Installed Building Products, Inc. Price & Performance (IBP)

Good morning, and welcome to Installed Building Products fourth quarter and fiscal year twenty twenty four earnings conference call. Earlier today, we issued a press release on our financial results. 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 These forward looking statements are based on management's current beliefs and expectations are subject to factors that could cause actual results to differ materially from those described today. Please refer to our SEC filings for cautionary statements and risk factors. We undertake 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 refers to certain non GAAP and adjusted financial measures on this call.

You can find a reconciliation of such non GAAP measures to the nearest GAAP equivalent in the company's earnings release and investor presentation. Both of which This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer and Michael Miller, our Chief Financial Officer We are also joined by Jason Neiswanger, our Chief Administrative and Sustainability Officer, Jeff, I will now turn the call over to you 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 the call over to Michael, who will discuss our financial results and capital position in more detail before we take your questions. Our fourth quarter results capped off another record year of revenue and profitability for [indiscernible] Supported by organic growth across our residential end markets, Our record financial performance in 2024 is a reflection of the talent commitment and focus of IBP's employees across the country. We continue to invest in attractive growth opportunities return capital to shareholders with strong operating cash flow generated in '20 During the year, we invested approximately $87,000,000 acquisitions and allocated a combined $230,000,000 toward and share repurchases. I'm pleased to report that for the first quarter of twenty twenty five, our Board of Directors approved a 6% increase to both our regular quarterly cash dividend and an annual variable dividend to $0.37 per share and $1.7 per share respectively.

These actions reflect the Board's confidence in our financial position and ability to support the strategy of returning capital to our shareholders over the long term. The success of our growth strategies combined with our disciplined approach to capital allocation have created significant value for our shareholders. Again, the credit for our accomplishments goes to the hard work men and women across our more than two fifty branches throughout The United States and those who support them from our office in Columbus, Ohio. Everyone at IBP, Thank you. As we continue to focus on profitable growth and maximizing returns for our shareholders, We remain committed to doing the right thing for our employees customers and communities. Looking at our full year sales performance in 2024, our consolidated sales growth of nearly 6% and same branch growth approximately 4% drove another year of record results. In our largest end market, single family sales growth was supported by a diverse mix of local, regional and national builders. Additionally, our deep customer relationships, local market knowledge, and the ability to align our pricing with the value we offer single family sales results. Our model family installation sales growth remained resilient during 'twenty four with the parent operational benefits of our centralized service oriented model.

Combined with complementary product diversification effort. On a same branch basis, model family sales in our Installed segment increased over 6% in 2024. We continue to see strategic growth opportunities through geographic and product expansion our model family end market long term. On a same branch basis, 2024 commercial sales in our Installed segment improved modestly from the prior year period. Across our network of branches, we prioritize profitable growth which contributed to achieving an all time annual record for diluted net income per share and adjusted EBITDA, in 2024 During 2024, we continue to fill out our geographic footprint through the acquisition of nine businesses with combined annual revenue of over $100,000,000 During the fourth quarter of twenty twenty four, we completed three acquisitions, including a Midwest based specialty distributor focused on supplying insulation related accessories to residential and commercial end markets with annual revenue of over $22,000,000 North Carolina based installer of multiple building products to new residential homes in commercial buildings with annual revenue of over $17,000,000 and a Texas based single family multifamily and commercial installer of fiberglass and spray foam insulation with annual revenue of over $12,000,000 Although deal timing is hard to predict, our current outlook for acquisition opportunities in 2025 is strong and we expect to acquire at least $100,000,000 of annual revenue this year.

Based on the U. S. Census Bureau, single family starts in 2024 were up 7%. We believe the demand environment for our single family installation services will be relatively stable compared to 2024. Housing affordability continues to be a challenge for some potential buyers and while there exists some uncertainty surrounding the regulatory environment, immigration and trade, recent economic growth and employment data has been healthy we believe the long term view on demand for our installed services remains positive. Operating conditions will inevitably change but we remain steadfast in our effort to deliver a high level of service with a focus on realizing operational and financial improvements in 2025 and beyond. 2024 was a record year financially and our remaining encouraged by the resilience of our employees and excited by the prospects ahead for IDP in the broader Installed and other building product installation business.

