Jason Niswonger - SVP, Finance and IR Jeff Edwards - Chairman and Chief Executive Officer Michael Miller - Chief Financial Officer.

Robert Wetenhall - RBC Capital Markets Scott Rednor - Zelman & Associates Keith Hughes - SunTrust Nishu Sood - Deutsche Bank Susan Maklari - UBS Blake Hirschman - Stephens.

Thank you for standing by. This is the conference operator. Welcome to the Installed Building Products Fiscal Third Quarter 2016 Investor Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded.

[Operator Instructions] I would now like to turn the conference over to Jason Niswonger, Senior Vice President, Finance and Investor Relations. Please go ahead..

Good morning and welcome to Installed Building Products third quarter 2016 earnings conference call. Earlier today, we issued a press release on our financial results for the third quarter, which can be found in the Investor Relations section on 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 including with respect to the closing of our pending acquisition of Alpha and the expected timing.

The anticipated funding for the acquisition, the impact of the pending Alpha acquisition on and its contribution to our operations and execution of our growth strategy, the impact of this acquisition on our earnings and revenue and statements of our backlog.

These forward-looking statements include the demand for our services, expansion of our national footprint, our ability to capitalize on the new home construction recovery, our ability to strengthen our market position, our ability to pursue value-enhancing acquisitions, our ability to improve profitability and expectations for demand for our services for the remainder of 2016.

Forward-looking statements may generally be identified by the use of words such as, anticipate, believe, expect, 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.

Any forward-looking statement made by management during this call is not a guarantee of future performance, and actual results may differ materially from those expressed in or suggested by the forward-looking statements as a result of various factors, including, without limitation, legal or regulatory proceeding including Hart-Scott-Rodino or other matters that may affect the timing or ability to complete the acquisition as contemplated, the possibility that the acquisition will not close due to failure to satisfy the closing condition, the occurrence of any event, change or circumstances that could give rise to the termination of the acquisition agreement, the potential impact of the Company’s or Alpha's business due to the announcement of the acquisition, the risk that the business of Alpha will not be integrated successfully and the factors discussed in the Risk Factors section of the Company's Annual Report on Form 10-K for the year ended December 31, 2015, as the same maybe updated from time-to-time in subsequent filings with the Securities and Exchange Commission.

Any forward-looking statements made by management on this call speaks only as of the date hereof. New risks and uncertainties come up from time-to-time, and it is impossible for the Company to predict these events or their effect.

The Company has no obligation, and does not intend, to update any forward-looking statements after the date hereof, except as required by federal securities laws. In addition, management uses the non-GAAP performance measures, adjusted EBITDA, and adjusted net income on this call.

You can find a reconciliation of such measures to the 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, our Chief Financial Officer. I will now turn the call over to Jeff..

Thanks, Jason. Good morning to everyone joining us on today’s call. I am happy to have the opportunity to talk to all of you about our 2016 third quarter results. As usual, I will start today’s call with some highlights and then turn the call over to Michael who will discuss our results in more detail before we take your questions.

First, I will talk about what an exciting time this year at IBP. There have been a lot of developments since our last call three months ago highlighted by the news earlier this week of our agreement to acquire Alpha installation and waterproofing.

Before I talk about this acquisition, however, and how it fits into our overall acquisition and business strategy, let me start to call with review of the third quarter’s operating highlights.

Momentum across our business remains strong during the third quarter of 2016 and we experienced another quarter of substantial year-over-year growth in net revenue, same branch sales and profitability.

Third quarter total revenues increased 24% to a quarterly record of $225 million compared to $182 million in the third quarter of last year and $212 million in the second quarter of 2016.

Solid organic growth, the contribution of our recent acquisitions and improvements in the rate of single-family housing completions continue to favorably influence revenues. Year-to-date, single family same branch sales have increased nearly 16%, compared to growth in total U.S. single family completions of approximately 13%.

Single family as well as total residential same branch sales growth accelerated year-over-year, and we could be more proud of the fields accomplishment in the quarter like this with the pace of the housing recovery took a bit of a breather.

During the third quarter of 2016, total residential same branch sales grew 12.1% compared to completions growth of 2.7%. IBP also achieved record levels of profitability in the third quarter as net income increased 22%, adjusted EBITDA increased 32% and adjusted net income per diluted share increased 19%.

In addition, year-to-date cash from operating activities has increased 87% to $55 million, and we are investing our strong operating cash flow back into the business to support our growth initiatives and fund our acquisition strategy. According to the U.S.

Census Bureau's historical data in September 2016, blue-chip consensus forecast for housing starts. Total U.S. housing starts are forecasted to increase at a 7% compound annual growth rate from 2015 to 2017. During the 2016 third quarter, total U.S. housing starts to decrease 1.9%, but this was primarily due to an 8.7% decline in model family starts.

