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spk06: on your telephone keypad. Please note, this conference is being recorded. At this time, I'll turn the conference over to Jason Niswonger, Senior Vice President, Finance and Investor Relations. Jason, you may now begin.
spk08: Good morning, and welcome to Install Building Products, first quarter 2021 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 on our websites. 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 with respect to the housing market and the commercial market, industry conditions and trends, our financial and business model, payment of a quarterly cash dividend, labor trends, our efforts to manage material inflation, supply chain constraints, our ability to increase selling prices, the demand for our services and product offerings, the impact of the COVID-19 crisis on our business and end markets, expansion of our national footprint, products and end markets, our expectations for our end markets, including our large commercial business and multifamily business, our ability to strengthen our market position, our ability to pursue and integrate value-enhancing acquisitions and the expected amount of acquired revenue, our diversification efforts, our growth rates and ability to improve sales and profitability, the impact of the COVID-19 crisis on our financial results, and expectations for demand for our services and our earnings in 2021. Forward-looking statements may generally be identified by the use of words such as anticipate, believe, expect, intends, plan, and will, or in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Any forward-looking statement made by management during this call is not a guarantee of future performance, and actual results may differ materially from those expressed in or suggested by the forward-looking statements as a result of various factors, including without limitation the duration, effect, and severity of the COVID-19 crisis, the adverse impact of the COVID-19 crisis on our business and financial results, the economy, and the markets we serve, general economic and industry conditions, the material price and supply environment, the timing of increases in our selling prices, the risk that the company may reduce, suspend, or eliminate dividend payments in the future, and the factors discussed in the risk factors section of the company's annual report on Form 10-K for the year ended December 31, 2020, as the same may be updated from time to time in subsequent filings with the Securities and Exchange Commission. Any forward-looking statement made by management on this call speaks only as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for the company to predict these events or their effect. The company has no obligation and does not intend to update any forward-looking statement after the date hereof, except as required by federal securities laws. In addition, management uses certain non-GAAP performance measures on this call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and adjusted 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 their nearest GAAP equivalent in the company's earnings release and additional reconciliation for adjusted EBITDA for earlier fiscal years in our investor presentation, which are available on 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. I will now turn the call over to Jeff. Thanks, Jason.
spk10: Good morning to everyone joining us on today's call. As usual, I will start the call with some highlights on the quarter and then turn the call over to Michael Miller, IVP's CFO, who will discuss our results in capital position in more detail before we take your questions. 2021 is off to a robust start and IBP produced record first quarter results including record sales, net income, and EBITDA. I'm especially pleased with our first quarter performance as we were able to overcome meaningful operating challenges that impacted IBP like many of the trades serving the housing and commercial construction markets. I believe our success results from the resiliency of our business model. the benefits of our product and market geographic diversification strategies, and the continued hard work of our team members nationwide. I want to start my prepared remarks by saying thank you to all of our employees throughout our branch operations and at our headquarters in Columbus. I am humbled by the continued dedication, resiliency, and motivation our team demonstrates day after day, which is especially true over the past 12 months. The strength of our team members is a direct result of the entrepreneurial and empowering culture we have created. Overall labor trends remain strong, and of all the challenges we faced during the first quarter, labor was not one of them. To everyone at IVP, thank you for your commitment, your hard work, and a tough job always done well. So looking at our record first quarter results in more detail, several unique macro-level dynamics occurred during the quarter. We successfully overcame significant supply chain constraints during the quarter and experienced lost production days as a result of the February winter storms. We believe these issues are largely transitory in nature, and our business model continues to benefit from growth in our core single family and multifamily markets, our national scale, and our strategies focused on product and market and geographic diversification. Total U.S. residential completions growth was strong in the first quarter of 2021, increasing by 11.4% year-over-year, led by a 14.1% increase in single-family completions. Single-family housing demand continues to benefit from low mortgage rates and favorable demographics that have driven an increase in demand for entry-level housing. We believe these trends will continue, supporting further growth as the industry approaches stabilization in the years to come. While this activity helped drive our same branch volume growth by 10%, there was a clear shift of sales to higher volume production builders and entry level homes compared to last year, consistent with the fourth quarter of 2020. This shift within the single family end market yielded a lower average insulation selling price than what is typical for a move up or custom home. As expected, this dynamic negatively impacted our Q1 price mix result. Given consumer demand for entry level homes, We believe this end market shift driving relatively higher volume at relatively lower average selling prices may continue over the near term, but we anticipate that our selling price increases will offset the price mix headwind as the year progresses. Beyond the mix shift that has been evident throughout the industry, rising demand-driven backlogs and weather disruptions during the first