Good morning, and welcome to the Installed Building Products Fiscal 2020 First Quarter Financial Results Conference Call. I would now like to turn the conference over to Mr. Jason Niswonger, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Installed Building Products First Quarter 2020 Conference Call. Earlier today, we issued a press release on our financial results for the first 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 statements with respect to the housing market and industry conditions, our financial and business model, our efforts to manage material inflation, our ability to increase selling prices, the demand for our services and product offerings, the impact that the COVID-19 crisis will have on our business and end markets, expansion of our national footprint, products and end markets, our expectations for our end markets, our ability to strengthen our market position, our ability to pursue and integrate value-enhancing acquisitions, our diversification efforts, revenue and growth expansion of our commercial business, our growth rates and ability to improve sales and profitability, the impact of the COVID-19 crisis on our financial results and acquisitions, and expectations for demand for our services and our earnings in 2020. Forward-looking statements may generally be identified by the use of words such as anticipate, believe, expect, intend, plan and will, or in each case, their negatives or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Any forward-looking statement made by management during this call is not a guarantee of future performance, and actual results may differ materially from those expressed in or suggested by the forward-looking statements as a result of various factors, including, without limitation, the duration, effect and severity of the COVID-19 crisis, the adverse impact of the COVID-19 crisis on our business and financial results, the economy and the markets we serve, general economic and industry conditions, the material price environment, the timing of increases in our selling prices and the factors discussed in the Risk Factors section of the company's annual report on Form 10-K for the year ended December 31, 2019, as the same may be updated from time to time in subsequent filings with the Securities and Exchange Commission. Any forward-looking statement 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, adjusted gross profit and adjusted selling and administrative expenses. You can find a reconciliation of such measures to their nearest GAAP equivalent in the company's earnings release and additional reconciliation for 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. I will now turn the call over to Jeff.

