Installed Building Products, Inc. Q4 FY2020 Earnings Call

Greetings, and welcome to Installed Building Products Fiscal 2020 Fourth Quarter Financial Results Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Jason Niswonger. Thank you. You may begin.

Good morning, and welcome to Installed Building Products' Fourth Quarter 2020 Conference Call. Earlier today, we issued a press release on our financial results for the fourth quarter, which can be found in the Investor Relations section on our website.

Thanks, Jason, and good morning to everyone joining us on today's call. As usual, I will start the 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. IBP produced another strong year of record operating and financial performance. For 2020, revenue increased 9.4% to a record $1.7 billion, earnings increased 43.4% to a record $3.27 per diluted share and adjusted EBITDA increased 24.8% to a record $245.6 million. I am proud and humbled by our performance as we achieved these record results despite the unprecedented effects of the COVID-19 pandemic, which demonstrates the hard work, dedication, and commitment of our nearly 9,000 team members nationwide. Throughout 2020, we maintained our commitment to quality and dedication to providing our customers unparalleled service while protecting the health, safety, and well-being of our employees, customers, partners, and communities. The most important part of our business is the men and women working in our locations throughout the U.S. We strive to provide an environment where people want to work and succeed, focusing our resources on attracting, retaining, and developing talent. I'm pleased to report that we have continued to maintain employee turnover well below industry averages, a direct result of the employee programs we've introduced since 2017 and the culture we value. Our record results also demonstrate the success and the resiliency of our proven business model, our strong position within compelling geographies and end markets, the strength of our balance sheet and capital position, and the experience of our senior leadership team.

Thank you, Jeff, and good morning, everyone. Net sales for the fourth quarter increased to a quarterly record of $441.5 million compared to $401.2 million for the same period last year. The 10% year-over-year improvement in sales was mainly driven by a higher volume of customer jobs completed during the quarter, growth in other complementary products, and the contribution from our recent acquisitions. On a same branch basis, net revenue improved 2.8% from the prior year quarter. Multifamily sales increased 33.6%, contributing to an 11.3% increase in total residential sales during the fourth quarter. Sales in our large commercial construction business increased 40.4% and on the same branch basis, increased 6.4%. It is important to note that sales from our large commercial construction business are not included in the volume and price/mix metrics we disclosed. Profitability remained very strong during the quarter. Adjusted gross profit margin was 30.6% for the 2020 fourth quarter. The 70-basis point increase over the prior year period primarily reflects the benefits of our product diversification strategies and a higher volume of completed jobs. Administrative expenses as a percent of fourth quarter sales were 13.7%, an 80-basis point improvement from the prior year period. Adjusted SG&A as a percent of fourth quarter sales improved 80 basis points from the prior year period and improved 20 basis points from the 2020 third quarter. The improvements in SG&A are primarily due to higher sales, leveraging expenses, and the benefits of gross profit improvement over the prior year quarter. On a GAAP basis, our fourth quarter net income increased 45% from the prior year quarter to $27.8 million or $0.94 per diluted share. Our adjusted net income improved 32.5% to $36.6 million or $1.23 per diluted share compared to $27.6 million or $0.92 per diluted share in the prior year quarter. During the 2020 fourth quarter, we recorded $8.2 million of amortization expense compared to $6.4 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 first quarter 2021 amortization expense of approximately $8.2 million and full year 2021 expense of approximately $32.4 million. This figure will, of course, change with any subsequent acquisitions. For the 2020 fourth quarter, our effective tax rate was approximately 25.2% and we continue to expect a full year effective tax rate of 25% to 27% for 2021. Adjusted EBITDA for the fourth quarter of 2020 improved to a record $67.1 million, representing an increase of 20.7% from $55.6 million in the prior year. Same branch incremental adjusted EBITDA margins were 55.9% for the fourth quarter as a result of our higher sales and operating leverage. Adjusted EBITDA as a percent of net revenue increased 130 basis points from the prior year period to 15.2%. 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 12 months ended December 31, 2020, we generated $180.8 million in cash flow from operations compared to $123.1 million in the prior year period, an increase of 46.9%. 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 December 31, 2020, we had $155.9 million in working capital excluding $231.5 million of cash and cash equivalents. Capital expenditures at December 31, 2020, were $33.6 million, while total incurred finance leases were $1 million. Capital expenditures and finance capital leases as a percent of revenue were 2.1% at December 31, 2020, compared to 3.5% at December 31, 2019. At December 31, 2020, we had total cash and short-term investments of $231.5 million compared to $215.9 million at December 31, 2019. Total debt at December 31, 2020, was $565.3 million compared to $569.2 million at December 31, 2019. Considering cash and short-term investments at December 31, 2020, our net total debt was approximately $334 million compared to $353 million at December 31, 2019. At December 31, 2020, we had a net debt to adjusted EBITDA leverage ratio of 1.4x and well within our stated expectation of maintaining the leverage ratio of less than 2x. Looking at our capital allocation priorities in more detail, we continue to prioritize profitable growth through our proven strategy of acquiring well-run installers of insulation and complementary building products. During 2020, we invested over $76 million in acquisitions compared to operating cash flow of nearly $181 million. As a result of the cash generation strength of our operations, IBP's Board of Directors approved the initiation of a quarterly cash dividend. The first quarterly dividend of $0.30 per share is payable on March 31, 2021, to stockholders of record on March 15, 2021. In addition to the quarterly cash dividend, the Board of Directors will consider an annual variable dividend to be paid during the first quarter of each year, commencing in 2022. The variable dividend will be determined based on the cash flow generated by operations with consideration for planned and expected cash obligations for acquisitions and other factors as determined by the Board. This week, IBP's Board of Directors also increased and extended our stock repurchase program, effective as of February 26, 2021, pursuant to which we may repurchase up to $100 million of our outstanding common stock. The program will remain in effect until March 1, 2022, unless extended by the Board of Directors. The Board previously approved stock repurchase program effective as of November 6, 2018, for up to $100 million of the company's outstanding common stock, and there was $26.7 million remaining availability. Under this prior authorization, IBP repurchased $33.9 million of its common stock for the year ended December 31, 2020, which included $18.2 million during the fourth quarter. We continue to believe we have considerable financial flexibility as we have nothing drawn on our $200 million revolving line of credit, a strong cash position, staggered debt maturities, and limited financial covenants. In addition, 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.

