Greetings, and welcome to the Installed Building Products, Inc. First Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Darren Hicks, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Installed Building Products, Inc. First Quarter 2025 Earnings Conference Call. Earlier today, we issued a press release on our financial results for the first quarter. It 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 federal securities laws. These forward-looking statements are based on management's current beliefs and expectations and are subject to factors that cause actual results to differ materially from those described today. Please refer to our SEC filings for cautionary statements and risk factors. We undertake no duty or obligation to update any forward-looking statement as a result of new information or future events, except as required by federal securities laws. In addition, management refers to certain non-GAAP and adjusted financial measures on this call. You can find a reconciliation of such non-GAAP measures to the nearest GAAP equivalent in the company's earnings release and investor presentation, both of which are available in the Investor Relations section of 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. We are also joined by Jason Niswonger, our Chief Administrative and Sustainability Officer. Jeff, I will now turn the call over to you.

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. Installed Building Products, Inc. delivered solid first-quarter financial results reflecting our focus on maintaining a high level of installation service for our customers across the U.S. Our core homebuilding customers continue to navigate industry-wide housing affordability challenges and a slower-than-expected spring selling season. Still, we continue to play our integral role in making homes and buildings as energy-efficient and efficiently constructed as possible. We expect housing demand to remain connected to changes in affordability and the macroeconomic backdrop this year. In the current environment, we are competing from a strong financial position, and our homebuilding customers are operating from a position of health as well, which helps in navigating market uncertainty. Longer term, our view on demand for our installed service is unchanged. We believe long-term trends across our residential and commercial end markets are favorable as builders work to meet demand through the increased supply of houses, apartments, and commercial structures. End product and end market growth with a disciplined approach to capital allocation. Throughout our business, we believe that less than 10% of the diverse products we buy and install are sourced outside of the U.S. We are working with our suppliers to reduce any potential tariff impacts. At present, we do not anticipate meaningful disruptions to our business. Our business continues to generate strong operating cash flow, and we remain committed to investing in growth and prudently returning capital to shareholders throughout economic cycles. During the first quarter, we continued to grow through acquisition, paid nearly $57 million in cash dividends, or $2.7 per diluted share, and repurchased approximately $34 million of our common stock. As we pursue initiatives focused on achieving profitable growth and maximizing returns for our shareholders, we remain committed to doing the right thing for our employees, customers, and communities. Looking at our first-quarter sales performance, consolidated sales decreased 1%, and same-branch growth was down 4%. In our largest end market, new single-family installation sales were down relative to the same period last year, partially due to one less selling day and unusually difficult weather, which impacted our ability to complete jobs during the quarter. On a same-branch basis, multifamily sales in our installation segment decreased 5% following a strong year-over-year comparison of a 13% increase in the first quarter of last year. We continue to see strategic growth opportunities as our centralized service-oriented model continues to partner with our existing branch network to broaden our geographic footprint and product offering in the multifamily end market. On a same-branch basis, first-quarter commercial sales in our installation segment declined modestly from the prior year. Strong same-branch sales growth within our heavy commercial business was offset by a decrease in sales from our light commercial markets. The strength in our heavy commercial end market was driven in part by successfully winning jobs in the rapidly growing data center construction industry. Based on our current backlog, we expect growth in heavy commercial sales to continue throughout this year. During the first quarter, cash flow from operating activities increased 9% to $92 million, primarily reflecting effective management of working capital. Acquisitions continue to be our top priority as we consider all of our options for capital allocation. Despite our growth over the years, we believe a meaningful opportunity still exists for us to expand our geographic presence and diversify the mix of building products we install across our national branch network. During the 2025 first quarter and in May of 2025, we completed the following acquisitions: a South Carolina-based installer of a diverse mix of after-paint products, including closet shelving, shower doors, and mirrors, primarily in the new residential end market with annual revenue of nearly $6 million, and a Wisconsin-based installer of spray foam and air barrier products in the commercial end market with annual revenue of nearly $4 million. To date, we have acquired over $10 million of annual revenue, and although deal timing is hard to predict, we expect to acquire over $100 million in annual revenue in 2025. Based on the U.S. Census Bureau, single-family starts year-to-date through March 2025 have decreased by 6%. We continue to believe that our business is supported by the fundamentals of residential housing and gradual building code adoption for the purpose of improved energy efficiency across the U.S. Our strong customer relationships, experienced leadership team, national scale, and diverse product categories across multiple end markets are advantages when navigating the ebbs and flows of demand related to the U.S. construction market. Although the uncertainty around tariffs, inflation, and consumer sentiment influences prevailing market conditions in our industry and many others, we remain focused on profitability and effective capital allocation to drive earnings growth and value for our shareholders. I'm proud of our team's continued success and commitment to doing an excellent job for our customers. To everyone at Installed Building Products, Inc., thank you. We remain encouraged by our competitive positioning and optimistic about the prospects ahead for Installed Building Products, Inc. and the broader insulation and other building product installation business. So with this overview, I'd like to turn the call over to Michael to provide more detail on our first-quarter financial results.