quarter of 2021 were impactful on our same-brand sales growth rate. While the increasing lag between housing starts and completions has previously been noted within the industry, the February 2021 winter storms, most notably in Texas and Colorado, caused additional production delays. Although our operations are geographically diverse, we note that Texas accounts for approximately 12% of our business. We estimate lost production associated with the winter storms reduced first quarter revenue by $3 million to $3.5 million. and impacted gross profit and adjusted EBITDA by $1 million to $1.5 million. Strong multifamily sales helped support total sales during the quarter. For the 2021 first quarter, our multifamily revenue increased nearly 19% compared to prior year quarter and on a same branch basis was up nearly 7%. We continue to perform well in the multifamily end market as a result of of our enhanced sales strategy as we are growing the end market in locations that have previously been over-indexed to single-family construction. The COVID-19 pandemic, combined with material supply chain issues, had a significant impact on sales within our commercial markets. Our commercial construction end market increased 2.3% for the quarter as a result of recent acquisitions, while same-branch sales within this end market declined 14.5%. The primary driver of this decline is the large commercial portion of the end market, which declined 13% on a same-branch basis. However, bidding activity has continued to be strong in this end market, and we are starting to see project bid acceptance and a recovery in this end market, which strengthens our expectations for second half of 2021 improvement in revenue. We continue to believe the large commercial construction market represents a significant growth opportunity for IVP and despite the near-term challenges within this market, we remain focused on expanding our exposure within compelling commercial markets across the U.S. Turning to our acquisition strategy, we continue to prioritize profitable growth through our proven strategy of acquiring well-run installers of insulation and complementary building products. During the 2021 first quarter, we acquired a Washington-based provider of insulation installation services to residential customers throughout Washington, Oregon, and Idaho, with annual revenue over $34 million. Since the first quarter ended, we have completed two additional acquisitions, a Southern California-based commercial insulation, fireproofing, and sealing system installer, and a Colorado Springs-based installer of fiberglass and spray foam insulation to residential and multifamily customers. The three acquisitions we have completed to date, 2021, represent approximately $65 million of annual revenues. we feel confident that we will exceed the targeted $100 million of acquired revenue for 2021. While the February winter storms impacted our sales during the quarter, we are encouraged by the housing trends for 2021 as a generational shift in demand amongst millennials is increasing the demand for entry-level housing and the supply of existing homes remains tight, supporting the demand for move-up and custom homes. Finally, I'd like to address the material supply environment. During the first quarter, we experienced unprecedented material supply shortages for a variety of products used across our installation services. At the start of the year, the installation supply chain was already tight, and the February winter storms temporarily worsened the environment. Facilities at two of our main fiberglass installation suppliers went temporarily offline, forcing us to buy insulation through distributors as well as local retailers to meet customer demands. In addition, materials needed for spray foam applications were in short supply after the storms, as chemical processing facilities went offline. While our ability to source fiberglass and spray foam had the most significant impact on our financial performance during the quarter, it is important to note that we saw constraints across many of the materials and supplies we used for our installation services. As a result, we estimate the supply chain disruption impacted first quarter gross profit and adjusted EBITDA by at least $2 million and affected our ability to complete spray foam installation work with certain customers, in some instances turning away work due to a lack of spray foam materials. Supply chain efficiencies have steadily improved during April and into May. relative to the first quarter of 2021, but we expect the supply chain to be tight over the remainder of the year for many of the materials and products used throughout our installation work. In addition, manufacturers, including large fiberglass suppliers, announced additional price increases that went into effect in April, and more recently, an additional fiberglass price increase for June. In the current demand environment, we are performing well in realizing selling price increases with our customers in reaction to materials inflation. As the demand for housing continues to rise, we anticipate our favorable pricing environment to continue. With our availability of labor, our strong position with our customers and suppliers, and strong demand dynamics within the housing industry, we believe we are well positioned to navigate the inflationary environment in 2021. It is also important to note that insulation represents a small portion of the total cost to build a home, which we believe provides us greater flexibility to increase prices and maintain margins. Strong demand, increasing material availability, and a robust pricing environment has led to accelerating momentum in our business. We ended the first quarter with the highest monthly sales in our history in March, as sales for the month increased 16% year-over-year on a day's adjusted basis. Positive momentum has continued, and the second quarter is off to a strong start. Adjusted for the branches closed due to COVID restrictions in April of 2020, April 2021 sales growth is approximately 24% compared to the prior year. As mentioned in previous calls, we also anticipate trends within our large commercial business will improve later this year as economies reopen and the impacts of the COVID-19 pandemic subside. As I stated, our bidding activity on large commercial construction projects has been strong and backlog has increased to over $90 million at the end of first quarter. We expect 2021 will be another strong year of sales and earnings growth for IDP, and I look forward to sharing our continued success with investors as the year progresses. With this overview, I would now like to turn the call over to Michael to provide more details on our first quarter results.
