Jason Niswonger - Senior Vice President, Finance and Investor Relations Jeff Edwards - Chairman and Chief Executive Officer Michael Miller - Chief Financial Officer.

Nishu Sood – Deutsche Bank Keith Hughes - SunTrust Robinson Humphrey Bob Wetenhall - RBC Capital Markets Susan McClary - Credit Suisse Matt McCall - Seaport Global Securities Trey Grooms - Stephens Ken Zener - KeyBanc Capital Markets Scott Rednor - Zelman & Associates.

Greetings, and welcome to the Installed Building Products' Fiscal 2017 Second Quarter Conference Call. At this time, all participants are in a listen-only-mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Jason Niswonger. Thank you. You may begin..

Good morning, and welcome to Installed Building Products' second quarter 2017 earnings conference call. Earlier today, we issued a press release on our financial results for the second quarter, which can be found in the Investor Relations section 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.

These forward-looking statements include our financial model and seasonality, our estimated interest expense, the demand for our services, expansion of our national footprint, our ability to capitalize on the new home construction recovery, our expectations for the residential end market, our ability to strengthen our market position, our ability to pursue and integrate value enhancing acquisitions, the impact of Alpha on our revenue and profitability, expansion of our commercial business, our growth rate and ability to improve sales and profitability and expectations for demand for our services for the remainder of 2017.

Forward-looking statements may generally be identified by the use of words such as anticipate, believes, expect, intend, planned and will or in each case their negative or other variations or comparable terminology. These forward-looking statements include all matter 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 statements 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, the factors discussed in the Risk Factor section of the Company's Annual Report on Form 10-K for the year ended December 31, 2016, 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 certain non-GAAP performance measures on this call such as adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted share. 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, 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'm happy to have the opportunity to talk to all of you about our second quarter results. As usual, I will start today's call with some highlights and then turn the call over to Michael Miller, IBP's CFO who will discuss our results in more detail before we take your questions.

As expected the 2017 second quarter benefited from normal seasonal installation trends which helped drive sequential improvements in sales and profitability. Momentum in our business remains very strong and I'm encouraged that our sales growth continues to outpace the attractive growth trends in our markets.

In addition, during the second quarter IBP achieved a 25.3% same branch incremental adjusted EBITDA margin which reflects our focus on profitable growth. As we enter the seasonally strong second half of the year I'm pleased with the direction in which we are headed.

Second quarter total revenues compared to the same period last increased 33% to $282 million driven by same branch growth, the contribution of our recent acquisitions, and the strengthening housing market.

The higher revenues we experienced in the second quarter combined with higher gross margins and controlled spending helped improve our second quarter profitability with a 50% increase in adjusted EBITDA and 48% increase in adjusted net income per diluted share. During the 2017 second quarter we saw strong growth across all of our end markets.

Single-family branch sales increased 10% while total single-family sales increased over 19% compared to the increase in total U.S. single-family completions of 8%.

Within the multifamily market our locations benefited from robust demand and during the 2017 second quarter same branch multifamily sales increased 59% while total multifamily sales increased 117%. Combined residential same branch sales increased 14% while total residential sales increased to 28% compared to the increase in total U.S.

completions of approximately 12%. We expect residential end markets to improve to stabilization of approximately 1.5 million total housing starts over the next several years and that our business will continue to benefit from the recovery in housing industry. According to the U.S.

Census Bureau's historical data and the June 2017 Blue Chip consensus forecasts for housing starts, total U.S. housing starts are forecasted to increase at a 7% compounded annual growth rate from 2016 to 2018. During the 2017 second quarter total U.S. housing permits increased 6%.

This was primarily due to an almost 8% increase in single family permits while multifamily permits increased to 3%. We expect residential end markets to benefit from various factors including improving employments rising household formations and historically low mortgage interest rates. Acquisitions continue to enhance our financial performance.

In the second quarter we completed three acquisitions which include Minnesota based Horizon Electric Company with 2016 revenues of $1.2 million. Florida based Legacy Glass & Supply LLC with 2016 revenues of $5.4 million and South Carolina based Columbia Shelving and Mirror Inc. and Charleston Shelving & Mirror Inc. with 2016 revenues of $11 million.

The acquisition of Alpha Insulation and Waterproofing which was completed early in the first quarter continued to have a favorable impact on our financial results this quarter as well. To support new commercial business opportunities in Colorado, Oklahoma and Arkansas, we've added new commercial facilities in Tulsa, Oklahoma and Denver.

Alpha has already been selected to provide installation services on several large scale commercial projects in these markets. This organic expansion demonstrates Alpha's ability to continue growing geographically and support its customers across the country as part of IBP's nationwide platform.

