Installed Building Products, Inc.

Greetings and welcome to Install Building Products Fiscal 2024 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. 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, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Install Billing Products' second quarter 2024 earnings conference call. Earlier today, we issued a press release on our financial results for the second 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 are based on management's current expectations and beliefs. These statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those described today. Please refer to the cautionary statements and risk factors in our SEC filings, including our annual report on Form 10-K. We undertake no duty or obligation to update any forward-looking statement as a result of new information or future events, except as required by federal securities laws. In addition, management refers to certain non-GAAP and adjusted financial measures on this call. You can find a reconciliation of such measures to the nearest GAAP equivalent in the company's earnings release and additional reconciliation for EBITDA and adjusted EBITDA for earlier fiscal years in our investor presentation, which are available on our investor relations section of our website. This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer, and Michael Miller, our Chief Financial Officer, and joined by Jason Neiswanger, our Chief Administrative and Sustainability Officer. I will now turn the call over to Jeff. 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. During the second quarter, we began the process of winding down the operations of a single branch that installed non-core building products into newly constructed commercial structures. We believe that excluding the financial results of this branch from our typical income statement metrics is useful in understanding and evaluating the results of our ongoing operations, as it is non-core. As such, all income statement figures mentioned on this call exclude the aforementioned branch results and are thus net of dispositions. Our second quarter sales results continue to reflect fundamental improvements in our single-family end market relative to the last 12 months and good sales growth in our multifamily end market. We believe our customers are committed to meeting new construction homeownership demand by continuing to build new single-family homes in the current macroeconomic backdrop. We expect our multifamily backlog to keep branches in core geographic markets busy in the near term despite ongoing industry headwinds. as it relates to multifamily unit starts. Longer term, we believe opportunities in our multifamily end markets remain attractive. I'm encouraged by the positive same branch sales growth we achieved in our single family end market. The nearly 8% year over year increase during the quarter was the strongest increase in same branch sales since the fourth quarter of 2022. single family sales growth was supported by a growing proportion of sales from national production builders in the quarter. Our deep customer relationships, local market knowledge, and ability to align our pricing with the value we offer our customers were key to our second quarter single family sales results. Our multi-family installation sales growth continued to be resilient with the apparent operational benefits of our centralized service-oriented model. On a same branch basis, Multifamily sales in our installation segment increased 5%. In addition, across our branches, there continues to be an opportunity to sell IBP's installation services in our markets that historically have not served multifamily customers. The sales growth results for our commercial installation segment reflects different dynamics in the two sub-markets that make up our commercial end market. The heavy commercial market continues to experience healthy sales growth, while our light commercial market continues to experience some headwinds as the light commercial construction cycle tends to lag single-family construction activity. Excluding dispositions, commercial sales growth was modestly positive in the quarter. Strong profitability during the second quarter continued to reflect our strategic priority to apply our local market expertise to efficiently complete the most operationally and financially attractive jobs for our local businesses. As a result, our second quarter adjusted EBITDA margin expanded to 18.5%. Acquisitions continue to be our top priority as we consider all of our options for capital allocation. Despite our growth over the years, we believe in meaningful opportunities still exist for us to expand our geographic presence and diversify the mix of building products we install across our national branch network. During the 2024 second quarter and in July, we completed the following acquisitions. a North Carolina-based installer of insulation and other diversified building products serving single-family and multifamily customers with annual revenue over $6 million, an Oklahoma-based installer of insulation and a Massachusetts-based installer of gutters with combined annual revenue of approximately $14 million, and an Illinois-based installer of a diversified set of building products with annual revenue of approximately $20 million. To date, we have acquired over $50 million of annual revenue, and we expect 2024 to be another favorable year of acquisition growth. We believe we are well positioned for another year of strong operational and financial performance in 2024 as we continue to focus on profitability and effective capital allocation to drive earnings growth and value for our shareholders. Based on the U.S. Census Bureau, single-family starts year-to-date through June 2024 have increased by 16%. We believe the current pace of STARTS growth supports a healthy market environment for our single-family installation services. Additionally, beyond the typical demand drivers, we believe the United States government incentives and planned mandates towards more stringent energy efficiency standards in new and existing single-family homes will be favorable for our business. We intend to continue to focus on what we can control, leveraging our strong customer relationships, experienced leadership team, national scale, and diverse product categories across multiple end markets to help the company navigate through any future changes in the U.S. construction market. I'm proud of our team's continued success, commitment to excellence, and ability to consistently meet the needs of our customers. To everyone at IVP, thank you for your commitment, your hard work, and a tough job always done well. I remain excited by the prospects ahead for IVP and the broader installation and other product installation business. So with this review, I'd like to turn the call over to Michael to provide more detail on our second quarter financial results.

