Installed Building Products, Inc. Q1 FY2022 Earnings Call

Greetings, and welcome to Installed Building Products Fiscal 2022 First Quarter Financial Results Conference Call. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Darren Hicks, Director of Investor Relations. Thank you, sir. You may begin your presentation.

Good morning, and welcome to Installed Building Products First Quarter 2022 Conference Call. Earlier today, we issued a press release on our financial results for the first quarter, which can be found in the Investor Relations section of our website. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include statements about future expectations, anticipation, beliefs, estimates, forecasts, plans and prospects. These forward-looking statements are based on management's current expectations and involve risks and uncertainties. Any forward-looking statements made by management during this call is not a guarantee of future performance, and actual results may differ materially as a result of various factors, including, without limitation, the adverse impact of the COVID-19 crisis, general economic and industry conditions, inflation and interest rates, the material price and supply environment, the timing of increases in our selling prices and factors discussed in the Risk Factors section of our company's annual report on Form 10-K as may be updated from time to time in our SEC filings. Any forward-looking statements speaks only as of the date hereof. The company undertakes no duty or obligation to update any forward-looking statements as a result of new information or future events, except as required by 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, adjusted net income per diluted share, adjusted gross profit, adjusted gross profit margin and adjusted selling and administrative expense. You can find a reconciliation of such measures to their nearest GAAP equivalent in the company's earnings release and additional reconciliation for adjusted EBITDA for earlier fiscal years in our investor presentation, which are available on our website. This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer; and Michael Miller, our Chief Financial Officer; and joined by Jason Niswonger, our Chief Administrative and Sustainability Officer. I will now turn the call over to Jeff.

Thanks, Darren, and good morning to everyone joining us on today's call. As usual, I will start the call with some highlights and then turn the call over to Michael, who will discuss our financial results and capital position in more detail before we take your questions. IBP produced another record quarter driven by strong demand within our core residential housing markets and the benefits of record quarterly price mix growth. Record first quarter sales and profitability are encouraging as we overcame continued inflationary and supply chain challenges as well as the lingering impacts of the COVID-19 pandemic, primarily within our commercial market. Our financial and operating results reflect the resiliency of our business model, the benefits of our product, end market and geographic diversification strategies and the hard work of our team members nationwide. The dedication of our team members is especially important in the current environment as homebuilders navigate ongoing supply chain constraints and struggle to keep up with significant demand for new homes. IBP's value proposition resonates with our customers because of our focus on providing an exceptional level of service by completing jobs correctly and on schedule. As a result, our local branches have done an excellent job aligning our selling prices with the value we offer our customers, which has supported profitability and strong incremental margins. To everyone at IBP, thank you for your commitment, your hard work and a tough job always done well. Before I go further into our highlights, I would like to note that this quarter, we have realigned our operating segments to reflect changes in our business. We now have two reporting segments: installation and other, which includes our distribution and manufacturing operations. Michael will touch more on this later in the call. Looking at our first quarter results in more detail, we experienced another quarter of strong residential growth, while the COVID-19 pandemic continued to impact activity within our commercial operations. For