So far in the third quarter we have completed one additional acquisition of Energy Savers, LLC, an installation installer in Louisville, Kentucky with annual revenues of $2 million. Year-to-date we have completed seven acquisitions representing the total of approximately $138 million of acquired revenues.

We continue to deliver on our acquisition strategy and remain confident in our ability to identify candidates, successfully integrate newly acquired companies and immediately achieve operating synergies through our scale of national buying power.

Our pipeline of potential residential and commercial deals over the next twelve months is robust and we anticipate the remainder of 2017 will continue to be another strong year of acquisition growth.

I'm very pleased with our strong start to the third quarter and our successful path and expect 2017 will be another record year as we are positioned to achieve over $1 billion in revenues. IBP has a fantastic team has experienced dedicated and motivated employees, I'd like to thank them for all their hard work.

Finally, on behalf of everyone at IBP I'd like to also thank our suppliers as well as our homebuilding, multifamily and commercial customers. We appreciate your support and we are committed to providing each of our customers with superior, committed and excellent installation services. Thank you.

Michael, I would now like to turn the call over to you to provide more details on our second quarter results..

Thank you, Jeff and good morning everyone. We continue to make excellent progress growing revenue and improving profitability. For the second quarter, our revenue increased 33.2% to $282.2 million. Our same branch sales improved 11.6% due to an increase in volume across all of our end markets and favorable improvements in price and mix.

Our same branch single-family sales growth was 9.8% and our total new residential construction same branch sales increased 14.2%. Additionally, we continue to experience strong performance in the commercial and repair and remodel markets.

As noted in previous quarters, we believe it is helpful to look at certain metrics over more than just a single quarter. Over the last 12 months our total same branch sales growth was 10.8% comprised of 11.1% from our new residential end market and 9.4% from commercial and repair and remodel, all on a same branch basis.

Second quarter 2017 gross margin increased 70 basis points to 30.1% compared to 29.4% in the prior year quarter as we continue to benefit from a seasonal mix of installation services and higher volume.

For the 2017 second quarter selling and administrative expenses as a percent of net revenue declined to 19.6% as compared to 20.2% for the 2016 period.

As a percentage of revenues administrative expenses were 14.8% in the second quarter compared to 14.6% for the same period last year which included increased public company compliance costs primarily associated with the transition to a large accelerated filer and approximately $2.1 million in non-cash stock compensation expense as we increased the number of field employees who will benefit from the increase in shareholder value they create with their hard work and dedication.

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 second quarter we recorded $6.6 million of amortization expenses.

This non-cash adjustment impacts net income which is why we believe adjusted EBITDA is the most useful measure of profitability. Based on our acquisitions completed to date, we expect third quarter 2017 amortization expense of approximately $6.7 million and full year amortization expense of approximately $26.4 million.

These figures will change with each subsequent acquisition. For the second quarter of 2017 adjusted EBITDA improved to $39.2 million representing an increase of 49.6% from $26.2 million in the prior year.

As a percent of net revenue our adjusted EBITDA improved to 13.9% in the second quarter representing an increase of 150 basis points from 12.4% in the prior-year quarter.

We are very pleased with the successful steps we have taken to enhance our operating efficiencies and increase of our adjusted EBITDA margin and continue to believe our financial model can return to mid-teens adjusted EBITDA margin as the housing recovery reaches stabilization.

IBP's same branch incremental adjusted EBITDA margin for the 2017 second quarter was 25.3%. The adjusted EBITDA margin contribution from acquired revenues was 14.8% compared to 10.1% for the same period last year reflecting the contribution of Alpha's higher margin commercial revenues.

Long-term and as demonstrated in the 2017 second quarter, we continue to believe our financial model can produce full year same branch incremental adjusted EBITDA margins of 20% to 25%.

On a GAAP basis, our second quarter net income was $12 million or $0.38 per diluted share compared to net income of $10 million or $0.32 per diluted share in the prior year quarter. Our adjusted net income improved to $18.7 million or $0.59 per diluted share compared to $12.5 million or $0.40 per diluted share in the prior year quarter.

For the second quarter of 2017 our effective tax rate was 33.4% compared to 33.2% in the prior year quarter. For the full year we continue to expect an effective tax rate of 35% to 37%. Now moving on to our balance sheet and cash flow.

At June 30, 2017 we generated $28.4 million in cash flow from operations which we continue to use to fund acquisitions and reinvest in our business. Capital expenditures at June 30, 2017 were $14.7 million or total incurred capital leases were $2.5 million.

Capital expenditures and incurred capital leases as a percent of revenue declined 60 basis points to 3.2% in the 2017% first half compared to 2016 despite 33.3% increase in 2017 first half revenues.

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 the end of the 2017 second quarter, we had total cash in short-term investments of $92 million compared to $14.5 million at December 31, 2016.