Thank you, Jeff, and good morning, everyone. As Jeff noted earlier, all income statement references in my comments are net of dispositions. Consolidated net revenue for the second quarter increased 8% to $740 million, compared to $687 million for the same period last year. The increase in sales during the quarter was driven by growth in our new and existing residential markets. Our single-family same-brand sales increased 8%, while our multifamily same-brand sales increased 5% during the second quarter. Although the components behind our price mix and volume disclosure have several moving parts that are difficult to forecast and quantify, we continue to experience top-line improvement from a 6.4% increase in price mix during the second quarter, which more than offset modestly lighter job volumes down 1.4% relative to the second quarter last year. Our business achieved strong results in the second quarter as measured by an adjusted gross margin of 34.9%, adjusted net profit margin of 11.6%, and adjusted EBITDA margin of 18.5%. Adjusted selling and administrative expense as a percent of second quarter sales was 18.3% due to higher variable compensation related to higher gross profit and EBITDA performance from the prior year period. Within that result, Administrative expenses, excluding variable compensation in the second quarter of 2024, was flat with the first quarter of 2024. Adjusted EBITDA for the 2024 second quarter increased 11.3% to a record $136.6 million, and adjusted EBITDA margin improved to 18.5% compared to 17.9% for the same period last year. We continue to target full-year, long-term, same-branch, incremental adjusted EBITDA margins in the range of 20% to 25%. For the 2024 second quarter, total same-branch, incremental adjusted EBITDA margin was 29%. Adjusted net income per diluted share improved 14.5% to $3.02 per share. Although we do not provide comprehensive financial guidance, Based on recent acquisitions, we expect third quarter 2024 amortization expense of approximately $10 million and full year 2024 expense of approximately $42 million. We would expect these estimates to change with any acquisitions we close in future periods. Also, we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31, 2024. Now let's look at our liquidity position, balance sheet, and capital requirements in more detail. For the six months ended June 30, 2024, we generated $164 million in cash flow from operations compared to $138 million in the prior year period. The year-over-year increase in operating cash flow was primarily associated with higher net income and effective management of working capital. Our second quarter net interest expense decreased to $8.2 million from $9.8 million in the prior year period, primarily due to a greater amount of interest income from higher interest rates on higher balances of cash and cash equivalents relative to the year-ago period. At June 30, 2024, we had a net debt-to-trailing 12-month adjusted EBITDA leverage ratio of 0.97 times compared to 1.32 times at June 30, 2023, which is well below our stated target of two times. At June 30, 2024, we had $355 million in working capital, excluding cash and cash equivalents. Capital expenditures and total incurred finance leases for the three months ended June 30, 2024, were approximately $22 million combined, which is approximately 3% of revenue, roughly in line with 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 to shareholders. During the 2024 second quarter, IVP repurchased 215,000 shares of its common stock at a total cost of $46 million. At June 30, 2024, the company had over $250 million available under its stock repurchase programs. IBP's Board of Directors approved the third quarter dividend of $0.35 per share, which is payable on September 30, 2024, to stockholders of record on September 15, 2024. The third quarter dividend represents a 6% increase over the prior year period. With this overview, I will now turn the call back to Jeff for closing remarks.

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

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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. Your first question comes from Stephen Kim with Evercore ISI. Please go ahead.

Thanks very much, guys. Thanks for all the color. Excuse me. But as usual, we have additional questions. I guess my first one was if you could speak to Any verticals that maybe slowed a little bit in the quarter that's worth calling out or maybe missed your internal projections? You know, any verticals? And then broadly, when we think about fiberglass, curious if you could talk about how the price pass-through is going. My sense is it's going well, but wanted to get your sense, and then also what you think the potential is for a third increase this year.

Stephen, good morning. This is Michael. So, on the first part of that question relative to the verticals, I would say that, you know, all lines of business, all end markets performed very much in line with our expectations. But as we had highlighted in previous quarters, clearly the weakest part of the business right now is the light commercial business, which naturally cycles behind single-family development. So we would expect as we go into the latter half of this year and the early part of next year, given the strength that we've seen in single family, that that business would start to recover. But I would say that across the board, the business performed as expected from a revenue perspective and actually performed better than we expected from a gross margin perspective. I don't know if you want to talk about that.

