Installed Building Products, Inc.

Greetings and welcome to Install Building Products Fiscal 2021 Fourth Quarter 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Darren Hicks, Director of Investor Relations.

Good morning, and welcome to Installed Building Products' fourth quarter 2021 earnings conference call. Earlier today, we issued a press release on our financial results for the fourth quarter, which can be found in the investor relations section of our website. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of the federal security laws. These forward-looking statements include statements about future expectations, anticipation, beliefs, estimates, forecasts, plans, and prospects. These forward-looking statements are based on management's current expectations and involve risks and uncertainties. Any forward-looking statement made by management during this call is not a guarantee of future performance and actual results may differ materially as a result of various factors, including, without limitation, the adverse impact of the COVID-19 crisis, general economic and industry conditions, the material price and supply environment, the timing of increases in our selling prices, and the factors discussed in the risk factors section of the company's annual report on Form 10-K as may be updated from time to die in our SEC filings. Any forward-looking statements speak only as of the date hereof. The company undertakes no duty or obligation to update any forward-looking statements as a result of new information or future events, except as required by 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, 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, and joined by Jason Neiswanger, our Senior Vice President of Finance and Investor Relations. I will now turn the call over to Jeff.

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. IDP achieved another year of record annual revenue and profitability. For 2021, revenue increased 19.1% to nearly $2 billion. Net income per diluted share increased 22.6% to $4.01, and adjusted EBITDA increased 16.2% to $285.4 million. The record 2021 results extend our history of revenue, net income, and adjusted EBITDA growth to seven consecutive years since IDP became a public company in February of 2014. I am proud and humbled by our performance as we achieve these record results despite the continued impacts of the COVID-19 pandemic and unprecedented supply chain challenges. Our strong 2021 results demonstrates the continued hard work, dedication, and commitment of our nearly 9,500 team members nationwide. The most important part of our business is the men and women working at our locations throughout the U.S. We strive to provide an environment where people want to work and succeed, and we continue to focus our resources on attracting, retaining, and developing talent. Employee turnover remains well below industry averages, which we believe is a direct result of the investments made in our employee programs, which have been in place since 2017. Our success in 2021 is a reflection of the resiliency of our business model, our competitive position within key geographies and end markets, the strength of our balance sheet, and the experience and dedication of our senior leaders and employees throughout the company. Since our IPO in 2014, we have achieved many operating and financial accomplishments. Revenue, net income from continuing operations, and adjusted EBITDA have grown at compound annual growth rates of 21%, 36%, and 31%, respectively. During this period, we've completed almost 90 acquisitions, expanding our footprint across the U.S. and diversifying our revenue to additional end markets and product categories. pursued a growth-focused capital allocation strategy that prioritizes investments and acquisitions while allocating excess capital toward our dividend and share repurchase programs. Finally, over the past several years, we have been developing a comprehensive ESG framework that was formalized in October of 2021 with the publication of our inaugural ESG report. We continue to evolve into an increasingly conscientious company, and we are devoting more resources toward sustaining that effort, which I'll touch on later. As you can see, we have come a long way since our IPO. I'm extremely pleased with our ability to execute our growth plan and return capital to our shareholders while being a good corporate citizen. With this update, let's review our 2021 full year and fourth quarter end market performance in more detail. 2021 was another strong year of residential and multifamily growth while the COVID-19 pandemic continued to impact activity within our commercial operations. For the year, we experienced a 12.8% increase in residential same branch sales from the prior year period, which was driven by a 14% increase in single family same branch sales growth also from the prior year period. By comparison, 2021 total U.S. residential completions increased just 4% and single family completions rose 6.1% from the prior year. During the fourth quarter, price mix increased 12.9% over the prior year period, which is the strongest quarterly increase we have achieved as a public company. This reflects the underlying demand for our installation services combined with the hard work of our local branches in keeping pricing aligned with the value we offer in inflationary trends. As expected, the supply chain for many of the building products and materials we install remain constrained during the fourth quarter and throughout 2021. We anticipate that supply chain challenges will continue for the foreseeable future, but our asset-light business model should enable us to remain flexible and generate strong cash flow. In addition, we continue to benefit from our national scale, material buying advantage, and strategic plans aimed at diversifying and expanding our products and markets and geographic presence. Single-family housing