Greetings and welcome to the Installed Building Products Fiscal 2023 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Darren Hicks, Managing Director of Investor Relations. Thank you, sir. You may begin..

Good morning, and welcome to Installed Building Products second quarter 2023 earnings conference call. Earlier today, we issued a press release on our financial results for the second quarter, which can be found in the Investor Relations section of our website.

On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include statements about future expectations, anticipation, beliefs, estimates, forecasts, plans, and prospects.

These forward-looking statements are based on management's current expectations and involve risks and uncertainties.

Any forward-looking statements made by management during this call is not a guarantee of future performance and actual results may differ materially as a result of various factors, including, without limitation, the adverse impact of the ongoing COVID-19 pandemic, general economic and industry conditions, rising home prices, inflation and interest rates, the material price and supply environment, the timing of increases in our selling prices and factors discussed in the Risk Factors section of the Company's annual report on Form 10-K, as may be updated from time to time in our SEC filings.

Any forward-looking statement speaks only as of the date hereof. The Company undertakes no duty or obligation to update any forward-looking statements as a result of new information or future events, except as required by the federal securities laws.

In addition, management uses certain non-GAAP performance measures on this call such as EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted share, adjusted gross profit, adjusted gross profit margin and adjusted selling and administrative expense.

You can find a reconciliation of such measures to their nearest GAAP equivalent in the Company's earnings release and additional reconciliation for EBITDA and adjusted EBITDA for earlier fiscal years in our investor presentation, which are available on our website.

This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer; and Michael Miller, our Chief Financial Officer; and joined by Jason Niswonger, our Chief Administrative and Sustainability Officer. I will now turn the call over to Jeff..

Thanks, Darren, and good morning to everyone joining us on today's call. As usual, I will start the call with some highlights and then turn the call over to Michael, who will discuss our financial results and capital position in more detail before we take your questions.

IBP produced another record quarter of operating and financial results, which included record second quarter sales, net income and earnings per share. Our financial results continued to benefit from our strategic focus on profitability over volume, as well as our diversified end markets and products.

As a result, we were able to more than offset softer single-family sales through ongoing strength and solid execution within our multi-family business and improving demand within our commercial business. Our continued success is a direct result of the efficiency and diligent effort of our installers and employees across the country.

Looking at our Installation segment results for the second quarter, total Installation sales increased 2% year-over-year. This was driven by 41% increase in multi-family sales and a 24% increase in commercial sales, which combined to more than offset a 10% decline in single-family sales.

IBP's multi-family sales growth accelerated to 38% on a same branch basis, up from 30% on a same-branch basis last year. We have been successful in selling IBP's Installation services across branches in other markets that historically have not served multi-family customers.

Within our Commercial business, second quarter's same branch Installation sales increased 16%. Bidding activity and project bid acceptance rates in our heavy commercial business improved in the second quarter relative to the first quarter, while same branch sales improved both sequentially and year-over-year.

During the quarter, price mix increased by 7.2% over the prior year period. We continue to apply our own local market knowledge and improved job efficiency while making adjustments to align our pricing with the value we offer our customers.

The strong growth in our multifamily and commercial end markets has also been a benefit to our price mix disclosure, as sales to these end markets have higher average job prices relative to our single-family end margin We continue to expand our product offerings and geographic presence through acquisition and have closed five deals so far this year with annual revenue of over $48 million.

We expect to acquire at least a $100 million of annual revenue once again in 2023.

During the 2023 second quarter we completed two acquisitions, including a Florida-based installer of fiberglass and spray foam insulation serving residential and commercial customers with annual revenue of approximately $3 million, and a Texas-based installer of fiberglass, spray foam, and cellulose insulation serving residential, multi-family and commercial customers with annual revenue of approximately $3 million.

Overall, the residential housing market remains resilient as stable employment and relatively low existing home inventory levels continue to support demand for residential new construction activity.

We are very encouraged that the publicly traded homebuilders that have reported results in the last two weeks have combined order growth of approximately 18%, the first positive result for the Group in over a year.

While these orders will take time to impact our revenue, we believe that the recovery in single-family home construction is clearly underway. As for the multifamily end market, the backlog remains at historically high levels with jobs extending beyond one year.

We believe we are well-positioned to report another year of strong operational, financial performance in 2023 as we continue to focus on profitability and effective capital allocation.

Longer term, we believe IBP strong customer relationships, experienced leadership team, national scale and diverse product categories across multiple end markets will help IBP navigate future changes in the U.S. housing market.