Thank you, Jeff, and good morning, everyone. Consolidated net revenue for the first quarter decreased 1% to $685 million compared to $693 million for the same period last year. The modest decrease in sales during the quarter reflected single-digit declines across all our core end markets. We were partially offset by revenue from recent acquisitions. Same-branch sales were down 4% for the first quarter. Although the components behind our price mix and volume disclosure have several moving parts that are difficult to forecast and quantify, we achieved a 1.5% increase in price mix during the first quarter. This result was offset by a 5.6% decrease in job volumes relative to the first quarter last year. With respect to profit margins in the first quarter, our business achieved an adjusted gross margin of 32.7%, down from 33.9% in the prior year period. The margin headwind during the quarter was in part related to higher vehicle insurance and depreciation expense. Adjusted selling and administrative expense as a percent of first-quarter sales was 20.1% compared to 19% in the prior year period. The increase was due primarily to lower sales, higher administrative wages, and higher facility costs. Of the $6 million increase in adjusted selling and administrative expense, $4.4 million was due to acquisitions and startup expenses. Adjusted EBITDA for the 2025 first quarter decreased to $102 million, reflecting an adjusted EBITDA margin of 15%, and adjusted net income decreased to $58 million or $2.08 per diluted share. Although we do not provide comprehensive financial guidance, based on recent acquisitions, we expect second-quarter 2025 amortization expense of approximately $10 million and full-year 2025 expense of approximately $40 million. We would expect these estimates to change with any acquisitions we close in future periods. Also, we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31, 2025. Let's look at our liquidity position, balance sheet, and capital requirements in more detail. For the three months ended March 31, 2025, we generated $92 million in cash flow from operations, compared to $85 million in the prior year period. The year-over-year increase in operating cash flow was primarily associated with improvements in working capital, which more than offset lower net income. At March 31, 2025, we had a net debt to trailing twelve-month adjusted EBITDA leverage ratio of 1.17 times compared to 0.97 times at March 31, 2024, which remains well below our stated target of two times. At March 31, 2025, we had $351 million in working capital, excluding cash and cash equivalents. Capital expenditures and total incurred finance leases for the three months ended March 31, 2025 were approximately $21 million combined, which was approximately 3% of revenue. With our strong liquidity position and modest financial leverage, we continue to prioritize expanding the business through acquisition and returning capital to shareholders. During the 2025 first quarter, Installed Building Products, Inc. repurchased 200,000 shares of its common stock at a total cost of $34 million. At March 31, 2025, the company had approximately $466 million available under its stock repurchase program. Installed Building Products, Inc.'s Board of Directors approved the second-quarter dividend of $0.37 per share, which is payable on June 30, 2025, to stockholders of record on June 13, 2025. The second-quarter dividend represents a 6% increase over the prior year period. With this overview, I will now turn the call back to Jeff for closing remarks.

Thanks, Michael. I'd like to conclude our prepared remarks by once again thanking Installed Building Products, Inc. employees for their hard work 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.

Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Your first question comes from Stephen Kim with Evercore ISI. Please go ahead.

Hi. This is Atish on for Stephen. Thanks for taking the question. I just wanted to get an idea of how you're managing your labor force in this pressured demand environment.

