Installed Building Products Q1 2025 Earnings Report

Installed Building Products EPS Results

• Actual EPS: $2.08
• Consensus EPS: $2.23
• Beat/Miss: Missed by -$0.15
• One Year Ago EPS: $2.47

Installed Building Products Revenue Results

• Actual Revenue: $684.80 million
• Expected Revenue: $681.34 million
• Beat/Miss: Beat by +$3.46 million
• YoY Revenue Growth: -1.20%

Installed Building Products Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 10:00AM ET

Installed Building Products (NYSE:IBP), together with its subsidiaries, engages in the installation of insulation, waterproofing, fire-stopping, fireproofing, garage doors, rain gutters, window blinds, shower doors, closet shelving and mirrors, and other products in the United States. It operates through Installation, Distribution, and Manufacturing operation segments. The company offers a range of insulation materials, such as fiberglass and cellulose, and spray foam insulation materials. It is also involved in the installation of insulation and sealant materials in various areas of a structure, which includes basement and crawl space, building envelope, attic, and acoustical applications. In addition, the company installs a range of caulk and sealant products that control air infiltration in residential and commercial buildings; and waterproofing options, including sheet and hot applied waterproofing membranes, as well as deck coating, bentonite, and air and vapor systems. Further, it distributes spray foam insulation, metal building insulation, residential insulation, and mechanical and fabricated Styrofoam insulation, as well as accessories and equipment used in the insulation installation process; and manufactures cellulose insulation and specialty industrial fibers. It serves homebuilders, multi-family and commercial and agricultural construction firms, individual homeowners, and repair and remodeling contractors. The company was formerly known as CCIB Holdco, Inc. Installed Building Products, Inc. was founded in 1977 and is based in Columbus, Ohio.

Installed Building Products Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Greetings, and welcome to the Installed Building Products First Quarter twenty twenty five Financial Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Darren Hicks, Vice President of Investor Relations.

[Operator]

Please go ahead.

[Darren Hicks, VP & Head of Investor Relations at Installed Building Products]

Good morning, and welcome to Installed Building Products first quarter twenty twenty five 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 laws. These forward looking statements are based on management's current beliefs and expectations and are subject to factors that could cause actual results to differ materially from those described today. Please refer to our SEC filings for cautionary statements and risk factors.

[Darren Hicks, VP & Head of Investor Relations at Installed Building Products]

We undertake no duty or obligation to update any forward looking statement as a result of new information or future events, except as required by federal securities laws. In addition, management refers to certain non GAAP and adjusted financial measures on this call. You can find a reconciliation of such 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 morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer and Michael Miller, our Chief Financial Officer and we are also joined by Jason Niswonger, our Chief Administrative and Sustainability Officer. Jeff, I will now turn the call over to you.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

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 delivered solid first quarter financial results reflecting our focus on maintaining a high level of installation service for our customers across The U. S. Our core homebuilding customers continue to navigate industry wide housing affordability challenges and a slower than expected spring selling season.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

Still, we continue to play our integral role in making homes and buildings as energy efficient and efficiently constructed as possible. We expect housing demand to remain connected to changes in affordability and the macroeconomic backdrop this year. In the current environment, we are competing from a strong financial position and our homebuilding customers are operating from a position of health as well, which helps in navigating market uncertainty. Longer term, our view on demand for our installed service is unchanged. We believe long term trends across our residential and commercial end markets are favorable as builders work to meet demand through the increased supply of houses, apartments and commercial structures.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

IBP's business model remains consistent and centered around geographic end product and end market growth with a disciplined approach to capital allocation. Throughout our business, we believe that less than 10% of the diverse products we buy and install are sourced outside of The U. S. We are working with our suppliers to reduce any potential tariff impacts. At present, we do not anticipate meaningful disruptions to our business.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

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. During the first quarter, we continued to grow through acquisition, paid nearly $57,000,000 in cash dividends or $2.07 per diluted share and repurchased approximately $34,000,000 of our common stock. As we pursue initiatives focused on achieving profitable growth and maximizing returns for our shareholders, we remain committed to doing the right thing for our employees, customers and communities. Looking at our first quarter sales performance, consolidated sales decreased 1% and same branch growth was down 4%. 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.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

