Greetings. Welcome to Installed Building Products Fiscal 2020 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Jason Niswonger, Senior Vice President, Finance and Investor Relations. You may begin.

Good morning, and welcome to Installed Building Products second quarter 2020 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 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 of the COVID-19 crisis on our business and end markets, expansion of our national footprint, products and end markets, our expectations for our end market, 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 or demands 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 negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Any forward-looking statements made by management during this call are not guarantees 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 expense. 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 highlights on the quarter 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'm very pleased with our 2020 second quarter financial and operating results as IBP achieved multiple milestones, including record second quarter sales and profitability despite the unprecedented challenges caused by the COVID-19 crisis. These record results demonstrate the success of our ongoing geographic, end market and end product diversification strategies, the benefits of our pricing strategies, and the hard work and dedication of our employees. As an organization, we remain focused on supporting our employees, customers, and suppliers across the country, while ensuring our business is well positioned to withstand the impacts of the COVID-19 crisis. Across our national footprint, our branches continue to follow federal, state, and local requirements in response to COVID-19. At the start of the second quarter, several of our branches, where construction was not deemed essential, were closed. While these locations reopened at various points during the quarter, we estimate revenue this quarter was negatively impacted by approximately $10 million to $12 million. Operations have resumed across all IBP branches, but some recently reopened locations were not at full capacity during the month of June. We continue to closely monitor the evolving COVID-19 crisis, and we will make the necessary adjustments to protect and support our employees and customers across the country. Overall, IBP's success in the second quarter and during the early stages of the COVID-19 crisis highlights the strength of our business plan, the power of our financial model, and our core operating values focused on supporting our employees and customers. I'll use my time today to review these items and why we believe IBP is extremely well positioned for the current market environment as well as the long-term opportunities we have to create sustained growth and value for our shareholders. I'm pleased to report that our geographic, end product and end market diversification strategies continue to produce above-market growth. IBP grew total revenue by 6% during the second quarter. Adjusting for branches closed in markets where construction was not deemed essential, we estimate second quarter sales growth was approximately 9% compared to the same period last year, and adjusted same branch sales growth was approximately 5%. Our second quarter performance is a direct result of our focus on strong U.S. housing markets, our sales of complementary building products, and the successful expansion of our multifamily and large commercial construction end markets. IBP's current geographic footprint continues to provide us access to nearly 70% of total residential permits. Our diverse national footprint helped us navigate the market volatility caused by the pandemic. The strong growth we are achieving in our multifamily and large commercial end markets is encouraging as sales in these end markets increased in the second quarter 45.4% and 7.5%, respectively. Compared to the overall size of the multifamily and commercial end markets, IBP is a relatively small installer, and our geographic footprint is not as widespread as our single-family exposure. As a result, we have significant opportunities to gain scale in these end markets through our existing branch footprint and acquisitions. We believe overall industry dynamics remain strong and support the continued need for our services. At the end of June, there remain more than 500,000 single-family units under construction based on U.S. Census Bureau data, which we believe represents approximately seven months of industry backlog. While this includes homes at various stages of completion, we believe IBP will continue to benefit from a significant proportion of the backlog in the markets where we operate. Longer term, we believe that the pandemic will likely increase the demand for single-family housing, increase the need for more affordable homes, and potentially continue to support the quick recovery the industry is experiencing, which is not typical of a housing downturn. Over the near term, however, our single-family market demand may be temporarily impacted by the normal lag between starts and completions as a result of the market disruptions that occurred during the early stages of the pandemic. We currently anticipate any impact to our revenues will likely occur during the third and fourth quarters, but we believe the full impact of the second quarter decline in housing starts will be partially offset by the strong industry backlog and the quick recovery in housing demand we saw in the second quarter. In addition, backlogs in our commercial end market at June 30, 2020, remained strong. Requirements for social distancing on construction sites have recently been more restricted for IBP in the commercial end market than in our residential end market. The general contractors on our commercial projects have done an excellent job managing the multiple trades on each job site to ensure everyone's safety. However, this has resulted in scheduling disruptions in some of our markets delaying our work. While the impacts have been manageable for IBP, we might experience further isolated disruptions as state and local responses to COVID-19 cases are occurring at various degrees across our footprint. We believe our strong backlog and growing presence within the large commercial end market should help us navigate any near-term softness. I'm pleased to announce that we resumed closing transactions from our strong acquisition pipeline, as markets across the country reopen and the economic environment for our industry has stabilized. In June, we announced the acquisition of Nationwide Gutter, a Texas-based provider of gutter installation and repair services primarily to multifamily and commercial customers with annual revenue of approximately $5 million. Our acquisition pipeline remains robust, and we anticipate we will continue to deliver on our acquisition strategy in the coming months. We continue to actively pursue acquisitions of well-run residential, multifamily and commercial installers that support our geographic product and end market diversification strategies. Before I turn the call over to Michael, I want to highlight the record profits we achieved this quarter. Higher revenue, continued improvements in price/mix, the benefits of our end product and end market diversification strategies, and lower fuel costs all contributed to record profitability. Adjusted gross profit as a percent of revenue was 32.4% during the second quarter, the highest we have reported as a public company, while our same branch incremental adjusted EBITDA margin was nearly 130%, helping drive a 27% increase in second quarter adjusted EBITDA. Over the trailing 12-month period, our adjusted EBITDA margins expanded to 14.1%, a result of lapping the impact of the material inflation environment in 2018 and our pricing strategies that carried over into 2019. In addition, with nearly $270 million of cash, cash equivalents and investments, nothing drawn on our existing $200 million revolving line of credit, no significant near-term debt maturities and limited financial covenants, our liquidity and capital position is extremely strong and provides us with a significant amount of flexibility to pursue our long-term growth strategy. So to conclude my prepared remarks, I am extremely pleased with how our team is responding to the COVID-19 crisis and the success we were able to achieve during the second quarter. Our strong balance sheet, combined with our experienced team, long-standing customer relationships and asset-light, highly variable and diversified business model will support the current and future needs of our business while creating value for our shareholders. Finally, I'd like to use this opportunity to thank our installers who are hard at work every day, representing IBP 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'd like to turn the call over to Michael to provide more details on our second quarter results.