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 you for a tough job always done well. Operator, let's open up the call for questions.

Our first question comes from Mike Dahl with RBC Capital Markets.

I want to start by discussing the outlook, particularly from a macro perspective, as it seems to influence your expectations regarding mid-single-digit to high single-digit completions. I understand there are some market constraints, like product availability and labor issues. However, considering the trends in units under construction and builder backlogs, it still appears that the completion figures are somewhat low. Could you elaborate on the factors shaping your assumptions about completion growth and provide insight into how we should view your volume in that context?

Sure, Mike. This is Michael Miller. As we've said in previous calls, we believe that the building products, the construction industry on a macro level, not on an individual builder basis but on a macro level, really has the ability to grow sort of, at given where we are, at the current levels at a high single-digit rate from a completions perspective. We said that, I think, in the last couple of quarterly calls. And we still feel that's the case. I mean, clearly, there has been an unprecedented extension of the backlog and the cycle times to build a new home. Right now, as Jeff mentioned in his prepared remarks, authorized but not started single-family homes are equivalent to where they were back in 2007. So we're really in an unprecedented point, quite frankly, in this cycle. But what it does is it gives us an extreme level of confidence around the ability of us to perform over the next couple of years because we think, constructively, that we are in a multiyear situation where we're going to continue to work through this very heavy backlog. And we think it's providing an extremely constructive environment for us, and we have a lot of confidence around the business.

Well, we feel great about our position. I mean, let's just say that it is higher than high-single digits. We're not worried about our ability to perform at a higher level than that. I mean, we're in great shape on our labor. As I mentioned, again, turnover has remained well below industry averages. Productivity is great. So if, in fact, the trades that come before us are able to push more houses through the pipeline or grow faster than what we believe to be the case, then we'll be prepared to do the work.

Yes, absolutely. We've discussed this before, and I want to emphasize that we are not the bottleneck. The bottleneck lies with the trades that come before us.

Yes. Okay. Great. That's very helpful. And my second question is related to price/mix and how to think through the moving pieces and, I guess, not to put words in your mouth, but it does sound like you're fairly supportive of the trajectory of price increases that have been announced, given the dynamics in terms of demand and supply, but then you've got this potential for, what, at least in 4Q as a pretty meaningful mix headwind. So when you kind of layer in kind of cumulative pricing versus some of the mix headwinds we should be contemplating, any ballpark on just kind of magnitude of how we should be thinking about all-in price mix for this year?