On April 17, 2017 we announced the successful refinancing of our borrowings under the company's existing term loan and delay to our term loan facilities and the closing of a new $300 million term loan B facility and $100 million ABL revolving credit facility. At June 30, 2017 our total debt was approximately $341 million.

Taking into account cash and short-term investments at June 30, 2017 our net total debt was $248.5 million at the end of the 2017 second quarter. We have a conservative capital structure and considerable flexibility as we continue to deliver on our growth strategy.

As a result of our new credit agreements we anticipate interest expense of approximately $4 million in the third quarter and approximately $14.5 million for the full year including the write-off of unamortized loan costs related to our previous credit facilities.

These figures will change based on subsequent finance repurchases and short-term cash flow financing under our ABL facility. With that, I will now turn the call back to Jeff for closing remarks..

Thank you, Michael. Well I think that pretty well 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. With the housing industry continuing to demonstrate improving trends we are excited about our opportunities for 2017 and beyond.

Operator, let's open up the call for questions..

[Operator Instructions] Our first question comes from the line of Nishu Sood with Deutsche Bank. Please state you question..

Thank you, good morning. I wanted to start out with kind of a bigger picture question. As the housing recovery has progressed here, one of the biggest topics of discussion is the return of the entry-level.

I thought it might be helpful to start with a discussion of how that underlying trend in the evolution of the housing recovery might affect your trends and maybe from the type of jobs, we get questions about the higher end installation, the spray foam obviously, and obviously just the quantity per unit as well, so how will that affect your business in the coming years?.

Hey Nishu, it’s Michael Miller, how are you?.

Great, thanks..

Good.

So, I think we’ve talked about this on previous calls as well because certainly its top of mind for a lot of people, but the shift to entry level for us is clearly better than from our take per unit perspective if you will than the multifamily opportunity, which we’ve done an excellent job of really realizing that opportunity and growing that significantly organically.

But we think that if the market continues to trend towards the entry level customer that does help us relative to multifamily. Obviously we have a higher take per unit for sort of high-end in custom homes, but we believe there is still that happens and fully recognized in the market as we trend towards stabilization.

There is still a lot of opportunity with the regional and local builder. And I think that’s evidenced by some of the things you are seeing relative to land development loans that are going to that regional and local builder. And from our price mix perspective they are very beneficial for our price mix and our take per unit over time.

So, we are very encouraged that as we continue towards stabilization and normalization between single-family and multifamily, it’s going to continue to benefit our business both from a trend towards single-family and away from multifamily even though we really like that opportunity and have realized good benefit from that, and as the regional and local builder continues to come back.

So, we think that it is a positive trend and we think it’s positive for the overall market that the entry level market becomes stronger from an affordability perspective..

I mean, this is Jeff Nishu, but frankly I mean it’s really our bread and butter and again there is really no negative I think whatsoever as it relates to our business if that trend does in fact continue to grow and multiply the way everybody thinks.

You know, and I guess specifically, not every location that we have is of the size that can completely take advantage of and participate for instance in the multifamily business, but if we have an insulation installing location every single one of our insulation installing locations for instance could take advantage of this trend.

You know, not every branch that we have is informed, but in this particular instance if we have a location and it’s an insulation installing location we can do that work which is a big positive..

It’s a very big positive for us. And keep in mind too Nishu, when we disclosed our price mix you know mix is an important part of that as well, not just price.

So, one of the things that we did particularly well and we’ve talked about this on previous quarters that we did particularly well in the second quarter of this year was grow our other product sales, which we're excited about because we think that helps to improve our leverage and our margins in the business, but because those other products are at a lower price they impact the overall price mix the way that we disclosed it to you guys in the earnings release..

Got it. I guess the – I think that’s a very good understanding of the single-family versus the multifamily mix. I think though the trend that folks are more focused on is the entry level segment versus the move up in luxury.

You know, specifically things like obviously there is typically lower score of footages is the type of the insulation work; you know lower value add typically in the entry level? Also, it’s not just insulation that you folks are doing, you know with the garage doors and gutters.

So, the potential if any impact from mix on entry level versus the move up in luxury I think it’s just the kind of more recent topic of focus?.

Now, I think it goes back to what we were saying earlier. I mean it’s a shift from multifamily to entry which is very positive mix shift for us. And it’s not as if in our opinion, it’s not as if the kind of luxury, high-end home market is not growing.

We feel it’s growing well, but the entry level is just growing at a faster rate which again relative to multifamily and relative to not having the permits is very positive for us..

I mean, obviously, we as a company that wait for it to come back, exclusively positive in that market you know the entry level..

And the cost of service is very efficient right, so you tend to be very efficient in those areas..