spk09: Thank you, Jeff, and good morning, everyone. Net sales for the first quarter increased to a first quarter record of $437.1 million compared to $397.3 million for the same period last year. The 10% year-over-year improvement in sales was mainly driven by a higher volume of customer jobs completed during the quarter, both in other complementary products and the contribution from our recent acquisitions. On a same-branch basis, net revenue improved 2.2% from the prior year quarter. Multifamily sales increased 18.8%, contributing to a 9.6% increase in total residential sales during the first quarter. Elongating building cycles as a result of increased builder demand is driving the difference in the quarterly comparison of residential sales to industry reported completions. From a volume perspective, our sales growth has outpaced the rate of total residential completions over the past six months. Same brand sales at our large commercial operations decreased 13.1% as we continue to experience quarterly volatility as a result of the pandemic. Additionally, during the quarter, the February winter storms impacted production on large commercial job sites in Texas and Colorado. As we have highlighted on previous calls, and Jeff mentioned in his prepared remarks, the bidding activity continues to increase sequentially, and our backlog has increased to over $90 million as bids are being awarded and large commercial projects are progressing, further supporting our expectations for improvement in revenue in the second half of 2021. It is important to note that sales from our large commercial construction business are not the volume and price mix metrics we disclose. Profitability remains strong, but as Jeff mentioned, profitability was impacted by material supply shortages and lost production time during the quarter. As a result, adjusted gross profit margin was 28.7% for the 2021 first quarter. We estimate lost production due to the winter storms impacted first quarter gross profit by $1 million to $1.5 million, and we believe the material supply shortages had an additional impact of at least $2 million during the quarter. Adjusting for these impacts, gross profit margin for the quarter would have been consistent with the prior year, reflecting typical seasonal trends. Administrative expenses as a percent of first quarter sales were 14.9 percent, a 20 basis point improvement from the prior year period. Adjusted SG&A as a percent of first quarter sales improved 80 basis points from the prior year period. The improvements in SG&A are primarily due to higher sales leveraging expenses compared to the prior year quarter. The increase in administrative expenses in the first quarter compared to the fourth quarter was due primarily to administrative expenses at newly acquired companies. On a gap basis, our first quarter net income increased 8.1% from the prior year quarter to $17.3 million, or $0.58 per diluted share. Our adjusted net income improved 15.3% to $26.8 million, or $0.90 per diluted share, compared to $23.2 million, or $0.78 per diluted share in the prior year quarter. The lost production in February, combined with the material supply shortages, impacted earnings per share by approximately $0.08 to $0.09 per diluted share. During the first quarter of 2021, our acquisition activity increased our recorded amortization expense to $8.4 million compared to $6.7 million for the same period last year. This non-cash adjustment impacts on income, which is why we continue to believe that adjusted EBITDA is the most useful measure of profitability. Based on the acquisitions completed year-to-date, we expect second quarter 2021 amortization expense of approximately $8.6 million and full year 2021 expense of approximately $34.2 million. This figure will change with any subsequent acquisitions we close in future periods. For the 2021 first quarter, our effective tax rate was approximately 26.2% and we continue to expect a full year effective tax rate of 25 to 27% for 2021. Adjusted EBITDA for the first quarter of 2021 improved to a first quarter record of $54.5 million, representing an increase of 10.8% from $49.2 million in the prior year. Adjusted EBITDA as a percent of net revenue was 12.5% for the first quarter, compared to 12.4% for the same period last year. Same branch incremental adjusted EBITDA margin was 10.5% for the first quarter. Similar to the impact on gross profit, we estimate that lost production due to the winter storms combined with the material supply shortages during the quarter impacted adjusted EBITDA by approximately $3 to $3.5 million. Without these impacts on profitability, we estimate adjusted EBITDA margin would have been 13%, and same branch incremental adjusted EBITDA Contribution margin would have been over 30% in the quarter. Now, let's look at our liquidity, balance sheet, and capital requirements in more detail. Our business model continues to generate strong operating cash flows. For the three months ended March 31st, 2021, we generated $37.6 million in cash flow from operations compared to $35.9 million in the prior year period, an increase of 4.8%. Our asset life business model does not require a significant amount of capital expenditures, and our primary capital requirement is to fund working capital needs. At March 31st, 2021, we had $157.5 million in working capital, which excludes $207.3 million of cash and cash equivalents. Capital expenditures as of March 31st, 2021, were $10.8 million. while total incurred finance leases were $0.3 million. Capital expenditures and finance capital leases as a percent of revenue were 2.5% at March 31st, 2021, compared to 2.6% at March 31st, 2020. At March 31st, 2021, we had total cash and short-term investments of $207.3 million compared to $231.4 million at December 31st, 2020. Total debt at March 31st, 2021 was $568.9 million compared to $565.3 million at December 31st, 2020 and $569.8 million at March 31st, 2020. Considering cash and short-term investments at March 31st, 2021, our net total debt was approximately $361.6 million compared to $333.8 million at December 31st, 2020, and $356.1 million at March 31st, 2020. At March 31st, 2021, we had a net debt to adjusted trailing 12-month EBITDA leverage ratio of 1.4 times, well within our stated expectation of maintaining a leverage ratio of less than two times. We continue to prioritize profitable growth through our proven strategy of acquiring well-run installers of insulation and complimentary building products. Through the first quarter, we invested over $41.9 million in acquisitions compared to operating cash flow of nearly $37.6 million. In addition, we initiated a cash dividend in the 2021 first quarter. And this week, IVP's board of directors approved our second quarter dividend of 30 cents per share, which is available on June 30th, 2021 to stockholders in record on June 15, 2021. The company did not repurchase any shares of its common stock during the first quarter, compared to $15.8 million during the same period last year. And we have $100 million of availability under our current share repurchase program. We continue to believe we have considerable financial flexibility as we have nothing drawn on our $200 million revolving line of credit, a strong cash position, staggered debt maturities, and limited financial covenants. In addition, with no significant debt maturities until 2025 and strong liquidity, we have considerable financial resources to invest in our long-term growth opportunities. With that, I will now turn the call back to Jeff for closing remarks.