Yes, there’s no doubt that particularly our largest customers, the production builders building entry-level homes, are experiencing much higher sales growth, as indicated by public disclosures from the builders. The entry-level builders are outperforming others in sales growth, and we have strong relationships with them. We believe that some of the move-up, custom homes, and regional local builders are still trying to catch up with the larger production builders. It will take time throughout the year to achieve a more balanced mix and even growth from all customers. However, we are witnessing the continued strength in the entry-level market. While these jobs are lower priced due to being lower-cost houses, they provide us with strong volumes, as demonstrated in the fourth quarter, which offers significant G&A leverage due to operational efficiency. We feel confident about the strength we’re seeing in the entry-level market and our market share with the high-performing customers. This does create some variability in price/mix. Regarding the price increases you mentioned, we are indeed supportive of them and have always stated that a rising price environment is beneficial for us. There is significant demand in a tight market, fostering a favorable pricing environment. As the year progresses, you may see some pressure on price/mix in the first half, which should ease in the second half as we achieve higher selling prices along with more balanced sales growth across our customers.

Our next question comes from Ken Zener with KeyBanc Capital Markets.

All right. Let's try this another way. I think people are just misinterpreting the price/mix and the revenue. Okay. Didn't you just say in your presentation, gross margins are going to be favorable in FY '21 versus FY '20? Which means positive growth year-over-year. Is that correct?

Correct.

In contrast to 2018, when gross margins fell 100 basis points year-over-year due to rapid price announcements, SG&A is expected to decrease, which would lead to expanding margins. The negative impact from price/mix in the revenue line is not affecting operating leverage; it’s merely a revenue factor and isn't compressing the margins.

Yes, that's absolutely right. And the volumes helped that SG&A leverage.

Okay. Exactly. You're right.

Just to be clear, we don't think SG&A is going to decline in an absolute dollar perspective, but we would expect that we would continue to see operating leverage from an SG&A perspective.

Correct. And within your 20...

Yes. But I would say, to your point, Ken, which is extremely important, and Jeff pointed this out in his prepared remarks, is that the current demand environment that we're in now is 180 degrees different from the demand in 2018 and even the beginning of 2019.

You're in a unique position with over 30% market share, giving you a better perspective on new construction than others. I think you're providing insights that others may not have. Typically, you mention incrementals around 20% to 25%, correct? That's your range for incremental EBIT, right?

Yes.

Would you say there is any strong cadence, first half versus second half, that you see in your business based on backlog on the EBIT line, not the gross or SG&A?

Historically, we have seen lower increments in the first half of the year compared to the second half. 2020 was an extraordinary year in many ways, marked by incredibly strong increments in the second and third quarters. Each quarter was a record for us, showcasing a remarkable performance from our team. As Jeff acknowledged in his remarks, we can't emphasize enough what an outstanding job everyone in the field has done this year considering the circumstances. Looking ahead to 2021, we anticipate, as previously discussed, that the current demand environment will flatten out some of the seasonality in our business. Despite a recent disruption in Texas, we expect incremental margins to become more stable throughout the year rather than being skewed towards the latter half.

And could we look at that sequentially given the stability? I mean, it suggests that sequentiality might be as applicable as year-over-year.

Yes. I think that's probably a reasonable comment.

Great. And the last question, Jeff, to you. Could you clarify what the annual variable dividend means? If you have an extra $100 million or $50 million on the balance sheet, is it up to the Board to decide on a special dividend? How should I interpret that?

Yes, we haven't disclosed the specific criteria we'll use, but we definitely have criteria in place. It's not arbitrary; it's based on various factors, including our annual acquisitions, our cash position, and the cash generated during the year. If we've addressed our priorities, mainly acquisitions and potentially stock buybacks if deemed appropriate, any excess funds will be returned to shareholders.

And I think a key here, and it was both in my prepared remarks and in Jeff's prepared remarks, our #1 priority from a capital allocation perspective continues to be, without a doubt, on acquisitions. And we're where we have a very robust pipeline. And just like we've been performing record quarters from earnings and revenue. We want to do record years in terms of acquired revenue as well. There's no reason why, given the cash flow that the company is generating, and given our view over the next several years, particularly about single-family residential, that we shouldn't be looking towards multiple ways to create shareholder value.