the quarter, within our Installation segment, we experienced a 28.3% increase in residential same-branch sales from the prior year period, which was driven by a 29.4% increase in installation single-family same-branch sales growth and a 23.1% increase in installation multifamily same-branch revenue. By comparison, total U.S. residential completions decreased by 5.5% during the first quarter, which we believe was influenced by extended residential construction cycle times. During the first quarter, price/mix increased 14.6% over the prior year period. Consistent with the inflationary trends in the construction industry and the increasing demand for our services, our pricing efforts and stabilized mix compared to the prior year have contributed to the strongest quarterly increase we have achieved since becoming a public company. We continue to make prudent adjustments to align our pricing with the value we offer customers in inflationary trends. As expected, the supply chain for many of the building products and materials we install remained constrained during the first quarter. We anticipate that supply chain challenges will continue for the foreseeable future but our asset-light business model should enable us to remain flexible and generate strong cash flow. Our branches benefit from our national scale, material buying advantage and strategic plans aimed at diversifying and expanding our products, end markets and geographic presence. While mortgage rates have increased since the beginning of the year, favorable demographics and tight supply have continued to support housing construction. In addition, with the record number of permitted units that have yet to be started, new housing construction is expected to remain supportive of our business throughout 2022. Within our heavy commercial business, same branch sales were roughly flat in the 2022 first quarter with bidding activity remaining stable and project bid acceptance steady relative to the 2021 first quarter. We estimate our large commercial backlog was $177.7 million at March 31, 2022. The heavy commercial construction market continues to represent a significant long-term growth opportunity for IBP, and we remain focused on improving our operational efficiency while expanding our exposure within compelling commercial markets nationwide. Looking at our acquisition strategy in more detail, we continue to prioritize profitable growth through acquiring well-run companies that install insulation and complementary building products. During the first 2022 first quarter and April, we acquired a North Carolina-based installer of spray foam insulation, fiberglass insulation and fireplaces in the Asheville, North Carolina market with annual revenue of approximately $8.5 million and a New Jersey-based distributor of gutter supplies and accessories to the U.S., Northeast and Mid-Atlantic markets with annual revenue of approximately $45 million. Since the first quarter ended, we are excited to become an early investor in Energi.ai and a part of the innovative AI-driven platform they are developing. Their platform provides actionable insight into a company's energy usage and carbon emissions using artificial intelligence. In fact, we like the platform so much. We decided to partner with Energi.ai to implement their solution at IBP as we work to reduce our greenhouse gas emissions. Our acquisition pipeline remains robust and includes opportunities across multiple geographies, products and end markets. As a result, we believe 2022 will be another strong year of acquisition growth and we expect to acquire at least $100 million of revenue in 2022. As we look to 2022 and beyond, we remain excited by the direction in which we are headed and the compelling outlook across our residential and commercial end markets. We anticipate that effective management of our supply chain will continue to be a priority throughout this year. Our purchasing, logistics and warehousing teams will continue to work with our suppliers and customers to help ease these industry-wide supply chain challenges. With access to labor, a strong position with our customers and suppliers and a healthy backlog, we believe 2022 is shaping up to be another year of profitable growth and value creation for IBP. So with this overview, I'd like to turn the call over to Michael to provide more detail on our first quarter results.