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. 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. On a same branch basis, first quarter commercial sales in 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. The strength in our heavy commercial end market was driven in part by successfully winning jobs in the rapidly growing data center construction industry.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

Based on our current backlog, we expect growth in heavy commercial sales to continue throughout this year. During the first quarter, cash flow from operating activities increased 9% to $92,000,000 which primarily reflected effective management of working capital. Acquisitions continue to be our top priority as we consider all of our options for capital allocation. Despite our growth over the years, we believe a meaningful opportunity still exists for us to expand our geographic presence and diversify the mix of building products we install across our national branch network. During the twenty twenty five first quarter and in May of twenty twenty five, we completed the following acquisitions.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

A 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 $6,000,000 and a Wisconsin based installer of spray foam and air barrier products in the commercial end market with annual revenue of nearly $4,000,000 To date, we have acquired over $10,000,000 of annual revenue and although deal timing is hard to predict, we expect to acquire over $100,000,000 in annual revenue in 2025. Based on the 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 undersupply of residential housing and gradual building code adoption for the purpose of improved energy efficiency across The U. S. 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.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

S. Construction market. Although the uncertainty around tariffs, inflation and consumer sentiment influences prevailing market conditions in our industry and many others, we remain focused on profitability and effective capital allocation to drive earnings growth and value for our shareholders. 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.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

I remain encouraged by our competitive positioning and optimistic about the prospects ahead for IBP in the broader insulation and other building product installation business. So with this overview, I'd like to turn the call over to Michael to provide more detail on our first quarter financial results.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Thank you, Jeff, and good morning, everyone. Consolidated net revenue for the first quarter decreased 1% to $685,000,000 compared to $693,000,000 for the same period last year. The modest decrease in sales during the quarter reflected single digit declines across all our core end markets, partially offset by revenue from recent acquisitions. Same branch sales were down 4% for the first quarter. Although the components behind our pricemix and volume disclosure have several moving parts that are difficult to forecast and quantify, we achieved a 1.5% increase in pricemix during the first quarter.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

This result was offset by a 5.6% decrease in job volumes relative to the first quarter last year. With respect to profit margins in the first quarter, our business achieved adjusted gross margin of 32.7, down from 33.9% in the prior year period. The margin headwind during the quarter was in part related to higher vehicle insurance and depreciation expense. Adjusted selling and administrative expense as a percent of first quarter sales was 20.1% compared to 19% in the prior year period. The increase was due primarily to lower sales and higher administrative wages and higher facility costs.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Of the $6,000,000 increase in adjusted selling and administrative expense, 4,400,000.0 was due to acquisitions and start up expenses. Adjusted EBITDA for the twenty twenty five first quarter decreased to $102,000,000 reflecting an adjusted EBITDA margin of 15% and adjusted net income decreased to $58,000,000 or $2.08 per diluted share. Although we do not provide comprehensive financial guidance based on recent acquisitions, we expect second quarter twenty twenty five amortization expense of approximately $10,000,000 and full year 2025 expense of approximately $40,000,000 We would expect these estimates to change with any acquisitions we close in future periods. Also, we continue to expect an effective tax rate of 25% to 27% for the full year ending 12/31/2025. Now let's look at our liquidity position, balance sheet and capital requirements in more detail.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

For the three months ended 03/31/2025, we generated $92,000,000 in cash flow from operations compared to $85,000,000 in the prior year period. The year over year increase in operating cash flow was primarily associated with improvements in working capital, which more than offset lower net income. At 03/31/2025, we had a net debt to trailing twelve month adjusted EBITDA leverage ratio of 1.17 times compared to 0.97 times at 03/31/2024, which remains well below our stated target of two times. At 03/31/2025, we had $351,000,000 in working capital, excluding cash and cash equivalents. Capital expenditures and total incurred finance leases for the three months ended 03/31/2025 were approximately $21,000,000 combined, which was approximately 3% of revenue.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

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 twenty twenty five first quarter, IBP repurchased 200,000 shares of its common stock at a total cost of $34,000,000 At 03/31/2025, the company had approximately $466,000,000 available under its stock repurchase program. IVP's Board of Directors approved the second quarter dividend of $0.37 per share, which is payable on 06/30/2025, to stockholders of record on 06/13/2025. The second quarter dividend represents a 6% increase over the prior year period. With this overview, I will now turn the call back to Jeff for closing remarks.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

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 you. Operator, let's open up the call for questions.