Absolutely.

Our next question comes from Adam Baumgarten with Crédit Suisse.

Could you elaborate on your acquisition strategy? It seems you're confident that it remains strong, especially with the business growing and your guidance pointing to over $100 million in acquired revenue. Given your current capacity, why not aim for larger opportunities? Some of your competitors are discussing significant possibilities, and it appears you have considerable potential within your existing markets, particularly in commercial and some ancillary products. Has there been any adjustment in your acquisition approach regarding the total amount you're considering or the opportunities you're exploring? It would be helpful to get more clarity on that.

I would say, if anything, there's more opportunities at higher dollar revenues on and it's why I just stated, as an answer to Ken's question, that we want every year to be a bigger year from an acquired revenue perspective. I will say, though, and I'll let Jeff talk about this as well, we are extremely disciplined about our acquisition criteria and the multiples that we pay for businesses. We will not period overpay for a company. And that's been the case for the past 20-plus years. And it's going to be the case for the next 20 years.

Yes, there are larger deals available to us, and when the appropriate opportunity arises, we will pursue it. However, we cannot compel individuals to sell if they are not ready. Historically, when we first went public, we estimated that we could generate around $40 million annually from acquisitions, but we have actually averaged closer to $100 million. While we tend to be conservative and avoid providing guidance, we have made a significant step up from our initial estimate to $100 million, and we aim to exceed that expectation. At least now, we have stated $100 million as a goal.

Yes. No, that's helpful. Makes sense. And then just on price/mix, I mean, can you maybe give us a sense for what like-for-like pricing looked like in the quarter? And how much of a headwind you saw? And if you could size it from this entry-level mix, maybe if there was any deflation across some of the ancillary products for spray foam?

Yes. It was not related to price at all. The changes were entirely due to the mix, specifically related to production builders, entry-level products, and the growth of other offerings we've discussed regularly over the past few years. This strategy has been beneficial for generating general and administrative leverage, but it does result in a negative impact on the price/mix. Therefore, it was not related to any price deflation.

Next question comes from Susan Maklari with Goldman Sachs.

My first question is, Michael, you touched on this a bit in one of your previous comments. But obviously, we've seen some extreme weather especially in Texas and even in some parts of the East Coast and the Northeast over the last month or so. Can you just talk to any implications that you're seeing from that or what you are hearing on the ground there?

Yes. There have certainly been significant weather events this month. The East and Northeast are used to heavy snow and bad weather, so there was minimal disruption in those areas. Any branches that were briefly closed were able to recover over the weekend, so there’s no pressure there. However, the weather event in Texas was somewhat unprecedented. Our operations in Texas were completely shut down for a week. For context, Texas represents about 12% to 13% of our total revenue. The positive aspect is that we began working again over the weekend, with many branches also working on Sunday to catch up. The work is still there; it’s not a loss of revenue but rather a matter of timing for when we receive it. It's important to note that all trades in Texas were also halted for that week, so the work will come to us as the framers, masons, and others complete their tasks.

Got you. Okay. That's very helpful. And then not to beat this but going back to the shift between volume and price/mix. Over the last couple of years, maybe 2 years or so, it's really been the price/mix that has led the revenue growth. But if we go back further, we've seen that they were either more balanced in that it was actually the volume that really kind of led that growth. As we think about coming into this kind of a multiyear housing growth environment, should we expect that it will go back, that volume will really likely be what leads more of your growth versus the price/mix? So that those two will move much more closely in line together?

Yes, that's a very good question. You're absolutely correct. Historically, things have been much more balanced. This quarter, however, has shown the most significant difference we've ever experienced between the two factors. This is due to the reasons we discussed earlier. We anticipate that, especially considering the current pricing landscape and the inflationary pressures, as we progress through 2021, the balance will improve compared to what we saw in the fourth quarter. From a long-term standpoint, I believe we will achieve a more even distribution between price/mix and volume. We are also strongly committed to the solid relationships we have with production builders focused on entry-level markets. While this approach presents some price/mix challenges, it's highly efficient, and these are valuable customers with whom we are striving to increase our market share.