Steven, hi. This is Jeff. You know, in terms of the material tightness and pricing, it It is still a very tight market. We expect it to continue to stay that way probably to the end of the year. Obviously, it's an environment in which manufacturers have been able to realize price, and it's one in which where we tried to at least make up the ground that we need to make up. I can speculate as to whether there's a third one or not. It's a little late in the year, I suppose, so maybe I won't speculate.

Okay, great. That's fine. I guess, Mike, you talked a little bit about the, you know, the incentive comp. I assume that was maybe weighing a little bit on the incremental organic, organic incremental EBITDA margin. Wondering if there was anything else maybe to call out because that came in a little lower than we were expecting. And then with respect to the HUD mandate on single family, you know, the energy code HUD mandate, which is coming, next year. I guess I'm just curious to hear if you could address that and your thoughts around that. We've been guiding questions as to whether or not we might see FHFA follow on. And there's been also questioning around whether or not all of this just may disappear, you know, maybe due to the Chevron, you know, the ruling around the Chevron. I don't know what the word is, but you know what I mean by the Chevron case. And then the potential for a Republican suite maybe to just undo all this. So just curious if you could talk about the HUD mandate broadly.

I mean, as far as we know and as far as everything that we've heard, that the process is continuing. We believe that there might be some pushback relative to the timing of implementation, but it's very difficult for us to speculate what would happen in a change in the political environment. So As far as we know, and as far as our customers are working, we're all sort of working towards this getting put in place. And, you know, ultimately, it still benefits the builder because they have the tax credit that will more than offset the cost of going to the 21 energy code. So that I think everyone believes is going to stay and will still continue to be available. So it does make economic sense for them and obviously for the homeowner as well. So We think, regardless of the political outcome, that logic and economics will continue to push forward, getting more builders building to the 21 energy code. In terms of your margin question, adjusted gross margin and both adjusted EBITDA margin and all of our comments, our net of dispositions, were very strong from our perspective, quite frankly. you know, the selling, adjusted selling and administrative leverage, you know, that was higher, I should say the, you know, the costs that were higher on a relative basis to revenue was really all driven by variable compensation. And if you look at it on a, you know, quarter, three-quarter basis, basically, that number has been quite in line for the past three quarters. as a percentage of revenue. And if you look at just G&A dollars excluding variable compensation, right, they've been flat for the past couple of quarters.

The only thing I'd like to add on the 2021 code is, I mean, backing up from the politics for a moment, it wasn't created just kind of willy-nilly. It's created because, you know, it's good for the environment and saves energy, ultimately. And it's been... It's well known that in terms of insulation as kind of the payback as it relates to home energy costs and kind of the effects against the environment, that the insulation is probably, if not the most effective way to combat some of those things. It's certainly up there in the top tiers.

Okay, great. Thanks very much, guys.

Next question, Adam Baumgarten with Zellman and Associates. Please go ahead.

Hey, guys. Thanks for taking my questions. First on multifamily, just kind of how we think about the back half of the year. It's decelerated a bit, but still positive. Maybe do you expect positive same-store sales growth in multifamily in the back half at this point?

Well, Adam, as you know, we don't provide guidance. But I would say a couple of things on the multifamily side. you know, the backlogs are still at a highly elevated level. So one of the things that we look at are units under construction relative to start. And if you look at that on a single family basis, it's currently running somewhere around seven to eight months, which is consistent with kind of long-term trends sort of pre-COVID. So we would say that cycle times have completely normalized in single family, maybe even improved a little bit above normal. in the single-family construction market. On multifamily, as I think everybody on the call is probably aware, the units under construction or the backlog continues to be quite elevated. You know, normal in that market would be more like 20 to 23 months of starts. Currently, it's running around 28 to 29 months of starts. So, you know, construction is or units under construction still need to come down probably 25 to 30 percent to normalize, given the current starts level. And, you know, that creates a significant headwind for the industry and for us. You know, we feel good about our ability to continue to gain market share and improve the cross-sell of other products and multifamily. But clearly, that significant of a readjustment in the units under construction is going to have an impact on our multifamily sales. I would say that what's maybe changed from our perspective relative to that is we think that the normalization of the units under construction is going to happen sooner than we may have expected, say, three to six months ago. But that also means that we'll come to a stabilization period sooner than we had expected, meaning that we will be able to then focus on just continuing to gain market share and seeing revenue growth in multifamily from market share gains versus overall market growth. So that was a long-winded way of not answering your question because we don't provide guidance. But I do think that there is a good chance that if multifamily units under construction comes in for the full year between 600,000 and 700,000 completions, that we will get to that more normalized 20 to 23 months, which in essence then creates a stable operating environment for multifamily construction.