As a point of reference, new model family construction represented approximately 7% of IBPs revenue in the third quarter. For our core single-family market starts increased 2%. Despite the decline in total U.S.

housing starts, we continue to expect residential end markets to improve to stabilization of approximately 1.5 million housing starts, benefitting from various factors including stable employment, rising household formations and historically low mortgage interest rates.

We have continued to perform on our strategy to expand our geographic footprint and enhance existing markets where we are under represented by acquiring a local installers in profitable markets with a strong reputation, customer base and management structure while maintaining their local trade name and existing management team.

This strategy has been very successful in contributing both to sales and earnings growth. Revenues during the third quarter increased $44 million over the prior year quarter and nearly 50% of this growth was a result of acquired operations.

We continue to see attractive acquisitions opportunities and our acquisition strategy remains a key business driver for IBP. So far in 2016, we have completed eight acquisitions which represented approximately $74 million of trailing 12 months revenues at the time of acquisition.

So let’s talk now about the recent announcement of our agreement to acquire Alpha Insulation and Waterproofing. Alpha is a transformational acquisition for IBP and represents a significant catalyst to stand our presence within the large commercial construction market.

Founded in 1982, Alpha Insulation and Waterproofing is headquartered in Atlanta Georgia and serviced commercial customers to an expanding network of eight branches located throughout the South Eastern and South Central United States.

Alpha products include waterproofing, insulation, fireproofing, and fire stopping and company service large long lead-time commercial projects including office buildings, airports, sports complexes, museums, hospitals, hotels and educational facilities.

Alpha is led by driven, dedicated and experienced management team with an average of over 25 years of industry experience and I am looking forward to working with them to grow business organically and through additional acquisitions.

Alpha’s trailing 12 month revenues were approximately $89.2 million at June 30, 2016, and had a project backlog of approximately $85 million as of September 30, 2016.

Gross profit margins on Alpha’s large commercial jobs tend to be higher and our residential services and as a result, we expect the acquisition will be immediately accretive to earnings upon closing, which we expect to occur very early in the first quarter of 2017.

This will enable the full year combined incremental EBITDA margins to be at the high-end of the 20% to 25% range, we have previously discussed.

As way of background IBP has been offering these products and services to smaller commercial customers for many years and while we’ve been growing our revenue to these market, commercial revenues represented only approximately 11% of our third quarter sales.

We believe, we have historically had difficulty accessing the broader commercial market because the expertise, experience and relationships are unique to this end market. We believe Alpha provides the platform for IBP to immediately gain access to this market.

At the same time, IBP offers Alpha a nationwide footprint and network of installers to help Alpha growth with these commercial customers across the country. The management team of Alpha is driven, dedicated and experienced. Vic Verma founded the Company in 1982 and shortly thereafter was joined by Henry Schmueckle.

The members of Alpha Senior Management team have on average over 25 years experience working in the construction industry. The experienced relationships with general contractors are valuable as our combined company seek to grow our presence in the commercial construction industry, both organically and through additional acquisitions.

So why expand our presence in the commercial end market. Most importantly, we believe diversifying our business both from an end market standpoint and product expansion standpoint helps mitigate the cyclicality of anyone end market while providing a highly profitable mix of revenues.

One of the items that attracted us to Alpha was the Company’s diverse product offering and our view of commercial installer and our trade must install multiple product lines.

Alpha's mix of waterproofing, installation, fireproofing and fire stopping differentiates it from others in the industry and enables the Company to sell more content to a project as commercial general contractors typically preferred dealing with eliminated number of sub-contractors.

The second reason we are attracted to the large commercial market is the project themselves. Typical Alpha projects are large, long lead-time projects such as office building, airports, sports complexes, museums, hospitals and educational facilities.

Alpha's scope of projects provides the company with a strong backlog which at September 30, 2016, was approximately $85 million and the average size of these commercial projects is approximately $400,000 compared to an average size single-family residential job of $3,000.

In addition, commercial construction projects generally have a higher margin profile compared to residential work which will help enhance IBP’s profitability. Finally, Alpha created a platform for us to extend our growth opportunities. We view the growth opportunities in two ways.

First, organically as IBP’s national network will immediately broaden Alpha’s geographic reach and allowed the Company to bid on more projects across the country. The second avenue for growth is through acquisition, whether of other commercial installers with similar products offerings or the acquisition of additional product lines.

This will create a new tool of perspective acquisition targets allowing IBP to continue expanding into new product segments and geographic areas. We are extremely excited about joining forces with Alpha and are focused on closing the acquisition early in 2017. I look forward to working with Vic and Henry and their team in building off their success.

Beyond our definitive purchase agreement to acquire Alpha which is a core subject to the customary closing conditions. We’ve been very busy converting other deals in our pipeline to completed acquisitions.