demand continues to benefit from historically low mortgage rates and favorable demographics that have driven an increase in demand for entry-level housing. According to the U.S. Census Bureau housing data, the December 2021 backlog of total units authorized but not started was up 45% from December of 2020, and new home construction starts continue to remain near cycle highs in 2021. As a result, we expect positive trends within the U.S. housing industry will support further growth in 2022. For the 2021 fourth quarter, St. Branch model family revenue increased 6% compared to the prior year quarter relative to a 12.5% decrease in U.S. model family completions. Our model family sales continued to grow at a healthy rate despite difficult year-over-year comparisons, which resulted from exceptional sales growth in the 2020 fourth quarter. Our commercial markets continue to be impacted by the COVID-19 pandemic, more specifically, less consistent material availability relative to pre-pandemic periods and supply chain disruptions. For the 2021 fourth quarter, our commercial and market sales growth continues to be driven by our strategic acquisitions. Within our large commercial business, Same-brand sales decreased modestly in the 2021 fourth quarter, but bidding activity has remained stable and project bid acceptance has been steady relative to 2020 fourth quarter. We believe the current bidding environment supports continued improvement in this end market. We estimate our large commercial backlog was $143.2 million as of the end of 2021. Looking at our acquisition strategy in more detail, we continue to prioritize profitable growth through acquiring well-run companies that install insulation and complementary building products. During the 2021 fourth quarter, we acquired a Texas-based installer of glass, mirrors, and related products for new commercial construction projects with annual revenue of approximately $20 million, an Oregon-based installer of insulation, gutters, windows, and siding for single-family, multifamily, and commercial customers with annual revenue of approximately $2.8 million, and and a Tennessee-based installer of fiberglass and spray foam insulation for new residential multifamily commercial construction projects with annual revenue of approximately $10 million. In addition, in December, we announced the acquisition of AMD Distribution. Since this is our first conference call since the acquisition, I want to provide some additional highlights on AMD. AMD is a Minnesota-based distributor serving customers across 21 states in the Midwest and Mountain West with annual revenue of approximately $71 million. The company distributes products, materials, accessories, and equipment used throughout the installation process. This is one of the largest acquisitions we have completed and the first major acquisition of a distribution business. AMD's experience serving our core installation markets provides us with the distribution platform, which further diversifies our revenue mix end markets, and geographic footprint. Over the long term, we expect AMV will improve the flexibility of both our supply chain and cost structure for insulation accessories. We believe there is an opportunity for this platform to contribute to the growth of our complementary building products in the quarters and years to come. We also expect this acquisition will be immediately accretive to earnings. The AMV acquisition capped off an historic year of acquisition growth for IVP. Throughout the year, we completed 12 acquisitions representing approximately $211 million of annual revenues, surpassing our $100 million acquired revenue target for 2021. Looking ahead, our acquisition pipeline remains robust and includes opportunities across multiple geographies, products, and in markets. As a result, we expect to acquire at least $100 million of revenue in 2022. As we look to 2022 and beyond, we remain excited by the direction we are headed in the compelling outlook across our residential and commercial end markets. We anticipate that effective management of our supply chain will continue to be a priority throughout this year. Our purchasing, logistics, and warehousing teams will continue to work with our suppliers and customers to help ease these industry-wide supply chain challenges. As many of you know, installation manufacturers are continuing to run at full capacity and with limited incremental capacity coming online this year, we are planning for multiple price increases throughout 2022. However, with access to labor, a strong position with our customers and suppliers, and a healthy housing industry demand backdrop, we believe we are well positioned to navigate the current inflationary environment better than any other period in our history. It's also important to note that although prices have been rising, insulation represents a small portion of the total cost to build a home, which we believe allows us greater flexibility to increasingly increase prices with our customers. I'm very proud of our legacy of growth and excited by the opportunities to create additional value for our customers, team members, and shareholders in the future. Before I turn the call over to Michael, I want to recognize the promotion of Jason Neiswanger to Chief Administrative and Sustainability Officer. Among many other financial and operational responsibilities, Jason has been the main point of contact with the investment community since our IPO. While Jason will remain accessible to investors, His primary IR responsibilities will be transferred to Darren Hicks, Director of Investor Relations. Anyone who's had the pleasure of engaging with Jason understands his passion for, commitment to, and knowledge of IVP. On behalf of everyone at the company, I want to congratulate Jason on his promotion. So with this overview, I'd like to turn the call over to Michael to provide more detail on our fourth quarter results.

