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spk07: Greetings and welcome to the Installed Building Products Fiscal 2023 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. 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. It is now my pleasure to introduce your host, Darren Hicks, Managing Director of Investor Relations. Thank you, sir. You may begin.
spk14: Good morning, and welcome to Installed Building Product First Quarter 2023 Conference Call. Earlier today, we issued a press release on our financial results for the first quarter, which can be found in the Investor Relations section of our website. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of the federal securities 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 ongoing COVID-19 pandemic, general economic and industry conditions, rising home prices, inflation and interest rates, the material price and supply environment, the timing of increases in our selling prices, and factors discussed in the risk factors section of the company's annual report on Form 10-K, as may be updated from time to time in our SEC filings. Any forward-looking statement speaks only as of the date hereof. The company undertakes no duty or obligation to update any forward-looking statements as a result of new information or future events, except as required by 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 Chief Administrative and Sustainability Officer. I will now turn the call over to Jeff.
spk03: Thanks, Darren. Good morning to everyone joining us on today's call. As usual, I will start the call with some highlights and then turn the call over to Michael, who will discuss our financial results and capital position in more detail before we take your questions. IBP produced record first quarter sales and profitability due to the exceptional efforts of our employees and the excellent service they provide our residential and commercial customers every day. First quarter sales benefited from our recent acquisitions and robust same branch growth within our multifamily and light commercial end markets. The ongoing strength in multifamily helped drive first quarter residential sales growth by 7%, which more than offset a modest deceleration in single family revenue. Our first quarter results reflect the resiliency of our business model, the hard work of our employees nationwide, and the benefits of our product, market, and geographic diversification strategies. Looking at our first quarter results in more detail, we experienced same sales growth in both our residential and commercial end markets. For the quarter, within our installation segment, we experienced a 4% increase in residential same branch sales from the prior year period, a 38% increase in multifamily same branch revenue, more than offset a 3% decline in single family same branch sales. By comparison, Total U.S. residential completions increased 12% during the first quarter, which was driven by significant year-over-year growth in multifamily completions. IBP's multifamily sales growth accelerated to 38% on a same-branch basis, up from 23% on a same-branch basis last year. We acquired CQ Insulation, a Florida-based insulation installer uniquely focused on the new multifamily end market in 2015, and the company has been successful in selling IBP's installation services across branches and other markets that historically have not served multifamily customers. Within our commercial business, first quarter same branch installation sales increased 22% driven by light commercial project strength. Bidding activity and project bid acceptance rates and our heavy commercial business remained steady in the first quarter relative to the fourth quarter, and same branch sales have begun to show improvement, increasing modestly from the prior year. We are focusing on improving our operational efficiency while pursuing projects with favorable economics. Our first quarter performance reflects our continued strategic focus, which prioritizes the profitability of a given job over job volume. We have worked hard to align with national, regional, and local builders who value our local market knowledge and job efficiency. We believe this approach is needed now more than ever as builders strive for more normalized construction cycle times. During the quarter, price mix increased by 16.5% over the prior year period. The inflationary trends we experienced in the construction industry throughout 2022 carried forward into the first quarter and we continue to make the necessary adjustments to align our pricing with the value that we offer our customers. We believe our strategy focused on profitable work to help us achieve same branch incremental EBITDA margin of 39.4% first quarter record. With a focus on growth, our profitability standards extend to our acquisition targets, and we have closed three deals so far this year with over $46 million of annual revenue. We expect to acquire at least $100 million of revenue once again in 2023. During the 2023 first quarter, we completed two acquisitions, including a Maryland and West Virginia-based installer of fiberglass and spray foam insulation into residential projects with annual revenues of approximately $4 million, and a Rhode Island-based installer of residential, mechanical, and industrial insulation serving residential, commercial, and industrial customers across the Northeast with annual revenue of approximately $39 million. In April of 2023, we also completed the acquisition of a Florida-based installer of fiberglass and spray foam insulation serving residential and commercial customers with annual revenue of approximately $3 million. Although we are still in the first half of 2023, indications from recent public home builder earnings commentary supports our belief that the housing market is returning to more normal seasonality and housing demand during the spring selling season has been fairly well supported. We believe the residential housing market will be more resilient in the back half of 2023 as a result of strong employment trends and relatively low existing home inventory levels. In addition, the backlog of our model family business extends beyond one year. We expect strong execution in our repair and remodel business to continue with incentives from the Inflation Reduction Act of 2022 likely to support demand this year. We believe we are well positioned to navigate future changes in the U.S. housing market given our strong customer relationships, experienced leadership team, national scale, and diverse product categories and end markets. In addition, our strong balance sheet coupled with our high operating cash flow generating capability supports ongoing acquisitions, dividends, and opportunistic share repurchase activity. I'm proud of our continued success and excited by the direction in which IBP is headed. So with this overview, I would like to turn the call over to Michael to provide more detail on our first quarter financial results. Thank you, Jeff, and good morning, everyone.