Okay, got it. No, that's helpful. And then just on the disposition, maybe just a little more color on what that non-core product line was. And then if we think about the rest of your footprint, any other opportunities or plans for additional dispositions?

Absolutely not. All of our other branches are performing, you know, to our expectations or even exceeding our expectations. This was a one-off deal that, obviously, in hindsight, we wish we hadn't done. It is a non-core product. We really don't install it in any of our locations. And it was into the commercial and multifamily vertical. And, you know, the good news is it's behind us now. Okay, thank you.

Next question, Michael Rehaut with JP Morgan. Please go ahead.

Hi, thanks. Good morning, everyone. Good morning. I wanted to hit first on the gross margins. You know, you're talking about basically, you know, last four or five quarters now, plus or minus 34%, which is, you know, solidly above your long-term, or longer-term goal, you know, where I think, you know, 32%, you know, I guess long-term outlook 30 to 32. So it seems like you're, you know, consistently exceeding that. And I think a quarter or two ago, you know, you kind of alluded to likely strength in this metric, perhaps, you know, continued strength around these levels, maybe, you you know, through the end of this year, and again, not giving forward guidance, but basically kind of saying there's no drivers that would necessarily, you know, push this down materially from current levels in the near term, at least. I was wondering if that is still your thought around this metric that, you know, this 34% level can persist. I know you've talked about maybe negative mix starting to eat away at this metric, but any thoughts around the next several quarters, what might push it lower, or do you feel perhaps a little increasingly comfortable that this level can be maintained in the near to medium term?

Yeah, thanks for that question. What I would say around gross margin is that adjusted gross margin in the quarter net of dispositions was 34.9 percent. So I'll just call it 35. And you're right. In the previous quarters, we've been running around 34 percent. So we certainly don't expect it to go above the 35 percent. But to say for the near term and, you know, really for the back half of the year, for it to be more in a 32 to 34 percent range, as opposed to the 30 to 32, I think is reasonable. You know, we have had in the quarter quote-unquote mixed headwinds, as we've talked on multiple quarters about the impact of the growth in production builder business. I would say that we've been doing an excellent job improving the efficiency of completing jobs for the production builders, which has been helping gross margin improvement as it relates there. You know, we had very strong growth with the production builders in the quarter. Our sales to the production builders was up approximately 20% in the quarter with production builders and about 5% with the regional and local builders, which is actually consistent with what we've been talking about, that, you know, the regional and local guys were going to have a good year, but nothing in comparison to what the production builders had and that the vast majority of the growth and starts would be coming from their production builders. And we're certainly seeing that play out. But I think it's reasonable to assume that, you know, for the near to medium term that, you know, there's certainly going above the 35% is probably not likely, but staying in a 32% to 34% range for the near to medium term is reasonable.

Great. Great. No, that's very helpful. Appreciate that. I guess second question, maybe just around the M&A backdrop, you've kind of highlighted, you know, doing about $50 million in annualized revenue so far year to date. Last year, you kind of, you know, missed the $100 million target by a little bit. You know, how would you characterize the pipeline and the opportunity set in front of you today, maybe versus six or 12 months ago? You know, I think if I recall right, you kind of reiterated the $100 million outlook for this year. But what would you say the odds are of maybe exceeding that? And, you know, is the M&A kind of outlook or pipeline increasing, decreasing, you know, saying the same, you know, any kind of change in how you're thinking about, you know, what you might do this year or next year?

Yeah, so this is Jeff. What I would say, I know we're guilty of saying it's robust all the time, but we're also guilty of saying that they're lumpy. But really versus six or 12 months ago, this is, and versus really historically speaking, this is one of the best pipelines we've really ever had. And, you know, but for a larger deal, you know, 30 plus million dollars that blew up at the last part of last year, last year would have ended up being a You know, going forward, again, we feel really great about the prospects that are in the pipeline and the deals that are kind of even already signed up to LOI. It just depends on timing, really. You know, I guess if you look at all that over a rolling period of time as opposed to counting calendar days, you probably still hit the numbers.

