Installed Building Products Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2023

There are 14 speakers on the call.

Operator

Greetings, and welcome to the Installed Building Products Fiscal 2023 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Darren Hicks, Managing Director of Investor Relations.

Operator

Thank you, sir. You may begin.

Speaker 1

Good morning, And welcome to Installed Building Products' 2nd quarter 2023 earnings conference call. Earlier today, we issued a press release on our financial results for the 2nd quarter, which can be found in the Investor Relations section of our website. On today's call, management's prepared remarks and answers to your questions may contain Forward looking statements within the meaning of the federal securities laws. These forward looking statements include statements about future expectations, anticipations, beliefs, Estimates, forecasts, plans and prospects. These forward looking statements are based on management's current expectations and involve risks and uncertainties.

Speaker 1

Any forward looking statement made by management during this call is not a guarantee of future performance and actual results may differ materially as a result of various factors, including, Without limitation, the adverse impact of the ongoing COVID-nineteen pandemic, general economic and industry conditions, rising home prices, Inflation and interest rates, the material price and supply environment, the timing of increases in our selling prices and factors discussed in the Risk Factors section of the company's Annual report on Form 10 ks as may be updated from time to time in our SEC filings. Any forward looking statement speaks Only as of the date hereof, the company undertakes no duty or obligation to update any forward looking statements as a result of new information or future events, except as required by the federal securities laws. In addition, management uses certain non GAAP performance measures on this call, such as EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, such as the net income per diluted share, Adjusted gross profit, adjusted gross profit margin and adjusted selling and administrative expense. You can find a reconciliation of such measures to the nearest GAAP equivalent in the company's earnings release and additional reconciliation for EBITDA and adjusted EBITDA for earlier fiscal years in our investor Presentation, which are available on our website.

Speaker 1

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.

Speaker 2

Thanks, Darren, and good morning to everyone joining us on today's call. As usual, I will start the call with some highlights and then turn the call over to Michael, who will discuss our financial results and capital position in more detail before we take your questions. IBP produced another record quarter of operating and financial As a result, we were able to more than offset softer single family sales through ongoing strength and solid execution within our multifamily business and improving demand within our commercial business. Our continued success is a direct result of the efficiency and diligent effort of our installers and employees across the country. Looking at our installation segment results for the Q2, total installation sales increased 2% year over year.

Speaker 2

This was driven by a 41% increase in multifamily sales and a 24% increase in commercial, which combined to more than offset a 10% decline in single family sales. Single family sales growth accelerated to 38% on a same branch basis, Up from 30% on a same branch basis last year, we have been successful in selling IBP's insulation services across branches and other markets that historically have not served multifamily customers. Within our commercial business, 2nd quarter same branch installation sales increased 16%. Bidding activity and project bid acceptance rates in our heavy commercial business improved in the Q2 relative to the Q1, while same brand sales improved both sequentially and year over year. During the quarter, price mix increased by 7.2% over the prior year period.

Speaker 2

We continue to apply our own our local market knowledge and improve job efficiency while making adjustments to align our pricing with the value we offer our customers. The strong growth in our multifamily and commercial end markets has also been a benefit to our price mix disclosure as sales to these end markets have higher average job prices relative to our single family end margin. We continue to expand our product offering and geographic presence through acquisition And have closed 5 deals so far this year with annual revenue of over $48,000,000 We expect at least $100,000,000 of annual revenue once again in 2023. During the 2023 Q2, we completed 2 acquisitions, including A Florida based installer of fiberglass and spray foam insulation serving residential and commercial customers with annual revenue of approximately $3,000,000 And a Texas based installer of fiberglass, spray foam and cellulose insulation serving residential, multifamily and commercial customers with annual revenue of approximately $3,000,000 Overall, our residential housing market remains resilient as stable employment and relatively low existing home inventory Levels continue to support demand for residential new construction activity. We are very encouraged that the publicly traded homebuilders That reported results in the last 2 weeks, order growth of 14%, the first positive result for the group in over a year.

Speaker 2

While these orders will take time to impact our revenue, we believe that the recovery in single family home construction is clearly underway. As for the multifamily end market, the backlog remains at historically high levels with jobs outstanding beyond. We believe we are well positioned to report another year of strong financial performance in 2020 as we continue to focus on profitability and effective capital allocation. Longer term, we believe our IBP relationships, Experienced leadership team, national SKID First product categories across multiple end markets will help IBP navigate Future changes in the U. S.