Our next question comes from Michael Rehaut with JPMorgan.

First question, I wanted to dive deeper into the factors influencing the gross margin in the fourth quarter. You mentioned that year-over-year growth was influenced by product mix diversification and higher volumes. I was hoping to understand the sequential decline, which took us by surprise. Additionally, regarding your outlook for 2021, can you clarify if a favorable gross margin forecast means a year-over-year increase above the 30.9% achieved in 2020? Will this year-over-year improvement be consistent across quarters or more pronounced in the second half of the year?

Well, as you know, we don't provide guidance, but we believe that, again, on a full year basis, that we would see improved gross margin. As we sit here today, there's no reason to not think that we would have improvement quarter-over-quarter from the prior year. But obviously, things can change from quarter-to-quarter, and you can have changes to that. But right now, we feel extremely constructive about kind of the overall volume environment and our ability to get price given the demand environment, and we believe that that ends up being constructive from a quarter-over-quarter improvement in gross margin. And as we've been talking about, obviously, volume is a good contributor to G&A leverage.

And then just about the first part of the question around the sequential move in gross margins, it declined about 80 basis points, 4Q from 3Q?

Yes. I mean, I think we've always talked about the seasonality of the business and that we, generally speaking, generate our highest gross margin in the third quarter, which has a lot to do with the type of work that we're installing in the fourth quarter versus the third quarter. So we fully expected that we would see improvement like we did from the fourth quarter of '19, and it's very typical that we see this sort of slight compression, if you will, in gross margin from third quarter to fourth quarter.

Okay. It seems that seasonality hasn't been a factor in the last couple of years, which surprised me a bit. I want to revisit the topic of capital allocation, as I believe it’s important for investors. You’ve mentioned that you're comfortable with the acquisition pipeline, aiming to maintain $100 million per year, at least in 2021, and ideally, you would want it to grow over time. To clarify, the idea of a dividend, including a potential special dividend at the start of the year, does not indicate a decrease in opportunities available to you. It’s encouraging to emphasize that your top priority is still acquisitions, and that you are looking to sustain that $100 million per year, which aligns with our understanding of your M&A goals. However, I want to highlight that even though acquisitions remain the top priority, it could be perceived that the opportunity set might be shrinking, which is why you're considering a more diversified approach to capital allocation. I would appreciate your thoughts on this; the shift in capital allocation doesn’t suggest that while acquisitions remain the top priority, you simply have fewer opportunities in front of you.

Yes, I'll begin by addressing that question and then let Jeff provide additional insights. We are completely confident that the acquisition opportunities available to us are better than ever. The dividend clearly reflects our confidence in our current position and indicates a multiyear advantage that we can anticipate, demonstrating our strong belief in the business and our capability to continue producing record cash flow.

Yes. And I'll just say, and these are round numbers. We've stated them. But I mean, more or less, we started the year last year or let's say, December 31, in '19, so January 1, '20, more or less, with roughly $250 million of cash on the balance sheet. We acquired $107 million worth of revenue throughout the year. We ended the year with roughly $250 million of cash on the balance sheet, and we've got an undrawn lines of credit. And debt is easy to get. So if an opportunity presents itself, we feel very confident of our ability. If it outstretches kind of what we've said in relation to the $100 million and the right deal comes along, we will absolutely look very hard at it and go ahead and hopefully get the deal done. But at the time, and part of the reason for the idea behind the variable is just if that deal isn't in front of you at that moment, then we should probably return some dollars to shareholders.

Our next question comes from Phil Ng with Jefferies.

Did I hear you correctly? You reiterated your longer-term mid-teen EBITDA margin target, but you may have a chance to get there this year. And I guess, longer-term, just given the momentum and demand profile you've seen, you're calling out, what's a aspirational longer-term target?

We have reaffirmed our mid-teens EBITDA margin target, which we've always discussed. It largely depends on how you interpret mid-teens. This year, we reached 15%, and we believe that we will see improvements throughout 2021. As we continue to enhance our margins, we won't stop, as this is an ongoing process. The mid-teens margin is definitely our target, and while we are close to achieving it now, we are confident that, especially with the current demand environment, we can further improve our gross margin and continue to optimize our general and administrative expenses.

