Greetings, and welcome to the Installed Building Products First Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Niswonger, Vice President and Director of Investor Relations at Installed Building Products. Thank you, sir.

You may now begin. .

Good morning. We would like to thank you for joining us today for Installed Building Products' first quarter 2014 earnings conference call. Earlier today, we issued a press release on our Q1 financial results, which can be found in the Investor Relations section of our website at www.installedbuildingproducts.com. .

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 concerning demand for our services, expansion of our business, improvement in the U.S.

housing market and our end markets, our ability to strengthen our market position, our ability to pursue value-enhancing acquisitions and expectations regarding our sales and growth in 2014.

Forward-looking statements may generally be identified by the use of words such as anticipate, believe, estimate, expect, forecast, intend, plan and will, or in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. As a result, actual events may differ materially from those expressed and/or suggested by the forward-looking statements.

Any forward-looking statements made by management on this call speaks only as of the date hereof. .

A full discussion of the company's operations and financial condition, including factors that may affect our business and future prospects, is contained in documents it has filed with the SEC and will be contained in subsequent periodic filings made with the SEC.

New risks and uncertainties may come up from time to time and it is impossible for the company to predict these events or how they may affect it. The company has no obligation and does not intend to update any forward-looking statements as of the date hereof, except as required by Federal Securities Laws. .

In addition, management uses certain non-GAAP performance measures on this call. You can find a reconciliation of such measures to their nearest GAAP equivalent in the company's earnings release, which is available on our website. .

This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer; and Michael Miller, the company's Chief Financial Officer. .

Now I will turn the call over to Jeff. .

Thanks, Jason, and thank you, everyone, for joining us today to review our results for the first quarter of 2014. .

Today I'd like to begin with a summary of our operating highlights and share some market color, then turn to Michael Miller, who will follow with some additional details on the quarterly results. And after our prepared remarks, we'll open up the call for questions. .

Installed Building Products is the nation's second largest installer of insulation products for the new residential construction market, and we also offer diversified complementary building products, including garage doors, rain gutters, shower doors, closet shelving, mirrors and other products throughout the United States.

We hold a critical position in the building products industry with a consolidated supplier base and a wide fragmented customer base. .

We are involved in all aspects of the insulation process, including the direct purchase of materials from national manufacturers, the timely supply of materials to job sites and the quality installation of the products for our customers. .

In the first quarter, I'm very pleased to report the sales increased 15% to $106 million with adjusted EBITDA of $4.2 million compared to $2.3 million in the prior year quarter. We achieved this growth despite extremely challenging weather conditions, which delayed construction activity in many of our markets, especially in the Northeast and Midwest.

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Our sales momentum continued with the backdrop of a sustained recovery in U.S. residential construction, and we benefited from our national footprint. .

Our same branch sales increased 13% in our primary new construction single-family end market, our same branch sales grew 14% compared to an increase in single-family housing completions of only 7% for the quarter. .

This outperformance of our sales relative to the increase in our core end market is a direct result of the steps we have taken to establish ourselves in market-leading positions in some of the most attractive housing markets across the U.S. .

Our adjusted EBITDA of $4.2 million was nearly doubled compared to the prior year period, reflecting the benefits of our higher sales, accretive acquisitions, improved gross profit and our ability to contain operating expenses. .

We accomplished this despite the inclement weather as we worked weekends in an effort to keep our customers on schedule in completing their projects. .

During the first quarter, we continued to execute on our proven and successful acquisition strategy.

We operate in a highly fragmented industry, allowing us to identify regional insulation installers in attractive markets where we can enhance value through our national platform, supplier relationships and operational expertise, while retaining local brand, talent and customer relationships. .

Additionally, we acquired a company in March with 2013 annual revenues of approximately $9 million and a very bright future, further enhancing our footprint and market penetration. .

The company we acquired is U.S. Insulation, a private insulation installer operating in the tri-state New York area with an established and respected market presence. .

We continue to remain well positioned to source excellent and highly accretive acquisition opportunities in our target markets, and our acquisition pipeline is quite strong. .

Our proven deal sourcing capabilities, efficient access to capital and immediately accretive deal structures provide a best-in-class platform for us to continue consolidating within the highly fragmented installation industry. .

We remain positive on the long-term housing recovery with blue chip consensus, forecasting U.S. housing starts to rise 17% in 2014 year-over-year. .

This is a slight reduction in the estimate from last quarter, but we think it is a reasonable growth assumption based on various factors including continued affordability, historically low mortgage interest rates, improving employment and rising household formations. .

Improving housing demand supports continued growth in our business as historically, 80% of our revenues have been driven by new residential construction. .

With a strong start to the year, we remain positive on the growth opportunity for IBP in 2014. .