During the 2016 third quarter, we closed the acquisition for FireClass, LLC and installed our fireplaces and manholes to the new single-family construction market with one location in Michigan and trailing 12 month sales of approximately $4 million.

And we closed the acquisition of Southern Insulators & Specialties LLC, a provider of residential fiberglass and spray foam insulation services with one location in Louisiana, and trailing 12 month revenues of approximately $5 million.

Additionally, in October of 2015, we acquired East Coast Insulators, a provider of installation services to residential and commercial customers with two locations in Virginia and trailing 12 months revenues of approximately $20 million. And in November of 2016, we acquired M.G.D.

Inc., a provider of garage doors and services to residential and commercial customers with one location in Indiana and trailing 12 months revenues of approximately $1 million.

I understand I presented a lot of information this morning, and to quickly conclude my portion of the call before turning it over to Michael, I want to reiterate again what an exciting time it is here at IBP.

I am extremely encouraged with the direction we are headed, the record third quarter and year-to-date results we’ve achieved and our continued robust pipeline of potential acquisitions. I am very enthusiastic about the Alpha acquisition and I look forward to the building of successful large, commercial construction platform.

With that, I will now like to turn the call over to Michael to provide more details on our third quarter results..

Thank you, Jeff, and good morning everyone. We continue to make significant progress in growing revenue and improving profitability. For the third quarter, our revenue increased 24.1% to $225.4 million. Our same branch sales improved 12.2% due to an increase in volume in all our end markets and favorable improvements in price and mix.

Our same branch single family sales growth was 9.7% and our total new residential construction same branch sales increased 12.1%. Additionally, we saw strong growth in our commercial and repair and remodel markets which increased 12.6% on a same branch basis.

Third quarter 2016 gross margin increased 40 basis points to 29.8%, compared to 29.4% in the prior year quarter and was also up 40 basis points compared to the 2016 second quarter. The year-over-year and sequential improvements were primarily due to operating efficiencies and a more favorable customer and product mix than the comparable periods.

For the 2016 third quarter, selling and administrative expenses as a percent of net revenue was 19.8% compared to 19.9% for the 2015 period. As a percentage of revenues, administrative expenses declined to 14% in the third quarter from 14.2% in the third quarter of 2015.

We expect general and administrative expenses as a percent of net revenue to continue to improve over time, as we further scale our operations and benefit from higher sales.

As we have stated in previous earnings calls, it is important to note that as our acquisition strategy continues and as the volume of total acquired business operations become larger, we will incur additional non-cash amortization expense.

In the third quarter, we recorded $2.9 million of amortization expense, a 59% increase over the prior year period. This non-cash adjustment impacts net income, which is why we believe adjusted EBITDA, is the most useful measure of profitability.

Based on acquisitions completed to-date, we expect fourth quarter 2016 amortization expense of approximately $3.1 million and full year amortization expense of approximately $11.3 million. It is important to note that these figures will change with each subsequent acquisition and do not yet include the Alpha transaction.

For the third quarter of 2016, adjusted EBITDA improved to $29.5 million representing an increase of 31.6% from $22.4 million in the prior year. As a percent of net revenue, our adjusted EBITDA improved 13.1% in the third quarter representing 70 basis points from both the prior year quarter and the 2016 second quarter.

We are pleased with the successful steps we have taken to enhance our operating efficiencies and significantly increase our adjusted EBITDA margin. We continue to believe our financial model can produce full year incremental adjusted EBITDA margins of 20% to 25%.

However, as we have stated on previous calls, the mix or timing of organic and acquired revenue impacts our combined incremental adjusted EBITDA margin, and a higher contribution of revenues from acquisitions can temporarily reduce our overall incremental adjusted EBITDA margin.

In the quarter, our combined incremental adjusted EBITDA margin was approximately 16.2%, while on our same branch sales growth, our incremental adjusted EBITDA margin was 19.5% for the quarter. Incremental margins are impacted in the quarter by slower than expected single family starts.

We continue to believe our same branch sales growth in excess of total market completions combined with the adjusted EBITDA contribution from our acquisitions will allow us to achieve adjusted EBITDA margins in the mid-teens as the single-family housing market approaches stabilization.

The 13.1% adjusted EBITDA margin reported this quarter is the highest we have reported since becoming a public company. On a GAAP basis, our third quarter net income was $11.5 million or $0.37 per diluted share, compared to net income of $9.5 million or $0.30 per diluted share in the prior year quarter.

For the third quarter, our adjusted net income improved to $12.1 million or $0.38 per diluted share, compared to $10 million or $0.32 per diluted share in the prior year quarter. For the third quarter 2016, our effective tax rate was 36.8% compared to 33.9% in the prior year quarter. For the full year, we expect an effective tax rate of 35% to 36%.