Got it, got it, now that’s very helpful. On multifamily, the 50% something sales growth year-over-year, fantastic number obviously relative to the market trend and I believe if I understand the way you calculate that correctly, that excludes so far the impact of what Alpha might be doing and some of the mid-to-high rise projects.

So, what drove that, I mean obviously the significant outperformance on existing pretty stable business line for you? And also as the Alpha mix I guess it’s factored into the organic, how is that going to affect your trends, adding in the mid-to-high rise, because obviously where multifamily has slowed a little bit more has been in those City Center projects, so what’s your thoughts on that?.

So, couple of things there Nishu, I mean on the multifamily same branch or organic side, in the quarter, that revenue will increased a little over 59% and that does exclude Alpha as you said. Including the benefits of Alpha and our other acquisitions in the quarter of multifamily sales, total multifamily sales grew over a 100%.

So, what’s really driving that factor is, a couple of things, and I think we mentioned this on a couple of the most recent calls is that, you know we made a very strong focus on going after multifamily in our existing market and recognizing that opportunity that was there.

And if you think about our footprint, we have good footprint on the East Coast, but we also have a very good footprint in the centre of the country. And I believe that clearly what we are seeing is that those markets, those individual markets on a multifamily side are different than the East Coast market.

And as Jeff was saying earlier, not all of our branches do multifamily work, but as we’ve gotten branches into multifamily work this is existing branches that are calculated in that organic same branch number, you know it’s really been able to, we've really been able to recognize that opportunity.

And what we are really excited about is that we are taking advantage of this opportunity that exists right now. We are continuing to grow that opportunity.

Yes, I think we would all admit that multifamily is probably reaching stabilization way ahead of the single-family market, that doesn’t mean though that we can continue to grow organically in that business in markets where we may not have done that before.

And also, it’s very easy to redeploy multifamily crews to single-family work as that work continues to grow. So, you know, it’s really engaging and using our labor force as effectively as possible. So, we feel very good about our ability to pivot and also to really realize the potential in our markets on the multifamily side..

I mean, Nishu, its Jeff again, I mean the facts are we were under indexed to that market segment not too long ago and we’re still even as a percentage of the overall starts, it’s not you know we don’t match up with the way the housing starts in completions breakdown. So, it comes really from not having that much presence.

And back to your earlier question, your previous question, you know part of it was as the first time homebuyer and you know middle entry home buyer is not there for us. They were obviously ending up in apartments and we knew we needed to over perform in that segment.

So, that’s what we set out to do and that’s what we were able to do and even still on a percentage basis it’s not representative of what the opportunity is on a market wide basis at all in our business..

Yes, the percentage of our residential business is about 15% right, which as you know, the mix between a multifamily and single-family right now is higher on a national basis..

Got it..

I would tell you that we have in particular some branches and some individuals and teams that have gone to work on this hard, and I guess I'd take a moment just to acknowledge that on the phone of telling them they are doing a great job..

Got it, great, and the Alpha part of it, like how will that affect do you think its markets share penetrations story, does Alpha also have the opportunity to increase market penetration or is that more on the legacy side of the business?.

There is opportunity there from an organic growth perspective, but in terms of the size and scale of our sort of footprint without Alpha and the ability to get new branches into the multifamily business, that is a greater organic opportunity.

But we see Alpha yes, on the multifamily high-rise multifamily or larger multifamily projects, but it really is their bread and butter that we're seeing there that we are excited about.

And while they are not in our organic numbers yet, you know on our pro forma basis they are growing their business or that business is growing organically at a rate equal to or even slightly above our organic growth.

So, we feel very good about how Alpha is performing and the ability for Alpha to continue to improve our commercial business and the multifamily side of the business as well..

Yes, I mean Alpha is and will be an organic growth story for the business and it’s not to say that we won’t because we will make acquisitions in that commercial market also, and many comes may be just to lead with a smaller acquisitions just to gain a toe hold in the market, but ultimately, really I think that the real opportunity here is an organic growth story for Alpha..

Great, thanks so much..

Thank you. Our next question comes from line of Keith Hughes with SunTrust Robinson Humphrey. Please state your question..

Thank you.

Speaking of Alpha, once Alpha enters the comp next year anniversarying the deal, is that going to have an impact one way or the other on the organic contribution margin?.

Keith, this is Michael. Yes, it will because of their higher margin. So, you know we still believe that the incremental EBITDA margin on a full-year basis, you know we are still talking about that 20% to 25%, but clearly when you put in a higher margin business in that organic mix it tends to trend towards a higher level..

Okay, so the contribution margin on dollar is higher there, is that correct?.

Correct..

Okay.

And I guess, also can you give us an update on multifamily, you talked about awhile in the call here, what is that, is it percentage of the mix, percentage of the sales in the second quarter?.