Great. Thanks so much. Sure.

Next question, Mike Dowell with RBC Capital Markets. Please go ahead.

Thanks for taking my questions. Just on the price mix in the quarter, I know there's a lot of moving pieces and it's hard to be too specific, but can you give us a ballpark sense of kind of the composition of true price versus the moving pieces on mix?

We definitely got price in the quarter. And, you know, given the acceleration in single-family same-branch revenue being higher than multi-family same-branch revenue, just when factoring in those two components, you know, the way that our price mix is determined, it would say that we got more price than we did mix because of the higher growth rate from single-family.

Okay, helpful. And then, Just back on the Dispose branch, I mean, as a standalone, it seemed like there were maybe some issues in terms of kind of negative net revenue, negative adjusted EBITDA, pretty big negative adjusted EBITDA that then you're adding back. And I think you called it the process of winding down, then also said it's behind you. So maybe just a little more specifically on why the results were so pressured, because that was kind of a big adjustment to the total company results. And then secondly, on a go-forward basis, are there still going to be lingering impacts into the second half? Here, just any additional color you could provide would be helpful.

Yeah, we expect that the operations will be fully wound down by the beginning of next year, but that going forward it will have an immaterial impact on our results going forward. Part of the reason that the adjustments were so large in this quarter is because we made the decisions to dispose of the location and kind of take care of and clean up all of the issues that were there. This is, again, a non-core branch completely out of anything else that we do that has, quite frankly, never been profitable.

I'm hesitant to even call it a branch. I mean, really, it's a product line.

Yeah. I'm a branch, so.

Yeah. Sure, it's located in a branch, but more than that, we're exiting a product line in which we don't really participate.

Exactly. Quite frankly, we've done over 200 acquisitions since the first time this has happened. I think that's a pretty darn good track record.

And just as a quick follow-up, since it's being backed out of EBITDA but not gross margin and SG&A, does that imply that the way you report adjusted gross margin and SG&A would have otherwise been higher? And if you could give us a sense for If that was the reason, part of the reason that your SG&A was higher than expected, like did more of the cost flow through that? Yeah, any sense of that breakdown?

It was just the table. I mean, we wanted to try and make it concise enough in terms of the tables that we put in to show the adjustment. But as I said in answer to a previous question, the adjusted gross margin in the quarter, excluding dispositions would have been 34.9 percent so it impacted it negatively impacted basically whole lines of the income statement okay god i had missed that comment thank you great next question reuben garner with benchmark company please go ahead thank you good morning guys um so

Sorry to harp on this, but just a clarification on the commercial front. Is the run rate of revenue and profit loss that's being stripped out in the second quarter the right way to think about on a go-forward basis, meaning it added $7 million EBITDA to take that business out? Was it losing that much money on a quarterly basis?

It lost that much money in the second quarter, yes. And it is commercial, so... our same branch commercial revenue, excluding the disposition, was basically flat in the quarter and not negative.

Okay.

And then you guys typically compare your volume performance to kind of the completions environment for the two end markets. You guys are not quite national yet. There's some MSAs that you're not in. Is there anything geographical that you would call out that may lead to differences between your performance and the completions environment broadly?

I'm glad you asked that question, though, because I think it's important, and we've tried to stress this, is that looking at our same branch revenue compared to completions in any one quarter is not as impactful or useful as looking at it over a longer period of time. So if you look on the year-to-date for the first six months of the year, our same brand sales grew, you know, 4.7%, so-called 5%, and single-family completions were up about 1%, right? So that delta of about 400 basis points, that sort of mid-single digit, is very consistent with what we've always talked about, sort of being at a mid-single digit number, above completions. I will say on the multifamily side right now that, one, as you know, over the past, you know, several, more than several quarters, we've had stellar growth in same-branch multifamily sales growth. But I would say just given the dynamics of what we were talking about earlier about multifamily units under construction, there is going to be for some period of time, I think, a disconnect between are multifamily same-branch sales growth and multifamily completions until the market normalizes at a more reasonable level, which we think, you know, in terms of the units under construction relative to starts, which we think is going to happen, you know, maybe like this year, most likely first quarter of next year.