Thank you, Jeff, and good morning, everyone. Net sales increased to a second quarter record of $393.9 million compared to $371.8 million for the same period last year. The 6% year-over-year improvement in sales was mainly driven by a 4.8% increase in price/mix, improvements in end customer and product growth, and the contribution from our recent acquisitions. On a same branch basis, net revenue improved to 2.3% from the prior year quarter. Multifamily sales increased 45.4%, contributing to a 5.6% increase in total residential sales during the second quarter. Sales in our large commercial construction business increased 7.5%. Our total commercial sales increased 12.3% in the second quarter as social distancing practices had less of an impact on light commercial job sites. It is also important to note that sales from our large commercial construction business are not included in the volume and price/mix metrics we disclosed. As Jeff mentioned, at the start of the second quarter, several of our branches where construction was not deemed essential were closed. These markets reopened at different times during the quarter and as of June 30, all of our branches were operating. These closures during the quarter impacted revenue by approximately $10 million to $12 million. Adjusting for closed branches, we estimate second quarter sales growth was approximately 9% compared to the same period last year and adjusted same branch sales growth was approximately 5%. As we reported, our same branch sales from a volume perspective declined 2.1% during the quarter. Adjusting for branch closures, we estimate same branch sales volume would have been positive in the quarter. Profitability was very strong during the second quarter. Adjusted gross profit margin was 32.4% for the 2020 second quarter despite higher costs and reduced efficiencies related to the COVID-19 pandemic. The 340 basis point increase over the prior year period was primarily due to improved price/mix performance, the benefits of our product diversification strategies, higher total sales, and lower year-over-year fuel costs, which benefited gross profit by approximately $2 million in the second quarter. Partially offsetting our improved gross profit were higher administrative expenses, which as a percent of sales increased 90 basis points to 15%, primarily due to higher insurance reserves and other variable employee costs that fluctuate with profitability. Compared to the 2020 first quarter, selling and administrative expenses on a dollar basis decreased 3.1% and as a percent of revenue improved by 50 basis points during the 2020 second quarter. On a GAAP basis, our second quarter net income increased 33.9% from the prior year quarter to $25.3 million or $0.86 per diluted share. Our adjusted net income improved to 28.4% and to $33.2 million or $1.12 per diluted share compared to $25.9 million or $0.87 per diluted share in the prior year quarter. During the 2020 second quarter, we recorded $6.7 million of amortization expense compared to $6 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 third quarter 2020 amortization expense of approximately $6.7 million and full year expense of approximately $26.7 million. This figure will, however, change with any subsequent acquisitions. In the 2020 second quarter, our effective tax rate was approximately 26.5%, and we continue to expect a full year effective tax rate of 25% to 27% for 2020. Adjusted EBITDA for the second quarter of 2020 improved to a record $63.1 million, representing an increase of 27.1% from $49.6 million in the prior year. Same branch incremental adjusted EBITDA margin were 129.2% for the second quarter as a result of improved price/mix and year-over-year fuel cost savings. Adjusted EBITDA as a percent of net revenue increased 270 basis points from the prior year period to 16%, the highest we have reported as a public company. As we mentioned on our last call, we eliminated nonessential travel and implemented proactive cost-saving initiatives as a result of the economic impacts of the COVID-19 crisis. Since then, the economic environment has improved and the existing backlog of construction activity throughout our end markets supports demand across our branches. As a result, we have not made any additional changes to our cost structure. It is also important to note that since the second quarter ended, fuel costs have increased, and we do not anticipate the fuel savings we experienced in the second quarter to continue throughout the year. Now let's look at our liquidity, balance sheet and capital requirements in more detail. Our business model continues to generate strong operating cash flows. For the six months ended June 30, 2020, we have generated $105.5 million in cash flow from operations compared to $52.4 million in the prior year period, an increase of over 100%. During the second quarter alone, we generated $69.6 million of operating cash flow, which was nearly 91% higher than the second quarter last year. This strong increase was partially due to the government-extended deadline for filing taxes and the deferral of certain employer-related taxes under the CARES Act. 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 June 30, 2020, we had $136.7 million in working capital, excluding $269.2 million of cash and short-term investments. Capital expenditures at June 30, 2020, were $16.3 million, while total incurred finance leases were $0.6 million. Capital expenditures and finance capital leases as a percent of revenue decreased approximately 60 basis points to 2.1% at June 30, 2020, compared to the same period last year. At June 30, 2020, we had total cash and short-term investments of $269.2 million compared to $215.9 million at December 31, 2019. Total debt at June 30, 2020, was $574.6 million compared to $575.5 million at December 31, 2019. Considering cash and short-term investments at June 30, 2020, our net total debt was approximately $305 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. I am extremely pleased with the recent success we have had diversifying our sources of capital, staggering our debt maturity and limiting our financial covenants. With no significant debt maturities until 2025 and strong liquidity, we have considerable financial resources to withstand the economic impacts of the COVID-19 crisis while investing in our long-term growth opportunities. 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 challenging period. Our success over the years, and more recently, wouldn't be possible if it wasn't for you, and our thanks goes out to all of you for a tough job always done well. Operator, let's open up the call for questions.