Our strong balance sheet coupled with our high operating cash flow generating capability supports ongoing acquisitions, dividends, and opportunistic share repurchase activity.

We believe the installation industry is well positioned to benefit from demand driven by government legislation including the Inflation Reduction Act of 2022 in the Bipartisan Infrastructure Law, which are intended to improve energy efficiency in residential homes.

I'm proud of our continued success and excited by the prospects ahead for IBP in the broader insulation and other product installation business. So with this overview, I'd like to turn the call over to Michael to provide more detail on our second quarter financial results..

Thank you, Jeff, and good morning everyone. Consolidated net revenue increased to a second quarter record of $692 million, compared to $677 million for the same period last year.

The improvement in sales during the quarter was driven by increases in multi-family and commercial sales, higher price mix from the prior year period, and revenue from recent acquisitions.

The 7.2% price mix increase during the second quarter continued to benefit from stronger growth and a higher price per job in our multi-family and commercial end markets, relative to our single-family end market.

Our Installation segment revenue increased to $652 million, while our Other revenue, which includes IBP's manufacturing and distribution operations, increased to $40 million.

On a same-branch basis, Residential Installation revenue declined 5% in the prior year quarter, as robust multi-family growth of 38% partially offset the 13% decline in single-family same-branch sales. Same branch commercial sales increased 16% during the 2023 second quarter.

Adjusted gross profit margin improved to 160 basis points year-over-year to 33.6% in the second quarter, which was a reflection of our strategic focus on securing the most profitable installation jobs over volume growth, and the benefit of price mix improvement during the quarter.

Adjusted Selling & Administrative expense as a percent of second quarter sales was 17.9% compared to 16.1% for the prior year period. Higher Selling & Administrative expenses relative to the same period last year primarily reflects higher variable compensation related to higher gross profit margin performance from the prior year period.

Our second quarter net income per diluted share of $2.18, increased 5% from the prior year quarter, and our adjusted net income per diluted share improved 6% to $2.62.

As a percentage of revenue, our net income per diluted share and adjusted net income per diluted share came in at a second quarter record of 8.9% and an all-time record of the record of 10.7% respectively.

During the 2023 and 2022 second quarters, we recorded amortization expenses of approximately $11 million related to the acquisition of new businesses. Based on recent acquisitions, we expect third quarter 2023 amortization expense of approximately $11 million and a full-year 2023 expense of approximately $44 million.

We would expect these estimates to change with any acquisitions we close in future periods. This non-cash amortization adjustment impacts net income, which is why we continue to believe that adjusted EBITDA is the most useful measure of profitability. Adjusted EBITDA for the 2023 second quarter improved to a record $122 million.

Adjusted EBITDA as a percent of net revenue reached a record 17.7% for the 2023 second quarter, slightly above the same period last year.

In the second quarter, we experienced same-branch sales and adjusted EBITDA declines, resulting in a decremental same branch adjusted EBITDA margin of 25.8% compared to an incremental margin of 25.8% for the same period last year when sales and adjusted EBITDA growth were positive.

We continue to target full year long-term incremental adjusted EBITDA margins in the range of 20% to 25% For the 2023 second quarter, our effective tax rate was approximately 26% and we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31, 2023.

Now, let's look at our liquidity, balance sheet and capital requirements in more detail. For the three months ended June 30, 2023, we generated $64 million in cash flow from operations compared to $51 million in the prior year period.

The year-over-year increase in operating cash flow was primarily associated with higher net income and lower net working capital requirements. Through interest rate swap agreements, we have fixed the interest rate on $400 million of our existing variable rate debt until December 2028, limiting our interest rate exposure.

In addition, we have no significant debt maturities until 2028. Our second quarter net interest expense fell to $9.8 million from $10.4 million in the prior year period as we were able to earn a higher interest rate on cash and cash equivalents invested throughout the quarter.

At June 30, 2023, we had a net debt-to-trailing 12-month adjusted EBITDA leverage ratio of 1.3 times compared to 1.5 times at December 31, 2022, which is well below our stated target of 2 times. At June 30, 2023, we had $348 million in working capital, excluding cash and cash equivalents.

Capital expenditures and total incurred finance leases for the three months ended June 30, 2023 were approximately $14 million combined, which was 2% of revenue, in line with the same period last year.