So with this overview, like to turn the call over to Michael to provide more detail on our fourth quarter and full year financial results.

Thank you, Jeff, and good morning, everyone. Consolidated net revenue for the fourth quarter increased 4% a fourth quarter record $750,000,000 compared to $721,000,000 for the same period last year. The increase in sales during the quarter reflected growth across all end markets and sales from IBP's recent acquisitions. Same brand sales growth was up 1% for the fourth 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 1.2% increase in price mix during the fourth quarter. Price mix growth during the fourth quarter offset a less than 1% decrease in job volumes relative to the fourth quarter last year. Respect to profit margins in the fourth quarter, our business achieved adjusted gross margin of 33.6% down from 34.1% in the prior year period. The margin headwind during the quarter was primarily due to higher sales growth in our lower gross margin other segment which includes our distribution and manufacturing operations. This was partially offset by improved gross margin in the Adjusted selling and administrative expense as a percent of fourth quarter sales was 18.1% down from 18.3% in the prior year period due to lower administrative expenses as a percent of twenty twenty four fourth quarter sales.

Adjusted EBITDA for the twenty twenty four fourth quarter increased a fourth quarter record of $132,000,000 reflecting an adjusted EBITDA margin of 17.6%. The twelve months ending 12/31/2024, same branch incremental EBITDA margins were approximately 14%. Incremental EBITDA margins can be highly variable from quarter to quarter but we continue to target full year long term same branch incremental adjusted EBITDA margins in the range of 20% to 25%. Adjusted net income increased to $81,000,000 or $2.88 per diluted share. Although we do not provide comprehensive financial guidance, based on recent acquisitions, we expect first quarter twenty twenty five amortization expense of approximately $10,000,000 and full year 2025 expense of approximately $39,000,000 We would expect these estimates to change with any acquisitions we close in future periods. Also, we expect an effective tax rate of 25% to 27% for the full year ending 12/31/2025. Let's look at our liquidity position, balance sheet and capital requirements in more detail. For the twelve months ended 12/31/2024, we generated $340,000,000 in cash flow from operations, in line with the prior year period. Our fourth quarter net interest expense was $9,000,000 compared to $8,000,000 in the prior year period. The increase was primarily driven by fees associated with the successful refinancing of our $500,000,000 Term Loan B facility which was completed in November.

Term loan repricing has more favorable financial terms compared to our previous term loan, and will save the company over $1,000,000 in estimated cash interest expense [indiscernible] The term loan expires in March 2031 and we have no significant debt maturities until 2028. At 12/31/2024, we had a net debt to trailing twelve month adjusted EBITDA leverage ratio of 1.08x compared to 1.01 times at 12/31/2023, which is well below our stated target of 2x. Our strong liquidity position and modest financial leverage, we continue to prioritize expanding the business through acquisition and returning capital to shareholders. During the twenty twenty four fourth quarter, IBP repurchased 383,000 shares of its common stock bringing the total value of our share repurchases for 2024 to $145,000,000 The Board of Directors authorized a new stock buyback program which expands our share repurchase capacity to $500,000,000 up from $300,000,000 in the previous program.

The new authorization replaces the previous program and is in effect through March 1, 2026. IVP's Board of Directors approved the first quarter dividend of $0.37 per share which is payable on 03/31/2025. To stockholders of record on 03/15/2025. The first quarter dividend represents a 6% increase over the prior year period. Also, as a part of our established dividend policy, Today, we announced that our Board has declared $1.7 per share annual variable dividend which is a 6% increase over the variable dividend we paid last year. The 2025 variable dividend amount was based on the cash flow generated by our operations with consideration for planned cash obligations, acquisitions and other factors as determined by the Board. The variable dividend will be paid concurrent with regular quarterly dividend on March 31, 2025 to stockholders of record on 03/15/2025. Are committed to continuing to grow the company while returning excess capital to shareholders through our dividend policy and opportunistic share repurchases. 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 one again thanking IBP employees for their hard work 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. At this time, we will be conducting a question and answer session. So that others may have an opportunity to ask questions. For participants using speaker equipment, it may be necessary Our first question comes from Keith Hughes with Keytruda Securities. Please proceed with your question. Thank you. As you look into the New Year, what are you expecting in terms of multifamily, single family work? What's kind of the IBP view of the of those markets? Kate, this is Michael. So So our perspective is fairly consistent with what it's been for the past couple of quarters in the sense that we do believe in I think our results have demonstrated this on the multifamily side that we will continue to outperform the market opportunity That being said, on the multifamily front, I think we can all acknowledge that The units under construction currently [indiscernible] So in essence, the backlog continues to still be highly elevated relative to the current STARS environment.