So, in the second quarter it was 12% of our overall sales and single-family was 65%..

As you look at the order trends coming in multifamily, it appears as though this is going to slow down pretty dramatically in 2018, just in terms of what the starts numbers have done, is there still room for share gain there or will you see that business slowdown for you as well?.

Yes, we believe there is still considerable opportunity for share gains, because as Jeff was saying not all of our branches currently do multifamily, so and it’s not as if multifamily is going to completely stop, it just may not be growing at the same rate as single-family. So, we are excited to continue to focus on that business.

We like that business, but we are also very opportunistic about the continued recovery in the single-family side of the business and our ability to pivot our team to work successfully on that single-family growth..

Okay, and final question, the price mix number was still positive, little bit less than what we’ve seen in previous quarters, could you provide any comment on that period particularly around second half of the year around fiberglass installation pricing what you are expecting there?.

So, I will do the first part of that question and then Jeff can do the second part. But on the first part, it goes back to what we were saying a little bit earlier, that price mix, I think a lot of people have a tendency to think of it as just being price, but it really I mean, the mix component of it can really influence significantly that number.

And as I was saying we did an excellent job of growing our other product revenue in the quarter, and as a consequence those smaller dollar projects have a tendency to or do bring down the average on the price mix side.

So, as it relates to our core installation particularly fiberglass installation business we have been very pleased with the progress we've made both with the regional and local builder and also with the national builder on our ability to improve price mix there..

Hi, Keith this is Jeff. So, you hit it at and its obviously you are aware there is 8% on both bat and blow price increase out there from all four manufacturers to take place in early September.

That’s you know really a little more in line with what we would have seen historically and kind of other times there has been less kind of cohesion around what the thoughts were as it related to you know price increases in general over the last really almost couple of years I suppose.

But I would say that I think the environment for price increase right now is just positive as it has been for a very long time really..

And the timing of it is the way that it should be in September which is when we are going into our seasonally strongest period. So, you know we think it was you know it makes lot of sense..

Okay, all right, excellent guys, thank you..

Thank you..

Thank you. Our next question comes from Bob Wetenhall with RBC Capital Markets. Please state your question..

Hey, good morning..

Good morning, Bob..

Most of my questions have been answered. Hey just what's your thoughts on the next 18 months from an M&A standpoint? I think the commercial side of the business is now 19% or 20% of sales. It seems in hindsight like a great acquisition.

Your commentary this morning is very constructive especially on the single-family demand trends and the pricing environment. So, it's kind of like you're in a sweet spot right now.

What does IVT look like at the end of 2018 and what do you think is the business?.

But that sounds like a lot like guidance..

We’re going to buy good companies on a go forward [indiscernible] and we’re going to integrate them in, pretty good. Sorry Bob. I think it's more of the same. I mean we're going to run the same play we've been running.

You know we're a larger company than we were obviously, so we'll do our best to make sure that what we're doing is impactful to the businesses as it has been in the past and do the best on kind of making smart decisions and ringing the cash register and watching expenses and driving business for it..

Got it. So you're happy with the current composition of the business.

I mean if there is stuff out there where you, is there any intent given the fact that you have these great tail winds right now what's your appetite for M&A, is it higher than it was a year ago, do you expect to kind of pressed on the accelerator a little bit or you find the business right sized for the current demand profile of the housing market?.

Yes, I would say that we're – I mean we've always been as you know Bob, excited about the acquisition opportunities that we have and I would say that we're pursuing that as aggressively or more aggressively than we ever have.

And clearly our balance sheet is in a position right now with the amount of cash that we have and the availability that we have that, there's just there's a lot of opportunity out there.

We're making sure we're doing the right deals that fit with our strategy, but definitely we'd rather own businesses more today than 18 months from now, as we continue to benefit and we believe they will continue to benefit from the market recovery..

So far six months seven deals?.

We've done seven deals in the first six months of this year, that's on pace with, probably one of the most brisk pace we've really in our history certainly in our history as a public company, it is a quicker pace then we've been on and we see, honestly nothing in our way to not continue to really make good accretive acquisitions, team is functioning perfectly well, that's what we do..

Let me ask you, would you prefer to focus more on commercial opportunities or core residential opportunities.?.

Both..

Got it. Great execution, terrific environment. Best of luck for the rest of the year. Thank you so much..

Thanks Bob..

Thank you..

Thank you. And our next question comes from Susan McClary with Credit Suisse. Please state your question..

Good morning..

Good morning, welcome back..

Good morning..

Good to be back, yes. It's good to be back.

Can we talk a little bit about the gross margin? You know how as Alpha continues to come through this year and you perhaps get some more projects from there, how are you thinking about that trending? Are we still sort of - should we still be expecting something in the low 30% range generally, just any color you can give us there?.