[Operator]

Thank you. We will now be conducting a question and answer If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove your question from the queue. Your first question comes from Steven Kim with Evercore ISI.

[Operator]

Please go ahead.

[Aatish Shah, Equity Research at Evercore ISI]

Hi, this is Atish on for Steven. Thanks for taking the question.

[Aatish Shah, Equity Research at Evercore ISI]

I just

[Aatish Shah, Equity Research at Evercore ISI]

wanted to

[Aatish Shah, Equity Research at Evercore ISI]

get an idea of how you're managing your labor force in this pressure demand environment.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Hi, this is Michael. Good morning. I think you really have to break it down into the various labor components in terms of the install labor versus the sales force and then the G and A labor. The install labor really fluctuates consistently with the volume of jobs. So our intention is really never to hold crews when it comes to the installed labor.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

There is an exception to that statement. And it would be times like we had in the first quarter where you had 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's a prolonged headwind relative to volume, you would then obviously 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 in terms of headcount unless it's a situation where you expect to have significant prolonged headwinds as it relates to volume.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

In terms of the G and A labor force, we're constantly looking to optimize and have the right headcount and right people doing the right things within G and A. I would say that clearly a focus of ours has been to make sure that we have optimization within the G and A ranks. And that's obviously something that we're continuing to focus on and will focus on and would expect to see some reductions in the G and A workforce as we're going forward here through the rest of the year.

[Aatish Shah, Equity Research at Evercore ISI]

Great, thank you. And if I could just get one more follow-up. On the multi family side, it was touched upon briefly in the prepared remarks, but can you talk about how the CQ team is helping the branches manage through pressure in the end market?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

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 March of this year, which is a huge headwind. And we are extremely proud of what the team was able to do with a 20 headwind having multifamily revenue only down 5% is in part a direct result of the benefits that we're seeing from CQ. As I think everyone on the call knows, CQ does not manage all of our multifamily revenue.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

They only manage around 45% of our multifamily revenue. And they continue to show up positive results on the multifamily revenue that they're managing. Their backlog continues to be very solid. So we feel very strongly that we will continue to outperform the multifamily opportunity. That being said, we believe that units under construction need to come down at least another 10% in order to stabilize relative to historical trends based on current multifamily starts rates.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Although we do think multifamily starts have bottomed. As I'm sure everybody realizes, multifamily starts year to date, 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.

[Stephen Kim, Senior Managing Director at Evercore ISI]

Thanks for that. It's Steve. I just wanted to follow-up real quickly. You mentioned the California fire and the weather impacts in the quarter on residential CINGTAM. I was wondering if you could quantify roughly how large each of those was as a headwind in the quarter?

[Stephen Kim, Senior Managing Director at Evercore ISI]

And do you expect to fully recover that in 2Q? Or just how do we how should we be thinking about the going forward outlook there?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Yeah, mean, the lost day is, call it 10,000,000 to $12,000,000 The day is lost. So for the year, we have one less selling day. So that 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 10,000,000 to $20,000,000 Unfortunately, there's 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 couldn't get to the job site, it was that all the other trades couldn't get to the job sites as well.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

So it's just pushed out the recovery if you will of that additional revenue. And 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.

[Stephen Kim, Senior Managing Director at Evercore ISI]

Okay, great. Thanks a lot guys.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Sure.

[Operator]

Next question, Michael Rehaut with JPMorgan. Please go ahead.