Thanks, Jeff, and good morning, everyone. Net sales for the fourth quarter increased to a quarterly record, $533.7 million, compared to $441.5 million for the same period last year. The 20.9% year-over-year improvement in sales during the quarter was mainly driven by an increase in price mix, a higher volume of jobs completed, and the revenue contribution from recent acquisitions. On a same-branch basis, net revenue improved 11.8% from the prior year quarter, driven by single-family same-branch sales growth of 16.6%. Multifamily same-brand sales increased 6%, which resulted in a combined total residential same-brand sales growth of 14.8%. This growth significantly outpaced the total U.S. housing completion decline of 1%. Residential construction cycle times continued to be extended during the fourth quarter relative to the prior year period. However, the lingering effects of the pandemic continue to impact our commercial and market. Same branch commercial sales decreased 7.3% in the 2021 fourth quarter, while our large commercial same branch sales declined by a more modest 2.7% in the quarter. Adjusted gross profit margin declined 130 basis points to 29.3% for the same period last year, primarily due to inflationary pressure and material supply shortages. We estimate that overall material inflation in the fourth quarter of 2021 within the low double digits. And material supply shortages had an impact of approximately $1.8 million on gross profit during the quarter. The impact from the supply shortages reduced adjusted gross profit margin by approximately 30 basis points. For the full year 2021, the impact from supply shortages was approximately $9 million on gross profit and reduced adjusted gross profit margin by approximately 45 basis points. Administrative expenses as a percent of fourth quarter sales were 13.4%, a 30 basis point improvement from the prior year period. Adjusted selling and administrative expense as a percent of fourth quarter sales improved 40 basis points from the prior year period. The year-over-year improvements in SG&A expense relative to sales during the fourth quarter reflects our ability to leverage administrative costs during strong volume growth periods. On a GAAP basis, our fourth quarter net income increased 5.5% from the prior year quarter to $29.4 million, or 99 cents per diluted share. Our adjusted net income improved 15.3% to $42.2 million, or $1.42 per diluted share. We estimate the material supply shortages impact fourth quarter earnings per share by approximately 4 cents per diluted share. During the fourth quarter of 2021, The acquisition of new businesses drove an increase in our recorded amortization expense of $10.3 million compared to $8.2 million for the same period last year. This non-cash adjustment impacts that income, which is why we continue to believe that adjusted EBITDA is the most useful measure of profitability. Based on recent acquisitions, we expect first quarter 2002 amortization expense of approximately $10.9 million and full year 2022 expense of approximately $41.8 million. We would expect these estimates to change with any acquisitions we close in future periods. Adjusted EBITDA for the fourth quarter of 2021 improved 11.5% to $74.8 million. Adjusted EBITDA's percent of net revenue was 14% for the 2021 fourth quarter compared to 15.2% for the same period last year. Same branch incremental adjusted EBITDA margin was 6.2% for the fourth quarter. Similar to the impact on gross profit, we estimate that material supply shortages during the quarter impacted adjusted EBITDA by approximately $1.8 million, reducing our adjusted EBITDA margin by approximately 30 basis points. For the 2021 fourth quarter, our effective tax rate was approximately 24%, and we continue to expect an effective tax rate of 25% to 27%, for the full year ending December 31st, 2022. Now let's look at our liquidity, balance sheet, and capital requirements in more detail. Our business model continues to generate strong operating cash flow. For the 12 months ended December 31st, 2021, we generated $138.3 million in cash flow from operations compared to $180.8 million in the prior year period. The year-over-year decline in operating cash flow was primarily associated with increased inventory levels following efforts to reduce material shortages and greater working capital requirements in an inflationary environment. At December 31, 2021, we had $218.3 million in working capital, excluding cash and cash equivalents. Capital expenditures and total incurred finance leases for the 12 months ending December 31, 2021, with $39.7 million combined, which was 2% of revenue at December 31, 2021, compared to 2.1% for the same period last year. On December 14, 2021, we successfully closed the new term loan facility. The new $500 million term loan facility matures on December 13, 2028, and has no financial maintenance covenants. In addition, on February 17, 2022, we increased and extended our asset-based lending credit facility, which now matures on February 17, 2027, and was increased to $250 million. There is currently nothing drawn on the amended ABL facility. Through the use of interest rate swaps, we are limiting our interest rate exposure with no significant debt maturities until 2028. With over $300 million in cash and cash equivalents and additional ABL borrowing capacity, we have an excess of $500 million in liquidity to invest in our long-term growth opportunities. At December 31st, 2021, we had total cash and short-term investments of $333.5 million. Total debt at year-end was $868.1 million, making our net total debt approximately $534.6 million. At December 31st, 2021, compared to $338.4 million last year. At December 31, 2021, we had a net debt to adjusted trailing 12-month EBITDA leverage ratio of 1.9 times, which remains below our stated leverage ratio expectation of less than two times. We continue to prioritize profitable growth through our proven strategy of acquiring well-run installers of insulation and complementary building products. During 2021, we invested $241.3 million in acquisitions compared to $76.4 million in 2020. We also continue to return capital to shareholders, and today we announced that IVP's Board of Directors approved a 5% increase to our first quarter dividend of $0.315 per share, which is payable on March 31, 2022, to stockholders of record on March 15, 2022. Also, As a part of our established dividend policy, today we announced that our board has declared a 90 cents per share annual variable dividend. The variable dividend was based on the cash flow generated by our operations with consideration for plans and expected cash obligations, acquisitions, and other factors as determined by the board. The variable dividend will also be paid on March 31st, 2022 to stockholders of record on March 15th, 2022. Finally, The Board has also increased the existing share repurchase program to $200 million from $100 million and extended the program one year to March 1, 2020 trade. Our dividend policy and renewed share repurchase program reflects our commitment to return excess capital to shareholders. With that, I will now turn the call back to Jeff for closing remarks.