spk10: Thanks, Michael. I'd like to conclude our prepared remarks by once again thanking IBP employees for their hard work, dedication, and commitment to our company during this very challenging period. Our success over the years and more recently wouldn't be possible if it wasn't for you. Operator, let's open up the call for questions.
spk06: Thank you. We'll now be conducting the question and answer session. In the interest of time, to allow as many as possible to ask questions, please ask one question and one follow-up question. If you'd like to ask a question, please press star 1 on your telephone keypad and the confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, It may be necessary to pick up your handset before pressing the start keys. One moment, please, while we poll for questions. Thank you. And our first question is from Ken Zenner with KeyBank. Please receive your question. Good morning, everybody.
spk13: Good morning, Jeff.
spk12: Mr. Edwards, Jeff. We've talked about this a lot. You know, obviously the stock's interpreting. I think you guys did a good job laying out, obviously, the gross margin headwinds in terms of the demand and the, I assume, unique need to buy from distributors. If you could actually clarify, because that's the only time it happened. But I think the big picture here is this. Is this going to be a deja vu of 2018 when pricing in the industry went up due to, you know, manufacturing capacity falling? You know, so essentially, do you guys – it took you a year to get to, you know, price-cost neutrality in 2018, basically. And, you know, there was some commercial investment headwinds as well. But I think that's really what investors are struggling with. So can you walk us through why, on the pricing side, it's not going to take you a year to get through? And if – Michael, I know this is going to be difficult for you, but do you guys expect to be neutral on this pricing thing? by the second half of this year, including the mix from home builders. It's a lot in there, but I think it's important for you to clarify why it's not 2018.
spk10: Okay, Ken, thanks. It's a good question. So we feel like we're in an entirely different place in terms of the environment to go ahead and realize price increases, even at the pace at which they're coming. And so from that perspective, I think we're in an altogether different universe So we feel very, very good about that, that there is no question that the overall industry from a supply perspective has been and continues to be wound pretty tight. You know, as a result of COVID and some of the curtailment and, you know, others within IVP, and we've even talked about this before, but as a result of COVID, you know, there was a lot of curtailments going on with the various manufacturers. And when the downturn in housing, you know, kind of demand didn't materialize, In a lot of instances, they ran down inventory to a point, the manufacturers, where they lost what they would refer to mostly as mixing stock or the ability to fill all SKUs on an order. What we and others suffered from, and it depends. It depends on which manufacturer you're talking about. One of the four, all of them, in essence, had their time in the barrel from a difficulty perspective. But what happens is if you've got a mixed order, they have sometimes trouble filling every SKU on your order. And despite directions to fill it with kind of whatever they have, sometimes that doesn't work. And so when you expect loads that have been delayed tomorrow and they don't show up, it basically causes you to kind of run in some instances either to distribution or even in some cases to home centers as a result. It is difficult, I think, to go to a builder and say on Thursday that you're going to charge him more than you were going to charge him on Wednesday because you had to go buy product on a very much spot basis from Home Depot. That's a different scenario and not something that I think you can have some of the cadence with the price increases that come with announced price increases and some lead times. So we feel very good about being able to stay on top of price increases and maintain, maybe potentially improve margins going forward. It's just harder when some of the manufacturers, and really all of them at times, are struggling to be able to fulfill orders in a timely way.
spk09: Yeah, Ken, this is Michael, and thanks for the question. I appreciate you handicapping my answer there. I think there's two points to your question that are really important to highlight. One is that this really is a mix issue and not a price issue. And, you know, fortunately, and as we expected and as we talked about in the fourth quarter call, you know, we're incrementally seeing improvement in this, you know, mix, price mix headwind. You know, April inflected, you know, very – constructively in the month. We're very encouraged by what we saw in April and what we're continuing to see. So that's, again, extremely encouraging. The other thing that I would note about getting and realizing price increases, in addition to what Jeff just said, is that historically the fiberglass manufacturers have provided us a pretty decent lead time from when they announce a price increase and when it becomes effective. And they do that so that we have time to get those prices into, you know, builders' POs with us. Because, as Jeff just said, it's not a situation where you can go to a builder today and tell them that you're going to charge them a higher price tomorrow because he's probably already sold that house. So you have to work it through the production side. And you probably haven't noticed this, but the manufacturers have started giving us a little bit more time between announcement and effective to take into consideration the extended lag times that are building. Now, we would say it's not sufficient because the lag times have gotten very, very extended, as we've all talked a lot about. But that's very constructive. And to Jeff's point, and I'll reiterate it, this environment is extremely strong. We feel good about our ability over the course of the year to be able to really get on top of it and have price mix in the back half of the year, not be a headwind, as we've been talking about now for a couple of quarters. So, That, from our perspective, is pretty constructive, and we feel very good about the environment. The one thing that I would say, though, about some of the other products, particularly spray foam and the other products that we install, we don't get the same kind of lag time from announcement to effective date on those prices. So it's a little bit more challenging in those products, but we feel very good about the demand environment and working with our customers to make sure that we're paid fairly for the install service that we're providing.
spk12: Understood. And I realize that was a long first question, but let me rephrase it for my second question. If it took you four quarters in 2018 basically to get to price cost neutrality, and I realize there's some big builder mix impacting you, is that your expectation for this year, or do you feel – what you learned in 18, realizing it's very different, can be realized sooner than the 12 months that it took you in 2018. Thank you.