Hi. This is Michael. Good morning. You know, I think you really have to break it down into the various labor components in terms of the install labor versus the Salesforce and then the G&A labor. The install labor really fluctuates consistently with the volume of jobs. So, you know, our intention is really never to hold crews when it comes to the installed labor. There is an exception to that statement, and it would be times like we had in the first quarter where you had, you know, both the California fires and some of the severe weather in the bottom half of the country. In those instances, you will hold labor because you know that it's a temporary situation. But when you're in a situation where there's a prolonged headwind relative to volume, you would obviously adjust your install labor to meet that demand expectation. As it relates to the Salesforce, generally speaking, you're not adjusting your Salesforce in terms of headcount unless it's a situation where you expect to have significant prolonged headwinds as it relates to volume. In terms of the G&A labor force, we are constantly looking to optimize and have the right headcount and right people doing the right things within G&A. I would say that, you know, clearly, a focus of ours has been to make sure that, you know, we have optimization within the G&A ranks. And that's obviously something that we're continuing to focus on and will focus on and would expect to see some reductions in the G&A workforce as we're going forward here through the rest of the year.

Great. Thank you. And if I could just get one more follow-up. On the multifamily side, it was touched upon briefly in the prepared remarks, but can you talk about how the CQ team is helping the branches manage through pressure in the end market?

Sure. That's a great question. As you know, units under construction right now are down 20% from their peak last year. So from March of last year to March of this year, is a huge headwind, and we are extremely proud of what the team was able to do with, you know, a 20% headwind having multifamily revenue only down 5% is in part a direct result of the benefits that we're seeing from CQ. As I think everyone on the call knows, CQ does not manage all of our multifamily revenue. They only manage around 45% of our multifamily revenue. And they continue to show up positive results on the multifamily revenue that they're managing. Their backlog continues to be very solid. So we feel very strongly that we will continue to outperform the multifamily opportunity. That being said, you know, we believe that units under construction need to come down at least another 10% in order to stabilize relative to historical trends based on current multifamily starts rates, although we do think multifamily starts have bottomed. As I'm sure everybody realizes, multifamily starts year-to-date as reported by the Census Bureau, are up 9%. So I think that's encouraging for the multifamily industry in 2026. But we do think that, you know, the headwinds for multifamily for us and for the industry will persist through 2025.

Thanks for that. It's Steve. I just wanted to follow-up real quickly. You mentioned the California fire and the weather impacts the quarter on residential single-family. Was wondering if you could quantify roughly how large each of those was as a headwind in the quarter? And do you expect to have to fully recover that in Q2? Or just how should we how should we be thinking about the going forward outlook there?

Yeah. I mean, the loss day is, call it, $10 million to $12 million. The day is lost. So, you know, for the year, we have one less selling day. So that, you know, we don't really necessarily make that up. In terms of the weather impact, you know, we estimate that that was on a net basis because we did make some of it up in March was probably another $10 to $20 million. Unfortunately, you know, there's a little bit longer tail on that than there normally would be. For a couple of reasons. One, the continued softness or the softness in single-family combined with the fact that it wasn't just that we couldn't get to the job site; it was that all the other trades couldn't get to the job sites as well. It's just sort of pushed out the recovery, if you will, of that additional revenue. And I think it'll be sort of measured throughout the, you know, second quarter and third quarter, basically, that we catch up on that lost revenue opportunity.

Okay. Great. Thanks a lot, guys.

Sure.

Next question, Michael Rehaut with JPMorgan. Please go ahead.

Hi. This is Alex Isaac on for Mike. Thanks for taking my question. I want to ask related to trends in single-family. How do you view different end markets like production, regional, local, and custom? As well as different regional areas, how do you sort of view the trends in those specific end markets?