spk04: Consolidated net revenue increased to a first quarter record of $659 million compared to $587 million for the same period last year. The 12% year-over-year improvement in sales during the quarter was primarily driven by an increase in price mix from the prior year period and the revenue contribution from recent acquisitions. This quarter, the price mix calculation benefited significantly from the strong growth in our multifamily and light commercial end markets, which favorably impact mix due to higher average job prices. This growth contributed to an 11% increase in our installation segment revenue to $623 million. Our other revenue, which includes IBP's manufacturing and distribution operations, increased from $26 million to $37 million driven by organic manufacturing and distribution revenue growth, as well as the April 2022 acquisition of Central Aluminum. On a same-branch basis, residential installation revenue improved 4% from the prior year quarter, as multifamily growth of 38% offset a 3% decline in single-family same-branch sales. Same-branch commercial sales increased 22% in the quarter. Adjusted gross profit margin improved 250 basis points year-over-year to 31.9% in the first quarter, which benefited from strong price mix growth during the quarter. It's important to highlight that our operating segments have different gross profit profiles, and segment gross profit is exclusive of depreciation and amortization in the cost of sales. During the 2023 third quarter, Our installation operating segment's gross profit margin was 34.1% compared to the other operating segment gross margin of 26.5%. Again, both of these margins are before depreciation and amortization in cost of goods sold. Adjusted selling and administrative expense as a percent of first quarter sales was 17.9% compared to 16.9% for the prior year period. Higher selling and administrative expenses relative to the same period last year primarily reflects higher variable compensation, including selling commissions and bonuses due to the higher gross margin and improved profitability. On a gap basis, our first quarter net income per diluted share of $1.74 increased 53% from the prior year quarter, and our adjusted net income per diluted share improved 40% to $2.15. During the 2023 and 2022 first quarters, we recorded amortization expense of approximately $11 million related to the acquisition of new businesses. This non-cash adjustment impacts net income, which is why we continue to believe that adjusted EBITDA is the most useful measure of profitability. Based on recent acquisitions, we expect second quarter 2023 amortization expense of approximately $11.2 million. and full year 2023 expense of approximately $44.3 million. We would expect these estimates to change with any acquisitions we close in future periods. Adjusted EBITDA for the 2023 first quarter improved 25% to $105 million. Adjusted EBITDA as a percent of net revenue was 15.9% for the 2023 first quarter a 160 basis point improvement from the same period last year. Same branch incremental adjusted EBITDA margin was a first quarter record of 39.4% compared to 22.9% for the same period last year. We continue to target full year long-term incremental adjusted EBITDA margins in the range of 20 to 25%. For the 2023 first quarter, Our effective tax rate was approximately 26.8% and we continue to expect an effective tax rate of 25 to 27% for the full year ending December 31st, 2023. 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, 2023, We generated $74 million in cash flow from operations compared to $48 million in the prior year period. The year-over-year increase in operating cash flow was primarily associated with higher net income and lower network and capital requirements. Through interest rate swap agreements, we have fixed the interest rate on $400 million of our existing variable rate debt until December 2028, limiting our interest rate exposure. In addition, we have no significant debt maturities until 2028. Our first quarter net interest expense fell to $9.7 million from $10.6 million in the prior year period as we were able to earn a higher interest rate on cash and cash equivalents invested throughout the quarter. At March 31, 2023, we had a net debt to adjust its trailing 12-month EBITDA leverage ratio of 1.4 times compared to 1.46 times at December 31, 2022, which is well below our stated target of two times. At March 31, 2023, we had $328 million in working capital, excluding cash and cash equivalents and investments. Capital expenditures and total incurred finance leases for the three months ended March 31, 2023, were approximately $16 million combined, which was 2.4% of revenue compared to 1.9% for the same period last year. With our strong liquidity position and modest financial leverage, we continue to expand the business through acquisition and return capital shareholders. IVP's board of directors approved the second quarter dividend of 33 cents per share, which is payable on June 30th, 2023 to stockholders of record on June 15, 2023. We are committed to continuing to grow the company while returning excess capital to shareholders through cash dividend payments and opportunistically repurchasing our shares. With this overview, I will now turn the call back to Jeff for closing remarks.