Thank you, Jeff, and good morning, everyone. We are now providing additional information on our revenue and gross profit by segment within our quarterly earnings releases and filings with the SEC. This includes reporting revenue for our installation segment by residential new construction, repair and remodel and commercial end markets. We have also disclosed a separate other revenue category, which includes net revenue from our manufacturing and distribution operations. Going forward, we will continue to provide this revenue and gross profit information. So with this introduction, let's look at our record 2022 first quarter financial results in more detail. Net sales for the first quarter increased to a quarterly record of $587.5 million compared to $437.1 million for the same period last year. The 34.4% year-over-year improvement in sales during the quarter was mainly driven by an increase in price/mix, higher volume of customer jobs completed and the revenue contribution from recent acquisitions. From a segment standpoint, installation revenue increased 30% to $561.6 million driven by strong growth across IBP's residential and new construction market and improvements in our commercial end market. Other revenue, which includes IBP's manufacturing and distribution operations, increased 407% to $26.7 million, driven by strong operating results and the December 2021 acquisition of AMD Distribution. This was the first full quarter of results for AMD. On a pro forma basis, other revenue increased 24.2% in the first quarter of 2022 compared to the 2021 quarter. On a same-branch basis, installation net revenue improved to 22.2% from the prior year quarter, driven by single-family same-branch sales growth of 29.4%, multifamily same-branch sales increased 23.1%, our residential first quarter same-branch sales growth of 28.3% significantly outpaced the total U.S. housing completions decline of 5.5% during the quarter. As Jeff mentioned, we believe this is in part a result of increases to residential construction cycle times, which remained extended during the first quarter relative to the prior year period. While we experienced growth, the lingering effects of the COVID-19 pandemic continued impacting our commercial end market. Installation, same-branch commercial sales increased 5.9% in the 2022 first quarter, while our commercial same-branch sales were roughly flat in the quarter relative to the same period last year. Adjusted gross profit margin improved 70 basis points year-over-year to 29.4% in the first quarter. As we realigned our selling prices to reflect the quality of service we provide, inflationary pressure and material supply shortages. We estimate that supply chain disruptions in the first quarter of 2022 had an impact of approximately $1.4 million in gross profit during the quarter. The impact from these supply disruptions reduced adjusted gross profit margin by approximately 20 basis points. Administrative expenses as a percent of first quarter sales were 13.5%, a 140 basis point improvement from the prior year period. Adjusted SG&A as a percent of first quarter sales improved approximately 180 basis points from the prior year period. The year-over-year improvements in SG&A expense relative to sales during the first quarter reflect our ability to leverage administrative costs during strong volume and price/mix growth periods. On a GAAP basis, our first quarter net income increased 95.6% from the prior year quarter to $33.8 million or $1.14 per diluted share. Our adjusted net income improved 70.7% to $45.7 million or $1.54 per diluted share. We estimate the material supply shortages impacted first quarter earnings per share by approximately $0.04 per diluted share. During the first quarter of 2022, the acquisition of new businesses drove an increase in our recorded amortization expense to $11.1 million compared to $8.4 million for the same period last year. 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 recent acquisitions, we expect second quarter 2022 amortization expense of approximately $10.6 million and full year 2022 expense of approximately $42.4 million. We would expect these estimates to change with any acquisitions we close in future periods. Adjusted EBITDA for the first quarter of 2022 improved 54.5% to $84.2 million. Adjusted EBITDA as a percent of net revenue was 14.3% for the 2022 first quarter, a 180 basis point improvement from 12.5% for the same period last year. Same-branch incremental adjusted EBITDA margin was 22.9% for the first quarter compared to 10.5% for the same period last year. Similar to the impact on gross profit, we estimate that material supply shortages during the quarter impacted adjusted EBITDA by approximately $1.4 million, reducing our adjusted EBITDA margin by approximately 20 basis points. For the 2022 first quarter, our effective tax rate was approximately 26.7% and we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31, 2022. Now let's look at our liquidity, balance sheet and capital requirements in more detail. Our business model continues to generate strong operating cash flow. For the 3 months ended March 31, 2022, we generated $48.2 million in cash flow from operations compared to $37.6 million in the prior year period. The year-over-year increase in operating cash flow was primarily associated with higher net income, which offset increased working capital requirements aimed at reducing material shortages in an inflationary environment. At March 31, 2022, we had $247.3 million in working capital, excluding cash and cash equivalents and investments. Capital expenditures and total incurred finance leases for the 3 months ended March 31, 2022, were $10.9 million combined, which is 1.9% of revenue at March 31, 2022 compared to 2.5% for the same period last year. On February 17, 2022, we increased our asset-based lending credit facility to $250 million, which now matures on February 17, 2027. There is currently nothing drawn on the amended ABL facility. Through the use of interest rate swaps, we are limiting our interest rate exposure with no significant debt maturities until 2028, with $267.4 million in cash and cash equivalents, and borrowing capacity under our ABL facility, we have an excess of $500 million in liquidity to invest in our long-term growth opportunities. At March 31, 2022, we had a net debt to adjusted trailing 12-month EBITDA leverage ratio of 1.9x, which remains below our stated leverage ratio expectation of less than 2x. As such, we continue to perform on our acquisition strategy and return capital to shareholders. During the first quarter, we returned $85.3 million to shareholders through dividends and share repurchases. Today, we announced that IBP's Board of Directors approved our second quarter dividend of $0.35 per share, which is payable on June 30, 2022, to stockholders of record on June 15, 2022. We are committed to continuing to grow the company while returning excess capital to shareholders through our dividend and share repurchase programs. With this overview, I will now turn the call back to Jeff for closing remarks.