[Alex Isaac, Equity Research Analyst at J.P. Morgan]

Hi, this is Alex Isaac on for Mike. Thanks for taking my question. I want to ask related to trends in single family, how do you view between different end markets like production, regional, like local and custom as well as like different regional areas? How do you sort of view the trends in those specific end markets?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Well, would say that in the quarter, our regional 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. 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 or public builders combined with either their guidance or consensus relative to their revenue. When we compare that to and weight that based on our revenue with those public builders, as we mentioned in the fourth quarter call a couple of months ago, that based on those numbers or 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.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

So we think that's a fairly key or a fairly decent indicator of where the publics will be, at least based on people's expectations now. We would probably expect that we're regional and local builder doing slightly better than that just given our footprint and our experience with them. There has been a relative strength in a very weak market with some big custom home builders. Obviously, the custom builders are less susceptible to some of the both macroeconomic uncertainty and current rate environment, just given the nature of the customer there. In terms of on a regional basis for single family, I think a lot of people have talked about this.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Florida is very weak. Texas for us is still pretty solid. The West Coast is solid. We feel good about the Northeast and the Midwest, quite frankly. They seem to be pretty solid as well.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

The Mid Atlantic is good, not great. But clearly, 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 to modestly up. Whereas I would say that we'll be at best flat probably down mid to low single digits on the single family side this year.

[Alex Isaac, Equity Research Analyst at J.P. Morgan]

Thanks, that makes a lot of sense. Appreciate all the color on that. Then as my follow-up, I was curious on material prices throughout the year and then into '26, how do you view those especially with more like insulation supply coming online?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Mean the environment continues to be very benign.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

Yeah, it's healthy but certainly probably not deflationary.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

With the exception of course of there's a lot of uncertainty around the tariff impacts. Fortunately, we source a very large portion, over 90% of what we buy, we source domestically. Based on what's been announced combined with working with our suppliers and negotiating with our suppliers for the things that we don't source domestically, we estimate that the impact of the tariffs could be anywhere between 10,000,000 to $20,000,000 which is about 1% of cost of sales for us. So it's a pretty nominal impact, but it's still there. And obviously, we will work to pass on any of those costs to our customers.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

But clearly, it's not the best operating environment when it comes to any kind of an increased cost in an environment where you're seeing headwinds from a volume perspective.

[Alex Isaac, Equity Research Analyst at J.P. Morgan]

That makes a lot of sense. Just a quick follow-up on that. Would you say that the sourcing is your individual sourcing is uniquely more domestic or that's industry wide?

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

That's pretty representative of the products that we handle and the industry that we compete in, that's pretty representative of the industry.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Yeah, I would say that there are some of our suppliers like for example our big suppliers of spray foam. There's a lot of talk about MDI and the cost 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 to some of those restrictions. Now one thing that we haven't factored into that 10,000,000 to 20,000,000 And I think is really uncertain as to what the implications will be is what if any so we feel fortunate that our suppliers are sourcing their materials domestically.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

But because other vendors may be sourcing their materials internationally, we don't know what the impact that will be on the overall price in the market. Theoretically, a domestic distributor or supplier would increase their price of goods if the price of the internationally sourced goods are going up because of tariffs.

[Alex Isaac, Equity Research Analyst at J.P. Morgan]

Right, That makes a lot of sense. Appreciate all the color on that.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Sure.

[Operator]

Please ask one question and one follow-up question. Next question comes from Susan Maklari with Goldman Sachs. Please proceed.

[Susan Maklari, Analyst at Goldman Sachs]

Good morning, everyone.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

Good morning.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Good morning, Susan.

[Susan Maklari, Analyst at Goldman Sachs]

Was just thinking a bit about

[Susan Maklari, Analyst at Goldman Sachs]

the gross margin. It sounds like there were some onetime or sort of unique 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 you're thinking about this setup for this year given your focus on profitability and the service that you offer relative to the environment that we are in, which starts coming down?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Yeah, thanks for that question, Sue. So within cost of goods sold are our fleet expenses basically for the installed fleet. So that includes depreciation, fuel, 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. While those costs are not fixed, they certainly don't there's not variable relative to the volume of jobs very quickly.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

So they have a very lagging effect from a variability perspective. Then as we had mentioned in the fourth quarter call as well, both spray foam and the other segments, so again, that's our distribution and manufacturing segment, which naturally has a lower gross margin, had better sales growth relative to the install segment. So as a consequence, those two things combined had about another 30 basis points of headwinds to gross margin in the quarter. Going forward for the rest of the year, we have talked about on a full year basis adjusted gross margin being in that range of 32% to 34%. Obviously in the first quarter we were at the lower end of that range.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Historically, the first quarter is the lowest gross margin quarter because it's your lowest volume quarter. We would expect that to be the case through the rest of 'twenty five as well. However, I would caveat that and say that we believe that 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.