And we believe that it will take at least six months at the current [indiscernible] starts and completions for that multifamily units under construction to come in line. And just from a macro perspective, we believe that's a 20% to 25% decline in the units under construction. Again, I have to reemphasize that we have performed better than the overall market We believe we will continue to perform better than the overall market. We continue to actually within the multifamily segment for us benefit continue to benefit from pricemix very encouraging and has been indicative of an incredible job that our field team has done there. So again, we think it's going to be challenging for the first half, probably going a little bit into the third quarter. Of this year. But we do expect to perform better than the relative overall market. On the single family side, I would say that we like it seems like other companies and investors are certainly less optimistic about The growth rates for single family in 2025 As we all know, we've gotten off to a fairly slow spring selling season [indiscernible] there is a lot of inventory, spec inventory on the ground.

Something we're all aware of. As we look over the entire year, I mean, if we get low to mid, I would say probably low single family starts growth this year. We think that's a good case scenario, quite frankly. The public builders that we track their average estimated sales increase for the year these are the ones that are are our customers and then we waited for their sales with us would imply about a 3% full year sales increase. You know, That seems like consistent with what a lot of people's expectations are.

I would say though that starts comps are difficult in the first half of this year. Relative to last year. The starts numbers were weighted more heavily, single family weighted more heavily towards the first half of the year. So I think it's realistic to assume that we're going to have negative single family start comps in the first half and then picking up in the second half And then on a full year basis, and again, I'm talking about the industry, not necessarily us, On the full year basis, maybe we get through the year flat to up a couple of points. That's sort of how we're looking at the year. Hopefully that answered your question. Yes, that's very comprehensive. There's one other one you kind of mentioned price mix has been a has been positive for a long time. What's your view, at least as it began the year, on what price mix is going to do in your business?

Again, I think everybody is well aware of this. But clearly, we're in a very benign inflationary environment at least right at the moment. And I'm sure we'll talk ultimately about the potential tariffs situation and what that means. At least for now it's a pretty benign environment. And the price mix benefits that we're seeing are really just carryover price mix benefits [indiscernible] prior periods It is a it's a relatively soft environment and that creates a relatively benign pricing environment not just for us, but for our suppliers as well. Okay. Thank you. Sure. Our next question comes from Stephen Kim with Evercore ISI.

Please proceed with your question.

Yes. Thanks a lot guys. Appreciate the color so far. Just touching following up on Keith's question about multifam, just was curious about if you could elaborate a little bit more on the growth plans you have. I know that CQ plays an important role. In that multifamily performance. And my understanding is that CQ was seeking to expand into new markets. So I was wondering if you could talk about the growth opportunities that you see in multifamily and how much of an expansion what give us some sense for how much of an expansion we could see in the multifamily segment or your performance in multifamily as a result of that? Stephen, this is Joe. As you well know, because you were just with those guys, we think a lot about obviously very highly about CQs ability to continue to penetrate At this point in time, there's plenty of white space as it relates to Arbor Ranch locations where they're not participating.

The second thing that they're able to do is to continue to sell other products. So [indiscernible] into those multifamily jobs that we are getting into. So they've been even just recently within the last twelve months very active in Texas. Obviously, there's a lot of opportunity there.

But again, we're really just kind of We're certainly not in the infancy, but we're probably a toddler or not quite a teen in terms of our penetration into the IBP footprint.