Now moving onto our balance sheet and cash flow. For the nine months period end of September 30, 2016, we generated $54.6 million in cash flow from operations, an increase of $25.5 million or 87.5% in the prior year. We continue to use this cash flow to fund acquisitions and reinvest in our business.

Capital expenditures of September 30, 2016 were $21.3 million while total incurred capital leases were $3 million. Capital expenditures and incurred capital leases increased approximately 7% year-over-year compared to a 33.6% increase in our revenue.

We continue to expect gross capital expenditures and incurred capital leases to trend at approximately 3% to 4% of sales during this part of the housing recovery. At September 30, 2016, we had total cash of $19.1 million compared to $6.8 million at December 31, 2015.

At the end of the quarter, we had nothing drawn on our $100 million revolver and a $112.5 million capacity under our delay draw term loan, providing us considerable flexibility as we continue to deliver on our growth strategy. With that, I will now turn the call back to Jeff for closing remarks..

Thanks, Michael. Well, I think that sums up the numbers and drivers of what was another fantastic quarter and as you can see our growth oriented business strategy continues to drive strong financial results. Operator, let’s open the call for questions..

We will now begin the question-and-answer session. [Operator Instructions] The first question is from Bob Wetenhall with RBC Capital Markets. Please go ahead..

I wanted to ask, congratulations on Alpha, the strategic rationale is really clear. It’s a more profitable business I guess on the commercial side than the legacy residential business of IBP.

Can you talk about the timeframe and process for integrating Alpha and kind of the margin impact we should think about in 2017 as this comes online?.

Bob, this is Michael. We are excited about the Alpha deal, their great team, and we’re really looking forward to working with them very closely.

We would say that they have, their business is at their level, so is very profitable and we’re comfortable that it will help as Jeff indicated in his comments that, it will help our incremental margins to be at the higher range of what we talk about on a full year basis in that 20 to 25%.

And from acquisition integration perspective, as Jeff said in his comments, we expect it to close very early in the first quarter of the year. So we would expect to see nearly a full year of contribution of both revenue and EBITDA from the acquisition in 2017..

And Bob this is Jeff. I am not trying to power ourselves on the back here too much, but we really don’t let any loss grow on the deals in terms of kind of when we send our teams in their to get them on our systems and to start to have them be part of the team.

So with that, I think basically immediately will close and even somewhat to a degree before and will be pulling them in as part of the team and early related to say that means..

Could you maybe give us a little color just in terms of how we should be thinking about IBP’s ability to take market share? What you seeing in October and from a pricing standpoint, how much price positive are you getting on a like-for-like basis versus the benefit of mature mix?.

In terms of the market share, Bob, one of the things that we historically done from a couple of discloser perspective, is compared our results to total U.S. housing completions. And as you know, we’re not in all of the U.S. housing markets. We believe we’re in approximately 66% of the housing markets.

One of the things that we do internally, as we compare our new construction revenue to permits in our market, and as we look at it relative to sort of our overall market share, and on that basis, when you look at recent very good, continue to see good sales per permit growth in the markets where we are conducting our business.

So we feel very good about that. If you look at some of the key metrics that we use to look at the same branch organic side of the business, we’re continuing to see accelerating trends over prior year both on an agreement.

So, for all of the end markets, we’re seeing acceleration in the single-family same brand sales growth and also in the disclosures or new earnings release that we provided this morning.

We had an additional metrics residential sales growth which is single-family and multi-family, because we do think that, it’s important to think of it from a new construction perspective, but that is accelerating as well, where our residential same brand sales growth was over 12%.

So given the backdrop of what was I think for most people's expectation, a slightly lower single-family opportunity for us and for the industry. We feel great about the fact that our other end markets really outperform with the opportunity.

So, as we’ve always said, when the homes are there in our market to insulate, we really get more than our fair share. We feel very good about that and we believe the numbers and the metrics support that. But importantly, we feel very good that despite that the single-family opportunity might be a little bit lighter than what we expected.

We were able to more than offset that with our other end markets. Importantly though, our view relative to the recovery in the single-family market, really hasn’t change.

I mean we believe that as a market is trending towards stabilization in the single-family side and then you really can’t look at it just quarter-to-quarter and you also look at it more kind of annual context or over this cycle. So again what I might have been a little bit of our single-family opportunity in the quarter.

We believe that the longer term trend toward stabilization in the single-family market is continuing. On the price mix piece of it, it is definitely continues to be combination.

We are continuing to see very good growth in both our home business, as well as very good growth within the regional and local builder, which is constant team we’ve been talking about for the past several quarters and that definitely improves our price mix..

Thanks. Just one more question, I’ll hand it over. The mix shift between single and multi-family changes next year and if there is some migration from multi-family rental apartments towards single family detached and single family construction activities starts to pick up at a faster rate.