At this time, we'll be conducting a question-and-answer session. Please note, the first question is from Adam Baumgarten with Credit Suisse. Please proceed with your question.

Hi. Good morning.

Good morning.

Given some of the trends you're seeing in homebuilder orders being really strong and some capacity that's been taken down to some extent on the manufacturer side, how should we think about the potential for a price increase in maybe late summer, early fall of this year heading into - before next year?

This is Jeff. Funny you should ask that. As of, I guess, it was yesterday, Owens Corning came out with an announced 4% price increase for - take effect mid-September, September 14. We wouldn't likely expect that the other manufacturers will follow. We have been pretty consistent, I think, in saying historically that we like a rising price environment. It implies a healthy housing market. We hope that's all very true on a very long-term basis. Certainly, in the short-term basis, it is absolutely true. So we'll handle it like we do really any other price increase and work with our customers or with them over time. And again, it's good. Builders are happy at this point. Manufacturers, to your point, are feeling a bit of a pinch on some of the supply side of things, and things are good, I guess, in that regard.

Yes, this is Michael. But I'd say is also that we feel very good about where we're positioned with our customers and with our suppliers right now, so...

Got it. Thanks. And then just if you could give any color on what you're seeing post 2Q in terms of July and early August trends, maybe the cadence you're seeing there?

Yes. So - I mean, obviously, as we did in the first quarter, we will probably in this call as well disclose a little bit more information than we normally do. The SEC has provided some guidance to companies that given the uncertainty around COVID that they would like us to disclose more information. So kind of with that, in that vein, if you will, our sales growth in July was approximately 8%, and our same brand sales growth in July was approximately 5%. One of the things that we're finding to be very interesting, and we talked about this a little bit in the first quarter call as well is that we're seeing surprising strength right now from the regional and local builders. We think that and as we commented in the first quarter call that they like some very notable public company exemptions like a D. R. Horton, really powered through April - March, April, May time frame and continued building. So we're seeing very strong - very positive growth, both in June and July with the regional and local builder.

Great. Thanks for the color.

Sure.

And our next question is from Trey Morrish with Evercore ISI. Please proceed with your question.

Thanks very much. So I wanted to ask about your large commercial business in the quarter. On your last call, you told us in April it was up about 25%, and in the quarter up 7.5%, kind of implies down 1% to 2% in the back two months of the quarter. I assume some of that is from the - from demand being pushed out and delayed. But I was wondering if you could talk a little bit more about what you're seeing on that front if these delays are going to ultimately result in revenues being down in the near term? Or if you think there's going to be some acceleration at some point in time to where the demand while there will be picked up quicker than it was in the last two months?

Yes. So a couple of things there. I mean, just to clarify, we've always talked about Alpha, our heavy commercial business, which represents about 10% of our overall revenue, and then also our light commercial business, which represents about 8% of our overall revenue. So on a combined basis about 18%. And as we discussed in our prepared remarks, in the quarter, our commercial business increased in an aggregate basis about 12.3%. There's no doubt, though, towards the end of the second quarter, particularly because our heavy commercial business is concentrated in Texas, Florida, and Georgia, that the increase in cases in those areas towards the end of the quarter and new social distancing practices that were put on job sites at heavy commercial jobs definitely slowed down and made a little bit less efficient job sites in the heavy commercial business. That really has little to no impact on the light commercial side of the business because it's more like the residential side of the business that already where it's much easier to do social distancing. We feel comfortable that the long-term trends for the heavy commercial business are still very constructive. Our internal backlog at the end of the second quarter was up about 11% from the prior year period. So we feel constructive that there is good momentum there. I mean, obviously, there are some segments of the heavy commercial construction business that are probably going to be more impacted by COVID than others. Fortunately, for us, in that business, we have - fortunately or unfortunately, we have pretty small market share, and it gives us the ability to really flex in terms of the types of projects that we're bidding. We continue to see good solid bidding activity there. So - but for the slowdown that we saw because of the, again, social distancing practices that were justifiably being practiced at those job sites, we feel very good about the heavy commercial business.