Now, that doesn't mean we aren't already kind of matured on model family through certain locations and certain branches, but there's plenty of geography that we continue and work relationships. Just to Yes, just to kind of dimensionalize that a little bit more, Jeff. I mean, do you think that it's possible that we could see kind of an expansion of that of that let's say, division or initiative such that it could expand your multifamily presence by like let's say 50% over a period of years. Is there any kind of like general sort of target that you have for that business? It's clearly not 50%.

But it's probably 10 or more major markets which is not insignificant.

You think about that even as it relates to our overall multifamily. [indiscernible] Normally because of the share that they end up taking and the penetrations they do make when they enter one of these markets.

Yes. I mean, we are, as you I think you know and as we've talked about a lot, I mean, our multifamily sales are roughly 16% of total revenue. And there's definitely significant opportunity for them, as Jeff just saying, to expand into other big markets. But I think One of the most One of the things that we've really been able to benefit with kind of CQ model, if you will, is that we've noticed when they go into a market, even if we're already doing multifamily work there, they're able to significantly increase our market share of that work and then the penetration of the other products. So as a consequence, I think on a relative basis, once we're fully implemented with CQ strategy which is going to take years, just to be very clear. I think in essence, we will become over indexed to multifamily but in a very high quality manner. Okay, great. Helpful. And then secondly, your SG was fine, but it was a little higher than we were expecting. I'm just wondering if there was anything worth calling out on the SG and A front this quarter, whether it be incentive comp or some of the other things that have impacted you in prior quarters on the SG and A line?

No, quite honestly, I mean I know everybody kind of glums selling expense and G and A expense together, but we kind of think of them very separately. So because selling expense really [indiscernible] tracks 4.7% to 4.8% of revenue. So the G and A side actually, we felt pretty good about getting a little bit more leverage than not only last year, but last quarter. And we expect that G and A as we talked to the last quarter generally speaking rises with overall inflation not necessarily the inflation of the products that we install. So that we would expect to see that G and A increases onto that 3% to 5% Great. In a given year on a full year basis, but right now, G and A on a quarterly basis is running $105,000,000 to $110,000,000 A quarter. And that in essence, so fourth quarter G and A flows through almost directly to first quarter G and A. Even though you end up obviously having lower seasonally sales in the first quarter over year.

Our next question comes from Michael Rehaut with JPMorgan. Please proceed with your question.

Hi, good morning. This is Alex Isaac calling for Mike. For taking my question and congrats on the quarter. Regarding M and A, would you characterize the pipeline and opportunities set in front of you today versus six to twelve months ago?

I'd say I mean, our there's continues to be plenty of opportunities in that regard. Pipeline, I think, is as good as it's bad. A lot of times people assume too when things get a little rockier or the outlook might not be as good. That that somehow generates more opportunity. That's not really been our experience.

Most of the businesses that we're buying are typically up Mom and pop owned which could be a decent sized business, but privately owned or private individual selling the business and typically they are for sale when they're situation in life makes them want to be for sale. I. E. Retirement.

That sounds right. Appreciate the answer.

And then also on fiber less supply, how did you see that trending? And what do you see pricecost in 2025?

As you I'm sure you know, there's was an announced price increase that Well, by three of the four, manufacturers that did not meet well, exit well with the market.

And clearly, I think this is out there known too that there's supplies a little more free flowing than it's been historically. So, and as we we know, we're all seeing the builders aren't feeling as happy as they maybe should be at this time of the year. So I mean, We'll see. [indiscernible] It's probably depends on what the second half of the year looks like. I know there's at least saw no recent conversations that even at IBS by one of the manufacturers around potentially spring increase, what I don't know that the market is going to look a lot different in terms of in terms of that being successful a month or two from now than it certainly did. Does today or did in the last forty five days.

Yes, I would say, this is Michael. I would say that if there is another announcement price increase and it gets more traction than this last one, we believe the way that happens is because there is a stronger demand environment than maybe some of us think exists today. That's constructive for us. So we have historically always been able to pass on price that we take from the manufacturers. Sometimes it's a little delayed, but ultimately we always get there. Our next question comes from Susan Maklari with Goldman Sachs.

