall market opportunity.
Jeff Edwards: You know more pressure on multifamily volumes in single family volumes. It would continue to add pressure in headwind to the price mix disclosure.
Jeff Edwards: I don't know if you wanted to add on the.
Jeff Edwards: The materials side, I mean, I think it's important to kind of backed up.
Jeff Edwards: A year, if not years and look at help type things, where I mean, it really got to the point, where it was inefficient it was harder for us to do business at work.
Jeff Edwards: Certain skus, we Couldnt get you know we were.
Jeff Edwards: We've talked about before having to go to distribution, sometimes in even the big boxes in terms of supply of materials. So I'd categorize this as moving closer to having an efficient market, it's still fairly healthy despite the year over year decline.
Jeff Edwards: And quite.
Jeff Edwards: Quite frankly.
Jeff Edwards: It's kind of work and the way it's supposed to.
Speaker Change: Okay. Okay, that's super helpful.
Speaker Change: And then how should we think about the opportunities you have and the SG&A line.
Speaker Change: We moved through the year kind of taking into account the stake.
Speaker Change: And any fixed costs that you called out.
Speaker Change: And at what point would you be looking to start taking those costs out.
Speaker Change: If things are kind of steady state from here down year over year, but not getting worse or what you have to see a material step down from where we are now to start making.
Speaker Change: <unk>.
Speaker Change: The cost out actions.
Speaker Change: Yeah. That's I appreciate the question and we are focused on sort of optimizing G&A, we've targeted at least $15 million of cost reduction, which we have already taken steps to to realize those savings, which we believe will start feeling the impact of in the third quarter.
Speaker Change: Those costs were going to take out even if volumes improve from where our current expectations are and we're going to continue to focus on optimizing the G&A cost structure as much as we can and quite frankly, you know this is an opportunity for us too.
Speaker Change: You know kind of fundamentally optimize the spend on on G&A and the entire company is focused on getting there and getting that done.
Speaker Change: It's job one.
Speaker Change: Alright, thank you so much.
Speaker Change: Next question, Ken Zinger with Seaport Research. Please go ahead.
Ken Zinger: Good morning, everybody.
Speaker Change: Good morning, good morning, Ken.
Speaker Change: Hmm.
Speaker Change: Michael and Jeff Phil.
Speaker Change: Do you feel free to chime in.
Speaker Change: I think you've made some very.
Speaker Change: Again illuminative comments about the market.
Speaker Change: And youre talking about demand public and private so.
Speaker Change: I just would like to get your question one concept of supply and demand. So we.
Speaker Change: We all can see but the public's youre doing and I think you broadly reflected that but.
Speaker Change: The price on the supply side the census data talks about.
Speaker Change: Units under construction closer to 380 to 90000.
Speaker Change: First the long term average of $2 80, and it seems that thats more on the private side, where you have that access. So can you think the strength youre seeing in the private versus the apparent high supply.
Speaker Change: That they have.
Speaker Change: You would.
Speaker Change: Or do you think the data is wrong versus your perception of privates.
Speaker Change: Well, our perception is guided by our experience not necessarily that macro.
Speaker Change: Information that Youre looking at and I think you're speaking just a single family and not multifamily correct.
Speaker Change: Alright.
Speaker Change: Okay.
Speaker Change: So I would just say that over the past two quarters, our experience has been that the.
Speaker Change: <unk> sales.
Speaker Change: Sales level with the.
Speaker Change: Regional and local builders has been better than it has been with the production builders now and the beginning of last year that was not the case.
Speaker Change: The production builders.
Speaker Change: The other business was pretty solid.
Speaker Change: Still solid now, but I'm, just talking about that on sort of a relative basis.
Speaker Change: You know in terms of there being a lot of excess inventory at the regional and local builders I really don't think that's the case quite frankly.
Speaker Change: At least that's not our experience and that's not the feedback that we're hearing.
Speaker Change: Very interesting because the census at least present something different.
Speaker Change: I appreciate that.
Speaker Change: You gave comments I know you don't give guidance.
Speaker Change: But you did highlight that <unk> gross margin.
Speaker Change: Tends to be.
Speaker Change: So lowest.
Speaker Change: Structurally.
Speaker Change: And we saw SG&A, which also tends to be the highest.
Speaker Change: In <unk> and that was up about 100 bps, you talked about $15 million targeted savings, but is it fair to assume that 100 basis point SG&A headwind we saw in <unk>.
Speaker Change: Kind of persist.
Speaker Change: If you think about it year over year as the year progresses.
Speaker Change:
Speaker Change: Well if you could hear your gross margin comments to SG&A that would be very helpful.
Speaker Change: Yes, I mean, the the difficult thing is that say, let's just take G&A for example.
Speaker Change: G&A is relatively static and we talked about this in the fourth quarter call.
Speaker Change: Earlier this year is that we expect G&A absent these targeted reductions that we're making we.
Speaker Change: We expect G&A to grow with general inflation really outside of what's happening with.
Speaker Change: Volumes.
Speaker Change: Generally speaking right because it's it is a we think of it as a dollar amount and not necessarily as a percentage of revenue right. So if you look at the.
Speaker Change: Adjusted selling and administrative expense increase from the first quarter of last year to the first quarter of this year. The dollar increase was about $6 million of that $6 million increase $4 4 million was related to acquisitions, because obviously acquisitions com with selling it.
Speaker Change: Administrative expense of their own and then the startup cost associated with the internal distribution efforts that we've talked about.
Speaker Change: Now for a couple of quarters, which is going very well by the way, but you know theres still a startup costs associated with it so our objective.
Speaker Change: G&A kind of going back and forth between SG&A G&A here, but yeah, G&A generally speaking is running between $105 million to $110 million a quarter and.
Speaker Change: Our objective on an annualized basis to be able to get that down.
