Conference Transcript - IBP 2026-05-07

Speaker 2

Greetings, and welcome to the Installed Building Products First Quarter 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ryan Ricketts, Director of Investor Relations and Financial Planning and Analysis. You may begin.

Speaker 1

Good morning, and welcome to Installed Building Products First Quarter 2026 Earnings Conference Call. Earlier today, we issued a press release on our financial results for the 2026 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 federal securities laws. These forward-looking statements are based on management's current beliefs and expectations and are subject to factors that could 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 presentations, 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, Michael Miller, our Chief Financial Officer, and we are also joined by Jason Nislonger, our Chief Administrative and Sustainability Officer, and Brad Miller, our Chief Operating Officer. Jeff, I will now turn the call over to you.

Jeffrey Edwards, Chairman

Thanks, Ryan, and good morning to everyone joining us today. As usual, I will start the call with some highlights and then turn the call over to Michael, who will discuss our financial results in more detail before we take your questions. We delivered solid top-line results despite the impact of having many fewer working days at several branches due to extreme weather conditions, which resulted in a $20 million missed revenue opportunity, as we previously mentioned on our 2025 fourth quarter call in February. The macroeconomic backdrop also changed midway through the first quarter, partially due to geopolitical factors raising uncertainty for U.S. consumers and making new home sales more challenging. Service quality is a controllable factor that we continue to maintain at a high level for our customers during the quarter. Emphasizing product diversification and prudent expense management have continued to be key initiatives. Our commercial end market continued to show strength, delivering double-digit installation sales growth with heavy commercial sales growth exceeding 20% during the quarter. Even with industry-specific headwinds expected to continue to affect our new residential installation segment in the near term, our overall business has been resilient. All the credit goes to the hardworking men and women across our more than 250 branches throughout the United States and those who support them from our office in Columbus, Ohio. To everyone at IDP, thank you for your hard work and dedication. Looking at our 2026 first quarter performance, consolidated sales decreased 4% and same branch sales declined 6%. Positive same branch commercial sales growth was more than offset by residential same branch sales growth headwinds within our installation segment. With respect to our new single family end market, activity has been slower than we had hoped by this point in the spring selling season, with some geographic markets feeling more upbeat than others. We continue to effectively manage both material and labor to meet the needs of our customers and remain flexible to adjust to the varying demand across regions. In our multifamily end market, both our contract backlog and partnership across branches to win business and deliver installed services continues to grow, which is encouraging. Our commercial end market remained a bright spot in the 2026 first quarter, with sales in our installation segment up 11% on the same branch basis from the prior year period. Our heavy commercial end market continued to be the dominant driver of same branch sales growth, which more than offset weakness in our light commercial end market. Based on the growth in our heavy commercial contract backlogs, we believe heavy commercial sales and profitability are poised to remain healthy in 2026. During the 2026 first quarter, we completed a total of four acquisitions representing approximately $28 million of annual sales from a diverse product set in both residential and commercial end markets. Acquisitions during the quarter included an installer of insulation across new residential and commercial end markets throughout Texas, Louisiana, Arkansas, and Oklahoma with annual sales of approximately $5 million, a provider of a wide range of value-added mechanical insulation services for diverse commercial and industrial applications serving key commercial and industrial hubs across Wisconsin, Iowa, Minnesota, Michigan, and Illinois with annual sales of approximately $13 million, an installer of insulation primarily across new residential and light commercial markets throughout Kansas and Oklahoma with annual sales of approximately $3 million, and an installer of waterproofing applications across new residential, Malta family and commercial markets throughout Minnesota with annual sales of approximately $7 million. Although deal timing is hard to predict, our current outlook for acquisition opportunities in 2026 is strong, and we expect to acquire at least $100 million of annual revenue this In terms of broader housing construction activity, U.S. Census Bureau data for the 2026 first quarter showed single-family starts decreased 6% from the prior year, while model-family starts were up 21% for the same period. I'm proud of our team's continued success and commitment to doing an excellent job for our customers. Once again, to everyone at IDP, thank you. I remain encouraged by the fundamentals of our industry, our competitive positioning, and I'm optimistic about the prospects ahead for IVP and the broader insulation and complementary building products installation business. Before I turn the call over to Michael, I want to thank Darren for his contributions over the past five years as he pursues another opportunity, and I wish him all the best in his future endeavors. Ryan Ricketts has been appointed Director of Investor Relations and Financial Planning. He has played an integral role in our financial planning and analysis function and is a natural fit to lead our investor relations efforts. I look forward to his contributions as we continue to execute on our strategy and engage with the investment community. With this overview, I'd like to turn the call over to Michael to provide more detail on our 2026 first quarter financial results.