Great. That's helpful. The strength in commercial has been really impressive. I mean, you were up in the fourth quarter. Again, can you expand on what's driving that? And appreciating that you called out more of a recovery in the back half just due to the timing, the lag in your backlogs, but do you expect commercial to be up in the first half?

We talked about this, I think, in the past couple of calls, where we do think the first half of '21 in the commercial business on the same branch basis, and you probably saw that we've added additional disclosures in the release this quarter, just to help give people more insight into that business. But we would expect that it is going to be challenged in the first half of '21 on a same branch basis. But based on the backlogs and the bidding that we're seeing, we feel pretty good about the second half of this year. Quite frankly, and this is not news to anybody, what we're seeing is GCs and owners stretching out their decision-making process around certain projects and waiting to award bids. So when we look at our kind of backlog of work that we bidded but that hasn't been awarded yet, it gives us that confidence around kind of the back half of '21.

Our next question comes from Keith Hughes with Truist Securities.

Just two questions. First, you talked a lot about margins and mix of some of those targets. The bottom-line is you got 20% to 25% EBITDA contribution margin goal that you beat in 2020. Is that still on the table for '21, giving you a lot of moving parts on margins?

We are very confident that for the full year, we will achieve incrementals in the range of 20% to 25%, or even better.

Okay. Great. Second question, back to the capital allocation, and you made it very clear, acquisitions are the priority. But there's only something you can do in a year. I guess the question is, what's next? I mean, is it dividend, both special and reoccurring? Is that now the next choice of use of cash before share repurchase?

It will really depend because we have been quite opportunistic with our share repurchases. During 2020, we purchased $33 million worth of shares, with over 50% of that occurring in the fourth quarter. We will continue to be opportunistic in this regard. However, from a capital priority standpoint, we believe in using multiple methods to return excess capital to shareholders. We consider dividends to be an important part of this strategy, especially given our current position as a company. Our main focus remains on deploying capital for acquisitions, investing in our existing business, and maintaining a strong balance sheet with considerable financial flexibility. Additionally, dividends will play a significant role in enhancing shareholder returns in the future.

Our next question comes from Justin Speer with Zelman & Associates.

Just starting off, just thinking about your comments on the completions. But just if you could reiterate kind of what you're thinking that the industry can do? And then maybe juxtapose that with what you think you can do in a completion environment that you're looking for, at least for the single-family side of things. Just trying to get a sense for kind of volumetrically what you're thinking or what you're trying to message there?

Yes. As we mentioned in earlier calls, we believe that on a macro level, single-family completions are likely to be in the high single digits. This discussion mainly focuses on single-family homes rather than multifamily or total completions. Due to various industry constraints and significant material disruptions affecting production, not just insulation but all building products, the industry is currently dealing with the repercussions of these issues. Many manufacturers primarily relied on existing inventories over the summer, which has led to tight conditions in the building products market. As manufacturers work to rebuild their inventories and distribute products, transportation disruptions across the country have further complicated matters. We also recognize challenges in labor availability, especially for subcontracted workers at the framing level, which makes achieving completion levels greater than high single digits unlikely at this time. While there will be standout builders who exceed these expectations, we’re looking at it from a broader perspective. The bottlenecks in the industry, including material availability and permitting challenges faced by builders, inform our view that single-family completions will be in the high single digits.

As you consider this, historically, in a market environment like this, you have captured significant market share. Do you believe this trend will continue? Additionally, regarding the price and mix, we have implemented two price increases this year, and I assume you expect one or two more. Are you ready for that? In this environment, while you are communicating that you can manage it, do you anticipate any challenges or a delayed effect on your profitability due to this sequence of price increases throughout the year?

Yes, this is Jeff. I don't believe that's the case at all. The environment is significantly different now compared to 2018. I'm not trying to downplay the situation, but our activities related to insulation are minor compared to the issues that builders are facing. If we consider lumber for a moment, our offerings are really an afterthought. As we've mentioned, everything we provide are small ticket items, and I think we're one of the least significant concerns when it comes to rising home prices and increased costs for builders.

Yes. And I think, too, to the kind of first part of that question in terms of our ability to grow above the market. Honestly, if you look at our volumes this quarter compared to the completions, we grew way above the market. And we're really the only major installer contractor that buys from all 4 fiberglass manufacturers, which we believe gives us the opportunity to have greater access to material. And as Jeff commented earlier, our turnover is well below industry averages. We continue to see labor productivity. So we're very confident that if the trades before us can come, call it, 13%, 14%, we absolutely can meet that demand or exceed that demand.