Speaker 2

Housing market. Our strong balance sheet coupled with our high operating cash flow generating capability supports ongoing acquisitions, dividends and opportunistic share repurchase activity. We believe the installation industry is well positioned to benefit from demand driven by government legislation, including the Inflation Reduction Act of 2022 and the Bipartisan Infrastructure Law, which are intended to improve energy efficiency in residential homes. I'm proud of our continued success and excited by the prospects ahead for IBP and the broader installation of the product installation business. So with this overview, I'd like to turn the call over to Michael to provide more detail on our Q2 financial results.

Speaker 3

Thank you, Jeff, and good morning, everyone. Consolidated net revenue increased to a 2nd quarter record of $692,000,000 compared to $677,000,000 for the same period last year. The improvement in sales during the quarter was driven by increases in multifamily and commercial sales, Higher price mix from the prior year period and revenue from recent acquisitions. The 7.2% price mix increase during the 2nd quarter Continued to benefit from stronger growth and a higher price per job in our multifamily and commercial end markets relative to our single family end market. Our Installation segment revenue increased to $652,000,000 while our other revenue, which includes IBP's manufacturing and distribution operations, increased to $40,000,000 On a same branch basis, residential installation revenue declined 5% in the prior year quarter As robust multifamily growth of 38% partially offset the 13% decline in single family same branch sales, Same branch commercial sales increased 16% during the 2023 Q2.

Speaker 3

Adjusted gross profit margin improved 160 basis year over year to 33.6% in the 2nd quarter, which was a reflection of our strategic focus on securing the most profitable installation jobs over volume growth and the benefit of price mix improvement during the quarter. Adjusted selling and administrative expense as a percent of 2nd quarter sales was 17.9% compared to 16.1% for the prior year period. Higher selling and administrative expenses relative to the same period last year primarily reflects Higher variable compensation related to higher gross profit margin performance from the prior year period. Our 2nd quarter net income per diluted share of 2.18 $0.18 increased 5% from the prior year quarter and our adjusted net income per diluted share improved 6% to $2.62 As a percentage of revenue, our net income per diluted share and adjusted net income per diluted share came in at a 2nd quarter record of 8.9% and an all time record of 10.7%, respectively. During the 2023 and 2022 second quarters, we recorded amortization expenses $11,000,000 related to the acquisition of new businesses.

Speaker 3

Based on recent acquisitions, we expect Q3 2023 Amortization expense of approximately $11,000,000 and full year 2023 expense of approximately $44,000,000 We would expect these estimates to change with any acquisitions we close in future periods. This non cash amortization adjustment impacts net income, which is why we continue to believe that adjusted EBITDA is the most useful measure of profitability. Adjusted EBITDA for the 2023 second quarter improved to a record $122,000,000 Adjusted EBITDA as a percent of net revenue reached a record 17.7% for the 2023 Q2, slightly above the same period last year. In the second quarter, we experienced Same branch sales and adjusted EBITDA declines, resulting in a decremental same branch adjusted EBITDA margin of 25.8% Compared to an incremental margin of 25 points for the same period last year when sales and adjusted EBITDA growth were positive. We continue full year long term incremental adjusted EBITDA margins in the range of 20% to 25%.

Speaker 3

For the 2023 Q2, our effective tax rate was approximately 26%, and we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31, 2023. Now let's look at our liquidity, balance sheet and capital requirements in more detail. For the 3 months ended June 30, 2023, We generated $64,000,000 in cash flow from operations compared to $51,000,000 in the prior year period. The year over year increase in operating cash flow was primarily associated with higher net income and lower net working capital requirements. Through interest rate swap agreements, we have fixed the interest rate on $400,000,000 of our existing variable rate debt until December 2028, Limiting our interest rate exposure.

Speaker 3

In addition, we have no significant debt maturities in fiscal 2020. Our 2nd quarter net interest expense fell to $9,800,000 from $10,400,000 in the prior year period as we were able to earn a higher interest rate on cash and cash equivalents invested throughout the quarter. At June 20 23. We had a net debt to trailing 12 month adjusted EBITDA leverage ratio of 1.3x compared to 1.5x At December 31, 2022, which is well below our stated target of 2 times. On June 30, 2023, We had $348,000,000 in working capital, excluding cash and cash equivalents.