[Susan Maklari, Analyst at Goldman Sachs]

Okay. That's very helpful color, Michael. And speaking about price mix and appreciating 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. As you think about just the setup for this year, can you talk about your ability to continue to see the benefits of that coming through and to keep that positive?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Yeah, quite honestly, it's really lapping increases from still increases that happened in the back half of last year. So as we said relative to material costs that are very benign, we would expect that pricing would be very benign as well. And that we wouldn't continue to see positive benefits throughout the year.

[Susan Maklari, Analyst at Goldman Sachs]

Okay. Thank you. Good luck with everything.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Sure.

[Operator]

Next question, Michael Dahl with RBC Capital Markets. Please go ahead.

[Mike Dahl, Managing Director - Equity Research at RBC Capital Markets]

Hi. Thanks for taking my question. Let me talk through kind of the cadence a little bit more. I mean, appreciate the comments around the changing macro views. You're a large supplier was talking about down low to mid teens in U.

[Mike Dahl, Managing Director - Equity Research at RBC Capital Markets]

S. Resi yesterday in their insulation business. Your peers seem to be indicating pretty sharp declines in 2Q. I think both those are probably a combination of some of the single family and multifamily. But can you just talk through kind of near term cadence, how you'd expect that volume progression to look particularly on the resi side.

[Mike Dahl, Managing Director - Equity Research at RBC Capital Markets]

But then I'm also curious, the blend of heavy versus commercial, you were still down in the quarter on commercial overall. So maybe just talk through that part as well, how that blends out.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Sure. As you know, we don't provide guidance. But we definitely do think that there are going to be headwinds in the residential side, both single family and multifamily 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.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

As we said to the answer to an earlier question, we do think that multifamily starts at bottom. We think that given the 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 confident about the long term prospects of the core residential business. And so we feel very good about that. But again, we're going to have headwinds in throughout '25 in our opinion as it relates to both single family and multifamily.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

As it relates to the commercial business, I mean the heavy commercial business is performing exceedingly well. That business was up over 14% in the quarter and we're continuing to see very strong solid backlogs and bidding in that business. 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 in the heavy commercial side. Offsetting that was a little over 10% decline in the light commercial business. As you can tell from those differences, the light commercial business is still larger than the heavy commercial business, although that will probably flip by the end of the year given the current sales trends that we expect.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

And we do expect the light commercial business, which is the worst performing part of our business or end market right now to continue to be weak. We would expect some recovery as we go into sort of the back half of 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.

[Mike Dahl, Managing Director - Equity Research at RBC Capital Markets]

Okay, that's very helpful. Second question, maybe just digging into the margins a little bit more. So I guess those impacts from the vehicle stuff in 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 a smaller base.

[Mike Dahl, Managing Director - Equity Research at RBC Capital Markets]

So when we think about that through the year, is that something that's going to pressure your decrementals? There's a lot going on with mix and with that. But how do you think about the decrementals in the environment?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Yeah, there's no doubt that it provides a headwind to the decrementals because we in essence those costs are relatively fixed. And we've talked a lot about decrementals and variable costs. And we like to think of all of costs being variable over time. But the reality is that when you're looking over, say, a twelve to eighteen month timeframe, some of your costs are fixed. There's certain insurance costs that are fixed in essence, brand facility costs are basically fixed.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

And so when we think it over sort of a twelve month timeframe, we think of there being 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 takes time before it adjusts to changes in volume. And then about 75% of our overall costs are directly variable. The largest components of that being material and the install labor. When you're in a situation when you have volumes decline, when you had an expectation for volumes being flat or up, the fixed and lagging variable component of your cost structure really presents a significant headwind to margins and to decremental margins.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

And that obviously came through in our same branch incremental EBITDA margin, decremental margin in the quarter as everyone saw.

[Mike Dahl, Managing Director - Equity Research at RBC Capital Markets]

Okay, thank you very much.