With our strong liquidity position and modest financial leverage, we continue to focus on expanding the business through acquisition and returning capital to shareholders. Our acquisition pipeline is robust and our goal of acquiring a $100 million annual revenue in 2023 remains unchanged.

IBP's Board of Directors approved a third quarter dividend of $0.33 per share, which is payable on September 30, 2023, to stockholders of record on September 15, 2023. Third-quarter dividend represents a 5% increase over the prior year period. With this overview, I will now turn the call back to Jeff for closing remarks..

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

[Operator Instructions] Our first question comes from Stephen Kim with Evercore. Please proceed with your question..

Yes. Thanks very much guys. Congratulations on the strong quarter. Was curious if we could start off with your comments about the overall market. Single family starts have really rebounded nicely here. Multi-family, there's concerns about where that might go as we head into next year.

Was curious as to how you're thinking about the recent change in thinking around starts? Is that what I just laid out? Is that kind of in line with how you see the world? And then, I was also curious if you could talk a little bit about the setup for our fiberglass glass price increase later this summer, in the context of that. Thanks..

Yes. Thanks, Stephen. This is Michael. So, on the starts perspective, yes, I would say that our thought process aligns with that.

We've seen and I think everybody has seen sort of that inflection happen on the single-family side and because the cycle times to build single-family have really normalized and we talked about this in the last call, that means that from sort of start to when we do our installation work has normalized as well versus last year where you saw that very extended lag between start and install.

So, we feel good, on the single-family side, as we go into the back half of the year.

We would say in multi-family that, we really have, our team has just performed incredibly well on the multi-family side and we believe that while maybe not at the same elevated levels that we're seeing right now, they will continue to perform even if there is, call it in back half '24, '25 weakness in multi-family starts, we feel very good about our team's ability to continue to execute even in a more difficult multi-family environment..

Yes. This is Jeff..

Got you..

I can't give more in that regard. It's just, I mean for us, it's been a matter really market penetration.

So, in a lot of markets in which we weren't participating in multifamily at all, into the material, such material price increase environment, second half of the year, latter half of the year, I would think that more than likely in material and continues to be pretty tight.

It's going to get more so as single-family comes back online, based on the content is involved in the fact that the multi-family still strong at least in terms of what's being built in the field. So I would think that it would be probably pretty conducive to the manufacturers taking a look at that..

Yes, I agree. That's helpful. I wanted to talk a little bit about this multi-family, and I think one of the things that I want to make sure that we're clear on is, how you all talk about volumes.

I know you all talk about it in terms of the number of jobs, but actually, it's really the number of trips, if I remember correctly, and I have in my notes here that a typical single-family job will take, I don't know, three to four trips with two to three of that being the installation itself, and then another one or so for other products.

And commercial which is - sorry, multi-family which is mostly the garden- style apartments, I have in my notes like four to six trips. I was wondering if you could sort of clarify that for me, just make sure that we got that right.

And then how does commercial look? How does that sort of factor in from a volume perspective and the number of trips? Thanks..

Steve, obviously, it depends, but multi-family and light commercial are going to be fairly similar in terms of the number of phases, in the number of trips which you're going to be fairly kind of similar. And on the single-family side, yes, there is - you're thinking there is - make sense.

I would say though that when we're counting jobs and we're on the volume side, disclosing the absolute volume of jobs, it is just the number of jobs, compared to the price mix calculation that again is influenced by a number of factors that we've talked about before.

But in this quarter, the two biggest components that impacted price mix were both, a higher growth rate from non-production builders on the single-family side and also, the higher rate of single-family, excuse me, multi-family and commercial jobs like commercial jobs in the price mix disclosure. And we obviously did see price in the quarter.

And we're continuing to experience the sort of residual benefits, if you will, from the pricing actions that we took in the back half of last year. But as we're going through the year and the comps get tougher, that benefit continues to reduce, particularly because we've been in an extremely benign inflationary environment across the Board..

Okay. Great. Appreciate that..

Sure..

Our next question comes from Ken Zener with Seaport Research Partners. Please proceed with your question..

Good morning, everybody..

Good morning, Ken..

I wonder if you can talk to housing starts. I think you commented on, that we've obviously seen momentum coming out of the census data. I think your data is based on your market share and bidding is better.

So, looking at the residential side, we estimate that the public have basically increased their share of starts to almost 50% up from low 40s last year and that's consistent with them, having reduced inventory.