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

Ladies and gentlemen, we will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your cell phone keypad and a confirmation tone will indicate your line is in the 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 star keys. One moment, please, while we poll for questions. Our first question comes from Trey Grooms with Stevens. Please proceed.

Hi. This is actually Noah Murkowski on for Trey. Good morning, and thanks for taking my question.

Good morning.

So to start out, you know, it looks like sequentially the supply chain disruptions that, you know, it's got a cost impact across margin. It looks like that improved a little bit. And I think, you know, the expectation is for a lot of these supply chain issues to persist through this year. But do you expect that cost impact to continue to get sequentially better as we move through this year?

This is Michael. I would say that we – would anticipate that it would get slightly better, but that it will be with us for certainly the foreseeable future and probably through all of 2022.

Well, every time we think it's this drought, every time we think it's just barely over the hill, something else seems to happen.

I think that's probably a common refrain in a lot of industries. And I think it's important to point out that I think fiberglass is actually getting better, but it really is a lot of the other products, particularly spray foam. The availability and cost of spray foam and the cadence and frequency of price increases has really been unprecedented, and it did not diminish at all through 2021. Got it.

Yeah, that makes sense. And then for my follow-up, pricing growth in the quarter was really impressive. I understand that manufacturers continue to raise prices, but how are you thinking about your ability to continue to see strong pricing gains this year and maybe any way you can quantify that for us?

I mean, we are continuing to work very hard to keep up with the material price cost inflation. And obviously, one of the primaries – primary ways we do that is by raising selling prices. I will say that one of the things that we felt good about in the fourth quarter is that our fiberglass margins actually improved, not just sequentially, but also over the prior year in the fourth quarter. So we feel good about where we are on the fiberglass side, but the other products are still acting as a drag on margins. just given the frequency and amount of the material price inflation there, particularly spread funds.

Well, and you don't get much of a forward look at all on the other products pricing. Unlike Fibroblast, exactly.

Got it. That makes sense. I'll leave it there. Thanks.

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

Just following up on the price-cost commentary and particularly the non-fiberglass part of your business, how are you thinking about the eventual inflection of the price-cost headwinds there? Is there any way you could give us a sense of the magnitude of headwind you're facing in that part of your business?