And this is Jason. I would like to also add to that, that during the second quarter of last year is when we were really starting to see some meaningful ramp-up in the new branches of Alpha that reopened. So as the quarter progressed, the comp got a little bit more challenging than what we would have on the month of April.

Got it. And then your resi price/mix is up almost 5%, which was good to see, but a significant deceleration from what you put up last quarter. So could you kind of just walk us through what caused that deceleration? Was it largely mix? Or was something else going on there?

No. It's absolutely consistent with what we said in the first quarter call that we did not expect to see or continue to see the trend of the high level of price/mix. Because in the first quarter, we were really realizing the benefits of the pricing actions that we had fully realized and the benefits of the pricing actions that we had taken during the back half of 2019. And in the first quarter call, I think we were very clear in saying that we felt price/mix was going to return to a more normalized level of mid-single digits, which is exactly what it did.

Okay. Thank you very much.

Our next question is from Ken Zener with KeyBanc Capital Markets. Please proceed with your question.

Good morning, everybody.

Good morning, Ken.

Michael, you guys aren't taking your EBIT leverage targets up to what you delivered in 2Q. Are you?

I don't know.

So walk us through this. I have a couple of different questions. I mean, was fuel really that much? And how much of the EBIT leverage did you get from, let's say - because a lot of your business is variable? And if you could just answer that question. But how does this happen? That you just get record margins in such a difficult environment. What is it about your business that enables you to slip off? But for a lot of companies, this fixed cost avoids these COVID operating headwinds at a branch level. Could you just explain that a little bit because I doubt - when did you - when were you really surprised basically that your EBIT leverage, your dollars were coming through so richly as opposed to what you might have been thinking in April?

Yes. I would say we were never surprised. It was really our team as we expected, the field team did an excellent job of managing through what was an unprecedented time. I mean, our branches that were closed and literally had no revenue for 30 to 45 days during the month just impressively managed that and managed the coming back, quite frankly, extremely well. To the first part of your question about fuel, yes, fuel savings, because of the lower fuel prices, was a benefit to the quarter of about $2 million. We don't expect to see that continued benefit as fuel prices have started to normalize again. But that was a minor component to the real stellar performance that our team did in terms of managing costs and really demonstrating the high variable cost structure of the business. So - I mean, we are very impressed with our team. They did an incredible job under extremely difficult circumstances.

Yes. I mean very good results. Could you talk to the 5% branch growth because - well, starts are recovering. Maybe you'll not see adjustment starts. And I know you guys like completions and - but if we assume price/mix deflates a little bit from where we are now for 2Q, given what we see the trend, that kind of implies starts are going towards - you're seeing positive volume versus the negative volume. And then could you talk to - because everything's kind of messed up right now, the seasonality of the industry on its head, backlog taking longer. What's kind of going to be the difference that you see from the builders' ability to get to the framing part where you would actually come into play? Because it seems like some builders pulled back construction, as you highlighted, some did not. The regional has just kept powering through stuff. With most of your business to those regionals, I mean, this air pocket - I mean, shouldn't you expect to see your second half up nicely versus what we saw?

Yes. Part of that question, you're just talking about how things are very different certainly this year than others. And typical seasonal slowdown that we would see in order growth from the builders, obviously, has changed dramatically as has been very well documented by the public builders' disclosures that they're very, very solid and incredibly strong order growth numbers. Now the backdrop there, though, is the fact that, that starts in the second quarter were actually down 17%. So a lot of catching up to do. One of the things that we talked about in our prepared remarks is the fact that backlogs are basically at cycle highs right now, and they continue to be at cycle highs. So there's the backlog that's sitting there in terms of homes that are under construction, particularly single-family homes that are under construction, coupled with the steep decline in second quarter starts. And then on top of that, though, you have this incredibly strong order growth, not just from the public but also from the regional local builders and private builders as well. So what that sets up is probably a timing issue, particularly when you add in the complexity of the fact that, as is well-known in the industry, lumber is fairly short right now, and the pricing of lumber has gone up considerably. So to your point and your question, I mean, we can't install insulation in the house until it's framed. So there's definitely going to be timing issues associated with when the backlog gets addressed, when builders are going to be able to meet the order growth and get the houses framed and get us in those houses to install insulation. But we look not just at a month or at a quarter. And when we look on balance of what's happening right now in the market, we feel it's extremely constructive, particularly given the backdrop of the macroeconomic environment that we're seeing. So we're very constructive on what we're seeing, what we're hearing from our builders, what the public builders are reporting and what our regional and local builders are expressing to us. So it makes us feel confident, but we also know that these are very uncertain times.

Yes. No. I mean, massive job losses. Let me rephrase it a little bit. The prior two years, you did about 47% of your revenue in the first half. It seems like the slowdown we had in the first half of this year, combined with the momentum we've seen in recent months, might actually build the back half to a higher share of sales versus what is normal. So 53%. I mean, what's your answer if I frame it that way?