So, my question is, could you comment on what you're kind of seeing from that public versus private mix and I will time that over into your comment about price mix benefiting from the non-production builders, which is, might be different from what you're seeing right now in the bidding process..

Yes, Ken, this is Michael. I think there's a difference between starts and when we're doing the installation work.

And as we've talked about, I think in the past couple of calls, is that, we expect as we go into the back half of the year to see higher rates of growth from the production builders than from the non-production builders, the regional and local guys and I think that's consistent with your statement relative to them, increasing their share of starts and as Jeff mentioned in his prepared comments, they saw, at least the public builders that have disclosed their second quarter results so far, they saw really solid order growth, which they hadn't seen in a while.

Plus, I mean I think almost universally, everyone is talking about accelerating their spec starts and their spec inventory, right. So, I think what that lens, absolute validation to is your comment and believe that they are continuing to pick up their percentage of overall starts.

It's just that those starts, our forward-looking impact on our install revenue versus a back - on our install revenue..

Yes. And the reason I'm asking this, as the public, the gross margins, which obviously impact your operating leverage, which has been consistent, which is good. How do you think about price mix in FY'23? It's been strong in the front half.

Is it basically going to be a wash for the year, because it's going to be weak, not in a bad way, but just, it's a mix in the back half.

So it's kind of a wash and where I'm going with this is, as you guys, as your exposure to larger production builders increases, I'm just thinking about how you think about the pros and cons for operating leverage being affected by the gross margin mix going down? As you guys recall a couple of years goes the public builders accelerated their starts.

There was kind of confusion, I think, around your operating leverages. Price mix was impacted by those public builders, which would be the opposite, it sounds like in the first half of this year.

So, if you could just kind of clarify that and talk about how you think you're going to be offsetting, right, a weaker mix as it relates to the operating leverage of the business. Thank you..

Yes, sure, Ken. I mean you have that directionally correct relative to the big national builders because the average job price for us is lower there than it is with the regional, to the extent that we see a higher rate of growth from them. It does lower the price mix disclosure.

And as I said earlier, it is a very - it is pretty benign inflationary environment, but as demand picks up, we as a company, and as we've shown in the - particularly in the past couple of quarters, that we are going to focus on profitable works to getting paid fairly for the installation jobs that we do over volume and that will continue, particularly as the pace of construction on the single-family side starts to accelerate.

But as you think about price mix on a full year basis and going into '24, there is, we expect that they will continue to be benefit in the mix component of the price mix disclosure, given the strength we're continuing to see on the multi-family and light commercial side..

Thank you, guys..

Sure..

Our next question comes from Joe Ahlersmeyer, Deutsche Bank. Please proceed with your question..

Hi. Good morning everybody..

Good morning, Joe..

If I could just talk about with you guys, the single family same-branch sales number and not wanting to get too much into the mix and volume at the total residential level, just the single-family same-branch sales, I think you had said in the past couple of quarters that the second quarter was likely to be the weakest environment for your sales on single family.

Wondered if you had any updated thoughts on that relative to the back half? And then I've got a follow-up there..

Yes. We feel good about the back half of the year. I mean it is going to, as we said in the prepared remarks, I mean, it takes time for the pickup in starts to translate into our install volumes, but as we look at the context of the entire year, we feel pretty good.

I mean, I think there is a possibility despite where starts have been, at least the Census Bureau numbers would say starts have been for the first half of the year, down something like 20%.

If we see the current trends continue through the back half of the year, theoretically, you could be at a point, we're not just talking about single-family, not single-family and multi-family, but you could get to a point where single-family starts for the year are pretty flat year-over-year, close to $1 million..

Well, to your point, I think, I think last call mentioned that we thought the second quarter would be the roughest and I think that's probably still accurate as we all head off there..

And so, thinking about that, down 13 revenue, maybe the third quarter, and I realize you don't give guidance, but the third quarter decline is likely less than that, if it's still a decline after all, and then the fourth quarter, you might actually see flat single-family sales year-over-year.

Is that close?.

Joe, as you said we don't provide guidance, but we feel good about the second half of the year relative to the first quarter of the year..

Relative to the first half and second quarter?.

Particularly in the second quarter, yes..

Got it. And then just maybe a bigger picture question.

How you feel about industry manufacturing capacity relative to some of the tailwinds around incentives with the Inflation Reduction Act and other things that you've discussed?.

This is Jeff. So, I mean clearly, everybody kind of remembers the last couple of years and how tight the market was.