spk03: 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. Our success over the years is made possible because of all of you.
spk11: Operator, let's open up the call for questions.
spk07: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. We ask that you limit your questions to one and a follow-up so that others may have an opportunity to ask questions. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Our first question comes from Susan McLary with Goldman Sachs. Please proceed with your question.
spk05: Thank you. Good morning, everyone, and congrats on a good quarter.
spk11: Thank you.
spk05: My first question is, you know, you've had very impressive gross margins coming into this year. As you think about some of the dynamics that are going on around inflation relative to volumes, how should we be thinking about your ability to sustain some of this improvement and any other broader trends that you can share with us there?
spk04: So this is Michael. I mean, on the inflation front, I think we were talked a lot about this in the fourth quarter call as well. We believe we're in a more normalized inflationary environment right now. Really, the supply chain disruptions that we experienced in 22 have really completely abated at this point. So that's creating a much more benign inflationary environment. In terms of the progress that we made on gross margin, we feel very good about are continued focused on price over volume. And obviously, as we saw in the first quarter results, that benefits gross margin. So it's important for us to be able to, you know, maintain the progress that we've made on gross margin. And, you know, we will continue to value price over volume.
spk05: Okay, that's very helpful. And then following up, Have you heard anything, or what are you hearing from your private builder customers? How does that compare to what we're seeing from the larger publics in there? And any thoughts on the dynamics that we could expect from the mix shift as we go through this year and we see some of the movements across both residential and non-residential?
spk04: Yeah, so Sue, this is a similar story to what happened in the fourth quarter, is that we saw higher growth rates from the regional and local builders than we did from the publics or the big national builders. We expect that that trend is going to reverse as we go through particularly the back half of the year because we believe that the public builders are in a very, very strong financial position, probably the best financial condition they've been in since they've been public. I think it's been very clear if you follow the builders in both I would say privately and publicly. I think there's been, on the big public builders front, a strong commitment to pivot towards a higher percentage of spec inventory, and they clearly have the capital and balance sheet to do that. We would say that a lot of the regional and local builders are not in that same position. So, again, as we go through the back half of the year, we think that we'll see a higher percentage of spec inventory coming on and that will be driven a lot by the production builders, which will then sort of change that mix shift, if you will, more towards production builders. And you might remember that the impact that that has on our disclosures is it increases volumes, but it's a headwind to price mix.
spk05: Okay. Thank you for all the coloring. Good luck.
spk11: Thank you.
spk07: Our next question comes from Mike Dahl with RBC Capital Markets. Please proceed with your question.
spk02: Good morning. Thanks for taking my questions. Maybe just to follow up on the mix standpoint, could you just help us quantify maybe from the price mix, like what was the mix impact and what was more of a true like for like price in the quarter?
spk04: Yeah, Mike, this is Michael. As you know, we don't really disclose that breakdown, but we did in our prepared remarks note that both multifamily and light commercial, which were very strong in the quarter, do help the price mix calculation because the average job price is higher for those projects than traditional single family. That being said, we continued to get price or maintain price, I should say, that came over as very solid carryover from the first quarter of last year.
spk11: Got it.