Speaker 3

Capital expenditures and total incurred finance leases For the 3 months ended June 30, 2023, we're approximately $14,000,000 combined, which was 2% of revenue, In line with the same period last year, with our strong liquidity position and modest financial leverage, we continue to focus on expanding the business through acquisition returning capital to shareholders. Our acquisition pipeline is robust and our goal of acquiring $100,000,000 of annual revenue in 2023 remains unchanged. IBP's Board of Directors approved a 3rd quarter dividend of $0.33 per share, which is payable on September 30, 2023 to stockholders of record on September 15, 2023. 3rd quarter dividend represents a 5% increase over the prior year period. With this overview, I will now turn the call back to Jeff for closing remarks.

Speaker 2

Thanks, Michael. I'd like to conclude our prepared remarks by once again thanking IDP employees for their hard work, dedication and commitment to our company. Our success over the years is made possible because of all of you. Operator, let's open up the call for questions.

Operator

At this time, we will be conducting a question and answer session. We ask that you limit yourself to one question and a follow-up so that others may have an opportunity to ask questions. For participants using Our first question comes from Stephen Kim with Evercore. Please proceed with your question.

Speaker 4

Yes. Thanks very much, guys. Congratulations on the strong quarter. I was curious if you could start off with Your comments about the overall market, single family starts have really rebounded nicely here. Multifamily, there's concerns about where that might go as we head into next year.

Speaker 4

I was curious as to how you're thinking about The change in thinking around starts, is that what is that kind of in line with how you see the world? And then I was also curious if you could talk a little bit about the setup for a fiberglass price increase later this Summer, in the context of that? Thanks.

Speaker 3

Yes. Thanks, Stephen. This is Michael. So On the starts perspective, yes, I would say that our thought process aligns with that. We've I think everybody's seen sort of that inflection happen on the single family side.

Speaker 3

And because the Cycle times to build single family have really normalized. We talked about this in the last call. That means that from Start when we do our installation work as normalized as well versus last year where you saw that very extended lag So we feel good on the single family side as we go into the back half of the year. We would say in multifamily that we really have our team has just performed incredibly well on the multifamily side. And we believe that, while maybe not at the same elevated levels that we're seeing right now, they will continue to perform even if there is, Call it in, back half 'twenty four, 'twenty five weakness in multifamily starts, we feel very good about our team's ability Execute even in a more difficult multifamily environment.

Speaker 2

Yes. This is Jeff. I couldn't repeat more in that regard. It's just mean for us, it's been a matter of really market penetration. So in a lot of markets in which we weren't participating in the multifamily at all.

Speaker 2

And to the material That's material price increase environment second half

Speaker 1

of the year, latter half

Speaker 2

of the year. I would think that more than likely immaterial continues to be Pretty tight. It's going to get more so as single family comes back online based on the content that's involved and the fact that the model family is Still strong at least in terms of what's being built in the field. So I would think that it'd be probably pretty conducive to the manufacturers taking a look at that.

Speaker 4

Yes, I agree. That's helpful. I wanted to talk a little bit about this multi fam. And I think One of the things that I want to make sure that we're clear on is how you all talk about volume. I know you all talk about it In terms of the number of jobs, but actually it's really the number of trips, if I remember correctly.

Speaker 4

And I have in my notes here that a typical single family job will take, I don't know, 3 to 4 trips with 2 to 3 of that Being the insulation itself and then another one or so for other products. And commercial, which is sorry, multi fan, which is mostly the garden style apartments, I have in my like 4 to 6 trips. I was wondering if you could sort of clarify that for me, just make sure that we got that right. And then, how does commercial Look, how does that sort of factor in from a volume perspective and the number of trips?