Our operations are scalable, and we remain well positioned to leverage our cost base as we continue to grow sales. .

In the more stable housing environment experienced in the past, we generated mid-teen EBITDA margins, which we are focused on achieving, again, longer term as our end markets continue to improve. .

In the meantime, we are diligently managing our local operations to efficiently deliver best-in-class customer service while containing our costs. .

I will now turn the call over to Michael to provide more details on our first quarter results. .

Thank you, Jeff, and good morning, everyone. In the first quarter of 2014, we continue to expand our revenue and grow our profitability. .

For the first quarter, our revenue increased 15.2% overall and 13.1% on a same branch basis. Our new residential single-family same branch sales growth was higher at 14% and nearly double the 7.3% increase in single-family U.S. housing completions during the first quarter. .

We made continued progress on improving our profitability in the first quarter as well, with our gross margin of 24.9% or 70 basis points higher than our 24.2% gross margin in the prior year quarter. .

Our gross margin before depreciation and amortization expense increased to 27.3%, a 150 basis point improvement from 25.8% in the prior year quarter, which was primarily due to favorable product mix, pricing and operational efficiencies. .

We believe gross margin, excluding depreciation and amortization, more accurately reflects the progress we are making in our core operations. .

Selling and administrative expenses as a percentage of net revenue was 23.4% compared to 23.1% in the prior year quarter.

This change was largely attributable to a onetime increase in technology cost related to Microsoft's decision to discontinue support of XP, increased cost for health insurance and incremental cost of operating as a publicly-traded company. .

While we will have additional costs related to being a public company, we expect administrative expenses as a percentage of sales to decrease over time as we continue to scale our operations and benefit from increasing sales as the housing recovery continues. .

Net income from continuing operations for the first quarter was $400,000 or $0.02 per diluted share compared to a net loss from continuing operations of $200,000 or $0.01 -- a $0.01 loss per diluted share in the prior year quarter. .

On a GAAP basis, the net loss attributable to common shareholders was $19.5 million or $0.76 loss per diluted share in the first quarter of 2014 compared to a $2 million loss or $0.09 loss per diluted share in the prior year quarter. .

The GAAP net loss in each of these areas include certain onetime items, primarily the impact of accretion charges on redeemable preferred stock that existed prior to our IPO.

The accretion charge is a noncash adjustment, which reflects the increasing accounting value on the preferred shares from the date of their issuance until the date of redemption. .

In connection with our IPO, the redeemable preferred stock was be redeemed in full in February 2014 for the portion of our IPO proceeds. .

We believe adjusted EBITDA serves as the most useful profit metric to measure our performance. For the first quarter, adjusted EBITDA increased to $4.2 million, an 82.6% increase from $2.3 million in the prior year quarter. .

As a percentage of net revenue, our adjusted EBITDA improved to 4%, a 150 basis point increase and 2.5% in the prior year quarter. .

As of March 31, we had total cash and borrowing capacity of $26.3 million, including a cash position of $5.2 million and available borrowings under our revolving credit facility of $21.1 million. .

As Jeff mentioned, as part of our ongoing strategy to penetrate and expand our services in certain markets, in March 2014, we acquired U.S. Insulation Corp. The total purchase price was approximately $2.3 million. .

With our strong balance sheet and asset-light business model, we expect to continue capitalizing on the opportunities in front of us. .

I will now turn the call back to Jeff for closing remarks. .

Thanks, Michael. At this point I'd like to take a moment to thank all of our employees for their dedication and contribution to the ongoing success of IBP. This is really an exciting time for our company.

We are well positioned to continue to grow our business and enhance shareholder value as the housing recovery provides a nice backdrop for sustained improvement in our residential construction markets going forward. .

The significant fragmentation in our industry provides us with further upside from acquisitions to expand our presence in attractive geographic markets. We have a best-in-class operating platform, an aligned management team in a critical position in an attractive industry, all positioning us well for the future. .

We look forward to updating you on our progress in the quarters and years to come. .

Operator, we'd now like to open up the call for questions. .

[Operator Instructions] Our first question is coming from the line of Nishu Sood with Deutsche Bank. .

This is Rob Hansen on for Nishu. So I just wanted to see if you guys can talk about your same branch revenue growth kind of throughout the quarter.

Did it accelerate through March and then into April? What have you seen on that basis into April?.

Rob, it's Michael Miller. We did see, as we would have expected, an acceleration in same branch sales growth through the course of the quarter. And we are continuing to see positive trends through the second quarter as we would have expected, particularly in the Northeast and the Midwest where there was the impact of the severe weather conditions.

So we definitely have seen a solid pickup in those markets. .

So you would classify April as kind of seeing -- starting to see a little bit of a snap back from the kind of --especially in the more weather impacted depressed markets?.