The headwind is fairly significant. We haven't really quantified it publicly from a dollar amount perspective. But as I mentioned earlier, we did see improvement in the fiberglass business, which, as I know you're aware, is the largest part of our business at 55%, 56%. But the biggest problem right now is definitely spray foam. We've seen some stabilization in the other products. Aluminum for gutters is, you know, obviously getting everything that's going on is continuing to rise and be problematic. On the spray foam side, I think it's important to point out that unlike in the fiberglass side, where in essence they're running at about 100%, you know, utilization and material we expect to continue to be tight and on allocation throughout 2022, although we are seeing improved levels of inventory on the fiberglass side. The spray foam industry, we estimate, is operating at more like 50% capacity. So it is not a capacity issue in spray foam. It really is an upstream chemical issue in spray foam. And we believe that has the ability to get fixed in 2022. Unfortunately, we don't think it gets fixed until Q3 of 2022. But that will provide significant relief for us once that does happen. We're currently buying spray foam from really multiple sources and sources that we typically would not buy spray foam from. And it is at a higher, an elevated price from what we would typically pay for it. But we're doing that to service our customers.

I appreciate the color there. And turning to price this quarter, the 13% you guys saw, can you help split out how much of that was mixed versus true like-to-like pricing and kind of what the carryover pricing benefit you're expected to see in the first half of this year?

The majority of it was price. As we discussed the last quarter, you know, mix is balancing out in terms of the volume that we're seeing from the production builders has continued to be stronger than the non-production builders, but it's not having the same impact on price mix that it had in the first half of the year. And then also, the other products growth has been, in the fourth quarter, was very similar to the insulation growth. So you didn't have, you had limited mix impact, if you will, on the price mix calculation. We would expect price to price mix to continue to trend positively in 2022, obviously what's going to happen in 22 is you're going to be coming on top of price increases because we raise prices throughout all of 21. And, you know, obviously we're carrying in those price increases that we did in the fourth quarter there. But, you know, the 13% is pretty exceptional. As I think we pointed out, it was a record increase. quarterly increase in price mix for us, but we're continuing to work hard, you know, particularly on the other products to match up, you know, selling prices with material prices.

Sounds good. Thanks. Take my question.

Sure.

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

Thank you. Good morning, everyone. And I want to congratulate Jason on his promotion. That's very exciting to hear and well-deserved. So congrats, Jason.

Thank you, Sue.

Yeah. My first question is around the purchase of AMD in the quarter. you know, you have not done anything in the distribution part of the business before. Can you talk a little bit more about the decision to get into that? And, you know, you mentioned in your remarks that you do see implications in terms of the supply chain and the cost structure going forward. So can you talk a little bit more about that and, you know, the opportunity set as you look to expand into that area?

Sure. Susan, this is Jeff. I mean, to acquire a distributor is not on our list, actually, for a very – long period of time. I think we've even mentioned that before. I think it was a matter of us finding what was the right fit, you know, probably large enough to have some capability to scale up and actually be a benefit to us long term in terms of accessory purchases, but probably not so large as to kind of divert us from what we feel is obviously our primary, you know, business on the install side and really try to avoid So longer term, it will take us some time to work through kind of the logistics and sourcing, et cetera, to really get full benefit out of the accessory purchases, et cetera. But over time, we'll get to be very positive.

Okay, that's helpful. My other question is, you know, you obviously have exposure not just to the public builders but also to a lot of private builders across the country. As we enter this year and we think about all the different, you know, moving parts in terms of supply chain and higher rates and all those kinds of things, can you talk a little bit about what you're hearing from your private builder customers, and is there anything different relative to what we're seeing from the bigger publics?