How much more product intensity does that bring IBP? How beneficial is that in terms of the P&L impact going forward into ’17? Thanks and great quarter, good luck..

Thanks Bob. Certainly, it’s our sweet spot and I think as a general metric that people in the industry uses, they would say that you're going to get three times the revenue from a single-family detach that you would from a multi-family unit. And that being said, multi-family is important and it’s a profitable work for us.

And there is still a tremendous backlog and that’s been created from all of the starts that were done in 2015 that’s been addressed in ’16 and all publically lag into ’17 on the multi-family size.

So, yes, accelerating single family growth which we believe we are in a long-term trend towards and is highly beneficial to our price mix and to our volume growth as a business.

But at the same time, we feel very good that when that single family opportunity isn’t there relative to expectations, our field operations have done an incredible job of performing on the other end markets that we have..

Your next question comes from Scott Rednor with Zelman & Associates. Please go ahead..

I just want to clarify one of your comments, Michael. I think you used the term accelerating there a couple of times.

So, when we look at same branch sales of 12%, are you indicating that you might have exited the quarter stronger than that or October is stronger than that level?.

No, I was talking about it -- sorry that I wasn’t maybe clear enough there, but I was talking about it relative to 2015. So, if you look at our same branch sales growth for the three months of ’16, it was about 12.2%. In ’15 for the same three month period, it was 8.4%.

If you look at it on a nine month basis, same branch sales growth was about 17.6% versus last year for the nine month period of about 10.5%, and that was a similar trend on an LTM basis.

So, our LTM same branch sales growth was about 17% which given the market opportunity, we feel very good about completions growth on the LTM period was only, total completions was only about 8%. So, growing our total sales about 17%, we feel very good on a non-comparable basis..

And I think like the dynamics that we’re seeing across building products, just a slowdown in both quarter-to-quarter statements earlier in the year that seasonality was going to be a little unusual, sorry about the alarm here.

But when you guys talk to your customers, is there any change in kind of what you’re hearing from your core older customers in terms of the pace of activity?.

No, I don’t believe so. And especially, this time of the year this is our busy season and quite frankly we’re like we are always at this time of the year kind of just may contribute and get the work done in front of us and we are frankly too busy to think about that..

Yes, I mean I think we’re doing a lot of the same things I think that you are probably hearing as well as, Scott is that. I mean clearly, people are concerned about getting enough land and making sure that they get it permitted in street and quickly enough. But clearly there is continued very, very strong optimism.

I think particularly not just with the public builders, but the regional and local builders. And as we stated on the last couple of quarterly call, we’re seeing very good both volume growth and price mix growth within that customer base.

And we believe that’s critical to the market recovering, and we also believe there is this shift that's is going on with the public builders relative to the entry level, and I hesitate to say entry level housing because I think within entry level housing today is different than what I might and before the downturn.

But clearly, they’re focusing in on more affordable housing and trying to again get that sort of entry level house, which I think is again a critical element to us getting back to stabilization on a single-family basis.

So, we believe our customers are optimistic, we think that the signs continue to point towards gradually getting towards, a recovery in the market. And so, we remain still very, very confident, but at the same time, I don’t want to review myself on this.

But what we like to see in our business and as because we have such a great team is that when they don’t have the same opportunity in single family that we were expecting, that they overcompensated if you will by performing so well on our end markets. And we credit them to that, because they really done a great job..

And then just a quick on Alpha, there is a couple of things here, but I was hoping you can clarify. When transactional structure within equity component was different than some of your prior acquisition? I was hoping you can comment on that.

And then, Michael, will you report it assuming all those close, will you report it at the December either revenue or segment?.

Once you answered the second part then I can go back to the first..

Yes. So, we’re continuing to assess on how we’re going to look at the business and manage the business. So, we haven’t made that decision yet, but certainly we will, because it’s an important acquisition and the size of the acquisition.

We intend to at least at this point disclose metrics around the performance of that business on a going forward basis..

Scott, this is Jeff. But I’ve been in conversation with both Vic and Henry for quite some time about this deal. And then really started out with the size and the breadth and significance of their business, and it’s impressive what they build over the year.

So, it’s always been a conversation really is much about partnership as it has about an acquisition per se. It's just different in that way. So, they’re going to be an integral part of the team, and both they and our group here thought it was important and completely appropriate in this instance to have significant piece of stock in the business.

So, that we're all motivated in the exact same ways and pulling the same direction. So, it was their desire and we were happy to accommodate it, but it was very appropriate..

The next question is from Keith Hughes with SunTrust. Please go ahead..

As we looked on several quarter, you have several things going on. I guess the first, as you've pointed out in the press release the completions were not stronger than the starts activity.