Thanks, Jason, and good morning to everyone joining us on today's call. As usual, I will start today's call with some first quarter highlights and then turn the call over to Michael Miller, IBP's CFO, who will discuss our results and capital position in more detail before we take your questions. I'll focus my remarks today on our response to the COVID-19 crisis, the actions we are taking to navigate this uncertain environment and how we believe our strong operational platform and financial position will support our business through this crisis. The COVID-19 pandemic has created unprecedented social and economic challenges, and our thoughts are with everyone impacted by the pandemic. As an organization, we are focused on supporting our employees, customers and suppliers all across the country while ensuring our business is well positioned to withstand the uncertainty caused by the COVID-19 crisis. As our first quarter results demonstrate, we entered the current market environment from a position of financial and operational strength. The 2020 first quarter was very strong across our end markets, and we achieved record first quarter revenue, earnings and adjusted EBITDA. In addition, our balance sheet and access to capital remains robust. During the quarter, we generated nearly $36 million of cash flow from operations, and we ended the quarter with strong liquidity, including over $213 million of cash and short-term investments and nothing drawn on our $200 million line of credit. Across our national footprint, our branches are following federal, state and local requirements to protect the health and safety of our employees and customers. We have implemented various procedures to provide for appropriate social distancing and disinfecting of shared spaces to mitigate risk of exposure to our employees. As of the end of March, approximately 90% by revenue of our branches were located in markets where construction was deemed an essential business. However, restrictions limiting the number of laborers on a job site and our internal standards for social distancing practices impacted the volume of completed jobs and efficiencies across our end markets. We estimate that first quarter revenue was reduced by $2 million to $2.5 million due to these factors related to the COVID-19 health crisis. It is still too early to tell how the COVID-19 crisis will affect the overall economy, the U.S. housing industry and IBP. However, industry dynamics support near-term demand for our services. At the end of March, there were more than 500,000 single-family units under construction based on U.S. Census Bureau data, which we believe represents over 6 months of industry backlog. While this includes homes at various stages of completion, we believe IBP will benefit from a significant proportion of the backlog in the markets where we operate. In addition, we expect builders will focus on reducing backlogs by placing a greater emphasis on finishing homes under construction. The backlogs in our commercial and multifamily end markets remain strong as well, further supporting our business operations during this uncertain demand environment. We believe that the current economic environment will result in a significant short-term reduction in demand for housing, and as a result, a meaningful reduction in the number of single-family housing starts this year. Based on the normal lag between starts and completions within the homebuilding industry, we currently estimate that the market decline will have a more pronounced impact on our business in the third and fourth quarters of 2020. The full extent of this impact is currently unknown, but our installers and local market teams are and will remain busy working on this industry backlog. Throughout the month of April, we continued to operate with approximately 10% of our branches by revenue closed due to construction's nonessential status in certain markets, negatively impacting April revenue. Even with these closures, our April revenue increased approximately 2% compared to last year. Our large commercial construction business had April sales growth of approximately 25%. Excluding the sales of Royals Commercial Services acquired in March of 2020, our company had April sales growth of 17% compared to last year. Adjusting for these closed branches, April sales growth was approximately 10% compared to last year, and same branch sales growth was approximately 6%. As a result of branch closures, we furloughed 563 employees during the month of March and April. Additionally, under the Families First Coronavirus Response Act, we have provided benefits to 123 employees who have been impacted by COVID-19. As of today, with states taking steps towards reopening their economic activity, our market closures have improved to less than 2% of our branches by revenue, and I am pleased that nearly 280 of our previously furloughed employees have already been brought back to work and expect this to improve following some of the most recent state reopenings. Looking at the material pricing environment and our supply chain, we saw continued improvements in our price/mix during the first quarter. We are continuing to work proactively with both our customers and suppliers to help ensure a stable pricing and cost environment. Furthermore, nearly all of the products we install are sourced domestically, and we have not experienced any disruptions in our supply chain or procurement activities. Overall, we believe the housing industry is much healthier than before the 2008 to 2009 financial crisis, and the industry was experiencing strong growth prior to the COVID-19 crisis. We are closely monitoring the housing market, and we are in constant communication with our local, regional and national customers. Our high variable cost structure allows us to quickly adjust to changes in demand, and we have plans in place to further modify our financial model, if necessary, in the coming quarters. While we have not currently made any large-scale adjustments to our business, we have decided to proactively delay closing acquisitions until the economic environment stabilizes. Our pipeline is robust, and we continue to actively pursue acquisitions of well-run installers that support our geographic, product and end market diversification strategies. For more than two decades, these diversification strategies have driven strong financial performance and growth while expanding the scope of our installation services, enhancing our end market exposure and increasing our geographic footprint. During the 2008 to 2009 recession, as housing starts declined, we expanded the service area of our existing branch locations and expanded our product offerings in new markets. As our scale has increased over the past 12 years, we believe we are even better positioned to pursue these strategies today and outperform the market when housing starts decline. In addition, during the last recession, we had limited opportunity in the commercial and multifamily end markets. Our commercial installation business in our multifamily platform will further help us navigate a downturn in the single-family residential market. During the first quarter, commercial and multifamily revenues increased 14% and 35%, respectively, over the previous year, demonstrating continued growth and market share gains in these end markets. Longer term, we believe the pandemic will likely increase the demand for single-family housing, increase the need for more affordable homes and potentially support a quick rebound that is not typical of a housing downturn. So to conclude my prepared remarks, I'm extremely pleased with our first quarter financial results and the strong platform that we have created. Our strong balance sheet, combined with our experienced leadership team, long-standing customer relationships and asset-light high variable cost and diverse business model will allow us to navigate through this period of economic uncertainty. Finally, I'd like to take this opportunity to thank our installers who are hard at work every day, representing our company and serving our customers. On behalf of the entire leadership team, we recognize your efforts, and I want to personally thank you for your dedication. With this overview, I would like to turn the call over to Michael to provide more details on our first quarter results.