Well, there I would say that, you know, in the quarter, our regional local builder business was slightly better than the production builder or public builder business. We kind of think of the production builder business being aligned with the publics. In the fourth quarter call last year, we mentioned that one of the things that we do every quarter is we measure orders and backlog at all of the production builders or public builders combined with either their guidance or consensus relative to their revenue. When we compare that to you know, and weight that based on our revenue with those public builders, as we mentioned in the fourth quarter call, you know, a couple of months ago. You know, that based on those numbers or estimates, it came out to be a plus 3% for us on single-family revenue with the public builders. Doing that same analysis this quarter, it's a minus 3% on the single-family side with the public builders. So I think that's a fairly key or a fairly decent indicator of where the publics will be, you know, at least based on people's expectations now. Would probably expect that we're gonna continue to see the regional and local builder doing slightly better than that just given our footprint and our experience with them. You know, there has been a relative strength in a very weak market with some big custom home builders. You know, obviously, the custom builders are less susceptible to some of the both macroeconomic uncertainty and current rate environment, just given the nature of the customer there. In terms of, you know, on a regional basis for single-family, I think it's a lot of people have talked about this. I mean, Florida is very weak. You know, Texas for us is still, you know, pretty solid. The West Coast is solid. You know, we feel good about the Northeast and the Midwest, quite frankly. They seem to be pretty solid as well. You know, the Mid-Atlantic is good, not great. But, you know, clearly, our expectations for single-family on a macro level, just like everyone else's, has changed in the past couple of months where I think we were all, you know, constructively at least flat to, you know, modestly up. Whereas I would say that we'll be at best flat, probably down, you know, mid to low single digits on the single-family side this year.

Thanks. That makes a lot of sense. Appreciate all the color on that. Then as my follow-up, was curious on material prices, throughout the year and into '26. How do you view those, especially with more installation supply coming online?

I mean, the environment continues to be very benign.

Yep.

It's healthy. But certainly probably not deflationary.

Okay. With the exception, of course, of, you know, there's a lot of uncertainty around the tariff impacts.

Fortunately, you know, we source, you know, a very large portion over 90% of what we buy. We source domestically. You know, based on what we've been announced combined with, you know, working with our suppliers and negotiating with our suppliers for the things that we don't source domestically, we estimate that the impact of the tariffs could be anywhere between $10 million to $20 million, which is about 1% of cost of sales for us. So a pretty nominal impact, but it's still there. And, you know, obviously, we will work to pass on any of those costs to our customers. But, you know, clearly, it's not the best operating environment when it comes to any kind of an increased cost. In an environment where you know, you're seeing headwinds from a volume perspective.

Yes. That makes a lot of sense. Just a quick follow-up on that. Would you say that the sourcing is like, your individual sourcing is uniquely, like, more domestic or that's industry-wide?

That's pretty representative of the products that we handle and the industry that we're in. That's pretty representative of kind of the industry.

Yeah. And I would say that there are, you know, some of our suppliers, like, for example, our big suppliers of spray foam, you know, there's a lot of talk about MDI and the cost of some of the inputs for spray foam going up that are sourced internationally. The bulk of our spray foam suppliers source their products and their chemicals domestically. So they're not susceptible necessarily to some of those restrictions. Now one thing that we haven't factored into that $10 million to $20 million, and, you know, I think is really uncertain as to what the implications will be, is what if any, you know, so we feel fortunate that our suppliers are sourcing their materials domestically, but because other vendors may be sourcing their materials internationally, we don't know what the impact that will be on the overall price of the market. I mean, theoretically, the domestic distributor or supplier would increase their price of goods if the price of the internationally sourced goods are going up because of tariffs. Right. Yeah. That makes a lot of sense. Appreciate all the color on that.

Sure. Please ask one question and one follow-up question.

Next question comes from Susan Maklari with Goldman Sachs. Please proceed.

Good morning, everyone.

Good morning. Good morning, Sue.

Thinking a bit about the gross margin. It sounds like there were some one-time or sort of unique things that came through in the first quarter that may have been factors to that. So I guess, can you talk a bit about what we saw in the first quarter? And then how you're thinking about this setup for this year given your focus on profitability and the service that you offer relative to the environment that we are in which starts coming down?

Thanks for that question, Sue. So within cost of goods sold, our fleet expenses basically for the installed fleet. So that includes depreciation, fuel, and vehicle insurance. Because of the decline in sales, and the increase in depreciation and increase in vehicle insurance was a headwind to the gross margin in the first quarter of about 60 basis points. While those costs are not fixed, they certainly don't there's not variable relative to the volume of jobs very quickly. So they have a very lagging effect from a variability perspective. Then as we had mentioned in the fourth quarter call as well, both spray foam and the other segments. So, again, that's our distribution and manufacturing segment. Naturally has a lower gross margin had better sales growth relative to the install segment. So as a consequence, those two things combined had about another 30 basis points of headwinds to gross margin in the quarter. Going forward for the rest of the year, I mean, you know, we have talked about on a full-year basis adjusted gross margin being in that range of 32 to 34. Obviously, in the first quarter, we were at the lower end of that range. Historically, the first quarter is the lowest gross margin quarter because it's your lowest volume quarter. We would expect that to be the case through the rest of '25 as well. However, I would caveat that and say that, you know, we believe that, you know, as we said in answer to the previous questions, that there will definitely be headwinds to volumes and demand for single-family and multifamily throughout '25.