spk09: Yeah, thanks, Ken. We absolutely, and we've said this, you know, several, we'll say this even more times, I think, on this call, but we feel very confident about the current demand environment and our ability to, you know, get on top of any price inflation that we see. And as we talked about in the fourth quarter call, we definitely feel good about the price mix headlines as we go into the second half of the year. And as I mentioned just a moment ago, we felt good about the trends we were seeing in April.
spk10: Well, I'd just go further and say sooner around announced price increases, but I'd have to handicap it on a supply basis going forward. our home sector. We hope they're in the past. We don't know that for sure. My comments were specifically addressed mostly towards, obviously, fiberglass, but the fact of the matter is, I think all but one of the foam suppliers are in force majeure, and the supplies around foam have been extremely tight and kind of hindering in that regard, too, and it's going to be a little while before that gets figured out, too, from a supply perspective.
spk06: Thank you. Our next question will be coming from the line of Stephen Kim with Evercore ISI. Please proceed with your question.
spk07: Thanks very much, guys. I wanted to talk a little bit about the increased cycle times that the builders are seeing. I was wondering how much of an impact do you think the increased cycle times have weighed on your price mix realization in the quarter, and how much of an increase in cycle times are we talking about on the part of the builders from what you can tell. And are the manufacturers giving you that similar amount of extension? Because you would talk about the manufacturers giving you a little bit longer lead times because your customers are having longer lead times and stuff, which you're honoring. And so just help us understand the whole food chain there in terms of the cycle times and the impact on price mix in the quarter.
spk09: That's a good question. Thanks. This is Michael. I would say relative to the amount of time that we get from, you know, announcement to effective, I'm not going to specifically address IVP, but more the industry in general. So I think that, you know, the manufacturers, as we said, they have extended the announce to effective date a little bit. Is it sufficient for the overall industry? I think that they should give more to the extent that they can. and because the cycle times have been considerably extended. I mean, there used to be a sense that from start to install for the primary services that we install was anywhere between, you know, 60 to 90 days. We believe that that's extended at least 30 days or more, quite frankly, and with the storms, We think that impacted the affected regions even more so. So that's with us, and we think it's going to stay with us for a while when you look at the disconnect between starts and completions, although we did make some progress on the completion side in the first quarter, but we still have a long way to go. And we just think that's going to be a fact of life for certainly all of this year and we think going into next year, which provides a great demand backdrop for us. Again, we feel good about the overall market. Obviously, we would always want more time to work through price increases from an announcement to an effective date. But we feel really good about what our team is doing. And I would say, even going a little bit back to the first question, what we learned in 2018 and 2019 in working with our builders. In terms of the impact of this extended cycle time and what that did to price mix in the quarter, I mean, I'll be honest with you, that's really hard to quantify and specify because, you know, you're kind of looking at what would somebody have been had the cycle times not been extended. But it's very clear, and I think this is obvious to everyone on this call, that at least right now, at this point in the cycle, the public builders are taking considerable market share from, you know, the regional and local builders. I mean, when you just look at overall completions, even overall home sales relative to what the public builders are reporting. And it's clear that they're taking market share and we're working very closely with them to, you know, help them deliver those homes. And we're seeing, you know, great sales growth, you know, well above the rest of our other customers' growth with those customers, the production builders.
spk07: Yeah, that's actually a great segue because that was exactly what I was going to ask you next, whether you were seeing that market share. You clearly said that, yes, you are seeing that market share grow from the big builders. Now, have you also seen these larger builders experiencing the same kind of increase in cycle times or have – Is the cycle time increase for larger builders maybe not as dramatic as the cycle time increase for the smaller peers?
spk09: Yeah, that's a great question because you're absolutely right. The big production builders, particularly I'll call out DR Horton because I think they've probably done the best job of managing the cycle times because they didn't stop during COVID last year. So the production builders – This kind of environment absolutely benefits the way that they build because they're building so many homes and they're doing it at such a high cadence. And they're continuously employing all of their subcontractors. So this kind of environment absolutely favors them. And I'll just make this up for illustrative purposes, but if you say the cycle time at regional and local guys has increased 30%, maybe it's only 10%. at the production builders. So there's no doubt that they are definitely doing better from a cycle time extension than some of the other guys. Now, it's our expectation, based upon our customer relationships and the feedback that we're getting, that that's going to normalize over time, but it is going to take time. And certainly the severe shortages that you're seeing in building products materials, all building products materials right now, doesn't help. But yeah, we would see that maybe normalized. But it may not be until 22, quite frankly, that that starts to normalize relative to the production builders versus the regional and local builders.
spk06: Thank you. Our next question is coming from the line of Susan McElhury with Goldman Sachs. Please proceed with your questions.
spk00: Good morning, everybody.
spk06: Morning, morning, morning.
spk00: My first question is, you know, can you talk a little bit about what you're seeing in terms of some of the regional trends that are coming through? You know, obviously we've talked a lot about Texas and the weather down there, but can you talk to any other, you know, thoughts you have as we get into the second quarter on how other regions are coming together?