Thank you, Jeff, and good morning, everyone. I'll quickly review our first quarter financial results before focusing my prepared remarks on our response to the COVID-19 crisis and the strength of our balance sheet and capital structure. Net sales increased to a first quarter record of $397.3 million compared to $342.1 million for the same period last year. The 16.1% year-over-year improvement in sales was mainly driven by improvements in price/mix, end customer and product growth and the contribution from our recent acquisitions. As Jeff mentioned in his prepared remarks, we estimate that first quarter revenue was reduced by $2 million to $2.5 million due to the factors related to the COVID-19 health crisis. Sales at Alpha, our large commercial construction business, increased 14.1%. It is also important to note that Alpha sales are not included in the volume and price metrics we disclosed. Profitability was strong during the first quarter. Adjusted gross profit margin expanded 310 basis points over the prior year period as a result of improved price/mix performance. Partially offsetting our strong first quarter gross profit were higher selling and administrative expenses which, as a percent of sales, increased 110 basis points to 20.3%, primarily due to higher healthcare costs and other variable employee costs that fluctuate with profitability. On a GAAP basis, our first quarter net income increased 81% from the prior year quarter to $16 million or $0.53 per diluted share. Our adjusted net income improved 52% to $23.2 million or $0.78 per diluted share compared to $15.3 million or $0.51 per diluted share in the prior year quarter. While we cannot predict the full adverse impact on gross profit and net income, we anticipate higher costs and reduced efficiencies related to the COVID-19 pandemic as restrictions limit the number of laborers on job sites and as we stagger crews across all of our end markets. During the 2020 first quarter, we recorded $6.7 million of amortization expense compared to $5.9 million for the same period last year as a result of our acquisition strategy. This noncash adjustment impacts net income, which is why we continue to believe that adjusted EBITDA is the most useful measure of profitability. Based on our acquisitions completed to date, we expect second quarter 2020 amortization expense of approximately $6.7 million and full year expense of approximately $26.4 million. This figure will change with any subsequent acquisitions. For the 2020 first quarter, our effective tax rate was approximately 26.2%, and we continue to expect a full year effective tax rate of 25% to 27% for 2020. For the first quarter of 2020, adjusted EBITDA improved to $49.2 million, representing an increase of 37.9% from $35.7 million in the prior year. Adjusted EBITDA as a percent of net revenue increased 200 basis points from the prior year period to 12.4% as a result of higher gross profit attributable to improved price/mix and the benefits of our diversification strategies. With this overview on our first quarter results, I would like to take the opportunity to talk about our cost structure and initial response to the COVID-19 pandemic. We have a highly variable cost structure. As demand for our services decline, our cost of sales sizes quickly to the lower volume. This includes our material and installer labor expenses, which are directly variable to our revenue and represent our largest expenses. While we have made great strides in reducing our employee turnover during the past few years, our industry has historically experienced high levels of turnover throughout the cycle, which we experienced in our business even at the depths of the Great Recession, and we believe this will continue in the expected upcoming downturn. This makes it easier for us to size installer workforce to the demand for our services. Selling expense is our next most variable cost item on the income statement. Comprised extensively of commission and employee-related expenses, our selling expenses will size to revenue but will have some lagging characteristics. Consisting predominantly of branch operating costs, such as base salaries, facility costs, health and insurance expenses and variable employee costs, our administrative expenses are generally the least variable of our expenses on a monthly basis and will lag a decline in revenue. During a prolonged downturn in housing demand, we would look to reduce administrative expenses through branch consolidation, reduced headcount and hours worked, salary reductions and similar cost-cutting initiatives, which would vary on a branch-by-branch basis. With the existing backlog of construction activity throughout our end markets, our branches remain active and productive, which affords us the opportunity to further monitor and assess the evolving economic situation. The depth and breadth of the decline in housing demand will impact our cost-cutting decisions on a market-by-market basis. We have eliminated nonessential travel, suspended pay increases for our executive officers and taken additional cost-saving initiatives. However, if a deeper and longer recession were to occur, it will necessitate the implementation of our more significant cost reduction plans. If the expected housing downturn is a steep decline with a relatively rapid recovery, we would be less likely to implement deep cost-cutting strategies as this would impact long-term growth opportunities in market share and diversification. Now let's look at our liquidity, balance sheet and capital requirements in more detail. Our business model generates strong operating cash flows. For the 3-month period ended March 31, 2020, we generated $35.9 million in cash flow from operations compared to $15.9 million in the prior year, a 126% increase. Our asset-light business model does not require a significant amount of capital expenditures, and our primary capital requirement is to fund working capital needs. At March 31, 2020, we had $154.4 million in working capital, excluding $213.7 million of cash and short-term investments. With $245.5 million of accounts receivable and $73.6 million of inventories at March 31, 2020, we would expect to convert a significant amount of working capital to cash with a decline in sales. Capital expenditures at March 31, 2020, were $9.9 million, while total incurred finance leases were $0.3 million. Capital expenditures and finance capital leases as a percent of revenue decreased approximately 30 basis points to 2.6% at March 31, 2020, compared to the same period last year. In typical market environments, we have focused our capital investments on acquiring well-run installers that fit our product, end market and geographic diversification strategies. While our acquisition pipeline remains robust and we completed 2 acquisitions in the first quarter, as Jeff mentioned, we have temporarily delayed closing additional acquisitions until the economic picture becomes clear. During the first quarter, we repurchased $15.8 million of our common stock and at nearly $45 million remaining under our $150 million stock repurchase program. As a result of the COVID-19 crisis, we have decided to temporarily suspend stock repurchases under our previously approved repurchase program. At March 31, 2020, we had total cash and short-term investments of $213.7 million compared to $215.9 million at December 31, 2019. Total debt at March 31, 2020, was $575.6 million compared to $575.5 million at December 31, 2019. Considering cash and short-term investments at March 31, 2020, our net total debt was approximately $362 million compared to $360 million at December 31, 2019. We have nothing drawn on our existing $200 million revolving line of credit, which, combined with our cash position, we believe provides us considerable flexibility in the current economic environment. I am extremely pleased with the recent success we've had diversifying our sources of capital, staggering our debt maturities and limiting our financial covenants. With no significant debt maturities until 2025 and strong liquidity, we have considerable financial flexibility to withstand this period of economic uncertainty. With that, 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 during this very uncertain time. Our success over the years and more recently wouldn't be possible if it wasn't for you, and our thanks goes out to you for a tough job always done well. As the world has become more uncertain, we are focused on supporting our employees and customers through this challenging time. Operator, let's open up the call for questions.