Okay. That that's very helpful color, Michael. And then thinking about price mix and appreciating the comments that you've already given, but good to see that that's holding positive even with a tough comp in there. As you think about just the setup for this year, can you talk about your ability to continue to see the benefits of that coming through and to keep that positive?

Yeah. Quite honestly, it's really lapping increases from, still increases that happened in the, you know, kind of back half of last year. So, you know, as we said, relative to material costs that are very benign, we would expect that pricing would be very benign as well. And, you know, that we wouldn't continue to see positive benefits throughout the year.

Okay. Thank you. Good luck with everything.

Sure.

Next question, Michael Dahl with RBC Capital Markets. Please go ahead.

Hi, thanks for taking my question. Can you talk through kind of the cadence a little bit more? I mean, appreciate the comments around the changing macro views.

Yeah. You're a large supplier. I was talking about down low to mid-teens in U.S. residential. Yesterday in their insulation business. Your peers seem to be indicating pretty sharp declines in Q2. I think both those are probably a combination of some of the single-family and multifamily, but can you just talk through kind of near-term cadence how you'd expect that volume progression to look particularly on the residential side, but then I'm also curious, you know, the blend of heavy versus commercial, you were still down in quarter on commercial overall. So maybe just talk through that part as well, how that blends out. Sure. As you know, we don't provide guidance, but we definitely do think that there are going to be headwinds in the residential side, both single-family and multifamily. Through the year, not just in the second quarter. So I think that those headwinds are going to persist unless there's some significant change in consumer confidence. We do think, particularly on the single-family side, as we said, to the answer to an earlier question, we do think that multifamily starts at bottom. We think that, you know, given the affordability issue that exists with single-family, it does play into the strengths of multifamily. In terms of, you know, people's need for housing, but looking to multifamily as a temporary step before they do buy a single-family home. As Jeff said in his prepared remarks, we feel very confident about the long-term prospects of the core residential business. And, you know, so we feel very good about that. But, again, we're going to have headwinds throughout '25 in our opinion as it relates to both single-family and multifamily. As it relates to the commercial business, I mean, the heavy commercial business is performing exceedingly well. That business was up over 14% in the quarter. And we're continuing to see very strong solid backlogs and bidding in that business. And, you know, we suffered through a lot of pain in that business for a couple of years and are really pleased to see how well the team is just performing and executing in the heavy commercial side. Offsetting that was a little over 10% decline in the light commercial business. As you can tell from those differences, the light commercial business is still larger than the heavy commercial business, although that will probably flip by the end of the year given the current sales trends that we expect. We do expect the light commercial business, which is the, you know, the worst performing part of our business or end market right now to continue to be weak. We would expect some recovery as we go into sort of the back half of the year. But when we think of it on a full-year basis, the light commercial business will definitely be the weakest part of our end market segments.

Okay. That's very helpful. Second question maybe just digging into the margins a little bit more. So the I guess those impacts from, like, the vehicle stuff in particular presumably, it works in both directions, so you would have benefited from it when sales were up and now sales are down. So it's getting spread across the smaller base. So when we think about that through the year, is that something that's gonna pressure your decrementals? Like, there's a lot going on, right, with mix and with that. But how do you think about the decrementals in the environment?

Yeah. There's no doubt that it provides a headwind to the decrementals because, you know, in essence, those costs are, you know, relatively fixed. And, you know, we've talked a lot about, you know, decrementals and variable costs and, you know, we like to think of all of costs being variable over time. But the reality is that when you're looking over, say, twelve to eighteen-month time frame, some of your costs are fixed. There's certain insurance costs that are fixed in essence. Brand facility costs are basically fixed. And so, you know, when we think it over, you know, sort of a twelve-month time frame, you know, we think of there being and I'm thinking of our total cost structure now, not just cost of goods sold. But that roughly 10% of our cost structure is fixed. About, you know, 15% of our cost structure is lagging variables, so it takes time before it adjusts to changes in volume. And then about 75% of our overall costs are directly variable. The largest components of that being material and the install labor. So, you know, when you're in a situation when you have volumes decline, when you had an expectation for volumes being flat or up, you know, the fixed and lagging variable component of your cost structure, you know, really presents a significant headwind to margins, its decremental margins. And that obviously came through our same-branch incremental EBITDA margin decremental margin in the quarter as everyone saw.