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

Our first question comes from the line of Ken Zener with KeyBanc.

I appreciate the increased disclosure. Could you go into the thinking there? Was that something that had been contemplated last year? Was it really that you're seeing such different trends? Could you just expand that thinking? Because obviously, I think more clarity is helpful.

Ken, this is Michael. It really has to do with the December acquisition of AMD Distribution. So we decided that it made sense to break that out as a separate segment.

Can you explain how the current strong pricing, despite generally lower volumes, relates to previous cycles? I'm not looking to label it as stagflation, but there seems to be significant pricing across various industries. Given your experience in this sector, how do you envision this resetting to a more normalized process, particularly on the installation side rather than distribution?

Yes, Ken, this is Michael again. So we had, we think, very solid volume growth of nearly 10% in the quarter. And when you look at that relative to completions growth, obviously, we considerably outperformed the number of units that were reported as completed by the Census Bureau. We think that consistent, I think, with what you're hearing from a lot of companies, the inflationary environment is continuing. We don't necessarily expect a normalization of the inflationary environment to happen necessarily this year, but we're hopeful and encouraged that the rate of growth in inflation will start to come down. But clearly, fiberglass continues to be on allocation, spray foam is very tight, and we're continuing to see a mismatch, if you will, between demand and supply as it goes through not just the products that we install, but the entire building products chain. When you look at the...

Go ahead.

I was just going to say, I mean, the authorized but not started unit numbers are at a historic high, and we're continuing to see very, very solid backlogs. One of the things that I think gets a little bit lost in the discussion about permits and units and orders is that everyone looks at it in unit terms, which makes sense in a typical normalized environment where there's little to no inflation. But in the current environment that we're seeing a lot of inflation, I think you have to sort of dollar value adjust the backlogs. And if you look at just what the public builders reported in the first quarter, their units were up 5%, which is great, which is solid. But the dollar value of their backlog was up 26%. So I think you're seeing that certainly that's a combination of inflation, if you will, but it's also, I think, a combination of the type of product that they're building as well. So when we look at that and we think of the demand environment that's out there, we believe it's extremely solid. And just as a reminder, the dollar value of the backlog is more relevant to us from a pricing perspective than the unit value of the backlog.

I appreciate that. If I may comment, your operating leverage has improved. Last year, you mentioned exposure to a lower volume mix. Would you say that your exposure to large production builders is still a contributing factor to the volume you're seeing, consistent with the industry's roughly 30% increase in inventory units?

Yes.

Our next question comes from the line of Trey Grooms with Stephens.

I wanted to briefly address the ongoing issues with lead times and material availability. Considering the current situation, I would like to know if you anticipate any changes in material availability, particularly concerning fiberglass and foam, as we look ahead for the remainder of the year. Additionally, could you provide an update on how things are progressing across your other product lines?

On the fiberglass and foam side, things are certainly better than they were this time last year or even a few quarters ago. However, it's not a completely smooth process to get everything you want every day. Foam might be a bit easier to manage than fiberglass in that aspect, but it can vary. Everyone is running their plants at full capacity, and any downtime or planned maintenance disrupts the supply. Some other products can be more challenging, especially regarding lead times and managing price increases, as there isn't always the same level of advance notice that exists in the fiberglass industry. Overall, while it's still not easy, we are receiving enough supply to continue growing sales and adequately serve our customers.

Got it. That's helpful, Jeff. Lastly, regarding your commercial side of the business, it seems like you have some good backlogs. Can you share more about the outlook as we move through the year, including demand levels, backlogs, and the conversations you're having with customers, as well as their suggested outlook from our current position?

Yes, we continue to feel good about both the light and heavy commercial business. The light commercial business closely follows residential construction, and we are seeing accelerated growth in that segment, which aligns with the strength in the residential market. On the heavy commercial side, backlogs are continuing to build, and we are optimistic about the bidding opportunities. We believe that as we move into the second half of the year, we will see more significant growth in the heavy commercial business.