The first question comes from Trey Morrish of Evercore ISI.

So I guess the first place to start for me would be that the SG&A, it was definitely higher on a year-over-year basis with revenues or volumes being flat and revenues being up. You talked about healthcare and higher profitability from variable costs. I was wondering if you could kind of tease that out for us a little bit. How much of that higher SG&A year-over-year was due to that increase in variable costs from greater profitability?

Trey, this is Michael Miller. Yes. So the majority of the increased costs were associated with variable costs, variable employee costs that are embedded in G&A. But obviously, the healthcare cost had a notable contribution as well. Without the increases in those 2 expenses, we actually would have had slight SG&A leverage in the quarter.

Okay. Got it. And then resi pricing accelerated pretty noticeably on a sequential basis, at least from what we can see on a year-over-year perspective. Is that what happened actually on a sequential basis? Or was there further increase in pricing? And then how do you think about that going forward in the next few quarters, particularly with demand likely to fall noticeably?

Yes. Trey, this is Mike again. Just to be clear, I think we talked about this in the fourth quarter conference call as well, is that our efforts to really get on top of the price/mix equation, if you will, have not fully been taken into consideration even at the end of the fourth quarter of last year, such that we continue to see price/mix benefit going into the first quarter of this year. Now going forward, obviously, there is considerable uncertainty in terms of the demand environment and how the situation is going to play out over the next couple of quarters. I would say, though, that our pricing initiatives, both in the back half of last year and also going into the beginning of the first quarter of this year, have lapped themselves in the sense that we wouldn't expect to have the same level of price/mix gains going through the rest of the year.

Next question comes from Ken Zener of KeyBanc.

It's good to see your EBITDA contribution in the mid to high 20s. Can you comment, considering the changes with SG&A, if your range for the EBITDA contribution is still what you previously mentioned, around 20% to 25%? Is that correct, Michael?

Correct. Yes.

Could you, while not providing guidance, help us understand what might be influencing lower versus higher EBITDA leverage? This would help us grasp how you can share labor across branches. With 98% of your branches open by revenue, there is a significant backlog. If you were previously able to work efficiently due to proximity, could you provide more detail on how those physical behavior changes might affect EBITDA?

The cost associated with reduced efficiency at job sites and the social distancing measures, such as staggering start times for installers, significantly affects the cost of goods sold rather than general and administrative expenses. Therefore, we anticipate an impact on gross margin. In the past quarter, we experienced considerable gross margin growth, but predicting how this will unfold in the coming quarters is challenging. We do expect some margin compression due to diminished efficiency on job sites, which is anticipated. However, we are optimistic about April's revenue results, especially since we achieved positive revenue growth despite 10% of our branches being closed by revenue. Additionally, our same branch sales growth, adjusted for same branch sales, increased by 6% considering the current economic landscape. We are also confident in the robustness of our backlogs in both the multifamily and commercial sectors, including light and heavy commercial business, which now accounts for over 30% of our total revenue. We have good visibility into the backlogs for these sectors. While we recognize that the new practices will have repercussions for some time, it's still early to predict the exact impact on any single quarter related to those expenses, especially since we do not provide guidance.