Okay. Thank you very much.

Sure.

Next question, Trey Grooms with Stephens. Please go ahead.

Hey, good morning, everyone. Thanks for taking my questions. I guess to start on maybe working capital and free cash flow, you guys put up some good free cash flow in the quarter, seeing improvements in working capital. Michael, do you think this is or this kind of year-over-year improvement continues as we kind of look through the year? With the outlook you have for demand? Or how should we be thinking about that?

Yeah. I mean, it's one of the, you know, great things about this business is that you are in a volume-challenged, if you will, environment, the balance sheet naturally shrinks and you generate good free cash flow. And, you know, given our commentary around what we think volumes are gonna be like through on a full-year basis, we would expect that we would continue to generate good free cash flow.

Yep. And then on the M&A side, you still have a target of $100 million revenue for this year. Clearly, it's up to a little slower start maybe, and I know these things can be lumpy, but have you seen any change at all up there in the kind of in the pipeline as you, you know, put the outlook has gotten maybe a little more challenged and demand is, you know, been a little weaker. Any change in the appetite on the, you know, M&A side from sellers?

No. This is Jeff. But no. Not really. Not at all. They're just, like you said and we've said before, they are kind of lumpy and we're not, you know, control the timing a lot of times, but there's plenty of skill. Kind of active negotiations and, you know, candidates out there. And M&A is absolutely our priority.

Yep. Sure. Okay. Got it. I'll pass it on. Thanks.

Sure.

Next question, Phil Ng with Jefferies. Please proceed.

Hey, guys. This is Maggie Miller on for Phil. First, going back to price mix, you know, that piece is holding up. Maybe you could break out the price versus mix components of that and how you see specifically the mix piece trending through the year. And I know you've called out a relatively benign cost environment so far. But, you know, if we continue to see these demand headwinds, and, you know, there's additional capacity coming on, how do you think about the risks that fiberglass pricing falls and your ability to hold price in that type of backdrop?

So I'll this is Michael. I'll talk to the first part of that question. And then Jeff can kind of talk to the second part of that question. Although I would say we don't expect fiberglass pricing to decline. You know, as we've talked on numerous calls, the price mix disclosure for us is a very complicated disclosure, and there are a lot of moving pieces to it. What I would say is a couple of things. You know, it does not include the price mix and volume disclosures do not include the heavy commercial business. Right? So the fact that that business is very solid, pricing is very good and is up, is not reflective in the price mix calculation. What you're seeing in the price mix calculation is, as I mentioned, in the answer to a previous question, is there's definitely carryover pricing from last year that is keeping that positive, if you will. Combined with the fact that the production, as I mentioned earlier, the regional and local builders are performing slightly better than the public builders within our revenue base. Just given the nature of our customers there. What is presenting a challenge though to the price mix calculation, at least the way that we disclose it, is that, you know, the multifamily sales being down slightly more than the other components of price mix is obviously a headwind to that. So what our expectation would be, and I sort of alluded to this in the answer to one of the other questions, is that if things sort of stay the way that they are, right, in terms of, you know, a little bit more pressure on well, significantly better than the overall market opportunity. You know, more pressure on multifamily volumes than single-family volumes, it would continue to add pressure and headwind to the price mix disclosure. I don't know if you wanted to add.

Yeah. And on the material side, I mean, I think it's important to kind of back up a year, if not years, and look at how tight things were. I mean, it really got to the point where it was inefficient. It was harder for us to do business. There were, you know, certain SKUs we couldn't get. You know, we were as we talked about before, having to go to distribution sometimes and even the big boxes in terms of the supply of material. So I'd categorize this as moving closer to having an efficient market. It's still, you know, fairly healthy despite the year-over-year decline. And, you know, quite frankly, kind of working the way it's supposed to.