Speaker 13

Thank you, Jeff, and good morning, everyone. Consolidated net revenue for the first quarter was down 4% to $661 million. dollars compared to 685 million dollars for the same period last year. Same brand sales for the installation segment were down 7 percent for the first quarter as an 11 percent decline in new residential same brand sales was partially offset by an 11 percent increase in commercial same brand sales. Although the components behind our price mix and volume disclosures have several moving parts that are difficult to forecast and quantify, price mix was flat during the first quarter. However, when including heavy commercial, price mix increased 3%. Volume during the 2026 first quarter decreased by 10%, partially caused by adverse weather. With respect to profit margins in the first quarter, our business achieved adjusted gross margin of 32.2% compared to 32.7% in the prior year period. This slight year-over-year decrease in margin during the quarter was driven by increased depreciation within cost of goods sold and higher vehicle insurance costs. Adjusted selling and administrative expenses were stable compared to the 2025 first quarter. As a percent of first quarter sales, adjusted selling and administrative expense was 20.9% compared to 20.1% in the prior year period. Administrative costs were impacted by higher medical and general liability insurance costs, which were 36% higher than prior year, as well as higher facility costs. Adjusted EBITDA for the 2026 first quarter was $92 million, reflecting an adjusted EBITDA margin of 13.9%, and adjusted net income was $48 million, or $1.79 per diluted share. Although we do not provide comprehensive financial guidance, based on recent acquisitions, we expect second quarter and full year 2026 amortization expense of approximately $10 million and $40 million respectively. We would expect these estimates to change with any acquisitions we complete in future periods. Also, we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31st, 2026. For the three months ended March 31, 2026, we generated $102 million in cash flow from operations and 11% year-over-year increase. Our first quarter net interest expense was $10 million compared to $8 million for the 2025 first quarter, partially driven by a write-off of debt issuance costs. We would expect second quarter net interest expense of approximately $10 million. At March 31, 2026, we had a net that to trailing 12-month adjusted EBITDA leverage ratio of 1.2 times compared to 1.17 times at March 31st, 2025, which remains well below our stated target of two times. At March 31st, 2026, we had $346 million in working capital, excluding cash and cash equivalents. Capital expenditures and total incurred finance leases for the three months ended March 31, 2026 were approximately $18 million combined, which was approximately 3% of revenue. We ended the first quarter with $474 million in cash on the balance sheet, and we will continue to prioritize acquisitions with long-term strategic benefits and attractive returns on invested capital. We expect positive free cash flow will continue to support shareholder returns and stock buybacks based on prevailing market conditions. During the 2026 first quarter, we repurchased approximately 91,000 shares of common stock at a total cost of $25 million. At March 31st, 2026, the company had approximately $475 million available under a stock repurchase program, which expires March 1st, 2027. IBP's Board of Directors approved the first quarter dividend of $0.39 per share, which is payable on June 30, 2026, to stockholders of record on June 15, 2026. The second quarter dividend represents a more than 5% increase over the prior year period. We are committed to continuing to grow the company while returning excess capital to shareholders through our dividend policy and opportunistic share repurchases. With this overview, I will now turn the call back to Jeff for closing remarks.

Jeffrey Edwards, Chairman

Thanks, Michael. I'd like to conclude our prepared remarks by once again thanking IDP employees for their hard work and commitment to our company Our success over the years is made possible because of you

Speaker 2

Operator, let's open up the call for questions. Thank you. We will now be conducting a question and answer session If you would like to ask a question Please press star 1 on your telephone keypad and confirmation tone will indicate your line is in the question queue You may press star 2 if you'd like 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. We ask to please limit to one question and one follow-up. Thank you. Our first question comes from the line of Sam Reid with Wells Fargo. Please go ahead.

Sam Reid, Analyst — Wells Fargo

Awesome. Thanks so much, guys, for taking my questions. I wanted to see if you had an updated outlook on industry pricing. I know one of the OEMs put through a price increase on the resi side earlier this week. Just maybe your high-level thoughts on achievability on that price and ability to pass along to the builders, understanding full well that you over-index perhaps more to private custom builders versus some of the large publics.

Speaker 13

Yes, and this is Michael. Thanks for that question. As we've talked in the past, The time when the manufacturers are able to get traction in pricing, both us and them, quite frankly, is when the demand environment is strong and material is tight. That does not exist in the current operating environment. The production builders, particularly the entry-level market, continues to be weak, and there's a ready supply of available material. You may know that one of the manufacturers is getting ready to bring back online a significant amount of capacity. So we don't see there being any tightness in fiberglass material, certainly in the near term. And the demand environment just is not there that would really support a price increase.

Speaker 12

Now, that's on the fiberglass side.