Understood. Could you clarify your comment about the 30% in your commercial sector? Can you differentiate between the heavy and light commercial segments? Additionally, another commercial installer mentioned that regional factors affected their business. It seems you did not experience those same challenges. Are there specific regions where you operate that weren't significantly affected by closures, like Seattle or San Francisco?

Yes. So just the breakdown of that 31%, roughly, 13% of it is multifamily. About 10% of it is heavy commercial and 8% is light commercial. And yes, our heavy commercial business, not so much the light commercial business, but the heavy commercial business was in all markets that construction was deemed essential. Now we did have certain jobs slow down. We actually had certain jobs speed up in terms of trying to get the work done faster and get jobs completed, so there is definitely some puts and takes there. Quite frankly, though, as I said, we have high visibility into the backlog there. And actually, our heavy commercial business had a record month in April in terms of the number of bids that they submitted.

Light commercial was, in fact, impacted in states that were closed.

The next question is from Phil Ng of Jefferies.

I guess, can you give us an update on how new orders may have progressed the last few weeks? And with some of these states that have shut down and they're in the process of being reopened, any read in places like Pennsylvania, Michigan and Georgia?

I mean, if you're talking about orders for us or new orders for the builders?

New orders for you.

I would say that we've discussed April sales and their impact. We're currently at 98% of active revenue, although some locations just resumed this week. However, the early signs in May are looking very promising.

And then does that account for bidding activity as well? Just want a little more color around that as well.

Yes. So I mean, all of our salespeople, particularly in states that were closed, continued to bid jobs from them. And we're continuing to see good bidding level on the residential side, as I mentioned, on the commercial side. During the month of April, our heavy commercial business had a record month in terms of their bidding activity and in terms of the number of bids that they submitted. So we feel good that there's still volume there. But we can't ignore the fact that clearly, during the month of April, there was an unprecedented decline in order growth at builders from a single-family perspective. So we're starting to see positive trends, I should say, March and April in terms of that order growth decline. And I would say that we're starting to see positive trends in that order growth, but it's still significantly down from where it was even last year, let alone from where it was in January and February.

Got you. And then Michael, you were kind enough to give us some color in terms of the playbook in terms of how you kind of think about costs as this downturn kind of progresses through the year. Any incremental color how we should think about decrementals, let's say, early on in this process and how that may progress over the course of the year?

Yes, the initial decrementals will likely be higher due to the costs associated with closed branches. We have branches that generated no revenue, yet we still need to support the administrative staff at those locations. Therefore, at the beginning, decrementals are expected to be on the higher side. In a normal situation, we would anticipate decrementals to align with the incrementals of 20% to 25%. However, we wouldn’t be surprised if they ended up being higher, particularly in the early stages of the crisis and as conditions evolve over the next few quarters. Ultimately, this will largely depend on volume. It's important to note that our management team has been working together for over twenty years and has navigated the business through several recessions, including the Great Recession. During that time, we managed to adapt when up to 80% to 90% of market opportunities vanished in some regions. Despite those challenges, we significantly outperformed the market and consistently increased our market share. For instance, our sales during the Great Recession only fell by 40%, while the market as a whole was down 80%. We have strong confidence in our ability to navigate even the toughest times. While the future of the housing market is uncertain, we are very optimistic about managing through these challenges and emerging as a stronger company.

This is Jeff. I would like to add that as a group, we are quite effective at solving problems. However, the issue at hand has not yet become clear, as most of you probably know. It's difficult to address a problem that we do not yet recognize. It's similar to being asked to play a card game before the cards have been dealt. We, like everyone else, are waiting to understand how this soft spot or potential downturn will reveal itself.

Got it. Okay. That's helpful. And just one last one for me. You've furloughed some of your employees and good to see you're bringing some of them back. Just curious, how long does it take to kind of bring in crew back for IBP specifically? And any thoughts in terms of the entire trade for construction? Do you see that as potentially a bottleneck as demand comes back?

I mean, for us, it's a day when they come back.

All of it. Really immediate.

Yes, it's immediate. I believe this is true for most trades when it comes to their ability to bring back employees. Many large companies in the industry have taken steps to support their workforce during this time. For instance, we covered benefits for furloughed employees throughout April. We are all working diligently to protect our most valuable asset, our people.