Okay. Okay. That's super helpful. And then how should we think about the opportunities you have in the SG&A line as we move through the year, kind of taking into account those fixed and semi-fixed costs that you called out, and at what point would you be looking to start taking those costs out, you know, if things are kind of steady state from here, you know, down year over year but not getting worse, or would you have to see a material step down from where we are now to start making those cost out actions?

Yeah. That's I appreciate the question. And we are focused on sort of optimizing G&A. We've targeted at least $15 million of cost reduction, which we, you know, have already taken steps to realize those savings, which we believe we'll start feeling the impact of in the third quarter. Those costs, we are going to take out even if volumes improve from where our current expectations are. And we are going to continue to focus on optimizing the, you know, G&A cost structure as much as we can, quite frankly. You know, this is an opportunity for us to, you know, kind of fundamentally optimize the spend on G&A. And the entire company is focused on getting there and getting that done.

Good job, Juan.

So.

Alright. Thank you so much.

Next question. Ken Zener with Seaport Research, please go ahead.

Good morning, everybody.

Morning. Morning, Ken.

Michael and Jeff, you want or two, feel free to chime in. I think you've made some very, again, illuminating comments about the market and you're talking about demand public and private. So I just would like to get your question one concept of right supply and demand. So we all can see what the publics are doing, and I think you broadly reflected that. But I'm surprised on the supply side. The census data talks about, you know, units under construction, closer to, you know, 380, 90,000. Versus the long-term average of 280, and it seems that that's more on the private side where you have that excess. So can you think the strength you're seeing in the privates versus the apparent high supply that they have. If you would, or you think the data's wrong, or it's your perception of privates?

Well, our perception is guided by our experience not necessarily that macro information that you're looking at. And I think you're speaking just to single-family and not multifamily. Correct?

Correct.

Okay. So I would just say that over the past two quarters, our experience has been that the sales level with the, you know, regional and local builders has been better than it has been with the production builders. Now in the beginning of last year, that was not the case. You know, the production builders the production builder business was pretty solid. It's still solid now, but I'm just talking about it on sort of a relative basis. You know, in terms of there being a lot of excess inventory at the regional and local builders, I really don't think that's the case quite frankly. At least that's not our experience, and that's not the feedback that we're hearing.

Very interesting because the census at least presents something different. So I appreciate that. You gave comments I know you don't give guidance. But you did highlight that 1Q gross margin tends to be the lowest. Structurally. And we saw SG&A which also tends to be the highest, in 1Q. And that was up about a hundred bps. You talked about 15,000,000 targeted savings. But is it fair to assume the 100 basis point SG&A headwind we saw in 1Q to kind of persist? You know, if you think about it year over year, as the year progresses, as well, if you could mirror your gross margin comments to SG&A, that would be very helpful.

Yeah. I mean, the difficult thing is that, say, let's just take SG&A, for example. You know, SG&A is relatively static. And we talked about this in the fourth quarter call. Earlier this year, is that we expect SG&A, absent these targeted reductions that we're making, we expect SG&A to grow with general inflation. Really outside of what's happening with, you know, volumes, generally speaking. Right? Because it's it is a we think of it as a dollar amount and not necessarily as a percentage of revenue. Right? So if you look at the adjusted selling and administrative expense increase from the first quarter of last year to the first quarter of this year, the dollar increase was about $6 million. Of that $6 million increase, $4.4 million was related to acquisitions because, obviously, acquisitions come with selling the general administrative expense of their own. And then the startup costs associated with the internal distribution efforts that we've talked about. Now for a couple of quarters. Which is going very well by the way, but, you know, there still are startup costs associated with it. So our objective, you know, and SG&A, I'm kind of going back and forth between SG&A and G&A here, but, you know, G&A, generally speaking, is running between $105 to $110 million a quarter. And, you know, it's our objective on an annualized basis to be able to get that down. You know, by, say, $15 million. Although there will continue to be inflationary pressures within G&A. So we're working, as Jeff said, and it's absolutely true. Job number one for us is to optimize G&A. And, you know, we're working on that, and we will continue to work on that throughout the year.

Thank you.

Sure.

Next question, Adam Baumgarten with Zelman and Associates. Please proceed.