spk02: Right. So I guess the follow-up kind of bigger picture, I know it's not exactly comparable how it your report or your mix versus your peer, but, you know, kind of another quarter in which I think the volume, my VP, was lower than your larger peer and lower than the completion number. The price was stronger. I understand some of that is mixed, but the optics would still suggest that there's maybe a little tradeoff going on in your own opening remarks. Kind of reference that a little about being selective on which jobs you take and what you're getting paid for and where the value is so could you just help us understand especially as the environment's changed a lot over the past handful of months how you're evaluating that trade-off where you think you are in terms of you know as we go through the year how you would track against um against the broader market that would be helpful
spk04: Well, I would say a couple of things. One, we will always value price over volume. We've been consistent about that since the day we went public, and that will continue through the course of this year. I think it's difficult to make a comparison on a quarterly basis of our volumes to completions, particularly, again, because it's just one quarter's worth of information from the Census Bureau. But also, Given the unprecedented level of the disconnect between completions and starts that's been going on, I think the information from the Census Bureau is in a bit of a catch-up mode in terms of what's going to happen with completions. And I'm talking really primarily about the single-family side right now. And we believe that pretty much across the board, cycle times on single family have pretty much caught up to be normalized. And that obviously brings forward, in our estimation, some of the decline in starts and that disconnect between starts sort of running around 800,000 and completions running at a million. We think that that impact that the industry will see in terms of that delta or that disconnect will be felt sooner than what we may have expected. But at the same time, we're very encouraged by what we're seeing, not only from our regional and local customers in terms of, you know, the spring selling season, but the public builders as well. I mean, they're showing pretty solid, you know, quarter over quarter increases in backlog, you know, mid to high single digits, which is very encouraging from our perspective. And I think it's interesting for the builders that have reported, at least up to this point, which is most of them. And what's interesting, when we look at the backlogs and order trends within the builders, that does not include their speculative inventory. So as a consequence, as they lean in more towards specs, which we believe is a pretty common theme among the public builders, that makes those numbers that we're looking at even more encouraging. We feel, you know, better about, I would say, you know, the trajectory of single family in the back half of the year than maybe we did when we had the fourth quarter call. But I would say that the softness and weakness that we're all expecting in single family is probably going to be more concentrated in the second quarter.
spk11: That's very helpful. Thank you.
spk04: Sure.
spk07: Our next question is from Phil Ng with Jefferies. Please proceed with your question.
spk06: Hey guys, this is Maggie on for Phil. I guess just digging into that a little more, you talked about kind of a return to normal seasonality and sentiment has certainly improved the last few months. Maybe if you could just talk about how your conversations with customers have changed since the last call, and then particularly how that relates to your outlook in the back half of this year.
spk04: Well, I would say it's been very encouraging. I think the spring selling season has turned out to be better than people had maybe feared or were concerned about. And I think it's clear that the existing home inventory is not increasing to support the demand. And I think it's also very clear that the market, the buyer, has adjusted much more rapidly to the higher rate environment than what we had as our expectations. And we believe that rates most likely stabilizing at this point We are very constructive for the consumer and the desire to purchase a home. So we're very constructive about the market, not just back half of the year, but on the single family side.
spk03: Well, and all the information that the public builders have put out would say the same thing. Right. In fact, quite a bit more optimistic than they were in third or fourth quarter in terms of where So we're encouraged by that.
spk04: And we're also encouraged by the fact that cycle times have normalized, which means that when that work gets started and, you know, the foundation is forward and the house is framed, that work comes to us a lot faster because there aren't the bottlenecks that had existed in 2022 to get the framing done and the foundation forward.
spk06: Okay, great. And then just on the commercial side, you know, following all the regional bank issues, which seem to be continuing, you know, how are you thinking about the impact of those and, you know, potentially tighter lending conditions on your commercial customers and how that impacts your backlog, you know, probably more into 2024?
spk04: I would say at this point, we have not seen any impact at all. Bidding activity has been consistent. Bid acceptance activity has been consistent. We haven't seen any significant delays or cancellations of projects in our backlog. So I would say for now, we're not seeing an impact. But I think it's still for everyone. There's a big uncertainty out there just not knowing what, if any, impact there's going to be. You know, I would say that from what we see and what we hear and what we read, it feels like, you know, the Fed is going to do, you know, they're going to be prudent, but at the same time, they recognize the potential for that tightening credit has the potential to you know, weaken the economy more than they would probably like. And I think they're going to do what they can to make sure that that tightening is as small as possible. But obviously, we don't know, right? We're just, just like everyone else, we're just, you know, basing that on everything we read and hear.
spk06: Yeah, of course. Thanks for the color.
spk10: Mm-hmm.
spk07: Our next question comes from Adam Baumgarten with Zellman and Associates. Please proceed with your question.
spk12: Hey, good morning, guys. This is probably for Jeff Heyer, but how are you guys thinking about the prospect for additional price increases from the fiberglass manufacturers?
spk11: This is Jeff Edwards.