Yes. So far, through this point in the second quarter, we're definitely seeing much higher growth rates in the Northeast and Midwest than we did at the beginning part of the year.

And I think it's important to note that even though there was extreme weather condition in those parts of the country, we still saw, in the quarter, sales growth from those markets. .

Got it. Okay.

And then during the quarter, what was the kind of split between single-family, multifamily, R&R, commercial as a percentage of revenue during 1Q?.

repair and remodel was 10%; and then commercial was about 12%. .

The next question is coming from the line of Jack Kasprzak with BB&T. .

You called out pricing as a benefit to your sales in the quarter.

I was wondering if you could tell us how much pricing benefited you, helped you? And are there prospective price increases out by manufacturers that might still help you as the year goes on?.

Yes. As we continue to state that as the market continues to recover and as the manufacturers continue to announce price increases, we believe those are good opportunities for us to achieve price increases.

Historically, as the market has improved and there have been material price increases, we've been able to pass those increases onto our customer -- customers. We believe that the gross margin improvement is clearly a reflection of that in the first quarter, and we would expect those trends to continue. .

And Jack, this is Jeff Edwards. But more specifically, I guess, to your question that there is, yes, currently a price -- announced price increase from the manufacturers out in the marketplace. It's going to take effect in June. .

Great. And then you mentioned your acquisition program and the success you had in the quarter and you've been an acquisitive company for a while now. But now that you're a public company, only a few months in, I was wondering if you could talk about whether you've seen any change with regard to, let's say, receptivity by acquisition targets.

You have a public currency now, which you didn't have before, perhaps in terms of pace or opportunity. So I was wondering if there's any color this early on as a public company you might have to offer. .

It's Jeff Edwards, again. We feel very strongly about our pipeline and about our ability to source deals on a go-forward basis. I think you've heard us mention this before, but we kind of, for the most part, self-source deals and find companies that are not actively for sale.

At the same time though, currently, I think it's at least partly related to the downturn and kind of what people have weathered. And as long as acquisition market was kind of a little bit cold for those reasons. It feels to us like there's a bit of a pent-up demand.

And even in some instances, those particular individuals that are interested in selling their business are seeking us out currently. So again, we feel strong about the pipeline and we'll continue to pursue that as we've done for years. .

And our pipeline is more robust now than it's been in years. .

Yes, absolutely. .

The next question is coming from the line of Ken Zener with KeyBanc. .

The price benefit, I believe you said -- or your revenue growth, you said roughly 3 quarters was volume. So I assume the remainder was price and mix.

Of that 3%, call it, gain in price mix, did you talk about the impact on the gross margin, as well as when you talked about gross margin going up in the press release, you talked about revenue being a driver in cost.

Is the revenue what you guys in the past purchase kind of window time? And is costs -- does that mean to spread between the price you're getting at a lower-cost basis? If you could just explain how that's maturing. .

Yes. What we were trying to get to in the press release, maybe it wasn't clear enough. It's just that as sales increase, we definitely, as we have spoken before, both in direct labor and also in other cost of goods sold, we clearly get efficiencies -- operating efficiencies there.

And obviously, as we get increased selling prices, we get operating efficiencies associated with other cost of goods sold. So that's sort of improving our gross margin. It's really a combination of the things that we cited.

It's not just price, it is more operating efficiency from the labor perspective, and it's also more operating efficiency at the branch level. .

Okay. And then I guess, share count, and I apologize if I missed this, but could you give us for 2Q kind of what you're looking for, if that's just the steady rate, so everyone's on the same page. .

Yes. So the way that we have looked at markets during the past, we really believe, given -- particularly here on the first quarter, given the volatility associated with the numbers generated from the U.S. Census Bureau -- we don't believe that doing a quarterly measurement of "market share" is really as effective as looking at it on an annual basis.

And as we stated as a company, we are not focused exclusively on market share. What we're focused on is generating the highest level of EBITDA possible. So we're really not -- it's not just about market share.

That being said, as we said in our comments, our new single-family same branch sales were up over 14% in the quarter, which compares to new single-family completions in the quarter. So we're still seeing a good delta, we believe, relative to what completions are doing. But again, we're not focused exclusively on market share.

It's really about margin contribution. .

It's a share count, I think that was my fault. Share count is what I meant to say. And then could you just put us the operating leverage, I know people just focus on gross margin once you get it, but I look at EBIT operating leverage.

Could you kind of refresh us on what your long-term EBIT leverage is?.

So as we've stated in the past, we believe this is a mid-teens margin business based upon history, and that mid-teens margin is mid-teen EBITDA margin. Depreciation and amortization make up about 3 points of that number, so that would be low-teens, basically, on an EBIT margin basis going forward on a stabilized basis.