Speaker Change: By say 15 million, although there will continue to be inflationary pressures within.
Jeff Edwards: G&A. So we're working as Jeff said and it's absolutely true job number one for us is to optimize G&A and we're working on that and we will continue to work on that throughout the year.
Speaker Change: Thank you.
Speaker Change: Sure.
Speaker Change: Next question, Adam Baumgarten with Zelman and Associates. Please proceed.
Speaker Change: Hey, Thanks, guys.
Speaker Change: I guess I can appreciate that you talked about the material costs being stable I'm, assuming that was a sequential comment but.
Speaker Change: And then your view is that they won't come down but is it volumes get worse in capacity.
Speaker Change: Supply increases across the industry why wouldnt prices come down like maybe they have historically.
Speaker Change: Macro and volume environment.
Speaker Change: Meaning that could benefit you guys.
Speaker Change: I mean, it's severe enough.
Speaker Change: That's obviously the case as you pointed out like you said historically, that's what happens we just don't see it at that point, but at this point that way at this point.
Speaker Change: Yeah, I mean, if we're down a let's call it 3% on the single family side.
Speaker Change: And that's I'm, not saying, we are but not on it because we don't provide guidance, but say on a macro level, even if its down 5% that's not such a significant decrease in volume that necessarily would warrant.
Speaker Change: This lower price environment.
Jeff Edwards: And as Jeff said, we're in more of a normalized environment now versus the situation, where we were at 100% capacity and we couldn't get skus.
Jeff Edwards: Cereal was hard to come by and.
Jeff Edwards: Right now the material is.
Jeff Edwards: Totally available.
Jeff Edwards: Manufacturers are capable of regulating the amount of material that they produce I mean, clearly there's been some small amount of curtailment already.
Jeff Edwards: Like obviously like to see the market BLT and they're not going to make material to date.
Jeff Edwards: And I can tell her and not want a solid and a price tag and so all of that so it's a little bit.
Jeff Edwards: Rational in that way.
Jeff Edwards: You would expect.
Jeff Edwards: Supply.
Speaker Change: Okay got it and then just sticking on the cost side.
Speaker Change: Any meaningful opportunities for branch consolidation looking at your current footprint that can save some some costs as well.
Speaker Change: Yes, we're continuing we always evaluate sort of the opportunities that bring branches together because it can be especially when were doing these sort of small tuck in acquisitions that we do that we don't really talk about them. I mean, that's part of the strategy of doing them as being able to combined locations and we have three or four locations right now that we are.
Speaker Change: Looking to combine but that's just part of our sort of everyday management of the footprint to make sure that we're optimizing it as best as possible I mean, sometimes you'll say you know if you have a lease that you're sort of stuck in.
Speaker Change: You might keep it open a little bit longer than you want to but we really try to optimize the footprint as best as possible.
Speaker Change: Okay got it thanks best of luck.
Speaker Change: Sure.
Speaker Change: Jeff Stevenson with loop capital markets. Please go ahead.
Speaker Change: Hi, Thanks for taking my questions today.
Speaker Change: So first on the strong heavy commercial results during the quarter was a portion of that demand strength driven by previous delayed large commercial projects moving forward since the start of the year and would you expect that trend to continue moving forward.
Speaker Change: We expect the trend to continue and it was not any project specific.
Speaker Change: Got it okay understood.
Speaker Change: Email.
Speaker Change: Healthy installation price mix during the quarter, which was great to see them.
Speaker Change: For all the color on <unk>.
Speaker Change: Expectations on them, you know fiberglass pricing.
Speaker Change: Moving forward.
Speaker Change: Just shifting to spray foam did you see any sequential improvement in the quarter and you know what are your expectations for you know pricing trends moving forward.
Speaker Change: Yeah, we did see some price.
Speaker Change: In the quarter.
Speaker Change: The spray foam business is still very solid business as we've talked in the past couple of quarters. It has been a headwind.
Speaker Change: Just because there had been a significant.
Speaker Change: Decrease in pricing now is stabilizing arising for a number of factors, but the headwind to gross margin was less this quarter than it was last quarter. So we feel good that that the spray foam business will in the back half of the year are not.
Speaker Change: And not be a headwind to gross margin.
Speaker Change: Great. Thank you.
Speaker Change: Sure.
Speaker Change: Next question Colin Vierra with Deutsche Bank. Please go ahead.
Colin Vierra: Good morning, Thanks for taking my question just one for me a lot of them taken so I guess, just looking at working capital and inventory you talked about releasing some of that and generating good free cash flow in a down market. When I look at your inventory balance in the quarter a bit sequentially a good amount year over year. So any color. So just what's driving that.
Colin Vierra: How much of it's M&A pricing or mix versus actual unit and just how much opportunity. There is for inventory adjustments. This year for cash flow generation, just given the current demand backdrop.
Colin Vierra: Yes, so not a lot of it's M&A, but obviously, that's a component of it.
Colin Vierra:
Colin Vierra: The biggest component associated with it though quite frankly is this internal distribution effort that we're doing because we are opening and setting up new distribution facilities that are primarily focused on internal distribution and obviously that means adding inventory to those locations.
Colin Vierra: So you know.
Colin Vierra: The that is definitely a driver there are the higher inventory balances you know the what I would say is that just like it happened in the first quarter I mean, clearly receivables and you know primarily receivables, but receivables and inventory will trend.
Colin Vierra: Up or down with higher or lower volumes.
Colin Vierra: Understood. Thanks for the color and good luck.
Colin Vierra: Thank you.
Jeff Edwards: I would like to turn the floor over to Jeff for closing remark.
Jeff: Thank you all for your questions and I look forward to our next quarterly call. Thanks again.
Jeff: This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Jeff: Yeah.
Jeff: [music].