Speaker 2

Thanks. So obviously,

Speaker 3

it depends. But multifamily Like commercial are going to be fairly similar in terms of the number of phases or the number for trips, which are going to be fairly kind of similar. And on the single family side, yes, there's your thinking there is Makes sense. I wish to say though that when we're counting jobs and we're on the volume side Disclosing the absolute volume of jobs, it is just the number of jobs compared to the price mix calculation That again is influenced by a number of factors that we've talked about before. But in this quarter, the biggest components that impacted price mix were both a higher growth rate from Non production builders on the single family side and also the higher rate of single family or excuse me, multifamily and Jobs like commercial jobs in the price mix disclosure.

Speaker 3

And we obviously did see price In the quarter, and we're continuing to experience the sort of residual benefits, if you will, From the pricing actions that we took in the back half of last year. But as we're going through the year and the comps get tougher, That benefit continues to reduce, particularly because we've been in an extremely benign inflationary environment across

Operator

Our next question comes from Ken Zetner with Seaport Research Partners. Please proceed with your question.

Speaker 5

Good morning, everybody.

Speaker 2

Good morning, Ken.

Speaker 5

I wonder if you can talk to housing starts, I think you commented on We've obviously seen momentum coming out of this sense, I think your market share is better. So Looking at the residential side, we estimate that the Publix have basically share starts To almost 50%, up from low 40s last year, consistent with them having reduced inventory. So My question is, could you comment on what you're currently seeing flip versus the private mix? And I will be tying that over to your comment about price mix benefiting from the non production builders, which is Might be different from what you're seeing right now in the bidding process.

Speaker 3

Yes. Ken, this is Michael. I think there's a difference between starts and when we're doing the installation And as we've talked about, I think in the past couple of calls, is that we expect as we go into the back half of the year To see higher rates of growth from the production builders than non production builders, the regional and local guys. And I think that's with your statement, we're seeing the same share of Starz. And as Jeff mentioned in his prepared comments, They saw at least the public bookers that have disclosed their 2nd quarter results so far, they saw really solid quarter growth, Which they haven't seen.

Speaker 3

I think almost universally everyone is talking about accelerating their Spec starts and their spec inventory, right? So I think what that lends absolute validation to is your comment and belief that They are continuing to pick up their percentage of overall starts. It's just that those starts are a forward looking Impact on our install revenue versus a backlog on our install revenue? Exactly.

Speaker 5

Yes. And the reason I'm asking this, As the public, the gross margins, which obviously impact your operating leverage, which has been Consistent, which is good. How do you think about price mix in FY 'twenty three, because it's been strong in the front half. Is it basically going to be a wash for the year because it's going to be weak, Not in a bad way, but just it's a mix issue. In the back half, so it's kind of a wash and where I'm going with this is, as you guys As your exposure to larger production builders increases, I'm just thinking about how you Think about the pros and cons for operating leverage being affected by gross margin mix going down.

Speaker 5

As you guys recall, a couple of years ago, The public builders accelerated their starts. There was kind of confusion, I think, around your operating leverage is price mix was impacted By those public builders, which would be opposite, it sounds like of the first half of this year. So if you could just kind of clarify that and talk about how you think you're going to be offsetting, Right, a weaker mix as it relates to the operating leverage of the business. Thank you.

Speaker 3

Yes, sure, Ken. I mean, you have That's actually correct relative to the big national builders because the average Job price for us is lower there than it is with the regionals. To the extent we see a higher rate of growth from them, it does Lower the price mix disclosure. And as I as we said earlier, it is a very Pretty benign inflationary environment, but as demand picks up, we have as a company, I think we've shown particularly in the past couple of quarters That we are going to focus on profitable works, particularly for the installation jobs that we do over volume. And that will continue, particularly As the pace of construction on the single family side starts to accelerate.

Speaker 3

But as you think about price on a full year basis Going into 2024, there is we expect that there will continue to be benefit in the mix component of price mix disclosure given the strength we're continuing to see on the multifamily and like commercial side.

Speaker 5

Thank you, guys.

Operator

Our next question comes from Joe Allis Meyer, Deutsche Bank. Please proceed with your question.

Speaker 6

Hey, good morning everybody.

Speaker 4

Good morning, Jeff.

Speaker 6

If I could just talk about with you guys the single family same branch Sales number and not wanting to get too much into the mix and volume at the total residential level, just the single family, same branch Sales. I think you had said in the past couple of quarters that the second quarter was likely to be the weakest environment for year over year sales on single family. Wondered if you had any updated thoughts on that relative to the back half. And then I've got a follow-up there.