[Operator]

Next

[Operator]

question, Trey Grooms with Stephens. Please go ahead.

[Trey Grooms, Managing Director at Stephens Inc]

Hey, good morning, everyone. Thanks for taking my questions. I guess to start on maybe working capital and free cash flow, you guys put up some good free cash flow in the quarter, seeing improvements in working capital. Michael, do you think this is or this kind of year over year improvement continues as we kind of look through the year with the outlook you have for demand or how should we be thinking about that?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

I mean, 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 on a full year basis, we would expect that we would continue to generate good free cash flow.

[Trey Grooms, Managing Director at Stephens Inc]

Yep.

[Trey Grooms, Managing Director at Stephens Inc]

And then on M and A side, you still have a target of $100,000,000 revenue for this year. Clearly, it's up to a little slower start maybe, and I know these things can be lumpy, but have you seen any change at all up there in the kind of in the pipeline as you the outlook has gotten maybe a little more challenged and demand has been a little weaker? Any change in the appetite on the M and A side from sellers?

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

No, this is Jeff. But no, not really, not at all. They're just like you said and we've said before, they are kind of lumpy and we're not in control of the timing a lot of times, but there's plenty of still kind of active negotiations and, know, candidates out there.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

And M and A is absolutely our one priority.

[Trey Grooms, Managing Director at Stephens Inc]

Yep. Sure. Okay. Got it. I'll pass it on.

[Trey Grooms, Managing Director at Stephens Inc]

Thanks.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

Sure.

[Operator]

Next question, Phil Ng with Jefferies. Please proceed.

[Maggie Grady Miller, VP - Equity Research at Jefferies]

Hey, guys. This is Maggie Miller on for Phil. First, going back to pricemix, you know, piece is holding up. Maybe you could break out the price versus mix components of that and how you see specifically the mix piece trending through the year. And I know you've called out a relatively benign cost environment so far, but, you know, if we continue to see these demand headwinds and there's additional capacity coming on, how do you think about the risk that fiberglass pricing falls and your ability to hold price in that type of backdrop?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

So this is Michael. 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. 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.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Does not include the price mix and volume disclosures do not include the heavy commercial business. So the fact that business is very solid, pricing is very good and is up, it is not reflective in the price mix calculation. What you're seeing in the price mix calculation is, as I mentioned in the answer to a previous question is there's definitely carryover pricing from last year that is keeping that positive if you will. Combined with the fact that the production as I mentioned earlier, the regional and local builders are performing slightly better than the public builders within our revenue base just given the nature of our customers there. What is presenting a challenge though to the price mix calculation, at least the way that we disclose it, is that the multifamily sales being down slightly more than the other components of price mix is obviously a headwind to that.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

So what our expectation would be and I alluded to this in the answer to one of the other questions is that if things stay the way that they are in terms of a little bit more pressure on well, significantly better than the overall market opportunity, more pressure on multifamily volumes than single family volumes, it would continue to add pressure and headwind to the price mix disclosure. I don't if you wanted

[Michael Miller, CFO, EVP & Director at Installed Building Products]

to add.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

Yeah, and on the material side, I mean, I think it's important to kind of back up a year if not years and look at how tight things were. I mean, really got to the point where it was inefficient. It was harder for us to do business. There were certain SKUs we couldn't get.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

We were as we talked about before having to go to distribution sometimes and even the big boxes in terms of supply of material. So I'd categorize this as moving closer to having an efficient market. It's still fairly healthy despite the year over year decline. And quite frankly, it's kind of working the way it's supposed to.

[Maggie Grady Miller, VP - Equity Research at Jefferies]

Okay, okay, that's super helpful. And then how should we think about the opportunities you have in the SG and A line as we move through the year kind of taking into account those fixed and semi fixed costs that you called out? And what point would you be looking to start taking those costs out? You know, if things are kind of steady state from here, down year over year but not getting worse? Or would you have to see a material step down from where we are now to start making those cost out actions?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Yeah, I appreciate the question. And we are focused on optimizing G and A. We've targeted at least $15,000,000 of cost reduction, which we have already taken steps to realize those savings, which we believe we'll start feeling the impact of in the third quarter. Those costs we are going to take out even if volumes improve from where our current expectations are. And we are going to continue to focus on optimizing the G and A cost structure as much as we can, quite frankly.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

This is an opportunity for us to fundamentally optimize the spend on G and A. And the entire company is focused on getting there and getting that done.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

Job one.