Do you feel like that we’ve been running in the opposite direction for some time, has this cost the industry up or do you think from a labor standpoint, is there still a backlog of business just to get back to par with the builders?.

Yes, there's certainly been a more catch up, there still continues to be a delta between single-family starts and single-family completion. So looking at it on an LTM basis, single-family completions were about 709,000 whereas single-family starts were about 762,000. So, there continues to be that delta.

It is not nearly as wide as it was say this time last year. So, we would expect that catch up is definitely -- there has been some catch up certainly and it certainly is not the delta that we had this time last year..

And as we go towards the first quarter of next year, you of course benefitted from some very strong weather. Is there any evidence whether fluctuations, is there anything unusually going on in the first quarter that would prevent you from going up against that difficult comp and seeing new business decline year-over-year..

Well, we think that as you know the first quarter for many building products companies including ourselves was definitely an outsized seasonal quarter, from a typical seasonal perspective.

So, at right now, we’re expecting that ’17 would be more in line with typical years and we would see the typical seasonality in the first quarter of ’17 that we would have had in prior years and not maybe the outsize performance that we saw in ’16.

But we’re continuing to bolster acquisitions and the recovery in the market, we’re continuing to see improvement in the business than would continue to expect this year..

This is Jeff, Keith. But I mean I guess specifically you could trace kind of what happens in ’16 first quarter as we all know probably a combination of weather and backlog, right. So, I think specifically you know you’re in that whether anything has maybe not in that and maybe asking if anything has changed.

So, if we take weather out of the picture because we can’t predict what that’s going to be.

If the question is at least partly is there a still work there and is there backlog, and I guess what I would answer is that we have not, even though we are getting the job done and outperforming the market, labor continues to be tight, labor continues to be tight throughout the whole home building construction chain of contractors.

So, the idea that even things were not quite as strong is maybe some of the specifics with respect to this point in time would raise any pent up kind of build up backlog. I don’t think that’s true because again everybody struggling to find enough labor to get through the demand that’s out there..

Okay. And final question on the Alpha transaction, it makes this very different than your business in terms or products. I assume there is not much products synergy here.

So, I guess my question is, what kind of synergies are there and will this one should be an integrated service of platform for more transactions this time?.

It will definitely service of platform, I mean this is a business as I mentioned in my comments that we participate in a very small way and in some of our locations, not all of our locations. This is more of a pure play obviously to that end market and something that we see growing really across our footprint.

And to begin with, I mean they hold a lot of relationships with general contractors, we obviously have the benefit of our math in our locations and in our installer workforce across the country.

So, it will really be a combination kind of them working their relationships with the general contractors and other major customers in conjunction kind of in conjunction with our support both from obviously from a balance sheet perspective, but also from an organizational perspective.

And the team we’ve got here in Columbus kind of like, we do even with all of our other acquisitions. We try to take some of that, which is kind of back of the house also the place of the business that we’re acquiring emerging with.

So that they can spend even more time on the frontend try to grow the business, service to customer, hire guys, do everything else it’s necessary in the field to grow business..

And I think it’s worth emphasizing that unlike the residential business, our current footprint where we grow geographically for our acquisition, we believe without outflow, we have the ability to grow for all the regions, Jeff, just said organically, geographically.

So, we’re very excited about the opportunity of working with their team and our team to really, what we think is an excellent opportunity to grow organically, not just through acquisition..

Just like we have I said earlier, it relates to the product that we install too. There are some other products that are or could be tangentially related to what Alpha is installing currently, that would make a great deal of sets for them to branch into.

So between those new product lines and the business as they’re performing currently, the acquisition or potential acquisition pipeline for us in that area of what will be our business going forward really is great..

The next question is from Nishu Sood with Deutsche Bank. Please go ahead..

Thanks. On the Alpha acquisition, just to dig into the strategic rationale little bit more. You consider your history on the residential installation side of things.

You folks have a very long and successful history, you have a very smoothly functioning system for integrating acquisitions whether it’s a labor management or back office or selling support, you’ve been keeping a local brand name. You obviously have the purchasing synergy and from a cycle perspective and you've led this out very well.

There is still growth to come in residential. So, it’s a good time to be acquiring. Now, if we think about commercial and the big step you’re taking with Alpha today. Obviously, you have a much more limited history.

The acquisition integration system there might be some disjointedness like you're mentioning to project size, for example how imaging selling is different maybe sending out as labor.

The purchasing synergy is probably a little bit less and from a cycle perspective, I think most of people are here probably much later on the commercial cycle side than we’re on the residential. So just given how that seems to layout maybe if you could kind of correct where that’s incorrect.

Why is that the right time to go into the commercial side of things? Does it tell us that the opportunities aren't there anymore to significant stand on residential? And how should we expect to the bank to look going forward? So a lot there, it’s a big acquisition, but your thoughts on outlay?.