Okay. And last one from me. We kind of have a decent view into pricing on the fiberglass side and what's going on with them, things like that. But for the other parts of your business, the other products, obviously, a lot smaller for you guys, but what's going on there as far as from a pricing standpoint, I know everything is up. But directionally, if you could maybe give us some sense of magnitude? And then is there more to come on pricing across your other products?

I would say that the smaller products have increased at least as much as what you would typically consider our core product lines related to insulation. I think it would be naive of me to ignore the fact that some forecasts suggest the inflationary environment may persist for a significant duration. Although it hasn't been that long since we would have considered a rising price environment a positive aspect, we now recognize it as inflation. We must be cautious, especially given the ongoing Ukraine situation, rising interest rates, and other factors. Nevertheless, we remain optimistic about our business and the homebuilding industry. It is indeed a rising price environment, and we need to ensure we perform our duties properly for our customers and receive appropriate compensation to cover the rising costs across all product lines.

Our next question comes from the line of Mike Dahl with RBC Capital Markets.

I wanted to follow up on kind of the new segmentation and I understand it kind of got triggered by the December acquisition, and you made the central aluminum acquisition in April, and this is kind of part of your new strategy on expanding your reach and building the distribution business. So as you formulated your plans, could you just give us an update on how you're thinking about how big and how broad you want to go down the road in distribution, maybe some product categories that are targets and maybe use that to also talk about the current M&A environment, if you would.

Sure. This is Jeff. Our entry into the insulation distribution business has been something we've considered for a long time. There are not many insulation distributors, as you probably know. Typically, they represent specific manufacturers and serve particular regions or sometimes operate on a national level. So, we didn't have many opportunities regularly coming our way, which is why it took some time to find the right partner. We believe we found that partner in AMD. This has been a priority for us for quite a while, and we expect it to be beneficial not only because we are adding a distribution business but also because it can support our installation efforts. AMD also engages in laminating fiberglass, a product we frequently use in certain regions, which can help us meet some of our own needs over time. Similarly, our acquisition of the gutter business is aligned with this strategy. We have strong supply partnerships in the gutter sector and will continue to work with them. Our acquisition in New Jersey is a small, standalone business that came about conveniently since we were already purchasing from them for a major part of our gutter operations. The owners were looking to transition later in life, and since they will continue working with us for a significant time, we saw it as an opportunity we should seize.

I would say regarding your question about the M&A pipeline, we are not currently pursuing other distribution opportunities. Instead, we are focused on regular deals that we are evaluating.

Thank you for your insights. For my second question, I would like to revisit the volume aspect. Considering the share gains we’ve seen year-to-date and the current mix of customers, how should we approach thinking about volume for the remainder of the year, either in absolute terms or relative to the market?

And based on what we had discussed earlier in terms of just the unit volume growth with the big builders, we have a fairly high share with them, which is understandable given our overall national market share. So we feel very constructive around volume growth for this year and quite frankly, going into next year, particularly when you look at the backlog and the delta that has been created between starts and completions and the authorized but not started as well being at a record level. So we continue to remain very constructive around volume and also around price mix.

Our next question comes from the line of Susan Maklari with Goldman Sachs.

Congrats on a great quarter. My first question is, as you noted in your comments, Michael, your SG&A came in exceptionally low and really reflected the ability to get some leverage on the cost structure this quarter. When you look out, can you talk to the ability to sustain that level? And how we should be thinking about the SG&A longer term as you continue to grow the business?

A significant portion of the upcoming increase in SG&A will be driven by acquisitions, as we incorporate their SG&A into our structure. However, if you look back at previous quarters where we experienced strong price, mix, and volume growth, you'll see it contributes positively to our SG&A leverage. The efficiencies we are achieving, combined with substantial growth in our individual branches, continue to enhance our SG&A leverage. Considering our optimistic outlook on both volume and price mix, we anticipate further improvements in this leverage going forward.