Please proceed with your question. Thank you. Good morning, everyone. Good morning, Sue. My first question is on the gross margins. My ops and it sounds like you had some offsets there from your complementary products. Can you just talk a bit more about the dynamics that are coming through across the various areas of the business and how we should be thinking about that as we look to the year ahead given the environment that we're in?

Yes. So thanks for asking that question. So just sort of to level set, the other segment that we disclose [indiscernible] [indiscernible] or our distribution and manufacturing operations. It's still a relatively small component, but it structurally has lower gross margins than the Installed business. It has very good OpEx leverage. But it has lower gross margins. Just in general, those gross margins can be 700 to 800 basis basis points lower than the installed gross margin. So that other segment grew at sort of a low teens rate in the quarter whereas the Installed segment grew around 4% or so. So because you had a higher rate of in that lower gross margin business it weighed on overall gross margins by about $30,000,000 to 40 basis points.

Fortunately, we did have as you pointed out, the complementary products or the other products that we install like shower door, shelving mirrors and gut they actually grew at a rate faster than insulation Installed insulation sales. So that's spray foam and fiberglass. And they had a fairly solid improvement gross margin. So that was an offset to other segment sales growth. In essence, to kind of fundamentally answer your question and as I think everybody on the call knows this, Our highest margin products are insulation. [indiscernible] And when you see higher rates of growth in lower margin products right, that obviously impacts the gross margin. But then fortunately, we had the offsetting benefits of improving gross margin in the other products. And I should note that some of that improvement in the complementary products gross margin did come from the efforts we're doing on the multifamily side to cross sell those other products into multifamily. [indiscernible] color. And then understanding that the bid public builders are under pressure and they're trying to work through that spec inventory. But can you talk a bit about what you're hearing from some of your private builder customers? Some of the activity at the higher end of the market, anything that's different there or notable and anything across the various geographies that is worth noting, especially maybe with the weather to start this year?

Yes. See, that's a great question. I would say first, we were a little surprised, but pleased in the fourth quarter.

That we actually saw better growth out of the regional and local kind of custom builders.

That we did other production builders and that they and I should say surprised relative to where we were sitting in the third quarter. But as I think has been well discussed, clearly, a lot of the production builders did towards the back half of the year. And then even going into this year, kind of slow down their pace of starts in construction because of the softness and the kind of spec inventory on the ground. So [indiscernible] When I think about it's kind of surprised that was from like three, four months ago or I guess longer now. But we were we've been very encouraged about how resilient the regional and local builder has been In terms of the weather and the fires, as I think again, everyone hears on the call is aware is that the first quarter of this year has one less selling day than last year.

And just as a reference point, our average sales per day is anywhere between $10,000,000 to $12,000,000 So that will negatively impact first quarter revenue relative We estimate that in January and February, from the fires and the storms, that it negatively impacted revenue of about $20,000,000 Now what we don't know is how much of that we will make up in the month of March. As you know, you know, we will work Saturdays to make up for lost time we're uncertain as to how much we're going to be able to make up is that many construction sites across a very large component of new home construction in the southern part of the country, I mean, basically construction stopped for an extended period of time just given the weather situation there. So we actually think that that's going to cause what would normally maybe you could catch up in a March it's probably going to work itself out or normalize more as we get through even a little bit of the second quarter of twenty five. If that makes any sense.

Our next question comes from Mike Dahl with RBC Capital Markets. Please proceed with your question. Hi, this is Chris on for Mike.

I just wanted to get your guys thoughts on competitive dynamics and what your currently seeing today. One of your competitors cited some weaker markets where they're where they're seeing price concessions. Is that something that you're seeing at all? And what's your expectation risk of of price give back, should we see builders more aggressive with supplier conversations?

I mean, of course, Not as robust, little more of a slack environment in that regard. It's a little tougher to maintain pricing than is otherwise Having done this for thirty years, it's not new. Think, to anybody and to most everybody on the team. So you do what you got to do. You try to differentiate yourself on service. You typically got long term relationships with your builders. You deal with one another fairly. And usually works out okay.