Nishu, hi, this is Jeff. So, we have been interested in playing more substantial role in this aspect of the business frankly for years.

And when this opportunity presented itself, we were frankly kind of all over it, and I think would content that it's far less different or foreign maybe than what you have described, there is some ways I mean I will completely acknowledge this on the different cycle, completely acknowledge the average job size is different than what we do and that the end customer is even different than what we do.

But they bring obviously 32 years of tremendous experience, they have a relationship that is sought after and is impressive. I think within that part that end market as we certainly have been doing what we do in our end of the business, but so clearly we’ll be relying on them in that way.

But at the end of the day, they install for what we call we do sometimes is an affectionate ways you can use this word nuisance products for our customers. Much of what does again; it's not the largest trade on the job.

These are things that need to get done right, need to get done timely, need to get done past inspections and some instances for this different customer. Again, they are not labor only, they are not material only, they are selling an install product to a different customer, very similar to what we do.

And we think that all of the things that we do from Columbus in terms of acquisitions in other companies we bought into the fold in terms of HR, IT, accounting, safety any of the other back office functions that we take over are not really very different as it relates to this acquisition.

So, there is certainly our differences, not maybe as glaring as they appear. It's an attractive end market that we want to get into for years and the opportunity seems great. So we jumped at it.

Michael, you want to add anything to that?.

Yes, I think the other part of your question there you need the right thing, is definitely worth highlighting, it definitely does not signal that we think there is less of an opportunity on the single-family side.

One of the things that we worked hard to position ourselves for and I have talked about consistently is to be in a position to take advantage of opportunities as they arise, whether it's the Alpha opportunity or additional single-family opportunities.

And as we’ve announced over the past couple of weeks, you’ve seen we’ve done a couple of larger single family insulators as well. So, we feel very good about the pipeline of opportunity, we think that this transaction, the alpha transaction, opens up another opportunity for acquisitions as well.

And we think it's important for us to be able to continue to assess those opportunities, make sure we’re getting them right, and that we’re integrating them successfully.

And we feel very confident that our team and their team will work together very well as we worked to really leverage the opportunity, particularly on our ability to grow organically from their existing footprint through our footprint..

Got it and that’s very helpful. And I am sorry if I missed it earlier, but have you disclosed the valuation multiple on this deal? And looking forward, if we are going to be getting more acquisitions on the commercial side, how should we expect generally those valuation multiples to compare to what you have been doing on the residential side..

What we would say is that, this transaction and we believe other transaction in this space will continue to fall within the band of five to six times multiple that we have consistently talked about. We don’t see any reason why we should kind of deviate from those kind of multiples..

Got it. And on the residential side, you folks have done a great job and obviously your terrific disclosures will help a bit, in the past year to the lag between starts and completion. So, I think continue talk about labor. Now, we have a new kind of lag, which is between frontend demand, order and even starts.

Now then may just be a data issue start to running what time, what builder orders are and demand is generally. So, I just really interested to get your thoughts on that.

Is that something you have inside into as well as you thinking about and how is that affecting your flow of business? Is that going to be an added, but is the reflection of the same issue, do you think, it’s just the data issue or how are you seeing down in the ground?.

Yes. That’s a great question. And I think it’s a combination of the things that you just talked about. I mean, clearly the growth rate that we’re seeing particularly, if you look at the single-family starts growth of 2% in the third quarter. That does not add up about as reported from U.S. Census Bureau.

That does not at all relate to what you're hearing both from the regional and local builders, and also what you’re seeing the public builders report. So, clearly there seems to be a direct issue. But at the same time, I’d say, I mean when they record orders obviously in order is not start.

And you've heard people talk about this where there is a bottleneck, if you will, that’s been created relative to their ability to get land, get make sure that. They can get growth and infrastructure, put in place and go through the permitting process. And that's just kind of slowing down.

So, is the data not being consistent with what your builders talk about and what order growth was stay? Absolutely, and we think that presents an opportunity as we go into ’17, because we think eventually those orders are going to be converted into single-family homes for us to install our products until..

The next question is from Susan Maklari with UBS. Please go ahead..

In terms of thinking about your voice down of revenues or business going forward. What do you think is the optimal mix especially not you have Alpha in there? And in terms of those longer terms EBITDA margin target in that midstream range.

Is this changed that at all? Is it perhaps moved forward? Does it accelerate, expand the range of opportunity? How do you think about all of that?.

So, on the mix and this will be sort of approximate numbers, right. Our commercial mix will go up to about 20% of our total revenue with the Alpha deal, proximately.

And we do believe that it will certainly help improve both our incremental adjusted EBITDA margins to be more towards the higher end of the 20% to 25% that we’ve talked about on annual basis.