Okay. That's helpful. And then my next question is, obviously, when we think about the volume and the growth that you saw this quarter, in addition to the material side, it also speaks to the labor, right. And I know that you've done a lot over the last several years to attract and retain labor. Can you talk to how you're positioned to continue to support the growth as you think about the builder backlogs and what is coming through for the balance of this year and next year? And just any new initiatives that we should be aware of as it relates to a lot of the employee base?

Susan, this is Jeff. I think we're in really pretty good shape or as good shape as you could ever expect under these conditions, like probably better, I guess, if you pick up a newspaper or anything today that as old, right? I just said pickup of newspaper, and I am old. But everybody is talking about labor and about wages. So we're not isolated from that many means, but we feel really good about our position there. I don't know that we necessarily have any real new programs to talk about, but all the programs we put in place in the past, we continue to run and refine, and it shows, I think, in our workforce.

Our next question comes from the line of Adam Baumgarten with Zelman.

I would like to start by asking if there have been any changes to your outlook regarding mid-single-digit growth for 2022 in completions, as mentioned last quarter.

This is Michael. With the decline reported by the Census Bureau in the first quarter, reaching that number will be more challenging. However, we firmly believe there will be growth in completions this year overall. We are ready to support that growth. It's important to note that the dollar value of what's in the backlog is more significant than the number of units in the backlog when we consider the opportunities ahead.

Okay. Got it. And then just on the topic of mix, any meaningful impact in the quarter, whether positive or negative?

The other products were generally neutral during the quarter in terms of mix. We experienced higher growth with our national builders, which typically operate at lower prices due to the types of products they are constructing. This created some challenges regarding the mix from our national builder segment. However, the other products remained largely neutral.

Our next question comes from the line of Stephen Kim with Evercore ISI.

It's actually Trey Morrish standing in for Steve. With completions declining and builder cycle times lengthening, you achieved a 9% volume growth at the same branch. You touched on this briefly, but could you provide more details on what you did or what factors contributed to this quarter's volume growth when the overall environment appears to be more challenging for maintaining volume?

It's consistent with our historical trend of providing high-quality service and really trying to have the best customers in every market. And when we say the best customers, we mean the customers that are winning market share in those markets and doing everything we can to support them in their efforts to meet their timelines and get their houses completed.

And it's back to the labor too, still we're positioned pretty well on labor, and I think maybe some others are.

Got it. And then looking at the share authorization and the repurchases you did in the quarter, definitely a good chunk of cash there, and you highlighted in your release that you still have about $150 million left. How should we think about your willingness and particularly aggressiveness in using that to buy back shares?

This is Michael. I mean, we have positioned the balance, gee, very favorably. Our leverage, we think, is very prudent. We have considerable cash and availability under our ABL facility. I would say that the way that we have looked at share repurchases is that they are always opportunistic. So we're making those purchases in essence, in the open market based upon, again, the opportunity that's in front of us. I would say that in the first quarter, we, as you know, purchased approximately $50 million of shares at about $100 a share. Obviously, we thought it was very attractive then. We feel better about the business now than we did in the first quarter. So I think we're pleased that we're positioned very well to be able to look at multiple ways to return capital to shareholders.

Next question comes from the line of Keith Hughes with Truist.

A question on gross margin. Gross margin in the quarter was actually slightly higher than we had a couple of years ago. Our gross margins that we saw in 2020, is that something that could be repeatable from what we know today for 2022?

Yes.

Okay, is that just better price realization compared to last year? Is there anything else that would explain that year-over-year increase?

A lot of it is price realization as well as the volume growth. Both contribute meaningfully to improvements in gross margin and as a consequence, EBITDA margin.

Our next question comes from the line of Mike Rehaut with JPMorgan.

Doug on for Mike. I was wondering if you guys could give a little bit of further color on COVID's impact on the commercial business. I know you've referenced the backlog a few times now. I'm just wondering what the impact on COVID is on this business now? And where do you see that moving forward, especially as COVID seems to be subsiding a little bit?