[Maggie Grady Miller, VP - Equity Research at Jefferies]

Right, thank you so much.

[Operator]

Next question, Ken Zener with Seaport Research. Please go.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Good morning, everybody.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

Morning.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Morning, Ken.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Michael and Jeff, want or two, feel free to chime in. I think you've made some very, again, illuminative comments about the market, and you're talking about demand, public and private. So I just would like to get your question one concept of right supply and demand. So we all can see what the publics are doing, and I think you broadly reflected that. But I'm surprised on the supply side, the census data talks about units under construction closer to $470,000 versus the long term average of $280,000 And it seems that that's more on the private side where you have that excess.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

So can you think the strength you're seeing in the privates versus the apparent high supply that they have, if you would? Or do you think the data is wrong versus your perception of privates?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Well, our perception is guided by our experience, not necessarily that macro information that you're looking at. And I think you're speaking just to single family and not multifamily, correct?

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Correct.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

So I would just say that over the past two quarters, our experience has been that the sales level with the regional and local builders has been better than it has been with the production builders. Now in the beginning of last year, that was not the case. The production builder business was pretty solid. It's still solid now, but I'm just talking about it on sort of a relative basis. 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.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

At least that's not our experience and that's not the feedback that we're hearing.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Very interesting, because the census at least presents something different. So I appreciate that. You gave comments, I know you don't give guidance, but you did highlight that 1Q gross margin tends to be the lowest structurally. And we saw SG and A, which also tends to be the highest in 1Q. That was up about 100 bps.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

You talked about $15,000,000 targeted savings. But is it fair to assume the 100 basis point SG and A headwind we saw in 1Q to kind of persist If you think about a year over year as the year progresses? Well, if you could mirror your gross margin comments to SG and A, that would be very helpful.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Yeah, I mean, difficult thing is that, say, let's just take G and A for example. G and A is relatively static. And we talked about this in the fourth quarter call earlier this year is that we expect G and A, absent these targeted reductions that we're making, we expect G and A to grow with general inflation, really outside of what's happening with volumes, generally speaking. Because we think of it as a dollar amount and not necessarily as a percentage of revenue. So if you look at the 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 $6,000,000 Of that $6,000,000 increase, 4,400,000.0 was related to acquisitions, because obviously acquisitions come with selling and general administrative expense of their own.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

And then the startup costs associated with the internal distribution efforts that we've talked about now for a couple of quarters, which is going very well by the way, but there still are startup costs associated with it. So our objective in G and A I'm kind of going back and forth between SG and A and G and A here. But G and A, generally speaking, is running between $105,000,000 to $110,000,000 a quarter. And it's our objective on an annualized basis to be able to get that down by, say, dollars 15,000,000. Although there will continue to be inflationary pressures within G and A.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

So we're working, as Jeff said, and it's absolutely true, job number one for us is to optimize G and A. And we're working on that, and we will continue to work on that throughout the year.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Thank you.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Sure.

[Operator]

Next question, Adam Baumgarten with Zelman and Associates. Please proceed.

[Adam Baumgarten, Managing Director at Zelman & Associates]

Hey, thanks guys. I guess I can appreciate that you talked about the material costs being stable. I'm assuming that was a sequential comment. But and that your view is that they won't come down. But I guess if volumes get worse and capacity or supply increases across the industry, why wouldn't prices come down like maybe they have historically in a weak macro and volume environment, meaning that could benefit you guys?

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

I mean, if it's severe enough, that's obviously the case, as you pointed out. And you said historically, that's what happens. We just don't see it at that point at this point, that way at this point.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Yeah, mean, if we're down, let's call it 3% on the single family side and that's I'm not saying we are, but on a because we don't provide guidance. But say on the macro level, even if it's down 5%, that's not such a significant decrease in volume that necessarily would warrant lower price environment. 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 and material was hard to come by. Right now material is readily available.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

I mean, manufacturers are capable of regulating the amount of material that they produce. I mean, there's been some small amount of curtailment already because they obviously like to see the market be healthy and they're not going to make material that they can't sell or and not want to sell it at a price that they can't sell it at. So it's a little bit rational in that way, as you would expect in terms of supply.