I think they're all very constructive about the demand environment, traffic, you know, what they're seeing from, you know, sort of a quarter price appreciation, selling price appreciation. But I do think, as has been consistent really since the pandemic started, quite frankly, I hate to use that word, sorry, but since it started, that the production builders have been able to do a better job of maintaining their scheduling and continuing to complete homes. Now, their lead times have been greatly extended as well. But I think the smaller guys, the regional and local guys have had – and obviously it depends market to market and builder to builder. But I would say as a broad statement, they've had a more difficult time of completing homes than the production builders. And obviously that creates frustration for them. And we have a very strong mix of that business, as you know. And we're working hard with those customers today. to make sure that they can make up some of the lost or the extended days or lost days that they're experiencing because of those lag times. But quite frankly, the entire building products chain, I mean, there really isn't a product that isn't at some level either because they don't have the labor to do the installs for those other products or the product itself is unavailable. There's really very few things in the building products chain that is not extended right now. And I think what you're also seeing, sorry, just to follow up on that, I think it's, you know, I think all building products companies are experiencing this, and we've talked several times about this last year, is that given the backlog that's out there, we're not seeing the typical seasonality that you would have in the business because of that, because the backlogs are just so strong. Right. One of the things that I think there was a slight expectation was that a seasonal slowdown at some point would have given some of the other building products an ability and other, you know, labor the ability to catch up a little bit. But we don't really see that happening.

Yeah. Okay. That's very helpful, Collar. Thank you for all that. Good luck.

Thanks.

Our next question is from Stephen Kim with Evercore ISI. Please proceed.

Hey, guys. This is Joe Allersmeyer. Just a quick question on the admin expense. I think you talked about leverage from the volume, but with the acceleration in pricing, I actually think we were expecting to see that ratio a little bit better in the quarter. Because in absolute, the dollars, you know, were kind of up mid to high teens for both the quarter and the year, even though volumes have remained constrained. So, a couple of questions, I think. You know, first, the absolute increase in admin costs, what maybe explain that in the back half of the year particularly? Are you building out cost structure to support the volume growth in 22 and 23? And maybe what is a good way to think about the variable portion of admin costs? So as we see volumes grow, how should we factor that into growth in those dollars, those admin cost dollars?

So if you look from Q3 to Q4, the vast majority of the increase in admin costs was related to acquisitions that were recently acquired. So while certainly we, like every company, is feeling wage inflation pressure at the G&A level, at the administrative level, It is not significant enough to make that large of a difference in our GNA cost structure. In terms of the variability of GNA, you know, there's – the way that we think of GNA from a variable perspective is that it's a little bit more lagging variable, so that to support higher volumes and higher sales, it will eventually trend up. but at a lower rate and slower than that increase in sales would be versus cost of goods sold, primarily material and labor, which tend to trend almost directly with our install sales.

Okay. Okay, it makes sense. So maybe the way to compare the cost is more sequentially than year-over-year versus 4Q, which may have been sort of a funky comp anyway. Correct. Okay, thanks.

Hey guys, it's Steve Kim also. I just wanted to ask you a question about price mix. You know, in the past year or so, there was this production builder mix issue. I would think that we probably anniversary that by now. Are there any other mixed considerations that we should be thinking about as we go forward here into 2022?

Assuming the market continues to develop the way we believe it is, a lot of the mixed headwinds should be behind us in 2022. Now, obviously, the two things that could impact that would be a greater acceleration in the other product sales, which we've talked a lot about, them being at a lower average job price than insulation. And then also, if we see a greater delta in sales, orders, completions by the production builders, than the current Delta is with the regional and local builders. But our expectations at this point is for there to be more stability in the mixed component of price mix relative to what we experienced in the first half of last year.

Gotcha. That's helpful. Last one for me is I know that we've chatted in the past about the opportunity that you all have in what you maybe, for lack of a better word, would call nuisance products, things that you can do for the builder. I was curious if you could talk a little bit about the current environment. How does all the craziness that's going on with material shortages and all that, how does that affect your ability to maybe gain share in these so-called nuisance products? Is it actually not a very conducive environment or could it actually be a very good opportunity for you to get incremental business there. If we have the material, it's a good opportunity. Again, Sheriff. And your ability to get the material in these kinds of non-insulation type products, are you sort of at a disadvantage relative to, you know, inflation because it's maybe not the core business?

I would say that our ability to source material in fiberglass is, the hottest just given our market share there and our deep relationships with all four of the manufacturers. Well, we are a very large purchaser of the other products. It does not have the same dynamics that fiberglass does. So, you know, these nuisance products, quote, unquote, as we call them, are in this kind of material supply constraint environment become more of a nuisance to us as well.