Well, this is Jeff again. In a typical environment, even during the Great Recession, it has been extremely rare for us to hire new employees with experience in our trades. As a result, we often bring in individuals who are completely inexperienced and train them. Looking ahead, I can't predict the labor market for other trades, but we believe there might be less pressure, especially since we are starting with inexperienced employees and considering the effects observed in other industries.

Our next question is from Mike Dahl, RBC.

I wanted to ask a question around just when you're looking at the backlog of homes under construction, there seems to be a lot of moving pieces and unclear whether or not these will be sustained, but differences in things like spec versus build to order, regional difference, some with lack of clarity on high end, low end. I guess the question is, when you're looking at it, is there something about the mix of homes we should be considering either from kind of a volume or a price/mix standpoint as we look into 2Q, 3Q?

The backlog aligns with the growth trends we have observed in the affordable housing market. This market has historically been driven by speculation, as builders aim to have homes ready for quick delivery in this segment. We believe the backlog largely reflects this trend seen prior to March and April. We are beginning to notice some increase in orders from builders and anticipate that those builders, generally in strong financial positions, will ramp up their activities to fulfill the demand. As we know, home inventory is quite limited, especially with the expectation that demand will return due to the economic stimulus and the current low interest rates. We'll have to wait and see how this unfolds.

Okay. That's helpful. My second question, and again, I understand you're not providing guidance. But in some of the opening commentary, you talked about the impact being really more of a 3Q, 4Q issue for you guys given the lag there. I guess is there any more clarity you can give on kind of the shape that, that would take? Is this kind of just a gradual decline lower through 4Q? Or is it going to be, as it stands currently, something more pronounced in 3Q and then still pressure in 4Q but less so than 3Q?

It's hard to determine right now how quickly orders will resume and how fast builders can develop land into lots for us to install our services. We typically come into the process later, and many of our products are installed later in the home building timeline. Therefore, it really depends on how quickly builders can start scaling up to meet what we believe will ultimately be the demand. I think we will have a clearer answer to that question after we complete the second quarter and can evaluate the order growth and the absolute order numbers from the builders during that time and into July.

Our next question is from Susan Maklari of Goldman Sachs.

One of the things that I think you have that's a bit unique is your exposure to private builders and especially maybe deeper into the Midwest and some of those regions that the publics aren't as heavy in. Can you talk to what you're seeing from the privates versus the publics, if there's any trends that are running differently there? And maybe just some color in terms of what you've seen regionally and what that could mean for results.

The majority of states that were closed in March and April and did not consider construction essential were located in the Midwest and Northeast. This clearly had a significant impact on those regions, especially in April. Generally, most private builders have not shared the same reluctance to start projects as some public builders. Private builders appear to be more optimistic about a strong rebound in orders and are actively working to stay ahead of the curve. However, it is clear that the upcoming Census Bureau data for the next couple of quarters will show that growth in starts and orders will be considerably affected.

This is Jeff. But interestingly enough, of the states that were closed with the exception of Washington state, as Michael mentioned, where they were located, predominantly kind of Great Lakes and New England, those are obviously some of our most seasonal markets also.

Yes.

So they, despite the current situation, are entering the quarters that typically involve most of their annual work.

Yes. Interestingly, the quarter began with a very mild winter, which was quite beneficial for those markets as well.

Okay. And then another question. Just can you talk to your ability to delever? How quickly can you kind of convert that working capital over? And is there any kind of target in terms of leverage that we should be thinking about? And maybe especially if this does end up being a deeper or a more sustained downturn than what's currently expected?

Yes. So if it is a deeper and more sustained downturn, we would look to delever on a net basis. We don't look to prepay any debt at this time. I mean, that just doesn't make sense. We want to preserve liquidity. And we have no significant debt maturities until April of 2025. And then our next significant debt maturity is in 2028. So our net leverage right now is under 2x, and we would expect that one through the reduction in working capital, which happens almost immediately, if sales are declining, that we would be able to continue to improve our net leverage throughout the course of any downturn.

Okay. Our next question is from Keith Hughes of SunTrust.

A couple of questions. One on the price/mix in the quarter, which was outstanding, is that still more price-driven at this point in the first quarter numbers?

Yes.

And do you expect, given the trough we're going into, do you expect mix to change? Or will the same mix trends continue based on what you see on orders?