[Adam Baumgarten, Managing Director at Zelman & Associates]

Okay, got it. And then just sticking on the cost side, any meaningful opportunities for branch consolidation, looking at your current footprint that can save some costs as well?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Yeah, we're continuing we always evaluate sort of the opportunity to bring branches together because it can be especially when we're doing these sort of small tuck in acquisitions that we do that we don't really talk about. I mean, that's part of the strategy of doing them is being able to combine locations. And we have three or four locations right now that we're 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. Sometimes you'll say, if you have a lease that you're stuck in, 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.

[Adam Baumgarten, Managing Director at Zelman & Associates]

Okay, got it. Thanks. Best of luck.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Sure.

[Operator]

Jeff Stevenson with Loop Capital Markets, please go ahead.

[Jeffrey Stevenson, Vice President at Loop Capital Markets LLC]

Hi, thanks for taking my questions today. 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?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

We expect the trend to continue and it was not any project specific.

[Jeffrey Stevenson, Vice President at Loop Capital Markets LLC]

Got it. Okay. Understood. And then a healthy installation price mix during the quarter, which was great to see. And thanks for all the color expectations on fiberglass pricing moving forward.

[Jeffrey Stevenson, Vice President at Loop Capital Markets LLC]

But just shifting to spray foam, did you see any sequential improvement in the quarter? And what are your expectations for pricing trends moving forward?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Yes, we did see some price in the quarter. The spray foam business is still it's a very solid business. As we've talked the past couple of quarters, it has been a headwind just because there had been a significant decrease in pricing that now is stabilizing and rising 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 the spray foam business will in the back half of the year not be a headwind to gross margin.

[Jeffrey Stevenson, Vice President at Loop Capital Markets LLC]

Great, thank you.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Sure.

[Operator]

Next question, Colin Veron with Deutsche Bank. Please go ahead.

[Collin Verron, Director at Deutsche Bank]

Good morning. Thanks for taking my question. Just one for me, a lot of them have been 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, it's up a bit sequentially and a good amount year over year.

[Collin Verron, Director at Deutsche Bank]

So any color as to just what's driving that? How much of it's M and A pricing or mix versus actual units? And just how much opportunity there is from inventory adjustments this year for cash flow generations, just given the current demand backdrop?

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Yes. So not a lot of it's M and A, but obviously that's component of it. 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. So that is definitely a driver there of the higher inventory balances.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

What I would say is that just like it happened in the first quarter, clearly receivables and primarily receivables, but receivables and inventory will trend up or down with higher or lower volumes.

[Collin Verron, Director at Deutsche Bank]

Understood. Thanks for the color. Good luck.

[Michael Miller, CFO, EVP & Director at Installed Building Products]

Sure. Thank you.

[Operator]

I would like to turn the floor over to Jeff for closing remarks.

[Jeffrey Edwards, Chairman, CEO & President at Installed Building Products]

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

[Operator]

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

Participants

Executives

• Darren Hicks, VP & Head of Investor Relations
• Jeffrey Edwards, Chairman, CEO & President
• Michael Miller, CFO, EVP & Director

Analysts

• Aatish Shah, Equity Research at Evercore ISI
• Stephen Kim, Senior Managing Director at Evercore ISI
• Alex Isaac, Equity Research Analyst at J.P. Morgan
• Susan Maklari, Analyst at Goldman Sachs
• Mike Dahl, Managing Director - Equity Research at RBC Capital Markets
• Trey Grooms, Managing Director at Stephens Inc
• Maggie Grady Miller, VP - Equity Research at Jefferies
• Kenneth Zener, Senior Analyst at Seaport Research Partners
• Adam Baumgarten, Managing Director at Zelman & Associates
• Jeffrey Stevenson, Vice President at Loop Capital Markets LLC
• Collin Verron, Director at Deutsche Bank