Right, unfortunately. Well, I would say the selling proposition is the same, right? I mean, the overarching kind of theme of it being good for a builder to deal with less, you know, subcontractors on these smaller items, that remains the overarching theme. I think where we have probably in some instances been able to make more headway is more around, you can't get the product, as Michael pointed out, but we've been pretty successful, I think, on the labor side of things. And I think it's more so than potentially some of our smaller competitors.

And interestingly, we're seeing very good growth in the other products on the multifamily side. Our multifamily team is just, I mean, they're not going to cover up the fall, quite frankly. I mean, our multifamily backlogs at the end of the year were up almost 50%.

Great. That's helpful. I'm sorry, one last question. You did make a comment earlier about the spray foam, your optimism around a rebound. And I think you mentioned that you thought that the chemicals issue would be fixed probably You're kind of thinking around 3Q. I was just wondering about how you might be positioning the business to prepare for that. If you could just share with us, if it doesn't happen in 3Q and it gets pushed off, I mean, God forbid, into 2023 and all that, is there anything that you're doing today to prepare for later this year that you would have to adjust again that we should be thinking about maybe that might flow through on admin costs or something like that?

It's really just trying to keep up with the material price inflation and working with our customers to take those price increases. And if it continues, if the velocity and frequency of the price increases in spray foam continue into the second half of the year, which is not our expectation, we expect it will continue to be challenged in the first half of the year. you know, we would have to just continue to work with our customers to get more press.

But what we've done in preparation to try to, I guess, you know, try to guard for this continuing to happen is we've expanded our supplier base. I mean, we were much more, we weren't by any means single source on foam, but we had a much higher percentage of our foam business with one particular chemical supplier and foam, you know, compound or manufacturer, whatever you want to call it. And we've spread that, you know, kind of those purchases around to a greater degree now.

Which is great from a material sourcing perspective, but not as efficient from a material cost perspective. And we've also, I mean, if you look at our balance sheet and inventory, clearly we've been trying to get as much inventory as possible. And, you know, right now are quite full from an inventory perspective across the board in terms of products.

You know, prior to the storm in Texas, we felt pretty good about our decision about being aligned with, you know, really one of the largest, you know, industry leader and still do feel good about being aligned with them. We just got lucky in that they had at least the same amount of issues and problems as it relates to production as some of the others that are further downstream. But, you know, we couldn't have anticipated that, I don't think. The story... Absolutely.

Right.

Okay. Well, great. Thanks very much, guys, and congrats, Jason.

Thank you. Our next question is from Dennis with True Securities. Please proceed.

Hi, good morning. This is Denison for Keith. Thanks for taking our questions. Sure. So just wanted to touch a little bit on if you could comment on any regional dynamics that you're seeing, any regional performance dynamics that you're seeing from the branches. Thank you.

Yeah, I would say that the, you know, mid-Atlantic, south, southeast, west, even the kind of central areas, western states are doing exceedingly well. That's not to say that Midwest and Northeast aren't doing well, but the performance is, you know, outsized positive from those regions on a residential side.

Okay, thank you. And then if you could, and apologies if this was already touched on, but if you could just comment on Just where the supply situation is for Sprayful now versus, say, like the prior quarter and just the prior quarter, whether you believe it's tighter than it has been previously, we're about the same.

Thank you.

It's a little better. It's a little better, but it comes at a price, right? And our view of it being a little better is a little bit subject to what I just mentioned on the earlier question, and that is, you know, we've had an ability to expand our supplier base, so it certainly feels better to us. I can't comment on absolute, you know, sets or volume, but it's probably a little better.

Thank you.

The third quarter was really rough. Yeah.

Our next question is from Mike Rehad with JP Morgan. Please proceed.

Hi, good morning. Doug Bourbon from Mike. I was wondering if you could give further insight on how we should think about M&A in 2022. I know you said the pipeline is robust and you have about the same goal as you did last year. If you can, can you give some further color on what you see in the pipeline and if your preferences and activism target has changed from what they were in 2021? Thanks.

Sure. No real changes per se. I mean, we continue to, you know, require obviously insulation contractors first and foremost. Not to say at all though that we're not out there looking at other product acquisitions also and even different potentially contractors that would get us into either new end markets and or even new products sometimes. But again, like we said, the pipeline's robust. We've got plenty of cash coming off a very big year last year, but we feel good about this also being a very good year in that regard.