We don't provide guidance. I'd only add a couple of things that are kind of on point, but I mean just macro things, I suppose. I mean, with mortgage rates where they are, that's obviously super encouraging. I mean, money is basically free. We don't know for sure it relates to either an air pocket or any kind of slowdown and Michael spoke to it. Labor continues, in other trades. Again, we feel pretty good about our own situation, but continues to be tight, and more than likely constrained. Although one recent occurrence or relatively recent occurrence doesn't necessarily provide a complete thesis. But in the back half of '18, when interest rates went up and orders and starts went down pretty dramatically, as I think most of us remember because of the backlog and because of the labor constraints, kind of what came out the other end, four, five months later, looked very similar to the volume that you were able to chew through when times were a little better. So we don't know that that's going to happen here. It's certainly encouraging that things picked up as fast as they did. If, in fact, it does take a lot of chews through the backlog, I think it probably - we think it'll probably smooth out a bit. But it's all really pretty encouraging at this point.

Yes. Correct.

Thank you, gentlemen.

Thank you.

And our next question is from Trey Grooms with Stephens. Please proceed with your question.

Hi. Good morning, everyone.

Good morning.

So it sounds like the ASP kind of settled in, in a more normal kind of range that you guys were expecting, like you talked about in the last quarter. And you talked about that there was an improvement in customer and product growth in that ASP, if I understood that right. And I know you talked about that before, but is that mix benefit or I guess that mix change, is that something that you expect going forward? And how do we think about - well, I know you won't answer that part of it, but how do we think about the longevity of that mix benefit to ASP?

So the mix benefit was definitely stronger in the first quarter than it was in the second quarter. It was lighter in the second quarter than it was in the first quarter. But it was still incrementally a little bit positive, although as we've talked in the past, we expect that the - over time, the mix benefit of the lower priced product that we install will be a headwind to the price/mix component. But for the past two quarters, it's actually been helpful in terms of our overall insulation sales being at a higher growth rate than our overall other product sales.

Right. So I guess that's where I'm kind of going back to. You mentioned normal being kind of mid-singles, a more normalized - that's where you kind of shook out. So I guess - and I'm kind of going back to that comment that you could have some headwind as that mix changes around. I guess what I'm trying to parse through is that 5% sounds like it's something that is expected to be sustainable even if we see mix maybe flex a little in the other direction? Or am I reading that wrong?

Yes. But as you know, because you followed us so closely for the past couple of years, I mean, since we've been public, that number, particularly on a quarterly basis, can fluctuate fairly significantly as they did from first quarter to second quarter. But the way that we like to think of this and a lot of the metrics that we talk to is more on an annual basis. So we think on an annual basis, it sort of in that kind of mid-single digits is something that we've sustained historically, and we feel confident that on an annual basis, it's something we would sustain historically as well.

Understood. Understood, so - which kind of leads me to my next question. And this is a little bit tied to what Ken was asking earlier, but the margins that you guys put up, I mean, even if you adjust for fuel, we're still - if I just take that $2 million out, something still well north of 15% EBITDA margin in the quarter. And understanding that ASP can shift around on a quarterly basis, but over the long term, you just described it. You also mentioned your cost profile has not changed. I think it was in the prepared remarks. So I guess what I'm getting at is - and with volume sounding like it's still holding in, I understand there's uncertainty. But I'm just trying to get my hands around, even if you adjust out some of this maybe onetime diesel or fuel benefit, it still seems like the setup is - should be favorable for a continued EBITDA margin, something in that range, unless we're missing something that maybe occurred in the quarter that then there could be a headwind that maybe we're not appreciating?

As you know, we don't provide guidance. I'll start with that. Sorry.

I understand.

Yes. But what we really tried to do in the prepared remarks is highlight anything that we felt was very unusual. And the thing that was - from a benefit perspective, that was the most unsustainable, if you will, was the fuel, which is why we separately discussed it. And the team performed extremely well under very difficult environments, and we can't say enough how proud we are of what they did.

Yes, very impressive. Just making sure we're not missing any nuance there as we're kind of thinking about things in the quarter. My last one is a little bit more big picture. Multifamily is a pretty important part of your business that's been growing nicely. And as you mentioned earlier, the COVID is likely creating demand for single-family as families look to get out of crowded urban centers and things like that. But how are you thinking about the multifamily part of your business in the - maybe in the medium term? With that dynamic in place there, could there be some offset? Are you hearing maybe - I know you talked about backlogs on the commercial side. But any thought around multifamily and what that kind of dynamic could mean for that side of your business?

Yes. This is Jeff. I mean we're still so underpenetrated when you look at our footprint, at least for sure, on a national basis, while we're strong in some regions and in some branches, we're still so underpenetrated that, I mean, pretty much for the most part, any - small. And I think the pullback, if there is one in multifamily, quite frankly, isn't as massive as anybody might anticipate. And the movement from urban centers to suburban, a lot of those markets were not even in when you really think about places like Manhattan and things like that. So from our perspective, our business, we feel still pretty solid on a go-forward basis about our ability to continue to take share and grow our multifamily business.