spk03: So it's clearly a different environment than it has been for the last 30 months, 36 months. But I still think it's a healthy market. I mean, the industry is still, you know, kind of selling and producing at near capacity, if not at capacity. Blowing wool is tighter than baths at this point in time. But I don't know that it's a particularly inflationary period of time, but I don't think it is as of yet in any way an inflationary period of time either.
spk12: Okay, got it. And then just on the multifamily backlogs, I think you guys talked about that. stretching out over a year or about a year. Should we expect that to turn to a potential headwind at some point next year in 2024?
spk04: If it does, it would be in the back half of 2024. I mean, the backlog is, as Jeff pointed out in our prepared remarks, goes stretches beyond a year, basically.
spk03: Well, I would also add to it and say that although construction cycle times inside a single family have started to come back down they're still elongated in multifamily, in my opinion, in a fairly big way.
spk04: Very much so. And we do constant, on that front, we're doing constant check-ins, if you will, with the multifamily projects that we bid and the multifamily projects that we have in our backlog to make sure with the GC that everything continues to be on track. And right now, everything seems to be incredibly extended.
spk03: Well, it may sound a bit silly, you know, because you could say, well, a carpenter is a carpenter, but that's not exactly, you know, a framer, let's say. It's not exactly true. A lot of times it's not the same workforce and the same pool of workers that are doing multifamily versus single family. And that's true of most subs. Except for us. Except for us and a few other they're different.
spk04: Yeah, I mean, if you just look at the, you know, using again the information from the Census Bureau, I mean, if you look at, you know, under construction, units under construction, I mean, single family has come down from an average above 800,000 to slightly below 700,000, whereas multifamily has done the opposite to go from an average of, you know, in the slightly above 800,000 to above 940,000. The fact that the under construction units for multifamily is, has like a 200,000, you know, more than 200,000 unit delta between single families is absolutely unprecedented.
spk11: Got it. Makes sense. Thanks, guys. Sure.
spk07: Our next question comes from Joe Alice Meyer with Deutsche Bank. Please proceed with your question.
spk08: Hey, thanks for the question. Good morning.
spk11: Good morning.
spk08: You, in an earlier response to a question, talked about, and others too, the normalizing supply chain environment, fighting less fires on a branch basis. Can you talk about any early progress around filling in product and capability white spaces, again, sort of on a branch-by-branch basis, not maybe even at a regional level?
spk04: Well, I think, as you know, because we've talked a lot about this, the other product sales are a key component of our strategy when sort of our core single-family insulation business is in a soft patch, and that's continuing. I mean, one of the things that we didn't mention when we were asked about the price mix is we definitely saw higher rates of growth in the other products during the quarter versus our core insulation. And that has a headwind to price mix. Obviously, there were multiple things that had a positive impact on price mix as well. But yes, our branches are continuing to cross-sell the other products and see that as a key component of the strategy.
spk08: Right, right. That's great to hear. The other question I had, just quickly more of a technical question on the multifamily mix as a benefit. If you could just maybe break this down simplistically, the components of mix, not looking for quantification, but helping understand if there's a lower amount of take per unit, how does that actually result in a higher mix benefit to the segment? Is it that Maybe on a job basis for multifamily, there's one job, but there's several units, and maybe that's how it shakes out. Any help?
spk13: This is Jason Neismar. That's exactly right. It's not calculated on a per-unit basis. It is on a per-job basis where there would be multiple units being completed.
spk08: Got it. Makes sense, Jason. Thanks a lot for that. Take care, guys.
spk11: Sure. You too.
spk07: Our next question comes from Trey Grooms with Stevens. Please proceed with your question.
spk00: Good morning. This is actually Noah Murkowsko on for Trey. Thanks for taking my question.
spk11: Sure.
spk00: First, I know we've talked about it a lot, these mixed dynamics going on, but I just wanted to clarify as we look out over the balance of the year, it sounds like there's cross currents. On the one hand, it's a price mixed headwind from more production builders, but it sounds like multifamily is still going to be strong, and that's a tailwind. Again, I don't need exact numbers, but how do you think about those? Do those completely offset each other and it's a wash, or is one more powerful than the other? If I could sneak one more in here, how does that impact margins?