And if I could just sneak in a quick follow-up there, guys, the multifamily impact to mix on a go-forward basis as single-family companies, recovers and multifamily fades. Can you just remind us how that plays out?

It makes the mix component weaker. It's a headwind to the mix because a single-family job can be a tenth of or even a hundredth of what a multifamily job is.

Great. Thanks, guys. Good luck going forward.

Thanks. Next question. Ken Zenner with Seaport Research Partners. Please go ahead.

Good morning, everybody.

Good morning, Kevin.

Just a couple questions here. Given the strength of growth from the large builders and your, I guess, record gross margin adjusted, can you talk to why that is not a drag as that happened in the beginning of the pandemic, given your exposure to certain customers, it seems to be somewhat counterintuitive. Can you talk to why that is playing out that way?

Our field team is doing an incredible job of managing production and making sure they're aligning the value of our services with our customers. And, you know, to be honest with you, that gets reflected then in variable compensation and they're getting rewarded for continuing to do that.

Going back to the period when you had, you know, increased exposure and gross mortgage and you called it out, you know, SG&A leverage at the time, but like, is that, you know, you talked about not wanting to mess up your customer's pricing structure. Jeff, I believe you talked about, well, you have to price given that experience. Um, It seems that large builders, you get leverage. However, there's really two of you guys that are so dominant in the service installation space. Does that really suggest that your pricing discipline, i.e. margins, is sustainable in that sense if they don't have a wide variety of, you know, bids to choose from? Because it does seem to be a rather distinct shift, especially this quarter, given the growth for safety of the publics and your actual stronger gross margins because of that.

Well, this is Michael. I'll start that and Jeff can finish it. There are a lot of puts and takes into gross margin. And while we had strong growth with the big public builders, and they are our largest customers, I mean, it is a relatively small percentage of our overall revenue. So, you know, but I do think that our team has done a great job of trying to align price and cost and also to be as efficient as possible in the field, which is really beneficial for us. But I would also say that at the local level, There's not just two contractors that are bidding for work. I mean, it's still an extremely competitive environment. And I would say all builders, whether they're publics or regional and local builders, have choices. And we all have to differentiate ourselves on service.

All right. I mean, I think I understand.

I'm going to still give a bit. I mean, I know our answer that says that we get rewarded for performing is a little fuzzy, but I've been in the rooms, and there are certain bigger builders that do, you know, I think really believe that and preach that to their people even more than others, let's say. So does it mean we get in more highly price-only competitive situations sometimes? For sure. But there's just as many large builders in some of our larger markets that are much more concerned about making sure that then they get jobs insulated and pass inspections when they need them to to keep the volume.

Understood. You talked about, Michael, you said, you know, it can be understood that you got more price than mix, given that that's reported a little differently than one of your peers. But is that to say, you know, my calculation, is that to say price was positive and mixed, perhaps, was negative. Could you comment on just the positive and negative component of that variable?

Both price and mix were positive, right? And if we look at, you know, my comment was really more that there was more price than mix, but they were both solid.

Thank you.

Next question, Phil Ng with Jefferies. Please go ahead.

Hey, guys. Your commentary going forward still sounds pretty upbeat. Certainly, housing starts have been a little choppier the last few months, with rates staying a bit more elevated. Now, certainly, we're talking about potential rate cuts. So I'm just curious, what are you hearing from your customers? Are they managing their business any differently? Are you seeing any slowdown in quoting activity at all?

We're still very busy. I mean, I think it's clear that the growth rate in starts is coming down. You know, the publics that have reported so far, I think their orders are up like 5%, 6%. So still growth, but not the kind of growth that we were seeing earlier in the year. So, I mean, honestly, a mid-single-digit, single-family growth environment is extremely healthy for us and for the industry. And if we continue a multi-year path in that kind of a market, we feel very good about our ability to perform. Clearly, there are significant headwinds, as we talked about earlier, relative to multifamily. But if we do get to a stabilized level, based on the current starts, say early 25, as opposed to even back half of 25, We think that creates a more stable operating environment for us and for the industry. And on the multifamily side, again, really allows us to focus on what we're doing very well is gaining market share, not just with insulation, but also with the other products.