Speaker 3

We feel good about the back half of the year. I mean, it is going to, as we said in the prepared remarks, I mean, it takes time for the pickup in starts to translate into our install volume. But as we look at the context of the Entire year, we feel pretty good. I mean, I think there is a possibility Despite where starts have been, at least the Census Bureau numbers would say starts have been for the first half of the year, down something like 20 If we see the current trends continue through the back half of the year, theoretically, you could be at a point we're not just talking about single family, not single family and multifamily. But you could get to a point where single family starts for the year are pretty flat year over year, close to 1,000,000

Speaker 2

Well, to your point, I think we obviously last call mentioned that we thought the second quarter would be The roughest and I think that's probably still accurate is where our heads are down.

Speaker 6

And so thinking about that down revenue, maybe the Q3 and I realize you don't give guidance, but the Q3 decline is likely less And if it's still a decline after all and then the Q4, you might actually see flat single family sales year over year. Is that close?

Speaker 3

As you said, we don't provide guidance, but we feel good about the second half of the year relative to the Q1 of the year.

Speaker 6

The relative to the first half and second quarter?

Speaker 3

Particularly the second quarter, yes.

Speaker 6

Got it. And then just maybe a bigger picture question, how you feel about industry manufacturing capacity relative to some of the tailwinds around incentives with the inflation reduction act and other things that you've discussed.

Speaker 2

This is Jeff, so I mean, clearly, everybody kind of remembers the last couple of years and how tight the market was. Volumes were a little bit elevated from here. There's really only at least announced in under construction, one capacity add In Texas, the KAMALF has under construction that I think is still online or on schedule to come on at the end of the Q2 of next Which has definitely some capacity. But clearly, if Both the volume returns, the levels we're talking about and then even still past that, there becomes some tailwind from some of the energy Proposals that have been put forth and are kind of working their way through the system that it's likely to get tight again. I think there's probably some other manufacturers, although sure not announced, but are probably strongly considering capacity as, but that will take some time.

Speaker 6

All right. Thanks for all the detail.

Operator

Our next question comes from Mike Rehaut with JPMorgan. Please proceed with your question.

Speaker 7

Hi, guys. Good morning. Doug Wardmall on for Mike. Just a quick question for me. I was wondering if you guys could just give a little bit more color on your gross margins this Quarter particularly strong and then just how sustainable you feel that is moving forward and if you could give a little bit more Insight on what drove the upside, that would be great.

Speaker 7

Thanks.

Speaker 3

This is Michael. Yes, we had a very Gross margin quarter, I mean, there are a lot of puts and takes in that. But if you just look over the past 5 quarters, right? I mean gross margin has averaged around 32%. And I think that we've talked Talked about this before that in that 30% to 32% range is I think makes sense, particularly when you're looking at it on a year basis.

Speaker 3

So, we feel good about where we are gross margin wise, but we also feel good at that kind of 30% to 30 2% range as well.

Speaker 7

Okay. So you feel that range is, I guess manageable moving forward

Operator

Our next question comes from Susan Maklari with Goldman Sachs. Please proceed with your question.

Speaker 8

Thank you. Good morning, everyone, and congrats on a nice quarter.

Speaker 2

Great. Thank you. Thanks, Sue.

Speaker 8

My first question is, as we Think about a more normalized operating environment in terms of the starts pace as well as perhaps some of the pricing that will come through on the material side. Is it reasonable to think that your volume versus price mix over the next call it, I don't know year, year and a half or so We'll start to move closer together. The way that we've sort of seen those two line items move historically?

Speaker 2

Yes, definitely.

Operator

Okay.

Speaker 8

And then I guess following up, you talk about the bigger Builders sort of taking more of the volume on the ground. What are the implications as it relates to the ancillary products in there and your ability to continue to add value to that and how that will perhaps come through in the results?

Speaker 9

Yes. I mean, we have

Speaker 3

good penetration of the other products with The big production builders, it's probably a little bit less than it is with the regional and local guys. But We would not expect that to have necessarily a material impact on the price mix disclosure. And if you Look at year to date and even particularly this past quarter, the price or the other products Really didn't impact the price mix disclosure this quarter.

Speaker 8

Okay. All right. Thank you. Good luck with everything.