Excellent. Following up on that question regarding the SG&A needs and requirements of the business and the overhead requirements, could you provide some insight into your SG&A expense growth for 2021? Specifically, how much do you anticipate it will need to increase to support the projected growth?

Sales expenses are closely tied to sales performance, typically ranging from 4.5% to 5%. This quarter, we experienced some leverage in our general and administrative expenses, and we anticipate a slower growth rate on a same-branch basis. Acquisitions will bring additional G&A costs. One significant aspect to note is that a large part of our field management team's compensation is linked to profitability, meaning as profitability rises, so do the variable G&A costs associated with their pay. However, there aren't any substantial changes expected in our G&A for 2021 that would deviate from standard inflation rates. Regarding the latter part of your question about positive factors from 2020, the only ongoing benefit in terms of expenses is from lower fuel costs. Over the last decade, fuel prices have been favorable, and while there are slight changes, they have been beneficial throughout 2020. We expect fuel costs to normalize as we move into 2021, and currently, we are seeing a benefit of about $1 million each quarter from these lower fuel prices.

Okay. Understood. To follow up on that, my last question is regarding cash flow. What are your thoughts on free cash conversion for 2021 and your capital needs? I'm interested in not just 2021, but also in how you plan to normalize free cash conversion based on net income in the future.

Yes. I would say that it will align with historical trends. Clearly, with the tax rates lowered, it should be consistent with those trends. We don't notice anything particularly different compared to 2021 and 2022, with one exception. This applies to all companies: through the first COVID Relief Act, we were allowed to defer the employer portion of certain taxes owed to the government. We continue to expense it but need to pay this back by the end of this year and the end of 2022. This will have a slight impact on cash flows in 2021 and 2022, but not on expenses since it has already been accounted for. Other than that, there isn't anything significant that deviates from historical trends.

Our next question comes from Ryan Gilbert with BTIG.

I really appreciate all the detail that you've provided on this call. I have one question about multifamily. There has been strong growth over the last couple of quarters, and it's evident that the new bidding system you implemented has helped you gain some market share. However, looking at the national multifamily permits and starts numbers, we've observed a significant year-over-year decline in the last few months. Could you provide some additional detail on what you're experiencing in your multifamily markets concerning permit starts or overall construction activity?

Yes, you're right in your question and comments. We believe there is still a significant opportunity in the multifamily sector because we are currently underrepresented. Our focus is primarily on suburban areas rather than urban, and the current trends in permits and starts reflect that suburban emphasis. Our strategy to capture market share in areas where we previously had low multifamily presence has been very successful. However, as we progress with this strategy, the comparisons become increasingly challenging. Our team has performed exceptionally well, exceeding market expectations in the multifamily sector. We anticipate continuing to outperform the market, but achieving nearly 40% sales growth makes for a tough comparison in the coming year.

Yes, I want to emphasize that our specific market opportunity aligns well with the growing multifamily sector. There is significant market potential for us.

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

Most of my questions have been addressed. I just have one general question. One of the challenges facing the industry as we entered 2020 was the decreasing square footage per household. If this has already been discussed, I apologize as I've been experiencing connectivity issues. Are you hearing anything from builders about a potential shift in this trend? Even with the growth in completions in the high single digits, could the amount of materials needed start to become a positive factor rather than the challenge it has been over the past several years?

I believe it relates to the fact that as entry-level homes gain market share and return to more historical levels as a portion of total single-family starts and completions, we can expect a decrease in square footage because these homes are significantly smaller than move-up or custom homes. From the perspective of fiberglass demand, entry-level homes primarily use fiberglass rather than spray foam or cellulose, which should drive good demand for fiberglass and our services. However, looking at the overall macro numbers, I anticipate that as we return to a more balanced mix between entry-level, move-up, and custom homes, square footage will decrease. That said, I don’t think there will be a trend toward building smaller houses within the same category. Instead, it seems there might be a tendency to construct slightly larger homes, particularly due to the growing prevalence of remote work.

Perfect. Congrats on the close to 2020. Good luck this year.

We've reached the end of the question-and-answer session. At this time, I'd like to turn the call back over to Jeff Edwards for closing comments.

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

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