Now that volumes were a little bit elevated from here, there's really only the lease announced in under construction, one capacity add in Texas, that can mark as under construction, that I think is still on online or scheduled to come on second, at the end of the second quarter of next year, which will add, definitely some capacity.

But clearly, if both the volume returns to the levels we're talking about, and then even still past that, becomes some tailwind from some of the energy proposals that have been put forth kind of working their way through the system that it's likely to get tight, again, I think. There's probably some other manufacturers.

Although, it's I'm sure not announced that are probably strongly considering capacity add, but that will take some time..

All right. Thanks for all the detail..

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

Hi guys. Good morning, [indiscernible] on for Mike. Just a quick question for me.

I was wondering if you guys could just give a little bit more color on your gross margins this quarter, particularly strong and just how sustainable you feel that is moving forward and if you could give a little bit more insight on what drove the upside, that would be great. Thanks..

This is Michael. Yes. We had a very strong gross margin quarter.

I mean there are a lot of puts and takes in that, but if you just look over the past five quarters, right, I mean, gross margin has averaged around 32% and I think that, and we've talked about this before, that in that 30% to 32% range, I think makes sense, particularly, when you're looking at it on a full-year basis.

So, we feel good about where we are gross margin-wise, but we also feel good that kind of 30% to 32% range as well..

Okay.

So, you feel that range is, I guess, manageable moving forward for the rest of the year?.

Yes..

Got it. Thank you..

Our next question comes from Susan Maklari with Goldman Sachs. Please proceed with your question..

Thank you. Good morning, everyone, and congrats on a nice quarter..

Thank you..

Thanks, Susan..

My first question is, as we think about a more normalized operating environment in terms of the starts pays, as well as perhaps some of the pricing that will come through on the material side, is it reasonable to think that your volume versus price mix over the next, call it, I don't know, year, year and a half or so, we will start to move closer together, the way that we've sort of seen those two line items move historically?.

Yes, definitely..

Okay. And then I guess following up, you talk about the bigger production builders sort of taking more of the volume on the ground.

What are the implications? Does it relates to the ancillary products in there and your ability to continue to add value to that and how that will perhaps come through in the results?.

Yes, I mean we have good penetration of the other products with big production builders. It's probably a little bit less than it is with the regional and local guys.

But we would not expect that to have necessarily a material impact on the price mix disclosure, and if you look at year-to-date and even particularly this past quarter, the price or the other products really didn't impact the price mix disclosure this quarter..

Okay. All right. Thank you, and good luck with everything..

Thanks..

Our next question comes from Trey Grooms with Stephens. Please proceed with your question..

Hi. Good morning everyone..

Hi, Trey..

Hi. So, we kind of alluded to it just a little bit ago but as part of some of the new actions out of Washington to increase energy efficiency in homes, specifically, working to mandate that M&A, FHA finance mortgage must adopt this, the most recent efficiency codes.

I think the public comment period for this has been extended here for, I guess, for a few more days, August 7th, I believe, but do you guys have any early views of the potential here that this mandate might have for you guys, for the industry, timing, if you could just educate us a little bit more on kind of your thoughts around that..

Yes, this is Michael, Trey. We - assuming that the FHA requirement that you're talking about goes through, I don't think anybody in the industry expects it to have an impact until probably early '25 and that if, Fannie and Freddie go down the same path, it probably won't be until late '25, maybe even early '26 that has the full impact.

So, and obviously, over that time period, you will see greater energy efficiency kind of coming through as code gets - the higher energy codes get implemented across the country, but it could be a noticeable uptick in sales. We feel pretty good about that, but it's a '25, '26 event, not necessarily '23, '24 event..

Sure. Is there any way, and I know this is further out, but still, it's a pretty interesting thing that's going on with the industry. Is there any way to kind of parse out, I think right now the most recent kind of updated energy codes that are required are, I think, maybe 2009, at least required from HUD.

Is there any way to kind of parse out what that incremental amount of insulation could be if they were to have to update the more recent, I guess '21 addition?.

Yes, so I'll be honest with you. There's a lot of work going on within the industry to really get a good handle on what kind of increased pound usage estimation is going to be by state and we're sort of working with that information and really haven't finalized our conclusions.

But I would say that it is definitely positive and reasonably significant in relation to our single family revenue..

I mean, I don't - this is Jeff. But the difference between the 2009 code and the 2021 code is significant, very significant. But there are not that many states, in some of the states that are still carrying the 2009 codes, are not really large markets either.