Yes. I mean, I would say it's always a competitive environment. And from our perspective and we've talked a lot about this because it's the way we run the business. Is that we are always going to favor working with the customers that pass a fair price over and that will continue to be the case. And And let's just be clear, I mean the environment is it's not growing at a rate that we all expected. So it's kind of softer, but that doesn't mean we're seeing market, right? [indiscernible] mean, I think that while people's confidence have been tampered down or whatever. This is not a dire situation for any means. Right? I mean, it's still a healthy environment and we still feel extremely constructive about the medium and long term demand new construction in this country.

Thirty years ago, I was with a gentleman who was a sales trainer for Alex Corning. And he said, it's always 100% about price. And that's true to get in the beginning and then price is completely out the window thereafter.

And it's never about price, if you don't understand what I'm saying. You got to be in the room from a pricing perspective even to have the conversation. But after that, it's everything else you do as a contractor or a subcontractor. Gets you the job, wins you the job and keeps And then just on multifamily, Are you guys expecting any sort of outsized margin headwinds once those declines start impacting your business? I know you guys said was a pricemix tailwind for you guys this quarter, but just when we think about that normalization assuming there's a price mix headwind, but is there also a margin headwind associated with that?

Not significant, no. [indiscernible] when you lose if you're in a negative sales environment, Right.

Creates particularly if it's a shorter term say six month negative sales environment, your decrementals are larger then your incrementals because you're not adjusting your lagging variable costs, which are primarily general administrative costs. So that hundred and $5,000,000 to $110,000,000 of G and A in the quarter that we had discussed in the previous question, that doesn't really adjust very [indiscernible] Right? So you do get have decremental margins associated with that? [indiscernible] I want to reiterate on the multifamily side, while we do believe that units under construction need to come down. Call it 20%, 25% and it's going to take at least six months six more months of that to happen We firmly believe as we have demonstrated over the past year, quite frankly, and last four quarters that we will perform better than the overall market.

Our next question comes from Phil Ng with Jefferies. Please proceed with your question.

Hey, guys. I appreciate all the great color. In a pretty choppy environment, guys, last year's margins have been quite steady and certainly stepped up nicely in 2023. Okay, but not great environment, And then Michael, I appreciate the G and A piece that you called out. Is this an environment that you can manage EBITDA margins pretty flat or you could see some compression Your biggest competitor is calling call it 100 basis points of margin compression, a combination of carrying more labor costs, maybe pockets of competition, like how do you kind of see EBITDA margins kind of playing out for you over the course of the year?

Yes. So I mean, as you know, we don't provide guidance. But I mean clearly based on the answer to all of the previous questions, and our expectation that the softness Not here to stay, so to speak. That we will hopefully we'll see in the back half, particularly in single family and the stabilization on multifamily things improving generally speaking, you're not going to make substantial cuts particularly to G and A. Although you will manage it. Right? It's not as if we're not going to manage our expenses. It does have a tendency for hopefully a short period of time to put pressure on EBITDA margins. It's just the reality of the numbers and the situation.

We as a company are working very hard and the incentive systems for from Jeff Edwards all the way down to every single branch manager our incentives are structured such that we want to improve EBITDA. That's really the primary focus of the company and we're going to be working very hard to do that.

Super.

Guess a question for Jeff.

In this environment and cash flow is still pretty strong, How do you kind of balance between M and A versus back your stock, returning cash back to shareholders, And it sounds like pipeline is still pretty good. Are you seeing anything that's larger out there Jeff? And is there any appetite for you to kind of pivot a little bit from your current wheelhouse where you've been kind of pursuing these attractive bolt ons, but maybe looking at something that's a little different, maybe something that's a little We'll always favor M and A over anything else. So in terms of capital allocation, but as you know, I mean our free cash flow and the cash on the balance sheet is such that we're not a one trick pony in that regard. So we can do kind of pieces and parts of everything as it relates to capital allocation. We are seeing some larger deals I'd say that currently in the wheelhouse We're not at all adverse to the idea of of necessarily getting out of the wheelhouse and looking at maybe some adjacent maybe not industries, but adjacencies in terms of acquisitions they would need to make think they're going to be far afield and Crazy [indiscernible] they would need to have some strategic relationship to kind of our core business.