Speaker 2

Thanks.

Operator

Our next question comes from Trey Grooms with Stephens. Please proceed with your question.

Speaker 10

Hey, good morning, everyone.

Speaker 2

Good morning, Trey.

Speaker 10

Hey. So, we kind of alluded to it just a little bit ago, but as part of some of the new actions Efficiency codes. I think the public comment period has been extended here.

Speaker 9

Good morning,

Speaker 10

Martha. Do you guys have any early views of the tanker that this mandate might have For you guys, for the industry, timing, if you could just educate us a little bit more on kind of your thoughts around that?

Speaker 3

Yes. This is Michael, Trey. We assuming that the FHA I don't think anybody in the industry expects it to have an impact until probably Early 2025. And that if Fannie and Freddie go down the same path, it probably won't be until Late 2025 to early 2026, not that that has the full impact. So and obviously over You will see greater energy efficiency come through as Code gets the higher energy codes get across the country.

Speaker 3

It could be A noticeable uptick in sales. We feel pretty good about that. But it's a 'twenty five, 'twenty six event, not necessarily

Speaker 10

Sure. Is there any way and I know we're this is further out, but still it's a pretty interesting thing that's going on with the industry. Is there any way to kind of parse out, I think Now the most recent kind of updated energy codes that are required are I think maybe 2,009, At least required from HUD. Is there any way to kind of parse out what that incremental amount of Insulation could be if they were to have to update the more recent, I guess, 2021 edition?

Speaker 3

Yes. So, I'll be honest with you, there's a lot of work going on within the industry to really get a good handle What the kind of increased pound usage estimation is going to be by state. And We're sort of working with that information and really haven't finalized our conclusions, but I would say that it is definitely positive and Reasonably significant in relation to our single family revenue.

Speaker 9

I mean,

Speaker 2

I don't this is Jeff, but The difference between the 2,009 code and the 2021 code is significant, very significant. But there are not that many states And some of the states that are still carrying the 2,009 codes are not really large markets either. There's maybe, I'm going to guess, let's say, 10 ish Or so, but it's a lot of I know like Alaska and a number of others are some of the upper Midwest states, Wyoming, etcetera, some of those states It's where there's just not the number of bills, maybe it's 10 or a dozen or so, but the rest are not at 2,009. Obviously, difference between Whatever codes they're adhering to

Speaker 3

or whatever local codes they

Speaker 2

might even be adhering to are much closer to the 2021 specs than Thanks, Ben.

Speaker 3

Yes. In the top half of the country, you might have a jurisdiction that adds the 2,009 code, the Building practices to build to the 'twenty one auto ready.

Speaker 10

Right. Okay. Got it. All right. Well, thanks for some of that info.

Speaker 10

Switching gears here on multifamily, I think you mentioned that you expect that multifamily to remain strong for maybe Another year. And I'm sure that's based on what you're seeing from your backlog there or maybe your customers' backlog there. And that sounds better than what some are looking for as far as from multifamily and as far as the duration of strength there. Clearly, multifamily has been a focus for you guys. Do you feel like you've been gaining some share there on multifamily?

Speaker 10

Or What's driving that relative strength for you guys, especially looking into next year?

Speaker 9

This is Michael. I mean, it's A couple

Speaker 3

of things, quite frankly. It is that we're gaining share. We're doing multifamily in markets that previously we hadn't done multifamily. And we're also doing a very good job of cross selling the other products into multifamily, which we hadn't previously done. So It's a combination of things that is leading to the outperformance there.

Speaker 3

And it's that outperformance, well, again, we don't Anticipate that the growth rates are going to continue to stay at such great levels, but we do think that even in a More difficult operating environment from a multifamily perspective that our team is going to be able to continue to perform above market.

Speaker 10

Sounds good. Thanks a lot guys. I'll pass it on. Good luck.

Speaker 2

Thanks.

Operator

Our next question comes from Adam Baumgartner, Dominik and Associates, please proceed with your question.

Speaker 5

Hey, good morning, everyone. If you think about the 7% increase in

Speaker 11

same store installation price mix.

Speaker 5

How much of that

Speaker 11

was due to mix versus pure pricing?

Speaker 3

More of it was mixed in price, but there is price in it.