Yes. And because you sort of asked the question there, and this is not something that we'll regularly disclose, but our multifamily backlogs at the end of the quarter were up over 40%.

All right. Well, that is enough. Thank you, guys. I appreciate the color. Thanks for taking my question and take care.

Thank you.

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

Good morning, everyone.

Good morning.

Good morning, Susan.

My first question is, you've talked a little bit about the strength you've seen from some of the regional and local builders. As we think about some of the trends we've heard in housing as we've come through COVID with some of maybe these markets where you weren't seeing as much activities, things are starting to pick up as people kind of leave urban and move to suburban. Can you just give us some regional perspective on what you're seeing in different markets across the country? Are there some areas where you're getting a nicer mix shift that's perhaps coming through with some of these markets that are starting to see more activity than they have been in the last couple of years?

Yes. I mean, that's a good question. And - I mean, it's a little difficult to answer just because of the top half of the country was much more impacted by COVID-related shutdowns and construction being deemed nonessential. So I mean, obviously, we saw incredible weakness. I mean, in some cases, as I said earlier, zero revenue at branches during parts of the month. But they've come back nicely, and it's been interesting to see just looking at the macro statistics the strength of both the Midwest and the Northeast in some of the sales numbers and order numbers. And some of the strength of some of the builders that are a little bit more concentrated in the top half of the country and their regional order growth. So yes, it seems as if there's good reason to be constructive not just about Texas, which is obviously an outstanding market for us and for a lot of other companies, Texas and Florida. But it seems to be pretty constructive in terms of what we're seeing. And I think, as Jeff talked earlier, I mean, clearly, the rate environment and the pent-up demand that's been really pent up for, like, the past 10 years is adding to what we're seeing as a very constructive environment.

Okay. That's helpful. And then my next question is around labor. We've obviously heard that labor is really tight across the trade. You've done a lot with your employee base over the last couple of years to reduce turnover and really kind of keep those people in. Have you seen anything - I guess, as we kind of think about some of the bigger trends that are coming through in the macro environment with certain sectors of the economy seeing higher levels of unemployment, have you seen any shifts in the labor? Have you seen any sense that maybe we'll get some more people that start to come into this area? Anything - any kind of updates or colors there?

Susan, hi it's Jeff. Not yet. We, to your point, have still continued to benefit from kind of increased productivity that's come as a result of our ability to decrease turnover. What you read or hear about as it relates to the extra $600 of unemployment and the extended unemployment benefits having an effect on some individual's willingness to go back into the workplace, I think we would say, at least our experience, and maybe even a little bit anecdotally, but not so much because we're hearing directly from our regional presidents that, that phenomenon is actually at least partially true. With the expiration of that benefit, we do believe that longer term, there's a chance that we'll see some of the industries, maybe particularly some of the restaurant employees and those kind of things could, in effect, migrate into our business. I mean we - I think we've mentioned this before. In fact, I know we have. It's very rare that we hire an individual that comes already to us with experience in installing insulation. So we fully expect to take someone that has no experience and put them through our training to end up long term, assuming we can retain them with a good employee that's kind of been trained in the way that we do things. So we're hopeful of that. I mean, that's another really kind of, we believe, on a go-forward basis. Again, I feel for some of the other industries that are going through not something that's dissimilar to the pullback that we had in our business. It's a great recession in terms of the amount of business loss, obviously, for a different reason. But - so I don't want in any way make light of that. But we're, on a go-forward basis, hopeful that the labor does get a little better for us, potentially, at least sourcing.

But everyone that - but I think this is a clarification too. Everyone that we furloughed because of branch shutdowns, we brought back. And as Jeff mentioned, our labor efficiencies continue to improve, and we feel very good about our current labor environment and our ability to meet our customers' needs.

Yes, I didn't mean to imply that our employees were benefiting from the extra payments not coming back. But I think potentially some new sources of employment - of employees for us aren't as - they haven't come back in the workforce yet.

Yes.

Okay. All right. Well, thank you and good luck.

Thank you.

Thank you.

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

Thank you. Just a question on SG&A, it's been up as a percentage of sales in the last - in the first half of this year. If you continue to grow with what July was, will we still see that up year-over-year when you think you start to show some leverage on?

Yes. Keith, this is Michael. So we pointed out in the prepared remarks that SG&A actually declined from the first quarter to the second quarter. So we made some progress there. But quite frankly, and as we pointed out in the prepared remarks, I mean, really, the drivers of the higher G&A as a percentage, not selling expense, but the higher G&A as a percentage of revenue was really driven by two things: higher reserves on our insurances, combined with higher variable employee compensation that varies with profitability. So to the extent that we continue to see improvements and higher levels of profitability, we would expect that variable component to trend with that improvement in profitability.

So from a dollar figure, would something in the $70-odd million range still be the case? Or is that going to trend up towards the end of the year?