Yes, we would expect Susan not just because of Alpha, but also because of our continued higher volumes that we would continue to get leverage within other cost of goods sold and also our direct margin or simple margin we've talked about before continues to improve.

So it's not just Alpha, but it is the higher volumes in the rest of the business that we will believe that we believe will continue to allow us to progress forward on the gross margin front..

Okay, all right thanks. And then within your mix of customers you definitely have a great read on the private builder within there.

Can you just give us some sense of you know how is that trending especially maybe as we get more of a mix towards entry level versus some of the maybe higher end type construction that we've seen coming through earlier, just any thoughts on what's going on, on the ground there?.

It's interesting that the one thing that I think most people would say particularly as the single family market is improving is that, the regional and local builder which is the key core competence of our business, really they've been the last to recover right.

We're still seeing or we're continuing to see good mix there, but we've been very pleased with relative to our expectations, the strength that we're seen actually with the larger builder and the national builder and the project mix there.

We've spent, earlier on the call talking a lot about entry level, but you know even if they shift towards entry level, we're seeing very positive characteristics and pricing mix from our National Builder business. So not to, I mean going back to what Bob said, I mean we are in a very good spot right now.

The team is performing exceedingly well and we feel that and we believe we've demonstrated this quarter-over-quarter is that we have the ability to shift the business towards the best opportunity that's there and as a consequence we continue to improve gross margin and adjusted EBITDA margins..

Okay, thanks for the color guys..

Thank you..

Thank you. Our next question comes from the line of Matt McCall with Seaport Global Securities. Please state your question..

Thanks, good morning..

Good morning, Matt..

So, maybe following up on the price mix question, I think, I kind of get some of the IMG talks specifically Michael about the other products and strengths there, but as we look at in the back half is there anything you would call out either from on the end market mix perspective or from a product mix perspective that we should keep in mind especially as it pertains to kind of what looks like easier comps a year ago from a price mix perspective?.

Yes, I mean there are a lot of things that influence the price mix as we were talking about earlier in terms of the other products that, on average are considerably lower priced than the insulation product.

I do think, one of the trends certainly that we're seeing as you get more volume growth with the national builders that tends to be more fiberglass jobs than spray foam jobs. So they have kind of a little lower price mix, but the margin is still good and the volume is beneficial. So we expect that all of those things absolutely influence price mix.

And then, as we talked about earlier, you know relative to the market price increase relative to fiberglass that will obviously positively influence price mix as well. We believe that is the [indiscernible] insulation manufacturers do realize price improvement..

Okay, okay and I guess a similar question on the volumes side, just looking at volume and looking at the trend from last year it appears that back half comps get much easier and I understand there are some intricacies to how you quantify volume that as we take into account more multifamily activity some of these smaller jobs.

Would the easier comp be an indication that volumes to just accelerate the orders there is something in the mix there that would cause that number to not accelerate despite the better – the easier volume comps?.

There is, there's really as we look at the back half of the year and as it relates to certainly the first half of the year and even prior years, we believe that the market continuing to recover towards single family and towards the regional and local builder.

I mean obviously that recovery helps volumes and it also benefits price mix with a slight offset again that, I'm sorry that I'm saying it several times here, despite offset that you have given our ability to continue to increase the other products because we believe that from an organic perspective that’s and from a margin perspective that's very helpful for us to continue that cross-selling of those other products even though they are at a per unit basis or per job basis at a lower dollar..

Okay, got it and then final question Michael, the Alpha commentary you said you added some new facilities and maybe I just don’t remember it, but the way I was thinking about the growth in Alpha was basically to leverage the existing IBP branches and sell more commercial there, is that adding these specific, these commercial specific branches a bigger part of the growth strategy and if so, how many do you plan to add?.

Hi, it’s Jeff. Alpha really is, I mean they operated in the commercial arena that yes, a few of our branches kind of do the very similar kind of work that they do, but for the most part it is although it's a similar type of sale and it's to an entirely different customer really an entirely different job.

So if we confused you or others earlier about they actually kind of running out of one of our locations, that’s not usually going to be the case.

This would be and then we may in the beginning help them to get started in a particular market, but these would be for the large part, if not separate facilities at least separate operations in each of these markets in an effort to really leverage customer relationships that Alpha already has in other regions and in another markets that these customers do work in that they're not currently doing work in.

So that’s, in this particular case, they were able to follow relationships into those three markets and it's very important on the way in which Alpha really grows is they identify the right people to really kick off and start and chase both sales, again the operations side of those locations and so, it will be, it will be and is an effort really right now inside and out but to train people properly on the way in which Alpha does work in and find that sales person and that ops person for each of these markets, train them and place them in those markets and take advantage of those relationships.