We're definitely continuing to see lingering delays in the time to complete projects and start time of projects. So projects that we thought when we did them, say, last year or even the year before last, that we thought would have gotten started and we would have done the work within six months. It's getting extended to 12 and 18 months. But fortunately, the backlog continues to be there. We think the backdrop for commercial work, particularly heavy commercial work, is extremely constructive. And we feel encouraged about the ability of that business to start having some meaningful growth rates as we go into the latter half of '22 and the beginning of '23.

Got it. And then just secondly, how are you thinking of the M&A pipeline over the next 12 to 24 months? And has it changed at all? And does the current rate environment make you any less active?

No, I don't believe that the current rate environment will reduce our activity. The pipeline is still strong. As I’ve mentioned before, most sellers in the sectors we are interested in typically have a timeline for selling that is more influenced by their personal situations than by macroeconomic factors. Most sellers prefer not to sell during a downturn. While some may think it’s possible to find good deals in a down market, that’s not usually the case. Many of the sellers we engage with have experience navigating both good and bad market cycles in the housing industry. Therefore, I don't see our acquisition opportunities changing significantly going forward. We remain optimistic about our pipeline and the potential returns from acquiring these businesses, which are not heavily affected by the rising cost of capital we are discussing.

Our next question comes from the line of Dan Oppenheim with Credit Suisse.

I guess wondering in terms of that, you talked about the opportunistic share repurchase and the acquisition pipeline. How is your thoughts as you sort of weigh the two opportunities? Should we expect to see share repurchasing continuing and still some acquisitions here? I guess I'll start with that.

Yes. We have purposely positioned the company to have ample liquidity, combined with low leverage so that we can continuously and actively and opportunistically pursue both acquisitions and share repurchases, and combined with the fact that the company generates considerable free cash flow. So we feel very good about our ability to invest in acquisitions, invest in the growth of the business and also opportunistically do to share repurchases.

Great. Regarding the share repurchase comments, you mentioned feeling more optimistic about the business compared to the first quarter. Considering the ongoing backlog, does this reflect your current sentiment? Is it primarily due to trends in the commercial sector or is the residential side still performing strongly? What factors are contributing to your improved outlook compared to the first quarter?

We believe that all of these factors are contributing. We are more optimistic about the commercial business and are noticing some positive trends there, which is encouraging. This, combined with the ongoing positive developments in price mix and the backlog we've been discussing, leads us to feel that things are progressing constructively.

Our next question comes from the line of Ryan Gilbert with BTIG.

I'm curious if you've noticed any change or increase in urgency from your homebuilder customers to build inventory ahead of the spring selling season, particularly considering the rise in mortgage rates. Do you think this had any impact on your quarterly results?

Yes and yes.

You want to expand on that at all?

I think it's been well discussed by the public that the public others that they want to get houses completed and they want to start getting foundations for getting out of this framed. And they want to start delivering at an accelerated basis as many houses as possible because they continue to believe, as do we, that there's still very solid demand out there despite the increase in mortgage rates and that they're better served and we're better served by working hard to meet that demand. Now obviously, the completions growth as reported by the Census Bureau was fairly disappointing. But we believe that, that just points to the strength of the underlying backlog, and we're going to continue to work with our customers to help improve their cycle times as much as we can because we know how important that is to them.

Okay. That's really helpful. Given the completions and backlog, if we see higher mortgage rates impacting demand at some point, perhaps in the second half of this year, and that leads to some slowdown in starts, do you believe there is enough backlog to support growth for the rest of 2022? And if there is a decline, could that become an issue for 2023, or might it affect 2022 as well?

Obviously, it depends upon the deceleration, but we believe that there is plenty of work to do in '22 and into '23. I mean it's really unprecedented the dollar value of the current backlog.

Well, on the expansion of the time that it takes to build a home. It's a lot different than historically, we've all defined it to be.

And quite honestly, a slowdown in starts would help reduce that construction cycle time, and we don't expect it to be "normal" anytime soon. But anything we can do to reduce it even a couple of weeks, we believe is very constructive.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. 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. You may disconnect your lines at this time. Thank you for your participation during the rest of your day.