You're looking at it on a combined basis. I mean obviously, it does fluctuate with volume. But that's been a kind of consistent number that this quarter, obviously, down a little bit from last quarter. But there's nothing that is significantly different going into the third quarter from the second quarter from a G&A perspective.

Okay. Thank you very much.

Sure.

And our next question is from Seldon Clarke with Deutsche Bank. Please proceed with your question.

Hi. Good morning. Thanks for that color on July, but is there any way to give us a sense on how that differ between end markets and maybe where volumes or price/mix is shaken out so far?

Yes. I mean - I'll be honest with you. I mean, we really don't want to make a practice of going really deep into a single month because - and we get that given the uncertainty, people want as much detail as possible, but we really need to look at this on a quarterly annual basis as opposed to digging deep into each individual month. What we would say is we're very encouraged by July sales, and we continue to see the same momentum in July that we saw in the second quarter.

Okay. I mean, is there any way to just give us a sense of maybe how it compared to June either - I understand you've got to look at it on a quarterly basis, but how it may be compared to June either on a volume or price basis, just relatively speaking?

Yes. So just to be clear, to make that comparison, June of 2019 was a 20-day selling - 20-selling-business-days month, whereas June of '20 was a 22-day. So adjusting for business days, okay, which you have to do, adjusting for businesses days, July's 8% increase was higher than June's sales increase.

Okay. Helpful. And then is there any way to just quantify some of the more temporary cost savings that you're seeing in the quarter? And how we should think about those costs coming back as things start to normalize, whether it's later this year or probably not until 2021.

Yes. As we said earlier in the call and in the prepared remarks, I mean, we really tried to highlight that the most significant of those costs being fuel costs of about $2 million that we don't expect to be replicated. And for people's benefit, fuel costs for us is in cost of goods sold. The - we...

I guess I was referring to some of the more like discretionary items, reduced travel and things like that.

We did stop unnecessary travel. But quite frankly, as a company, we don't waste a lot of money on travel. And it was not a really significant number for us in the quarter, to be honest with you.

Okay. So other than diesel, even as we look into, like, 2021 or when we get back to some normalcy in the world, there aren't - there isn't a significant amount of cost creep that you would expect to see.

No.

No.

Okay. I appreciate the time. Thanks guys.

Sure.

Our next question is from Justin Speer with Zelman & Associates. Please proceed with your question.

Hi. Good morning, guys. Thanks. Just following up on Seldon's question on the margin side of things. If you look at that incremental, even stripping out the $2 million, you're still like 100% incremental margin. And I know you guys kind of speak to typically, like what is it? A 22% to 27% annualized number. And typically, you see that seasonally strengthen in the back half. So just recognizing the second quarter was just eye-poppingly good and implied maybe there's like $7 million or more of - on top of the fuel of just incremental good guys, but you have to kind of to assume to get to that normal 22% to 27%. And that's the way we're thinking about it. I guess how do we think about that in the back half? How do we triangulate or think about the back half seasonality when we're also governed by your 22% to 27%?

Yes. Just to clarify, we use 20% to 25%, and we're - I think, we're going to be consistent with that, that on an annual basis, we would expect incrementals to be in that 20% to 25% range. I mean this quarter is very strong, very solid incremental margins, particularly on the same branch basis was really driven by gross profit improvement. And it was really our team, as we've said several times in the call, really performing extremely well under very difficult environments, managing very tightly our cost structure - our variable cost structure at the branch level. So again, we're going to stick with 20% to 25% on an annual basis. We've been consistent with that since the day we went public. And we think that's the right number to look at. But we had a very, very strong gross margin improvement in the quarter. And again, we're very proud of what our team did. They did exactly what they were supposed to do.

So did you - I'm thinking about also that gross margin and cost structure. Was there any maybe outsized percentage of the workforce or percentage of the workforce that may be furloughed during the quarter that maybe also played a role?

Well, yes, and we talked about this in the first quarter that we furloughed about 600 employees, primarily installers at locations that were shut down because they weren't deemed essential. And - but at the same time, those locations had 0 revenue. And we had all of the G&A costs associated with that zero revenue location, okay? Then fortunately, as those markets started reopening, we were able to bring back, at this point, all of those - pretty much all of those furloughed employees, and those branches are starting to come back from an operational perspective. Not 100% yet, but they're working very well and working very efficiently. I mean when we look at our branches that reopened in June despite all of the obstacles that they faced, they performed incredibly well in the month of June. So we just - again, I don't want to repeat myself, but are really proud of what our team did during what was a very difficult quarter.

That's incredible. Just I want to switch gears a second here. On the nonresidential pipeline, you mentioned, I think backlog up 11% from the prior year. We know that DoD - you're also looking at DoD's data, the starts were very, very strong into the pandemic that's really, really strong, pretty aggressively in the second quarter. I guess you mentioned of bidding activity being strong and recognizing that you're concentrated maybe in select geographies that may be different. But in terms of that bidding activity that you spoke to, is that inclusive of projects that have not already started? Because if you look at the national data, even some of the regional indicators suggest that the front end of that non-res channel has been tough, in general.