Yes, that's a great question, and I'm glad you asked it. We would expect that to maintain higher sales levels at our branch locations, they will need to expand their service areas and promote the sale of other products even more aggressively. We benefited from this during the Great Recession, and we anticipate that if this downturn persists, we will benefit from those factors again.

Okay. Final question.

To complete my point, I want to clarify that we have discussed this multiple times before. The higher growth rate of our other products negatively impacts the price/mix because the sales prices of those products are significantly lower than insulation.

Okay. Final question on Alpha, there is good news regarding their quotation activity in March and April. Typically, how long is the lead time on a quote until you begin working on the job site for Alpha?

It really depends, obviously, on the job that's being quoted. I mean sometimes, it can be 12 months or even longer before we're on the job site. But generally speaking, in terms of backlog visibility, we have very good visibility into, call it, three to four quarters worth of revenue on the Alpha side.

Okay. You're not seeing any cancellations come up from quotations several months ago?

We've seen very few cancellations. And to be honest with you, I think we've had maybe 3 or 4 jobs canceled, and they were all fitness facility related.

Our next question is from Seldon Clarke of Deutsche Bank.

Can you just talk about how volumes are trending in April versus price/mix? Or just help us bridge to some of those organic sales numbers that you gave for April?

We're still seeing stronger price/mix than volume.

All right. So volumes on an organic basis, down year-over-year?

No.

Okay. So some modest growth in volume. Kind of longer-term question as it relates to M&A. How do you think the upcoming slowdown or just this entire situation will impact the M&A landscape? I know you guys try to go after higher quality companies, but how do you typically think about the opportunities or the pipeline coming out of a slowdown or in the middle of a slowdown relative to a more normalized environment?

This is Jeff. I would say that every seller we've interacted with acknowledges that this is a cyclical business. Most people tend to believe it will turn into a buyer's market. We might see a slight decrease in multiples, but generally, the companies we have talked to have experience navigating down markets. If they cannot position their business effectively to achieve a purchase price that reflects decades of effort, they tend to step back, and opportunities diminish. However, that is not what we're observing. Currently, we are engaging with numerous companies that have solid backgrounds, rich histories, strong growth, and impressive profitability. Eventually, we expect some clarity regarding the economy we will be facing. We believe the housing market may be in a different place than it was the last time, perhaps in a much better situation than the broader economy, with various advantages such as interest rates and limited supply. We hope that the downturn will not deeply affect the primarily residential market, and once we confirm that it won't, we will become more active again.

Yes. And I would say, too, from a structure perspective, the new deals that we're signing up were including a large component that has an earn-out tied to it so that some of the uncertainty surrounding what's to come is borne by the seller.

Next question comes from Trey Grooms of Stephens, Inc.

This is actually Noah Merkousko on for Trey. Just a quick follow-up on that last question on M&A. I understand it might be a little bit too early, but what would you guys want to see from the market before you started getting active in M&A again?

We will continue to monitor both our internal information and the available data regarding builder traffic and sales. For the past three to four weeks, we've seen some sequential improvements. The next 30 to 45 days are critical in this aspect, and if the trend continues to improve, we will feel more optimistic about the situation.

Our next question we have is from Reuben Garner with Seaport Global Securities.

It's Reuben with Benchmark. Congratulations on the quarter and a good start to April. Most of my questions have been addressed. I just have one follow-up, and I don’t want to dwell on the topic, but regarding the backlog you mentioned, how long can your business manage before seeing signs of order recovery from the builders, specifically on the single-family side? Is your comment about the weakness being more prevalent in the third quarter? Do you have enough work for 3 to 5 months that can sustain you? If you see orders from the builders returning in the next couple of months, could it be that you won't actually experience a period of weakness? Please help us understand how this situation is unfolding.

Yes, our intent was to communicate that. However, due to the significant drop in orders and what we anticipate the data will reflect in starts, it will take time for the houses to be ready for installation work, assuming order growth returns to normal levels. The houses need to be framed, plumbed, and have electricians on site, among other tasks that must be completed before we can proceed. Those trades will need to return to finish their work. We believe there is a strong backlog available right now, with many projects at various stages, some of which we have already installed. This backlog provides us with near-term support for the single-family new construction business. We are optimistic that if order growth accelerates, as many expect, well-capitalized builders will take advantage of this and prepare homes for us to continue our work.