Speaker 5

Okay, got it. And then maybe switching gears to commercial, If you could talk through how the heavy commercial business performed in

Speaker 11

the quarter? And then just maybe an

Speaker 5

update on the profitability profile of that business? I know that's been a

Speaker 11

big effort behind the scenes

Speaker 12

I'll ask you again, just any update there would be helpful.

Speaker 3

Yes. It was a good success story during the quarter, and we're Good about it as we go into the back half of the year. They had high single digit organic growth in the quarter And the margin profile, while still not what we expected to be or close to the company average, It did have a considerable improvement over last year's quarter.

Speaker 5

Okay, got it. Thanks. Best of luck.

Speaker 3

Sure.

Operator

Our next question comes from Phil Ng with Jefferies. Please proceed with your question.

Speaker 12

Hey, guys. Congrats on a really strong quarter. I guess this is a question for Michael. It appears you're at least committing To volumes perhaps bottoming out in 2Q, we appreciate obviously orders When you see that kind of funneling through to your volumes, is that a 4th quarter or 3Q event? And when we kind of look out 2024 with easier comps, do you see your volumes inflecting positively on a year over year basis by, call it, early 2024?

Speaker 9

Well, I mean, I hate to

Speaker 3

sound like a broken record. We obviously don't provide guidance. But I think just given what we've talked about and Assuming things continue along the positive trajectory that we've been talking about, I think it's fair to assume at this point that you'll see Full year positive volume in 2024, especially given what the production builders have sort of committed to, and what you've seen from an order growth and a commitment to the spec homes, which we think makes a lot of sense in the current operating environment. The starts growth that we're starting to see definitely takes time to become installed sales for us. So there's definitely on a relative basis Given how strong 'twenty two is, there's still weakness there, but we're very encouraged as we look towards The full scope of the back half of the year that there's going to be a decent volume of single family work for us in the back

Speaker 12

Tire lending conditions well documented. Appreciating you're not very big in office, I would imagine. How is commercial, that's a little more insulated from some of the concerns people have on office and retail.

Speaker 9

Yes. I mean, the as

Speaker 3

you know, the heavy commercial business, in aggregate, for the company is Like 7% or so. So not meaningful, but as I said earlier, we are seeing decent growth there and we're finally getting Margin uptake. We have across the board on the commercial side, we're being very Sort of cautious because we obviously are not ignoring the fact that everyone's talking about the tightening of credit. But I think that goes to Molotov family as well. We have not seen it in bidding And in terms of bidding activity and our backlogs, but we're being extremely mindful of it and Monitoring it as closely as we can.

Speaker 2

And we didn't directly answer the part about office. Office is

Operator

Our next question comes from Jeffrey Stevenson with Loop Capital Markets. Please proceed with your question.

Speaker 13

Hi. Thanks for taking my questions today and congrats on the nice quarter. So inventories moved lower Sequentially, and we've heard some commentary in the channel about some destocking ahead of the air pocket and single family demand. And just wondered if you'd attribute the sequential move lower to some destocking or something else entirely?

Speaker 9

Well, I mean, we don't think

Speaker 3

of it as destocking. We think of it more as we're not we don't need to maintain as high an inventory level because There is, I mean, fairly wide material is fairly widely available now unlike, Say this time last year where material was so tight, we were just getting as much material as we could. And we're just Working our inventory down to a more typical level relative to the sales. So I think you'll see as we go through the course of the year, we'll continue to normalize our inventory, Assuming, which is our assumption, that we continue to have good availability of material. We're also starting to see, which is good is that and we've talked about this a lot last year is that not only was material Tight, but certain types of material that are not as widely used as other types of Material are now becoming available again, which has significantly is probably the wrong word, but has helped Productivity in the field, because we have the material that we need in the right sizes and the And so that helps as well.

Speaker 13

Okay. That's great color. And then I just Wanted to touch on the increase in SG and A from higher variable compensation and just how you think that should track the rest of the year?

Speaker 3

Yes. So, it does link up, if you will, with particularly with gross margin on the Selling expense side, I would say, and we talked about this in previous calls, that the fact that The only real sort of quote unquote wage inflation that we saw last year was really in the G and A side. And what really came through in the Q2 is sort of the full realization of that sort of inflationary environment. And that's really behind us now. And I think as Ben talked a lot about in the press that wage inflation, while So higher maybe than some people want is normalized considerably.