Hey, thanks guys. I guess I can appreciate the you talked about the material costs being stable. I'm assuming that was a sequential comment. But and that your view is that they won't come down. But I guess if volumes get worse and capacity or supply increases across the industry, why wouldn't prices come down like maybe they have historically in a weak macro and volume environment? Meaning that could benefit you guys.

I mean, it's severe enough. That's obviously the case as you pointed out. As you said, historically, that's what happens. We just don't see it at that point at this point. You know? That way at this point.

Yeah. I mean, if we're down, let's call it 3% on the single-family side, and that's I'm not saying we are, but on a because we don't provide guidance, but say on the macro level, even if it's down 5%, that's not such a significant decrease in volume that necessarily would warrant price, you know, lower price environment. And as Jeff said, we're in more of a normalized environment now versus the situation where we were at, you know, a % capacity, and we couldn't get SKUs and material was, you know, hard to come by and, you know, right now, material is readily available.

That they produce. I mean, clearly, there's been some small amount of curtailment already, you know, because they'd like obviously like to see the market be healthy, and they're not gonna make material that they can't. They can't sell or and not wanna sell it at a price that they can't sell it at. So it's a little bit rational in that way, as you would expect. In terms of supply. Okay. Got it. And then just sticking on the cost side, any meaningful opportunities for branch consolidation looking at your current footprint that save some costs as well?

Yeah. We're continue we always evaluate sort of the opportunity to bring branches together because it can be especially when we're doing these sort of small tuck-in acquisitions that we do that we don't really talk about. I mean, that's part of the strategy of doing them is being able to combine locations. And, you know, we have three or four locations right now that we're looking to combine. But that's just part of our sort of everyday management of the footprint to make sure that we're, you know, optimizing it as best as possible. I mean, sometimes you'll say, you know, if you have a lease that you're sort of stuck in, you might keep it open a little bit longer than you want to. But, you know, we really try to optimize the footprint as best as possible.

I got it. Thanks. Best of luck.

Sure.

Next question, Jeff Stephenson with Loop Capital Markets. Please go ahead.

Hey, thanks for taking my questions today. So first on the strong heavy commercial results during the quarter, was a portion of that demand strength driven by a previous delayed large commercial projects moving forward since the start of the year? And what do you expect that trend to continue moving forward?

We expect the trend to continue, and it was not any project specific.

Got it. Okay. Understood. And then, you know, I healthy installation price mix during the quarter, which was great to see. And, you know, thanks for all the color on, you know, expectations on, you know, fiberglass pricing, you know, moving forward. But, you know, just shifting to, you know, spray foam, did you see any, you know, sequential, you know, improvement in the quarter? And, you know, what are your for pricing trends moving forward?

Yeah. We did see some price in the quarter. You know, that spray foam business is still, you know, it's a very solid business. As we've talked the past couple quarters, it has been a headwind. You know, just because there had been a significant decrease in pricing. And now as stabilizing and rising for a number of factors. But the headwind to gross margin was less this quarter than it was last quarter. So we feel good that the spray foam business will, you know, in the back half of the year, not be a headwind to gross margin.

Great. Thank you.

Sure.

Next question, Colin Veron with Deutsche Bank. Just one for me. A lot of them have been taken. So I guess just looking at working capital inventory, you talked about releasing some of that and generating good free cash flow in a down market. When I look at your inventory balance in the quarter, it's up a bit sequentially in a good amount year over year. So any color as to just what's driving that much of it's M&A pricing or mix versus actual units? And just how much opportunity there is from inventory adjustments this year for cash flow generation just given the current demand backdrop?

Yeah. So not a lot of it's M&A, but, obviously, that's a component of it. The biggest component associated with it, though, quite frankly, is this internal distribution effort that we're doing because we are opening and setting up new distribution facilities that are primarily focused on internal distribution. And obviously, that means adding inventory to those locations. So, you know, that is definitely a driver there of the higher inventory balances. What I would say is that just like what happened in the first quarter, I mean, clearly, receivables and, you know, primarily receivables, but receivables and inventory will trend up or down with, you know, higher or lower volumes.

Understood. Thanks for the color, and good luck.

Sure. Thank you.

I would like to turn the floor over to Jeff for closing remarks.

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

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