So, that's the way really Alpha is going to grow..

And it doesn't happen overnight. So a lot of these opportunities are opportunities that were being worked on even before they became part of the IBP team.

I mean we are looking at and starting the process of kind of “Colocated” having them colocated in some of our existing facilities, but it's not, their business is not a business that you just put a shingle out and start work that next day.

It really is time where you need to make sure you got the right people doing the right things and you're working with the right customers and the right projects. So, it really is going to continue to be that strategy of leveraging our existing footprint, but just realizing it over time as we add the right people on the team to get that done..

And then in some cases they will go out of date, but it is just for ease of start off really..

Okay, all right, thank you all..

Thank you. And our next question comes from Trey Grooms with Stephens. Please state your question..

Thank you. Quick followup question kind of I guess bigger picture on the commercial side. I mean I appreciate all the color on the kind of Alpha specific opportunity that you guys see out there, but just more on kind of the end market in general.

There's definitely varying opinions out there of kind of where we are in the cycle there on the commercial side, just wondering if we could get your opinion, based on kind of what you see out there in backlog, what your customers are talking about.

Outside of market share gain opportunities and things like that, just the kind of your take on the overall market and where you see what inning are we in, in your opinion there to get to something more like stabilization?.

Yes, that's a little bit kind of just given the way that those markets are measured, it's a little bit more difficult then to like come up with sort of an inning analogy as you can with the residential construction side of the business.

But what I would say is that we're seeing above company organic growth at the Alpha business and we feel and that's without them doing this organic geographical expansion.

So, we feel very confident about their team, what they've built and what they're building and their ability and our ability with them to really execute on the opportunities out there, particularly when you think of how small they are relative to the overall market opportunity and how few markets they are in.

So again, I don't, I can't call it if it's the sixth inning or the seventh inning as it relates to the commercial side of the business, but based on the bidding that we're doing, the team that we have in place and the geography that we have still to cover in that business, we think there's tremendous organic growth opportunity in that business..

All right. That sounds good, encouraging. And then last one for me is, your comment earlier you know of course with the 8% increase that's out there, you mentioned that the ability for some increases there, was more favorable than you've seen in a while.

Just wanted to get some color behind what's behind that what's your thought process is there, I mean are things just tightening to the point, that it's becoming a lot easier, everybody kind of get on the same page just, what's behind the confidence there?.

Yes, in general I would say it is both around the manufacturers, manufacturer capacity just a general environment in terms of kind of how the contractors and other customers are feeling probably about their ability to get price increases. You know the builders for the most part are having a good go at it.

Laborers tie was also - has nothing to do with the mature price increase, but it has everything to do too with our ability potentially to get price increase as it relates to you know some point all busy. So we've get kind of being paid what we think is a fair price for the work that we do.

Obviously that coincides with where the manufacturers are coming out with the price increase also, it's easier for us to pass all that together and have a lot of result like think around price increase..

Thank you. That's helpful and thanks for taking my questions and keep up the good work guys..

Thank you..

Thank you..

Thank you. The next question comes from the line of Ken Zener with KeyBanc Capital Markets. Please state your question..

Good morning, gentlemen..

Hi, Ken..

So Jeff, your comments around pricing as well for you being very kind of muscular around that, so if manufacturing supplies tight, kind you kind of walk us through on the labor side, I mean Fortune brands talked about perhaps some delays and their hire and cabinets basically, so there wasn't trade available.

Is that tightening up at all, I mean obviously we're seeing some slower growth in multifamily. I don't know if that actually translates ever to labor in the single family side, but are we seeing anu constraints on the labor? You talked about obviously your value not just being the material you're conveying into the home, but the labor.

So, is that, is everything kind of shifting in terms of labor tightness in a way that's also they’re doing you to get better pricing as everyone's obviously focused on this incremental margins, right and there's a lot of pieces in your business that are obfuscating that, but it seems like the core part of your business is how it is getting a lot more positive momentum based on your comments around pricing?.

I would, I mean labor has been tight really since the beginning of the recovery. So, I don't know that it, we're facing any different challenge. It's what we do every day. It's hire and hire, hire, hire and we'll continue to do that.

I just it's not, it's not if there were guys sitting around you could say that that's a negative as it relates to a price increase. What I would say is that it's probably no worse than it's been and we just have to continue to do the job that we do in hiring every day.

It does give you confidence I guess and when you're standing with a customer though and a [indiscernible] if it's work that you know you don’t feel like you're being paid a fair price for, there's enough work out there and you're busy enough that enables you to maybe do different work so....

And yes, I think we've demonstrated consistently as the market has recovered that we've continued to improve gross margin and adjusted EBITDA margins and we've continued to seize to our opportunity.