spk04: I mean, on a full-year basis, not talking any specific quarter, you know, we would expect that, you know, there is continued benefit from through the year on multifamily and, like, commercial, and that will significantly or help to significantly offset any sort of volume declines that we experience. But as I said in an answer to a previous question, I mean, we do, unlike what we talked about in the fourth quarter, we do expect that because the cycle times in single family have normalized, that the softness that we believe we will experience, and not we, but the industry will experience, is going to be concentrated more in the second quarter and will improve as we go through the back half of the year. based on the information that we currently have, both from our regional and local builder customers and from particularly the public builders. So, you know, we believe that if we look back at the year, while the price mix calculation will absolutely be benefited by a much higher growth rates in multifamily and light commercial that they will begin to normalize, particularly as we go into 24, back to more historical levels.
spk00: Got it. That's helpful. And then for my follow-up, bigger picture question here. You know, it seems like we may have hit or are approaching the trough and housing starts. You know, there's a lot of positive sentiment coming out of the spring selling season. And I was hoping you could maybe compare and contrast how the past housing cycle, I guess, call it, you know, starting pre-COVID, would compare to, you know, a new upcycle in housing. Clearly, there was a lot of supply chain constraints, issues with material and labor. And I guess, you know, ultimately, I'm trying to figure out, you know, do you think in another housing upturn that cycle times could extend it again and we run into these same issues where, you know, your ability to realize volume growth is going to be delayed from starts than when it normally is?
spk04: No, actually. I think that, I mean, of course, it depends on what the growth rates look like and how quickly it comes. But if, you know, starts, which, you know, we would agree that starts are stabilizing and that we wouldn't expect significant lines from this point, and we would expect increases, maybe not, you know, huge increases, but still increases. If you think of, and again, I'm just talking about single family, with single family starts running around 800,000, but completions running around a million, that implies that you can increase starts 25% from where they are today and be at the same level of industry capacity. Now, again, based on the answer that we had to a previous question, I mean, The Census Bureau information, particularly on a quarterly or monthly basis, isn't a complete picture, but it certainly is directionally correct. So as a consequence, we think there's plenty of room to grow from a starts perspective with the existing capacity in the industry. And then that's not assuming that we even get growth within capacity. Now, fiberglass, you know, as I think everybody knows, you know, is pretty tight right now. and it leads to Jeff's answer on why we don't think it's necessarily a deflationary environment. But, you know, the reality is is all building products right now are experiencing some softness given the, you know, significant decline in starts. I mean, if you look at on a quarter-over-quarter basis for the public builders in the fourth quarter, they reported backlogs that had declined over 20%. Now, what we find extremely encouraging is that their quarter-over-quarter, first-quarter backlogs are up, you know, mid-to-high single digits. So that's very encouraging, and it kind of constructs or informs our view of being a little bit more positive about the back half of the year than we may have been, but also that fourth-quarter backlog that was down the highest that it's been down in the cycle is is the work that we're working on in the second quarter. So, you know, as I said to the answer to a previous question, we think that the softness in single family is going to be more concentrated in the second quarter than we had originally anticipated, but that the recovery is actually better than we expected as we go into the back half of this year.
spk00: Right. And with normalized cycle times, you'll benefit from the volume and the upswing quicker.
spk03: Exactly. And as we've said before, we are typically not and have never really been the bottleneck. Yes. And Michael, just to hit it again, I mean, one, there's capacity inside currently of the capability. Yes, absolutely.
spk00: Got it. Thanks, guys. That's really helpful, and good luck with the rest of the year. Thank you.
spk07: Our next question comes from Stephen Kim with Evercore ISI. Please proceed with your question.
spk09: Yeah, thanks very much, guys. Yeah, just to clarify this multifamily, you know, counting as one job, just from a clarity perspective, Townhomes and duplexes and things of that nature those are you know attached single-family.
spk13: That's is that considered one job as well It wouldn't be an entire building would be considered one job So if you're looking at a multi-unit apartment complex, there might be multiple trips each of those multiple trips would be a job.