spk09: Yes, Susan, thanks for that question. And, you know, it's really the answer is almost identical to what we talked about in the fourth quarter in that We've been pleasantly surprised at the strength we're seeing in the top half of the country. You know, I think people have a tendency to focus on the bottom half of the country and the smile and the strength that's there. But we've been very impressed with what we're seeing, you know, particularly out of the top half of the country. And I would say, you know, that's East Coast and West Coast, quite frankly, and obviously the center of the country. And that's, in our mind, adjusting for COVID because... the branches that were really, the only branches were impacted in terms of state-mandated shutdowns in April and some into May were all in the top half of the country. There was really no state in the bottom half of the country that was shut down. So even adjusting for that, we're feeling very good about what we're seeing from a demand environment in the top half of the country.
spk10: Okay. Oh yeah, the smile's still great. Yeah.
spk00: Okay, good. And then, you know, my next question is talking a little bit about some of the ancillary products that, you know, you've also been growing and expanding with. Can you talk to any issues that you've seen on that side or how that piece of the business has been trending and your thoughts as we look to the back half there?
spk09: Yeah, the story there is consistent with what it was in the fourth quarter and really all of last year. The other product sales grew at almost twice the rate in the quarter that insulation sales grew. And we did see gross margin improvement as we're continuing to see gross margin improvement in those products. So, you know, it's an important part of our strategy. We think that long term, and we know this from our branches that have great product diversity, that it adds to local market share. It adds to the stickiness with our customer relationships. So we're really proud of the efforts that our team has made in pushing the other products and, most importantly, improving the margin in the other products.
spk10: And there are some supply constraints and some lead time issues as it relates to those products. But thus far, they have not been as acute as it has been for both fiberglass and for foam, quite frankly.
spk09: Yeah, I would say the one exception is aluminum for gutters. Aluminum prices, as everyone here knows, have gone up substantially. But that market is conditioned to vary pricing based on the cost of aluminum. Again, it's not a price issue for us. Yeah. That's very important.
spk06: Thank you. Our next question is from the line of Michael Reha with J.P. Morgan. Please proceed with your question.
spk04: Hi, this is Elad Hilbin on for Mike. Thanks for taking my questions. So first, for the full year, just based on all the commentary you gave and what you're seeing from the production builder mix shift and the price increases, I just wanted to get clarity if you anticipate being able to have gross margin expansion in 2021 and then also relative to EBITDA margin expansion.
spk09: Well, thanks for the question. As you know, we don't provide guidance. You know, I think we were pretty clear in the fourth quarter call that, you know, based on historical trends when we're in a rising price environment that's coupled with, you know, a strong demand environment, historically that has led to improving gross margins and, as a consequence, improving EBITDA margins. So we continue to feel that that historical trend will continue. and, you know, feel very excited about what 21, and honestly, not just 21, I mean, 22, and I mean, you know, obviously, we don't have a crystal ball, but at least from where we sit today and, you know, talking with our customers, all of the information that we see points to a very constructive environment, particularly for single-family housing for, you know, we think 21, 22, and even going into 23. Thank you.
spk10: And we feel, I think, very confident for the year and good about the year, both in terms of volume and pricing, you know, and margin on a go-forward basis.
spk04: Great. Thank you. And then secondly, I was wondering if you could provide more detail on the sales strength in March and April, what you saw in terms of sequential growth. And on the 16% year-on-year days adjusted basis in March and the April 24%, What was this on an organic basis, and what was the price mix impact in both months?
spk09: Yeah, we don't separately disclose those numbers on kind of a monthly basis, but what I would say is that the trend that we saw in March and April, both on organic sales, volume, and price mix, were very, very encouraging.
spk06: Thank you. Our next question is from the line of filming with Jeffrey. Please receive your questions.
spk01: Hey, guys. Good morning, everyone. The material storage dynamic, just trying to gauge, has it started to improve enough that you're going to run pretty hard in QQ, or is this going to be a little more gradual in nature? I think, Jeff, coming into the year, I think you made the point that maybe IVP or just industry broadly, based on the labor you guys have, you thought the industry had the bandwidth to grow volumes organically in the high single to low double-digit range. Is that still a realistic target given some of the constraints you're seeing?
spk10: Absolutely, I think it is. I think the issues that we would have, frankly, quite right now would be in, you know, maybe at least from a supply perspective, not from a labor perspective, would have been to kind of, you know, hinder it to those levels. You can see from our performance. Based on even an earlier question, we have one little comment about not even actually doing foam work that was available to us. Without a doubt, given the constraints within foam, it's for sure hindered sales, even though they were still good on a year-to-year basis. It's not likely to get cleaned up. The chemical side of that will probably sometime I'm guessing in the third quarter, maybe early third quarter, but the third quarter with fiberglass, we'll see. I think there's an effort amongst all the manufacturers to get back to where they have the mixing stock that would make some of the delays and the lead time issues go away, but it's just not an easy thing to get on top of, I think, given the current demand.
spk09: I would say that we would expect that the spray foam manufacturer suppliers you know, will get on top of, as Jeff said, in the third quarter, but probably early in the third quarter as opposed to later in the third quarter. And I would also say that, if anything, we feel better about that number, high single, low double digits, that it may even be higher, quite frankly, given everything that we're seeing right now from a demand perspective. So I know we tried to ground people pretty hard on that number or that percentage, but What we're seeing right now is extremely encouraging, and we're very encouraged by the steps that everyone in the building products chain is taking to try and address the supply-demand imbalance.