There's maybe, I'm going to guess and say, 10-ish or so, but it's a lot of, I know, like Alaska and a number of others are some of the upper Midwest states, Wyoming, et cetera, some of those states where there's just not the number of bills, but maybe it's 10 or a dozen or so, but the rest are not.

At 2009 obviously, difference between whatever code they're adhering to and - whatever local code they might be adhering to are much closer to the '21, the 2021 specs than the 2009 specs..

Yes. In some countries you might have a jurisdiction that adds the 2009 code for building practices to build to the 2021 already..

Right. Okay. Got it. All right. Well, thanks for some of that info. Switching gears here on the multi-family, I think you mentioned that you expect that multi-family to remain strong for maybe another year. I'm sure that's based on what you're seeing from your backlog there or maybe your customers' backlog there.

And that sounds better than what some are looking for as far as from multi-family and as far as the duration of strength there. Clearly, multi-family has been a focus for you guys.

Do you feel like you've been gaining some share there on multi-family or what's driving that relative strength for you guys, especially looking into next year?.

This is Michael. I mean it's a couple of things, quite frankly. It is that we're gaining share. We're doing multi-family in markets that previously we hadn't done multi-family and we're also doing a very good job of cross selling the other products into multi-family which we hadn't previously done.

So, it's a combination of things that is leading to the outperformance there and it's that outperformance, while again, we don't anticipate that the growth rates are going to continue to stay as such great levels, but we do think that even in a more difficult operating environment from a multi-family perspective, that our team is going to be able to continue to perform above market..

Sounds good. Thanks a lot guys. I'll pass it on. Good luck..

Thanks..

Our next question comes from Adam Baumgarten from Zelman and Associates. Please proceed with your question..

Hi. Good morning, everyone.

If we think about 7% increase in same-store installation price mix, how much of that was due to mix versus pure pricing?.

More of it was mix than price, but there is price in it..

Okay. Got it. And then maybe switching gears to commercial. If you could talk through how the heavy commercial business performed in the quarter? And then just maybe an update on the profitability profile of that business. I know there's been a big effort behind the scenes as to how you get this. Any update there would be helpful..

Yes, it was a good success story during the quarter and we're feeling good about it as we go into the back half of the year. They had high single-digit organic growth in the quarter and the margin profile, while still not what we expected it to be, or close to the company average, it did have a considerable improvement over last year's quarter..

Okay. Got it. Thanks. Best of luck..

Sure..

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

Hi guys. Congrats on a really strong quarter. I guess this is a question for Michael. It appears you're at least committing to volumes, perhaps bottoming out in 2Q. We appreciate obviously all those starts have inflected.

When you see that kind of funneling through to your volumes? Is that a fourth quarter or 3Q there? And when we kind of look out at 2024 with easier comps, do you see your volumes inflecting positively on a year-to-year basis by, call it, early 2024?.

Well, I mean I hate to sound like a broken record, we obviously don't provide guidance, but I think it's just given what we've talked about and assuming things continue along the positive trajectory that we've been talking about, I think it's fair to assume at this point that you'll see full year positive volume in '24, especially, given what the production builders have sort of committed to and what you've seen from an order growth and a commitment to spec homes, which we think makes lot of sense in the current operating environment.

The starts growth that we're starting to see definitely takes time to become installed sales for us.

So, there's definitely, on a relative basis, given how strong '22 is, there is still weakness there, but we're very encouraged as we look towards the full scope of the back half of the year, that there is going to be a decent volume of single-family work for us in the back half of the year..

Okay. That's helpful. And then from a commercial activity standpoint, certainly tighter lending conditions well documented..

Yes..

Appreciating you're not very big in office I would imagine, how is commercial bidding activity kind of progressing and any color on your commercial exposure in terms of perhaps, heavy commercial that's more insulated from some of the concerns people have on office and retail?.

Yes. As you know, the heavy commercial business in aggregate for the Company is like 7% or so. So not meaningful, but as I said earlier, we are seeing decent growth there and we're finally getting some margin uptick.

We have across the board on the commercial side, we're being very sort of cautious because we obviously are not ignoring the fact that everyone is talking about the tightening of credit. But I think that goes to multi-family as well.

We have not seen it in bidding and in terms of bidding activity and our backlogs, but we're being extremely mindful of it and monitoring it as closely as we can..