In terms of EBITDA or EBIT margin contribution, what we've stated in the past is that EBITDA margin contribution is around 20%. So again, you'd probably take 2 to 3 points of that off for EBIT margin contribution. And then on the share count... .

This is Jason. At the end of the quarter, there was 30.6 million shares outstanding. .

Yes. So right now in the share count , it's just a little confusing because of the timing in the quarter of when we went public and the number of shares and the stock split and all that kind of stuff. .

Jason. It's nice one to buy one [ph]. .

[Operator Instructions] Our final question is coming from the line of Susan Maklari with UBS. .

I wanted to know, can you guys give us a little bit an update on what you're seeing in terms of the competitive environment.

Has there been anything that's changed meaningfully as we're coming into the second quarter? Or just any changes out there in the landscape that you're picking up on?.

This is Jeff Edwards. Not really, in particular. I mean, I think, we've just been focused on taking care of the customer from our perspective. I mean, we have a tendency to probably focus on that, and I think that's probably a good thing. And so as Michael answered earlier, we're not driven necessarily by share we are driven by earnings.

But I think the way that you make that take care -- make earning take care of themselves to a degree is to just do a better job for your customers. And that really leads to all these other good things. .

Okay. And then in terms of the cost base, I know you talked a lot about the sort of improved efficiencies that you're seeing.

Has there been any meaningful change in your cost or anything there that we should be aware of?.

I mean, the only significant change in our cost structure, Susan, is really relates to becoming a publicly-traded company, and that's consistent with what we have continuously disclosed. The one thing that we noted in the notes is that in the quarter, we had higher technology expenses associated with Microsoft's decision to stop supporting XP.

So we had quite a bit of cost associated -- onetime cost associated with converting computers and hardware and that kind of stuff over to the new operating system. .

Okay. But in terms of sort of your more operating, in terms of the business line, there's nothing that's really changed there? You’re not seeing anything that has meaningfully... .

No. We're actually getting better operating efficiency within the business than what we have expected. So we're very pleased with, on an operational basis, where the company is headed. .

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would now like to turn the floor back over to Mr. Edwards for any additional concluding comments. .

Operator, I think -- I believe that maybe Keith Hughes had another question for us too, that we'd be willing to answer also. .

Mr. Hughes from SunTrust. .

This is actually Judy Merrick in for Keith. And I just was wondering if you could add anything else on the price. I know you said as the market recovers, that's a good opportunity.

Is there anything that's giving you more confidence that you can consistently get pricing through the remainder of the year? Or is there anything else there? Or is it just that the revenue improved?.

I mean, history, our guide has been -- and we have a lot of history with this. Jeff has been here for 2 decades, I've been here for 14 years.

And history as a guide would say that as the market continues to improve, and we continue to focus on local execution that we've been able to continue to pass on price increases to our customers associated with price increases that we're receiving from the manufacturers.

So history would say that we should be able to continue to pass on those price increases to our customers. Again, something that we think is important relative to our installation services is that we are a critical component to getting the house completed.

And we're also a very small cost of the hard costs associated with constructing a house, which we believe makes our customers a little bit less price sensitive and much more service sensitive to our installation services. .

Okay. And you also mentioned in your comments that during some of the winter months, you're able to stay on schedule, but you also mentioned a snapback in April and May.

Was that just sort of a small part where you stayed on schedule or during the winter months, the bad weather?.

Yes. I mean, we feel it's extremely important to execute at a local level for our customers. And we think that service component is absolutely critical.

So we believe during the quarter that many of our locations that were impacted by weather, did everything they could to help our customers meet their schedules, but it did -- significant, did no doubt impact, particularly in the Northeast and the Midwest, our revenue. But as I said earlier, we did still see revenue growth in those markets.

And what we're seeing now is -- and I think many companies in the building products space are experiencing this is that -- I'm not sure if I would characterize it as a snapback in April and May, but we're returning to even higher levels of growth in the second quarter as we would expect given what happened in the first quarter. .

I mean, honestly, it comes with the territory to a degree. This was extremely severe winter, but at the end of the day, it is cold every year [indiscernible] and it's cold every year in the Midwest and the Great Lakes region. So it's what we need to do as a company. It was more difficult this year, but we pulled through it. .

Yes. And we were very pleased that we still saw sales growth despite the fact that in those markets that were impacted, we still saw sales growth despite that extreme weather conditions. And we're also very pleased that we're continuing to see or we're starting to see in the second quarter a return to very high levels of growth in those markets. .

So on behalf of IBP and everyone in the room here with me, I want to thank all of you for a lot of great questions. And I'm looking forward to our next quarterly update and the conversation upcoming. And thanks, again. .

Thank you, everybody. .

Thank you. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation, and you may disconnect your lines at this time..