spk01: Okay, that's helpful. I mean, that's great you're able to play catch-up after a tougher 1Q environment. Not on you, but just the backdrop on the supply side and labor side. And then it would be helpful, Michael, if you can break out absolute pricing versus mixed just because the mixed piece is, you know, not a negative in my mind because I thought mixed, while the optics hurt you on a price-mix revenue standpoint, I believe cost to serve for your production builder is lower. So can you kind of remind us how that kind of shakes out with that negative mixed dynamic, what kind of impact it has on EBITDA margins because I thought it was fairly neutral. So one, how did absolute pricing shake out? And then two, this mixed dynamic on the production side, production builder side, what type of impact does it have on EBITDA margins?
spk09: Yeah, so I'm really glad you asked that question because let's be very clear, pricing did not go down, right? This is completely a mixed issue. And, you know, it definitely goes to the comments that we made around the production builders and their level of gaining share and us continuing to gain share with them, which we think is important. And also the growth in, excuse me, other products that we talked about in the other questions. And as a consequence, right, so even though we had this heavy price mix pressure, or I should say, excuse me, mix pressure in the quarter, excellent volume growth. We still grew EBITDA margins, even with the headwinds. But when you take the headwinds from, you know, the material and the storms, you know, we felt we saw a pretty constructive 60, 70 basis point increase. in adjusted EBITDA margins. And I think that's absolutely reflective of what you said, that that work, well, yes, from a dollar perspective, it's a lower dollar value job. It absolutely helps, particularly on the G&A leverage, because of the efficiency of doing work with those builders.
spk06: Thank you. Our next question is coming from the line of Mike Stone with RBC. Please proceed with your questions.
spk11: Thank you for taking my questions. First one, just to follow up on that mixed point, which is helpful, Cara, on kind of the flow through onto EBITDA, but just sticking from kind of the top line standpoint, you know, you've discussed or acknowledged that the market share gains from the large publics are continuing, but you said you expect kind of these mixed headwinds to fade as the year progresses. I guess, you know, how much of that is a function of, Just by the time you get to fourth quarter, you're already lapping the bulk of this shift versus something you're seeing in your backlogs from some of the smaller builders. And I'll just ask again on kind of the quantification side, if there's any way you can kind of quantify, you know, relative to the 1Q headwinds, how the balance of the year should play out strictly from a mix standpoint.
spk09: Yeah, we would think that the the mix component of price mix will improve as we go through, you know, the back half of the year. But honestly, our competence around an improving price mix, as we go into the back half of the year is more price driven than mixed driven. Just because we know what's obviously happening from a price perspective. Got it.
spk11: Okay. And then on the margin side, I get that some of those costs seem fairly unique in terms of having to go through distribution and such. But when you're thinking about, you know, it's helpful color breaking out the incremental margin impact. When you're thinking about kind of how the year shakes out, it sounds like some of those costs will continue. So from a reported standpoint, it does sound like there's they're likely to be at least the next two quarters, some headwinds to incrementals. Do you think net-net, we're still in, when all is said and done, a normal incremental margin range by the end of the year, or do you think the middle of the year on a, you know, the way you guys will end up reporting adjusted EBITDA, it could be depressed relative to normal incrementals based on those costs?
spk09: No, we're very confident that we're going to be in that 20% to 25% on a full-year basis. And thank you for pointing it out because we did note in our prepared remarks that adjusting for these headwinds that we faced in the quarter, our first quarter incremental margins would have been 30%, which for us in the first quarter is very solid. So, yeah, we feel very good about, you know, the rest of the year as it relates to that. But you're right. We cannot sit here today and tell you, you know, 60 days from now that we are not going to have to buy material from a different source than we normally do because of the kind of environment we're in. We believe and we stated in the remarks and given our relationships and discussions with our suppliers, we believe things are getting better. But, you know, as we all know, stuff happens and it can put a disruption into the supply chain. Because old building products, not just insulation, are so tight right now, even the smallest little thing goes wrong and it really upsets the apple cart. It's just the reality of the situation. But it's difficult for us to deal with and it's a challenge for our people in the field. They're doing an amazing job dealing with it. But we're doing it in an environment that the demand environment is so incredibly strong You know, if this is something we have to deal with, that's fine because we know we have plenty of demand runway in front of us.
spk06: Thank you. Our next question is coming from the line of Keith Hughes with Truist. Please just use your question.
spk03: Thank you. A question on the commercial business. You had talked about some strong business in March and April with company-wide. Are you seeing that in commercial? Is there a pickup coming from the weak numbers, weaker gang numbers in the first quarter?