We didn't directly answer the part about office. Office is an insignificant piece of our overall revenue and even in work of our commercial business..

Yes. Okay. Great color, guys. Appreciate it..

Sure..

Our next question comes from Jeffrey Stevenson with Loop Capital Markets. Please proceed with your question..

Hi. Thanks for taking my questions today, and congrats on the nice quarter..

Thanks..

So inventory has moved lower sequentially and we've heard some commentary on the channel about some destocking ahead of an air pocket in single-family demand.

I'm just wondering if you could attribute the sequential move lower to some destocking or something else entirely?.

So, I mean we don't think of it as destocking. We think of it more as, we're not - we don't need to maintain as high in inventory level because there is, I mean, fairly wide - material is fairly widely available now, unlike, say this time last year where material is so tight.

We were just getting as much material as we could, and we're just working our inventory down to a more typical level relative to the sales. So, I think you'll see as we go through the course of the year, we will continue to normalize our inventory, assuming, which is our assumption, that we continue to have good availability of material.

And we're also starting to see which is good is that and we've talked about this a lot last year is that, not only was material tight but certain types of material that are not as widely used as other types of material are now becoming available again which has significant is probably the wrong word, but has helped productivity in the field because we have the material that we need in the right sizes and the right type.

And so, that helps as well..

Okay. That's a great color.

And then I just wanted to touch on the increase in SG&A from higher variable compensation and just how you think that should track the rest of the year?.

Yes.

So it does link-up, if you will, with - particularly with gross margin, and selling expense side, I would say, and we've talked about this in previous calls about the fact that the only real sort of clinical wage inflation that we saw last year was really in the G&A side and what really came through in the second quarter, sort of the full realization of that sort of inflationary environment and that's really behind us now and I think as been talked a lot about in the press that wage inflation, while still higher maybe than some people want, is normalized considerably..

Understood. Thank you..

Sure..

Our next question comes from Keith Hughes with Truist Securities. Please proceed with your question..

Thank you.

My questions have been asked, but could you just give an update on where you are in terms of mix of single-family versus commercial versus multi-family and Install?.

Sure. So this is for the quarter and for the whole Company. So, it's not by the Install segment versus the other segment, but it's roughly, excuse me, 56%, 57% single-family, like 16%, 17% multi-family, about 7% R&R, roughly 7%, 8% R&R, 7% heavy commercial, and then the remaining 11% and 12% light commercial..

Okay. What was the heavy again? I just couldn't hear you..

7%..

7%.

And I guess within that, is there a distinction in multi-family between tower business versus garden apartments for some of this mixed-use that's out? Is that all lumped in that category?.

That's a great question. It is all lumped in. It's all multi-family..

Multi-family. Okay. All right. Thanks very much..

Sure..

[Operator Instructions] Our next question comes from Mike Dahl with RBC Capital Markets. Please proceed with your question..

Hi. It's actually [Chris Connor] on for Mike. Thanks for taking our questions.

Just going back to margins and specifically, net price cost trends, could you help flush out a little more color, how much net price cost change this quarter versus last quarter and then what your outlook is for the back half of this year, just given what you're seeing today on the inflation front?.

Yes. We don't break that out. We just kind of like price mix. But as we said, it was definitely more, mixed, but there was definitely price in 7.2% price mix growth this quarter..

So, I guess in terms of the inflationary dynamics there, is there some additional color you can provide on what you're expecting? What you saw this quarter and what you expect in the back half?.

We still expect it to be a fairly benign environment. I would say though that we have focused profitable work over volume and to the extent that there is a higher acceleration in single-family than we're expecting.

We would obviously anticipate that we would get paid fairly for that work and we would lean into the more profitable work in that instance..

Understood. And just for my second question, just on capital allocation.

I was hoping you could maybe comment, what you're seeing today in terms of your M&A pipeline? How the multiples have trended and to the extent they're still elevated your willingness to return to share repos?.

I don't know. This is Jeff. I don't know that we've seen any meaningful increase or decrease in multiples really for quite some time. To be honest with you, it's just not usually who our sellers. The kind of not the largest, lots of buyers, PEs, et cetera typically. So, we haven't seen that much variation in that regard. So....

And the pipeline is good..

Yes. The pipeline is good. But we continue, as Michael has said many times, we continue to have plenty of capital to really kind of pro forma on all four or five of our efforts including share repurchases..

We are extremely....

Thanks. Appreciate the color..

Sure..

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

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

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