Yes, it's definitely tough. There's no doubt that there are headwinds there, but the bidding is all on new jobs. And generally speaking, there are going to be jobs that have not broken ground yet. Yes. I mean - and there's no doubt it's - this is very clear to all of us that there's a lot of uncertainty around travel and entertainment and leisure, hotel, motel growth. There's certainly a lot of uncertainty around kind of airport expansions. There's a lot of uncertainty around office space and what our office space is going to look like from a growth perspective. Fortunately, those aren't the only things that we bid. We're bidding a lot of educational facilities. We're building - we’re bidding a lot of health care facilities, and there's a lot of activity that's going on. And when you look at the growth in housing, right, infrastructure needs to be built out to support those new communities that are being built, and we're bidding on those projects as well. So because of - as Jeff talked about on the multifamily side, it's true. On the heavy commercial side - remember, again, the heavy commercial side is only 10% of our total revenue. We're very underpenetrated, particularly on a national basis when you think about it. So that gives us a lot of opportunity to continue to, we think, have positive momentum in that business even in what is going to be, for some of those verticals, headwinds, for sure.

That's good. And I guess last question for me. In terms of your multifamily pipeline, if you could help us understand where you're situated geographically in that multifamily vertical that you compete in? And maybe what percentage is urban versus nonurban? I don't know if you can define it that way, but that would be helpful.

Yes. What I'd say is that our - the growth in multifamily, while we do multifamily across our footprint, where we're really seeing great penetration is in the Southeast and Texas, right? So we're continuing to really execute. And then I said we, it's not anybody in this room. It's our field team that are just doing an incredible job of executing our strategy there of working hard to get our branches that aren't in multifamily into multifamily and just performing very well for the general contractors in that business. And it tends to be not so much ex urban, but more suburban than urban. And as Jeff mentioned, we're not in Manhattan. We're not doing high-rise multifamily projects. It's really the kind of traditional kind of suburban expansion multifamily that you would see in most cities in America.

Excellent. Very helpful. Thank you and congratulations for a great quarter.

Thank you.

Our next question is from Reuben Garner with The Benchmark Company. Please proceed with your question.

Thank you. Thanks for squeezing me in guys.

Sure.

So maybe on - I want to hit the R&R side. I know that's not a big part of your business, but do you see it as an opportunity, especially with folks leaving urban areas and headed to maybe nearby suburban areas. There's some older homes where there may be additions or other things that are there. Is that a market that you'll play in that you'll benefit in? Or is your R&R exposure something different than that?

That's actually a great question. I mean it is a small percentage of our overall revenue. But it tends to be - our R&R business tends to be concentrated in the Northeast and the Midwest, which makes sense for two reasons. One is the oldest part of our footprint, the most mature, in terms of being part of the IBP family and also in terms of the housing stock. So that does make sense. I would say, though, that during the COVID crisis that people were not really excited about having our installers come into their house to do repair and remodel work. Where we saw kind of strength in the repair and remodel business during the crisis - during the ongoing crisis is more exterior work where we're doing garage doors and/or gutters and things like that. But our business on the insulation side is traditionally not really driven by repair and remodel. It's more driven by a need for energy efficiency. So...

It's a very, very different business than our kind of new construction business.

Yes. I mean ultimately, in most places where we participate in that business it is nearly a stand-alone market segment and function for us. Now that's not to downplay how beneficial exterior gutter work and other - because really, the states that were shut down were primarily for us in the Northeast, I guess, I don't know what...

Washington.

Yes. In Washington state. But primarily, I don't know - some large percentage of our overall states that were shut down were in the Northeast. And thank goodness for some of that existing work during the period of time, even where we weren't in our traditional new construction business deemed essential because they were continued and allowed to do work.

Thank you.

Thank you.

Perfect. That's all very helpful. And then last one for me. The insulation capacity environment, I know that some of the new projects were pushed out. I know you touched on pricing earlier. But just curious, we've seen in some commodity markets trouble with the manufacturers. Running at full capacity, you obviously got to have people available and with everything going on with the virus that can be difficult at times. Is there any risk as you're heading into a seasonally busy period that things get very, very tight with the new capacity coming out and obviously, a spike in orders rates over the summer? Is there risk that, that supply becomes super tight over the fourth quarter and into the early part of next year? Or do you feel there's enough out there to handle a surge in demand should it come?

I think we feel very confident about our ability to source material and the relationships that we have with all of our suppliers, absolutely. It's been - I mean, since day 1, our strategy has always been maintaining solid relationships with, particularly all four of the insulation manufacturers, but really all of our suppliers. And we really had no disruption at this point. Honestly, on the supply front, if we - as we look at it, what we want to make sure is that the lumber mill capacity continues to come up and come online to make sure that those houses get framed on a timely basis, which is happening now, and we have every reason to believe that's going to continue to happen. But we would be more concerned about that right now than we are of insulation capacity and our ability to source material.

Perfect. Thank you, guys and congrats on the strong quarter. Good luck going forward.

Thank you.

We have reached the end of the question-and-answer session, and I will now turn the call over to Jeff Edwards for closing remarks.

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

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