Great. And good luck navigating through this crisis.

Next question is from Justin Speer of Zelman & Associates.

Just number one, just the sequential volume deceleration in the quarter. Was that a function of a trade-off of price and volume? I guess did you intentionally seed some volume share in the quarter?

It was a combination. We have always emphasized that we prefer to work with customers who value our service rather than focusing solely on volume. However, our volumes were certainly affected, as we previously mentioned, by the $2 million to $2.5 million in revenue lost due to the COVID-19 impact. Overall, we feel positive about our market share during the quarter and the relationships we maintained with our customers. We experienced significant growth in the quarter, particularly in April, with some of our key customers in the large building sector, and they continue to appreciate the service we offer.

What were your volume trends, year-over-year trends by month in the quarter?

So they were solid in January and February, and it was March where the volumes turned negative.

If you consider the nonresidential backlog funnel, could you share any observations about trends in your business? I understand that some areas may have advanced while others were delayed in parts of the channel. Looking at the bigger picture, how do you believe the pandemic will impact nonresidential starts activity moving into 2021?

That's a good question. Right now, we're experiencing continued strength in our commercial business, both light and heavy, except for the fitness facilities I mentioned earlier. It's challenging to predict how this unprecedented event will impact areas like stadium construction and office space because it's quite uncertain. However, I can say that our bidding activity is at record levels, and we are very encouraged by the commitment and strength of our employees, especially those in our commercial division, who are working diligently to continue growing that business for us.

So I guess, in terms of the M&A side of the ledger, just given the later cycle nature of that channel, do you think that perhaps in terms of the purse strings for M&A, maybe initially towards the residential area versus nonresidential so you get a little bit more visibility in nonresidential? Or do you think that the opportunities will coincide with one another?

We're definitely prioritizing residential opportunities right now over nonresidential, but we're not afraid of doing nonresidential deals. And as we said earlier, I mean, there are ways to structure deals where you can put some of the risk back on the seller. But the key is we have always focused on working with bringing on to our team, high-quality businesses with high-quality people. And it's our experience that they know how to manage very effectively, as Jeff said earlier, during a downturn. And we feel confident that both our existing team and people that we add to the team will do a very effective job managing through this.

And then the last question for me. Just on the SG&A run rate at roughly $80 million in total SG&A in the first quarter. Is that the starting run rate? I know there's a seasonal element to it, but is that a good starting run rate to use to work from in terms of thinking about the progression of the expense? I know you mentioned health care items. I don't know if there are some one-time items in that first quarter number that won't repeat as we think about the sequential and seasonal trends.

Yes. I mean, on the selling side, as we mentioned in our prepared remarks, a large portion of that expense is employee-related that will fluctuate with sales. We don't like to think of any cost as being fixed cost, but the most lagging of our variable costs are contained in G&A. So that G&A run rate, depending upon how this plays out, would have the greatest lagging variable to any decline in revenue.

Okay. So that $60 million roughly G&A expense is the right kind of number to start with as we think about the sequential progressions and the phasing of revenues?

It's reasonable.

Our final question is from Ryan Gilbert of BTIG.

Just first question. It sounded like volume picked back up a little bit in April. And I'm just wondering if that's from activity in states that were previously shut down or if there's anything else driving that volume lift?

Yes, in April, about 10% of our revenue was still closed, so that wasn't the main driver. The volume growth in our non-closed markets was the key factor. Looking at our regions, particularly in the south and west, except for Washington, California experienced a significant volume impact. However, within the Census Bureau's definition of the south region, we are seeing strong performance. None of these markets were closed since construction was considered essential, and surprisingly, they remain very robust. Some builders have even achieved record sales in these areas. This suggests that while I can't comment on the overall economy, the housing market seems poised for a swift recovery.

Got it. Yes, that's encouraging data points. Looking to the commercial business, do you have an idea of what percent of the backlog is vertical construction that's already started versus on their stone horizontal development?

I don't have the exact percentage with me at the moment, but we are exercising a lot of caution in our project work and bidding to ensure that the projects we are bidding on are already funded and committed, so we avoid pursuing work that might get canceled. I would describe it as a mix. Although there's nothing historically normal about the current environment, we've typically had very few issues in turning backlog into revenue.

This concludes our question-and-answer session. I'd now like to turn the conference over to Mr. Jeff Edwards for any closing remarks. Please go ahead.

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

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.