And as a consequence that obviously improves our overall EBITDA margin, and we believe that our ability to get to a mid-teens EBITDA margins is pull forward a little bit as we continue to, what we think we’ll be a successful integration of this business.

So, we think it incrementally helps and we also think that going forward as Jeff said, and as we believe, we can accelerate the organic growth within the Alpha business. And as if we look at acquisitions on the commercial side, can it get to that 20 to 25% range of our total business, yes, that’s definitely not out of the question..

Well, and I think that’s probably, it's Jeff, but it’s probably appropriate number, not all inappropriate. And we are saying that we’re changing our strategy to the spots in any way, and absolutely not. We frankly like I said have wanted to participate in this end market that Alpha end market for years haven’t had their absolute right opportunity.

This appears to be that, so it drivers us to 80/20 to start with and given as much opportunity as we have at Alpha, you’d say well that’s wonderful. We’re going to perform on that and it's going to grow, but if you really think about where we are in the residential recovery, the idea that it will grow as a percentage is probably not accurate.

Even if it's successful as we could be, just because there is so much more tailwind behind the residential in our core single-family business over the next number of years we believe to will really move that needle, and then you get into the relative size of both components of our business.

But to really move the needle in the big way, probably won’t happen.

But in terms of percentages and an interesting thing we kind of hit at it, both ourselves and others on the call because of the different cyclicality, so each business depend on where you are in the cycle both on commercial side and the residential side, does that percentage could move around but that would be more based on cycle as opposed to kind of effort on our side..

Okay, that’s helpful thank you. And then in terms of the way you’re thinking about your balance sheet going forward as you view perhaps versus some larger acquisition.

Has anything changed on that front, you know in some of these smaller deals you’ve been able to sort of self fund and just any share on that front?.

That’s a good question. I mean we are still even with the Alpha transaction, we believe we are conservatively levered and want to maintain the optimal capital structure throughout the cycle to make sure that we can look at all different opportunities to enhance shareholder value.

But at the same time, we do feel it's appropriate for the right deals that if we take on slightly on leverage because one, the existing business continues to generate very strong cash flow combined with the fact that we’re buying businesses that are generating cash flow as well.

So even if we take on leverage, temporarily for a transaction, we as a business de-lever very quickly even as we maintain our current pace of acquisitions.

So, we feel very good about where we are and our ability to continue the acquisition strategy and our continued access to capital, we will remain prudent in our leverage, but we feel we have very good runway in terms of both the organic cash flow and the acquired cash flow..

[Operator Instructions] The next question is from Trey Grooms with Stephens. Please go ahead..

Yes, good morning guys. It’s actually Blake Hirschman on air for Trey. Couple of quick ones, first, on capacity, some of the manufactures out there is talking about industry capacity from a supply perspective, possibly tightening up next year.

Can you talk about your views on that? And if it does get a little tighter out there, how would that impact your business?.

Yes. There has been a lot of dialogue around that. Certainly, we haven’t really seen any of that. We quite frankly, as we said multiple times, we prefer of a rising price environment to a flat environment.

And to the extent that there is any tightening in supplier, we believe that would leave to arising price environment and we think that’s positive for the overall industry.

So, to the extent that happens, again, we think that’s a positive and when you think about our price mix growth that we’ve been able to get particularly this year and what is been relatively flat pricing environment on the manufacturing side.

We think is testimony to not only the improving mix of our customers, but also the ability of our team to make sure there working with the best customers within the marketplace that are willing to passed price for what we believe is quality installation services.

So I would say that, we’re not seen any tightening yet in the market, but we certainly would welcome it to the extent that, that provides a rising pricing environment..

This is Jeff. We buy from all four manufactures, have on and off for years. So, the tightening of the entire industry in that way, and as Michael said, I guess, it’s not a bad thing, I think it’s a good thing ultimately, what obviously indicated market healthy too..

Great. And then just lastly incremental EBITDA margin on the acquired revenue contribution picked up some from the 1Q and 2Q level.

Is that a function of timing and just having a higher mix of higher margin acquired businesses in the fourth or are you may be seeing the cost synergies post close of your deals accelerated?.

It’s the mix of the acquired businesses as they come and the margin profile associated with them, and then the seasonality that incurred within the business, where you’re going to see higher margins in the third and fourth quarter relative to the first and second quarter, just like we did in the total business.

As I have mentioned in my comments, this is the first quarter where we had a teens EBITDA margins at 13.1%, since we've been public. And we think that’s very encouraging, so we’re making good progress towards getting to that mid-teens EBITDA margin what appears to be at a faster rate than even stabilization within the single-family market..

This concludes the question-and-answer session. I would like to turn the conference back over to the management for any closing remarks..

I’d like to thank all of you that asked questions. And for the rest of you, they were just listeners. Thank you also for attending the call and I look forward to our call next quarter. Thank you..

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day..