spk09: Ah Okay, gotcha. That is helpful Okay. All right. Um, okay the second question I had relates to the 45 L and energy star opportunity. This is something that I found intriguing that we haven't heard you talk more or you and your other competitor talk more about, but it would seem like that would be an open door for you to be able to extract a higher value per unit. It seems like the detail around the quality of the install is very important for builders achieving that tax credit. So can you just talk a little bit about
spk04: You know, that change, whether or not you've tried to quantify in any way the positive impact that... I mean, yes, it's definitely... There is the potential for pretty significant impact on our repair and remodel business, and even on the new single-family side, as builders... see the benefits and we educate them to the benefits of using some of the new tax credits that are there. I would say that, though, because the rules have been recently written, I don't think the uptick in the benefit, if you will, associated with that has been felt or realized yet. We think that that's going to take time. Fortunately, because the programs are now quote-unquote permanent, It means that, you know, we can invest in the education and the education materials to really educate our builders, and I'm not talking about the public as much as the regional and locals, as well as, you know, the existing homeowners to the benefits associated with it. So that's, you know, there is going to be a very solid benefit associated with that, but it's not going to be felt immediately. It will come over time.
spk03: Well, it's clearly, I mean, you know this, it's not a major, major part of our business. So even substantial growth within that is not incredibly impactful across the whole company. But in addition to that, the work is performed in a different way than our kind of core new construction work. Believe it or not, installers are different a lot of times, the sales teams. You might be doing a lot of multifamily and a lot of production builder work and immediately say you're going to start doing R&O work.
spk09: Go ahead. You said fortunately something.
spk04: Yeah, I would say fortunately because our footprint, we started in Columbus, Ohio, and we started acquiring businesses in adjacent markets, which tend to be heavier repair and remodel markets, We have had a good repair and remodel business in the top half of the country. And, you know, we're working hard to make sure we bring the energy benefits, quite frankly, to our customers in those markets.
spk09: Gotcha. Well, we're looking forward to that. The last question I had is on heavy commercial. I think you had said that it could be a potentially big tailwind business. particularly later in the year, obviously you've got a comps issue, which is going to, you know, make those year of year changes look pretty dramatic. I would assume, I guess my question is kind of cutting through the comps. Do you think that by the end of the year, you know, let's call it fourth quarter or something that, you know, you could be running back at, you know, the levels you were running at in 2021, just sort of, you know, doing the stacked comp kind of a thing, maybe, uh, you know, all the way back, you know, by fourth quarter, could we be flat to up versus 4Q21?
spk04: Yeah, absolutely. I mean, the heavy commercial business in the first quarter was up, you know, single digits, but it was up. And as you know, because we've talked a lot about this, is we're really focusing on operational improvements there, not as much sales, but I would say that we're seeing very good bid activity and bid acceptance.
spk11: Okay, great. Thanks very much, guys. Sure.
spk07: Our next question is from Carl Reichart with BTIG. Please proceed with your question.
spk01: Thanks. Morning, guys. I just have one. I mean, in the fourth quarter, the builders were pounding on trades for concessions. By first quarter, they're shrugging their shoulders about labor tightness and starting to raise base prices. I mean, even for this business, the volatility and expectations has been changed pretty dramatically. So I'm curious how that impacts your smaller peers and their interest in potentially doing M&A deals. trying to manage through this volatility, thinking they'd had to cut staff a quarter ago and now maybe business is much better. Can you talk a little bit about how that might impact valuations or interest from your smaller peers on doing M&A deals?
spk03: Yeah, sure. You know, despite kind of the numbers and what the news might have said, I don't know that any insulation contractors, you know, all of a sudden saw a lot of weakness because of the backlog. I think everybody remained pretty busy. right straight through. And just, you know, after having been involved in a couple hundred deals, it's just not the way, they're not thinking about, for the most part, the big kind of macro sense of things. I mean, their desire to sell and their timing on the sale has a lot more to do with their kind of life cycle and lifestyle desires and how old they are and how long they've been at it, or if they're frustrated and it may or may not have anything to do with the labor or even the amount of work. And so I don't think it was really impactful. And, in fact, I would tell you that I think the spring selling season, had they not got it done, I mean, if they were, in fact, worried, it may have been encouraged to say, hey, at some point in time, this market's not going to be the way it is now. The spring selling season came back strong enough and quickly enough that I think any sentiment that this was somehow going to be a you know, a great recession or anything like that all over again is out the window. And they're not being prompted now based on, you know, their business prospects to make that different decision about whether they would sell or not.
spk01: That makes a lot of sense.
spk11: All right. Thanks. I'm good.
spk07: We have reached the end of our question and answer session. I would now like to turn the floor back over to Jeff Edwards for closing comments.
spk03: Thank you for your questions, and I look forward to our call next quarter. Thank you.
spk07: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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