I was going to make that comment, too. I mean, we're a little different than just the general multifamily market, as we said in our prepared remarks, because we're not penetrated from a geographic perspective. everywhere that we are capable of doing multifamily work yet. And we continue through one of our operations that, you know, has kind of built itself into a bidding and quoting and managing machine for those branches continues to really, you know, deliver a great pipeline of projects that we can bid on and hopefully get the work from.

Got you. And then, Michael, appreciating you don't guide per se, but I think earlier conversations in the year, perhaps mid-single-digit volume growth for your business organically, I think your comments were, seems plausible, achievable. You know, appreciating there's a lag in starts and completion cycle times and all that great stuff. Are you expecting volumes to kind of inflect? You know, what kind of path do you see? Is that mid-single-digit framework still a good way to think about it for the full year?

Yeah, if we just look at, say, single family, so single family volumes in the quarter were up mid-single digits.

Okay.

But in terms of the broader framework, in terms of your demand overall, is that still a good way to think about the year, or maybe some moderation just given some of the chop that we've seen recently?

Yeah. I mean, from a volume perspective, where we're going to find some headwinds will be particularly in the light commercial business. And, you know, we expect that that will continue to have, the light commercial business will continue to have headwinds really, you know, again, through the back half of this year and should be on a much better footing in 25. Okay.

Can you remind us, like, how much of your commercial business is light versus heavy, the splits?

Sure. So, you know, roughly 10% of total revenue is light commercial and 7% is heavy commercial.

Okay. Appreciate the color, guys.

Yep. Next question, Susan McClary with Goldman Sachs. Please go ahead.

Thank you. Good morning, everyone. Good morning, Sue. My first question is on the ancillary products. Can you talk a bit about how they performed in the quarter? And that's something that you've talked about increasingly coming through in the back half of this year. Are we still on track with that? And just how should we think about the implications that we'll have from a margin perspective as we think about the upcoming next several quarters?

Yeah, so the sales growth in the other products was fairly consistent with insulation, although insulation was a tad... They were consistent, I would say. We would expect that the other products would see just becoming later in the cycle time that they would see probably higher growth than insulation. I would say, though, that the story, if you will, relative to... the other products as it relates to the residential piece of our business, so single-family, multi-family, new residential piece of our business, that we're continuing to make progress in improving the gross margin in those products. They're still considerably lower than installation, but we're continuing to make forward progress there, and it's one of the reasons why You know, we think in the near to medium term, as we were saying earlier, that, you know, gross margins, you know, will probably not grow from here. Being a 32 to 34 band in the near term probably makes some sense.

Okay. And then my follow-up is you did buy some stock this quarter. I think this is the biggest repurchase you've had since 2022. Can you just talk a bit about the decision to do that? and how we should be thinking about perhaps further share buybacks in the future?

Yes, and we will continue to do it. We believe that as we continue to mature as a public company and we continue to generate very strong free cash flow, that it gives us a lot of opportunities, if you will, from a capital allocation perspective. And we feel very confident that we can – currently support a even accelerated M&A platform or pipeline of deals above our $100 million target, and at the same time continue to repurchase shares on a more consistent basis.

Okay.

Thank you, and good luck with everything.

Thanks, Sue. Thank you.

Next question, Keith Hughes with Truist Securities. Please go ahead.

Thank you. Just some details on this branch we're getting out of. Are there going to be any appreciable asset sales that you can anticipate from this move to close it?

No, nothing significant. We really expect for the back half of the year until it's fully disposed that it'll have an immaterial impact on results going forward. And I assume that would include EBITDA.

There's something about an unfavorable contract settlement in the language of the press release. Was that all taken care of in the quarter? Correct.

Correct. And that's the reason why the quarterly EBITDA contribution was so negative.

Okay. And can you tell us what product line this is? I know it's non-core, but specifically what? It's non-core. Okay. Okay. Your discussion on share repurchase, I know you did some in the quarter. Have you thought internally about, in excess of the dividend, how much would go that way? I guess how you're thinking about it is the question.

Yeah, I mean, if you look over the past, say, five years, and from a capital allocation perspective, roughly 60% or more almost $550 million went to acquisitions, and, you know, 20% or almost $200 million went to share repurchases, and then about $160 million went to the dividends. So I think, as we've said, the number one priority will continue to be M&A, then share repurchases, and then the dividend. Okay, thank you. As we said in answer to Sue's question, it's our belief that we will be more consistent in regular sharing purchases on a go-forward basis.

Okay. Thank you. Sure.

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

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

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