Speaker 13

Understood. Thank you.

Speaker 3

Sure.

Operator

Our next question comes from Keith Hughes with Truist Securities, please proceed with your question.

Speaker 5

Thank you. My question has been asked, but could you just Give an update on where you are in terms of mix of single family versus commercial versus multifamily and install?

Speaker 3

Sure. So this is

Speaker 2

for the quarter

Speaker 3

and for the whole company. So it's not broken out by the install segment versus The other segment, but it's roughly excuse me, 56%, 57%, single family, like 16%, 17% multifamily, about 7% R and R,

Speaker 5

Roughly 7%, 8% R and

Speaker 3

R, 7% heavy commercial and then the remaining 11%, 12% light commercial.

Speaker 5

And what was the heavy again? I just couldn't hear you.

Speaker 2

7%.

Speaker 5

7%. And I guess within that, is there a distinction in multifamily between tower business versus car and apartments versus some of this mixed use So, it's out.

Speaker 2

Is that all lumped in that same category?

Speaker 3

That's a great question. It is all lumped in. It's all multifamily.

Operator

Our next question comes from Mike Dahl with RBC Capital Markets. Please proceed with your question.

Speaker 11

Hi. It's actually Chris Collin on for Mike. Thanks for taking our questions. Just going back to Margins and specifically net price cost trends, could you help or flush out a little more color How much net price cost changed this quarter versus last quarter? And then what your outlook is for the back half of this year, just given what you're seeing today on the inflation front?

Speaker 3

Yes. We don't break that out. We it's kind of a price mix. But As we said, it was definitely more mix, but there was definitely price in 7.2% pricemix growth this quarter.

Speaker 11

I guess in terms of the inflationary dynamics there, is there some additional color you can provide on what you're What you saw this quarter, what you expect for the backup?

Speaker 3

We still expect it to be a fairly benign environment. I would say though that we have focused profitable work over volume. And To the extent that there's a higher acceleration in single family than we're expecting, We would obviously anticipate that we would get paid fairly for that work and we would lean into the more profitable work In that instance.

Speaker 11

Understood. And just for my second question, just on capital allocation. I was hoping you can Any comment what you're seeing today in terms of your M and A pipeline? How do you feel multiples have trended? And to the extent they're still elevated your willingness to return to share repos?

Speaker 2

I don't know this is Jeff. I don't know that we've seen any meaningful increase or decrease in multiples really for quite some time, to honest with you, it's just not usually who our sellers are. They're kind of not the largest kind of lots of buyers, PE is after mix, etcetera typically. So we haven't seen that much variation in that regard. So And the pipeline is good.

Speaker 2

Yes, the pipeline is good, but we continue, as Michael said many times, we continue to Have plenty of capital to really kind of perform on all 4 or 5 of our efforts, including share repurchase.

Speaker 3

We are extremely excited. We appreciate all

Speaker 5

the color.

Speaker 3

Sure.

Operator

There are no further questions at this time. I would now like to turn the floor back over to Jeffrey Edwards for closing comments.

Speaker 2

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

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Key Takeaways

  • Installed Building Products delivered another record quarter, with total installation sales up 2% year-over-year thanks to a 41% jump in multifamily and 24% growth in commercial that more than offset a 10% decline in single-family.
  • Price mix rose 7.2% over the prior year period, helping drive a 33.6% adjusted gross profit margin (up 160 basis points) and a record 17.7% adjusted EBITDA margin.
  • The company closed two acquisitions in Q2 adding about $6 million of annual revenue, bringing year-to-date deals to five with $48 million in combined revenue and reaffirming a $100 million acquisition target for 2023.
  • IBP’s net debt/adjusted EBITDA leverage ratio improved to 1.3x, and it generated $64 million of operating cash flow in Q2 while maintaining no significant debt maturities through 2024.
  • Demand remains resilient, with single-family markets supported by stable employment and low inventory, positive 14% order growth reported by public homebuilders, and a multifamily backlog at historically high levels.
AI Generated. May Contain Errors.
Earnings Conference Call
Installed Building Products Q2 2023
00:00 / 00:00