Our next question is from Phil Eng with Jefferies. Please proceed.

This is actually Colin on for Phil. I just wanted to go back to the price cost. Understanding that spray foam sounds like it's going to continue to be an issue through the first half of this year and that you're already more than offsetting the higher costs in your fiberglass business, I guess when do you see your pricing actions being margin neutral to accretive for the total companies?

You know, it's difficult to say only because on the other products, as Jeff said earlier, there's not the same visibility that there is in fiberglass. But I would say that we are actively working, you know, very hard to get on top of with the other products as we have on the fiberglass side, at least in the fourth quarter. You know, the inflation, the material price inflation relative to our selling prices there. You know, one of the things that I think, you know, that's important, too, when you look at the results for the fourth quarter is that, you know, the large commercial business for us, you know, we were, you know, obviously we're working hard. We had good growth in it, but that was really all acquisition related. You know, on the large commercial side, you know, same brand sales were down, you know, about 2.7% from the prior year. But that business is a little different from the residential business in terms of your ability to adjust labor very quickly. So in that business, we've definitely seen significant delays in projects that have extended out 21 and into 22. I mean, we feel very encouraged by it because our backlog is up about 20%, which is reflective of the delays that we've seen in those projects. But in the fourth quarter, our large commercial business was a headwind of about $3.5 million to EBITDA. So, you know, that is – it's frustrating, but, you know, we feel good about, you know, particularly the back half of next year, our ability to kind of unwind some of that headwind.

Okay, that's really helpful. Thank you. And then just – The supply chain sounds like it's going to remain pretty tight across the board in 2022. So I guess given these constraints, what type of organic volume growth do you see yourself growing at this year?

I wouldn't say specifically to IVP because we don't provide guidance. But I would say, and I'm glad that you asked the question, that if you just look at the backlog, which we all well know how elevated it is, it was up 45%. in December from the prior year. It's really at an unprecedented disconnect between starts in terms of the starts and completion numbers. We think that that backlog would easily support a high single, a low double-digit completions rate. But unfortunately, given the continued supply constraints that we expect there to be for old building products, not necessarily insulation, but the continued supply constraints that are out there, we would expect that on an aggregate basis that you're going to have sort of a mid-single digits growth and completions for 2022. Now, I do think an exception, there will absolutely be exceptions to that. I think some of the big production builders, as I think was clear in some of their order or their completion growth home delivery targets that they've established for 2022, that they would expect closer to a high single, maybe even low double digits. And I think for them, that is achievable. But I do think that if we look at the entire market, you're probably looking at mid-single-digit growth rate and completion.

Okay, that's very helpful, too. And then I guess just one last one, just touching on the backlog. Any way you can help us think how that compares to what it looked like in mid-2018? Just given there's concerns that in this rising interest rate environment, you could see a similar arrow pocket in demand like the market saw in 2018 when we saw interest rates tick up there. So I guess we're just trying to understand better how IVP would be set up for something like this.

Yeah, that's a really good question. I mean, the 2018 completions, were very weak, and actually I think in the Q4 of 18, completions were down sort of mid-single digits. So in 18 and even going into 19, starts and completions were somewhat on top of each other, and the lead time was not nearly as extended as it is today. So as a consequence, when there was a softening in starts, it quickly resulted in the completions number flattening or going down. whereas we believe that any flattening we see in starts in 2022 is not going to impact completions, which is most relevant to us, just given how elevated the backlogs are, quite frankly. What our perception is of what's sort of happening in the market now is, you know, there's obviously concern about rising rates and affordability, and we think that that has probably accelerated a little bit people's decision to try and buy a home. Unfortunately, particularly on the existing home side, there aren't very many homes available to buy. But we believe that any slowdown we see from, again, from rising rates and the decrease in affordability is going to be more than offset by this very high completions backlog, or excuse me, backlog that will lead to continued completions growth. It goes back to my earlier comment about you know, get into that, you know, mid-single-digit completions growth in 2022. Great.

That's really helpful commentary. Thank you, and best of luck in 2022.

Great. Thank you.

Thank you. Thank you. Ladies and gentlemen, we've reached the end of the question and answer session. I'd like to turn the call back to Jeff Edwards for any closing comments.

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

This does conclude today's conference. You may now disconnect.