And our team in the field does an incredible job of making sure they have well trained and sufficient labor to meet what the opportunity is in those markets..

Right and then if, you know it’s 7% or 8% that's, just from a COGs perspective if that, 8% half of that goes through, could you walk us through perhaps, what a 4% COG increase does in terms of contracts you have out, does that translate to a let's say a quarter of less margin accretion or how do you incorporate that type of step function into the bids that you already have in place, you have, contract functions that account for that? Thank you..

So historically we've - a rising price environment has always been beneficial to the business over time, and as you know and what we're talking about is just fiberglass pricing here right and that's only a portion of what we do.

And as you know most of our fiberglass jobs are priced, are not priced that far forward and so and we have complete knowledge and the market has very advanced notice about any changes in material cost. So, again and we're talking, when we talk about the fiberglass price increases we're talking about the market. We're not necessarily talking about us.

We're talking about the market and we think it's important that again what we believe and what we're seeing is that the general demand environment is very positive and constructive for single-family construction and those demand drivers are very positive for all participants in the industry, both the manufacturers and the sellers like ourselves..

We've dealt with this obviously for decades, is it completely smooth and as completely kind of linear, no, it's a little soft too in terms of ups or downs as it relates to this.

And when it, when you take it and when it put in the market and how you handle that, but the kinds of the soft, you know what I mean, between the steps are small and especially when taken into context of an entire quarter.

If you look at it and you said what is going to happen today? It is a little more dramatic than what you say what's going to happen, if you simulate this in over 120-day period..

Thank you..

Thank you. Our next question comes from Scott Rednor with Zelman & Associates. Please state your question..

Hi, good morning..

Good morning..

I just want to clarify Mike, you're answer to a prior comment and Jeff's commentary on 3Q are you trending ahead of the 12% same branch sales that you reported in 2Q thus far in 3Q?.

If we implied that, that would have been sounding a little bit like guidance which as you know we're sensitive to not providing, but I would say that we continue to feel very good about the business, both that what we're seeing as we talked earlier about the Alpha business and its performance and also the existing business.

So there aren't any negative trends that we're seeing right now that are causing us to be concerned about our ability to continue to perform..

And then when you think about the, oh go ahead..

I was going to say but, if we implied in our answers anything relative to the third quarter, the fourth quarter other than our overall kind of positive feeling about kind of where we are and that cycles continue to improve, we didn’t, that wasn’t necessarily our intention.

So, I mean, we continue to feel very, very positive about the back half of the year and going into 2018 and even 2019 at this point..

And then can you maybe talk to the core incremental margin, obviously it bounced back nicely this quarter from last quarter and there was some concern obviously last quarter, can you maybe just frame how you guys think about that 20% to 25% that you guys have historically guided to both in terms of this year and going forwards?.

You know, as I think we talked about in the first quarter call as well, I mean given that the incremental margins were low in the first quarter, that's going to certainly influence the full year, but you know incremental margins of 25% plus on an organic basis in the second quarter which is typically our second worst quarter if you will in a year, you know it feels very good.

And keep in mind that's on the organic business, so it doesn't include any contribution margin from Alpha right, so we feel very good about that in the second quarter.

And we would expect as is historically the case that we would see higher volumes in the third and fourth quarter and as historically been the case is that you see better margins in the third and fourth quarter as well. So, we feel good about that 20% to 25% and we feel good about what the rest of the year is going to look like as well..

And then just lastly on Alpha, can you maybe talk to how fast it's growing pro forma? And then as we see the margins as reported, I know you're reporting all the acquisitions at around 15% year-to-date, but that would be a little bit below what Alpha was running at last year.

So I was just hoping if you could give us a kind of a view to support the positive commentary in terms of what are the kind of the pro forma trends running now that you've owned it for plus or minus six months?.

Yes, so there, the answer to that question is going to be maybe not as crisp as you would like it to be, so I apologize for that, but for the first half of this year their pro forma sales growth has been above our organic sales growth okay? So we feel very positive about that.

And then as it relates to margin, they are coming in our expectation of their margin is very similar to where they're coming in. The one caveat that I would say in that is, I mean obviously we're a public company. They were a private company.

What we do on a monthly basis and a quarterly basis from an accrual perspective is much different than what a private company does. So when we compare their results to our results on a pro forma basis it's not directly comparable until we get full year results.

I'm sorry this is not as crisp of an answer as I would like to give you, but what I would say is that from a margin perspective they are absolutely consistent with what our expectations are and the organic growth is better than what we expected..

Thank you, both..

Thank you. There are no further questions. That does conclude our question-and-answer session. I will now turn it back to CEO, Jeff Edwards for closing comments..

I'd also like to thank all of you for your questions and I look forward to our next quarterly call. Thank you..

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time..