And as you know, I mean, for us to do something a little bit It's not like we're going to go out and buy a $1,000,000,000 company, right? It's Got it. [indiscernible] twice our average deal size, but still something that's exceedingly manageable for us. And gives us time to really conservatively understand that business better before we make a concerted push into it if we were going to do something like that. Our next question comes from Trey Grooms with Stephens Inc.

Hey, good morning guys. This is Ethan on for Trey. Thanks for taking my question.

Just wanted to elaborate on spray foam a little bit. So you previously called out spray foam trends that were kind of expected to continue into this quarter. Just wondering what you're seeing on that side? And then given your outlook for sort of better demand, I suppose in the second half, just to generalize it a bit, should we expect positive price costs in the second half of this year? Thanks.

So, yes, I'm glad you asked the question about spray foam because it was continued to be a headwind in the fourth quarter. As we had discussed that it would in the third quarter. So it was kind of a negative to gross margin, call it, anywhere between 10 to 20 basis points.

What I would say is that is kind of trending through the first quarter, but pricing there is starting to stabilize. And because there have been price increase manufactured price increases, so you're seeing stabilization come there and we would expect to see spray foam not creating sort of a negative gross margin impact as we go into the back half of the year. Again, we don't provide guidance. But I would say pricemix assuming of course that the single family market does as I think there are a lot of expectations around Azar in the back half accelerates and improves. And multifamily stabilizes. We would expect to have better pricemix in the first half than we do in the Okay. That's super helpful. And then lastly, just on costs, you spoke a little bit about sort of benign cost inflation, but can you walk us through the sort of puts and takes you're seeing on the cost front, particularly in labor?

I would say that and I'll break it down again from sort of an income statement perspective. If you look at cost of goods sold, which is material and the Installed labor, it's it's pretty benign. And There are puts and takes to that, but it's a a stable inflationary environment. As I said, to an answer in an earlier call, selling expense consistently runs 4.7% to 4.8%. Of revenue I mean, obviously, that changes quarter to quarter. But if you look historically, that's been pretty decent historical average.

And then G and A, a little bit disconnected from cost of goods sold in this perspective because those costs tend to rise with overall inflation as we were saying earlier. So So if we look on a full year basis to have G and A go up 3% to 5% on an annual basis that would make sense. However, that would be before we take any expense management initiatives into consideration. I will say, while we're clearly focused on management, particularly on the G and A side. This year, it takes a while for the benefit of that expense management to flow through [indiscernible] Our next question comes from Ken Zener with KeyBanc Capital Markets.

Good morning, everybody. Good morning, Ken.

Yes, Michael. For some reason, it seems like you guys drank a disclosure serum this morning.

So think everybody appreciates that.

I appreciate your comments around the cycle but not being that bad. I'd agree with you. It's not like 2010, but inventory is high.

That's something that you've called out. Michael, you said It can pass in six months.

If you could give us kind of like some concept around why you have six months? And while you're doing that, given your national footprint versus much more regional builders, if you could expand on regional comments that affect second half expectations, I think Florida, right, Central Florida, Southwest, Texas, not that bad.

Midwest, very strong. That's the first question.

Thank you.

So the six month comment was really all around multifamily and trying to contextualize what we think is going on in the macro multifamily environment. And one of the ways that we contextualize or look at that is to look at multifamily units under construction relative to the current start space. And to normalize the units under construction, relative to the current starts level, which by the way we do [indiscernible] has bottomed out [indiscernible] we believe that this is counter to what I think what most other people believe We believe that the current rate is call it three thirty to 50 or so is probably by the current demand for housing should probably will bump up to a higher level as we go towards the back half of the year. Again, that's a little bit counter to what most people So if you look at those relative to the current completions rate and the current starts rate we estimate that assuming completion stay at their current level, starts stay at their current level, that it would take roughly six months or so to normalize the units under construction and that would mean a decline in the units under construction and therefore the macro opportunity for the industry to come down 20% plus And then in terms of I think your the second part of your question was really going more towards single family versus multifamily.