spk09: Yeah, on a relative basis, it's getting better. But as we highlighted in our fourth quarter call last year, we definitely expect, on an organic basis, the first half of this year to be tough. We are seeing, as Jeff pointed out, and we talked about in our prepared remarks, we're definitely seeing things incrementally getting better. It is absolutely clear that GCs and project owners are accepting bids. We had talked about in the fourth quarter call that our bidding volume was very high. We actually, in the month of April, had a record month for accepted bids, which is really encouraging to see. So we think we continue to have good confidence around the back half of the year as it relates to that business. But something, and we didn't mention this in our prepared remarks, but something that's important to note is Texas and Colorado were really impacted by those storms. And if you look at just Alpha, which is the largest component of our heavy commercial, large commercial business, 40% of their revenue is in Texas and Colorado. So it had a pretty significant impact on their operations during the month and during the quarter. And unlike the residential business where you can work weekends and make up a lot of work, you really can't do that on the commercial side. So, you know, that definitely impacted our organic sales decline, quite frankly, in the quarter. Okay.
spk06: Thank you.
spk09: Sure.
spk06: Our next question is coming from the line of Noah McCosko with Stevens. Please receive your question.
spk13: Hi. Good morning, and thanks for taking my questions. Sure. So I wanted to – talk about, you know, your efforts to increase complementary sales and some of your developing markets. You know, you laid out that slide a few quarters ago, but I was hoping you could just help us understand, you know, what inning are we in in this process? I think before you said roughly half of your markets you consider developing, what's the target there in terms of, you know, maybe a percentage of total markets you'd like that to reach?
spk09: This is Michael. I mean, yes, you're absolutely right. That's sort of a percentage that we've given as sort of a guide that, you know, half of the branches. I mean, ideally, you would want all of your residential branches to install all the products, but that's not realistic because on a local market level, you might have some products that you really don't want to install just because it's just not at the price that we want to install those products at. So, Our strategy over time is, this does not happen overnight, and we've talked about this before, it's a journey, it's a long journey, is to really get a, I don't think we'll ever get to the same sort of 30% market share that we have in insulation, but if we can take a mid-single-digit market share that we have in those other products and bring that up, to, you know, 15% or so, so half of where we are in installation right now, that's a, you know, a dramatic bump in the revenue opportunity and our overall installation market share.
spk13: Got you. Thanks for that. And then just a quick clarification on the April sales growth of 24% excluding branches closed last year. Those branches have reopened, right? And how long were they closed last year?
spk09: It depended upon the state because they were closed, you know, based on the different state requirements. So some opened at the end of April, beginning of May. Some went into the middle of May. But they're all open now. And, you know, we disclosed that in the last year when it was going on. You know, it represented about 10% of revenue. And, you know, so we had, as Jeff had commented, about 24%. on a like-for-like basis, if you will, but total sales growth in the month of April was over 30%.
spk06: Thank you. The next question is from the line of Justin Spear, Zellman Associates. Please proceed with your question.
spk02: Good morning, guys. Thank you. A couple questions. One, I really appreciate the breakout of the disruptions from weather and the material shortage headwinds. But I'm just curious if those headwinds are just dollars that are pushed to the right or is that business that was ultimately served by competitors? Is there a way to tease that out, just trying to get a sense for where you are versus the market and kind of in your mind with those discrete items?
spk09: Yeah, that's actually a great question. And so the revenue component of it and, you know, the quote-unquote missed EBITDA is definitely just pushed to the right, meaning that it's on a forward basis. We don't believe we've lost that. It's just that we weren't able to, quote, unquote, get to that work. But what isn't pushed to the right, quite honestly, is the cost associated with going to buying out of distribution and buying out of home centers. That's kind of lost EBITDA, if you will. So...
spk10: But in many cases, too, you're forced in this kind of environment to make do with the product that you have that might not be the exact product for the application that you're doing. For instance, maybe it's two R-19 vats in replace of an R-38 vat because you didn't have it, which is not as efficient from a labor perspective, nor is it as economical, even if you did buy out a distribution. But we can't quantify that or things that are being cut down or alternative products ways to accomplish the same insulation job and pass code. There's another benefit that we haven't spoke about as material supply returns to normal that should come back in in that regard. Understand, this is not a problem that is specific to IDP in terms of the supply issues. I mean, our phone rings in certain parts, in really any part of the country, because
spk09: Yeah, not to get too deep into the weeds, I mean, to Jeff's point, you know, the manufacturers to increase capacity significantly limited the SKUs that they were producing. And as a consequence, you're getting material, but it's not the material you really want or need, and you have to make do with what you get.
spk02: That's helpful. I just, a follow-up question, I just want to be clear, and I'm sorry if I missed this, but that The growth that you mentioned for March and April, the 16% and 24%, was that organic or does that include M&A? And I guess if it does or doesn't, that would be helpful, but maybe give us some hand-holding with the expected acquisition contribution to revenue based on the closed deals for the second quarter.
spk09: Yeah, those are absolute sort of revenue growth numbers, if you will. But what I would say is that organic growth was very strong in March and April. And, you know, the contribution from acquisitions really won't kick in heavily until really the third quarter, just in terms of when we did those acquisitions. Year-to-date, we've acquired, you know, about $65 million or so in revenue. So, you know, that's roughly, you know, 15 to 20 million, 15 million, call it, you know, a quarter. But obviously that's going to change as we do more acquisitions.
spk06: Thank you. At this time, we've reached the end of our question and answer session, and I'll turn the floor over to Jeff Edwards for closing remarks.
spk10: Thank you for your questions, and I look forward to our next quarterly call. Thank you.
spk06: Thank you, everyone. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
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