And I would say that yes, I mean, Texas and Florida are a little weak right now.

The Midwest and Northeast are surprisingly strong on a relative basis. Although as we all know, mean, Texas and Florida are a pretty big percentage of the overall new home construction market. Fundamentally though, we believe those markets are are very strong As I think everyone on this call knows, Texas is our largest state from a revenue perspective. Our team there does an incredible job And we might see softness in both those big markets for us, Long term, they are great housing markets.

Right. And I think what people are struggling with is it's less about the volume right? And I understand your comments around the six months were for multifamily, but like there's a lot of single family inventory We're seeing weakness, which is Pressuring margins, certainly for the public builders more right now. But we're trying to toggle between like what are the build your comments about second half improvement are more tied to multifamily, it sounds like. No, it's Okay.

And then I appreciate that. Where builders are running higher inventory This is like you guys probably have better insight right, than almost anybody in the country.

Where the builders have too much inventory, Spring selling season is slow.

Are they telling you just to come back like in a month or six weeks to see where if those homes are selling and what their future bid contracts will look like because it's it's kind of an air pocket, right? I mean, the volume is going to be fine over time, which is it's been clearing out this inventory that they think is good amid first time buyers wanting quick move in homes Yes.

That has some risk to it. I mean, it's that dynamic in the bad markets that people are trying to understand.

Thank you very much.

Yes. I'm sorry, Kimbro. I'm not going to give you a real specific answer there because quite frankly, it really it varies not just city to city, but subdivision to subdivision in terms of where they might have too much inventory given the current demand environment. So it really is I don't think you can just say it broad brush and say, well, Dallas is over inventory.

The Mid Atlantic is under inventory, right? I think it really is customer by customer subdivision by subdivision, as to whether or not they have too much spec sitting the ground. Our next question comes from Kirk Yinger with D. A. Davidson.

Please proceed with your question.

Great. Thanks and good morning. Just one, I was hoping you could kind of update us on the build out of internal distribution capabilities, kind of expansion plans in 2025 and that has been kind of a margin drag in here in 2024.

Would you expect the margin impact to be kind of similar maybe even magnified a little bit Thank you.

This is Jeff. Actually, I think we're making really pretty good measured progress in that regard. It obviously takes time Certainly don't expect it to be margin drag. We are part of the effort was to make sure that we were not in times of tight supply buying as much out of distribution in a knee jerk reaction we've been successful in that regard. It certainly helped The supply has loosened a bit and that there's not a problem with not being able to get this SKU or that SKU.

So again, continue to kind of leverage the logistics side of things, a little business we bought in that regard. And we continue to expand our distribution footprint. Which is both really both for an internal from an internal perspective, but ultimately will to the third party business also. So I actually feel really good about that progress. [indiscernible] No. 100% correlation, but internal distribution, if you will, Last year was around $9,000,000 and in essence it doubled this year to around 18 So we have a long way to go. But we've made great progress there. The team is doing Really, you did a good job there. But it does as we talked in the last quarterly call, it does add G and A because we are adding facilities and we are adding people. But it is definitely benefiting starting to benefit gross margin slightly.

Got it. And maybe just to kind of follow-up there in terms of the comment around measured progress. Is this something we should think of as a three to five year kind of build out to get to where you ultimately want to be or Or would it extend meaningfully beyond that kind of timeframe? I think the three to five is already answered.

Okay.

The only thing that might make it extend is if for some reason the market continue to remain flat. But honestly, this is a way for us to as we move all do get benefit over time and it helps us improve margins. So in a let's just say a five year flat environment for for demand from our end markets, it's a good way for us to help margin.

Okay.

That will make sense. Thank you.

Sure.

There are no further questions at this this time. I would now like to turn the floor back over to Jeff Edwards for closing comments.

I just want to thank all of you for your questions and I look forward to our next quarterly call. Thank you.

This concludes today's tele [indiscernible]