Speaker 13

There have been two, approximately about a 25% price increase. We do believe that they're not making money at the current pricing. So spray foam, as pretty much everyone knows, is really a semi-custom, custom home product. And the flexibility or willingness of, you know, the builders there and the homeowners there to accept a price increase on a spray foam application is pretty good. And I would say that within the contractor base, that is within the spray foam contractor base, there is a lot of discipline around price. So we definitely think that we'll see that happen, and it will certainly benefit our price mix in the back half of the year. And just as context may be, spray foam represents about 11% of our total sales. Now, I would say on the spray foam side that there will probably be less incentive for, you know, certainly entry-level or even move-up buyers to switch to spray foam, and they'll stay with fiberglass. Again, as we talked before about the difference between spray foam and fiberglass, you know, an average spray foam job is sort of 2x an average fiberglass job. That's not really a like-for-like comparison because your average spray foam house is going to be much larger on a square footage basis than a typical fiberglass job. But just to give you a relative sense of the difference between cost of spray foam and fiberglass. So it definitely will have an impact on price mix for us in the back half of the year. And as I said, we expect that the spray foam manufacturers will realize a significant percentage of that 25%.

Sam Reid, Analyst — Wells Fargo

Incredibly helpful color there. Maybe switching gears a little bit to industry capacity utilization. You know, you alluded to some capacity that's coming back online. And then also, you know, we have, however, seen, let's call it a little bit better data on the start side. Again, I realize a lot of this is probably on the production builder side, but just curious your perspective on fiberglass industry capacity and where it sits today.

Jeffrey Edwards, Chairman

This is Jeff. There's absolutely no tightness right now in terms of material flow, so I wouldn't anticipate it getting that way for at least some period of time.

Speaker 13

Yeah, and as we've said in previous calls, the manufacturers are doing an excellent job of, you know, managing their capacity. And, you know, we feel, you know, very good about the current environment and particularly with the additional plant coming online because there is some signs, you know, of the market getting better. You know, production builder entry level is still weak, no doubt. But the, you know, the public builders, I think, you know, have a relatively reasonably positive outlook for the rest of the year. We'll see if that materializes. You know, based on some of the recent information, both survey information that we've seen, Census Bureau information, which currently we're not putting a lot of confidence in, And, you know, we think that the year could end up being flat in terms of macro. You know, I would say, you know, we're tracking well with them. It's just that there's a lot of weakness there on the entry level.

Speaker 12

Really appreciate the color, guys.

Speaker 14

Thanks so much.

Speaker 2

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

Stephen Kim, Analyst — Evercore ISI

Yeah, thanks a lot, guys. Appreciate it. I guess the first question would be related to the multifamily outlook. You know, you mentioned before that the backlogs were looking strong, and I think you got some easier comps here in the back half of the year. Are you still feeling pretty optimistic that you should be able to show strong year-over-year strength in multifamily? And is there anything that you saw in the March industry numbers in terms of monthly multifamily starts? Does that kind of square with sort of the activity levels that you're seeing in your customer base?

Speaker 13

Yeah, this is Michael. Again, on the census information right now, we're just not putting a lot of confidence in those numbers. But I would say we continue to be very encouraged on the multifamily side. Just to give you some sense, you know, the high-rise multifamily, which we do very little of, it's only, you know, it's less than 1% of revenue. It's about 5% of our multifamily revenue. But in the quarter, that high-rise multifamily revenue was down almost 50%, okay? And as you know from our disclosures, that total multifamily revenue was down in the quarter on the same branch basis, only about 10%. What's interesting, and the reason why I bring that up, is the high-rise multifamily backlogs actually turned mid-single-digit positive in the quarter. Admittedly, a very weak part of the market. We're seeing some light at the end of that tunnel. In what I would consider traditional, so not high-rise multifamily, the backlogs continue to grow. We had a very good April within that sector. and, you know, we feel good about what the back half of the year is going to look like. Now, I have to put in a caveat, though, that we have seen some projects getting slow-walked, if you will, and that are slowing down. So even though we feel very confident about the strength of our backlog, excellent job of, you know, going into new markets and we'll share in those markets. So even if we don't see a strong inflection in the back half of 26, we feel very confident in what we're going to see in 27.

Stephen Kim, Analyst — Evercore ISI

Gotcha. The second question, I guess, relates to data centers. It's kind of been a topic of conversation for a lot of folks. Can you give us a sense for, you know, are you relatively over or under indexed data centers across your businesses? Is that something that is, you know, even sizable enough to really be worth calling out or not?

Speaker 13

We do some of that work, but we are under indexed to it. I would say, given the activity that's happening right now. But our heavy commercial business, you know, as we noted, continues to travel, even though the comps have gotten, you know, more difficult because of the outperformance there in the quarter. So they're doing a phenomenal job, and it is not data center driven. It's really across a lot of verticals. And, you know, we can't say enough shout-outs about what a great job that team is doing.

Stephen Kim, Analyst — Evercore ISI

Thanks a lot, guys.

Speaker 2

Your next question comes from the line of Michael Rehaw with J.P. Morgan. Please go ahead.

Speaker 12

Thanks. Good morning, everyone. I just – first question just on gross margins. And I think it was kind of the big variance between my estimate and probably the streets as well. And I would presume maybe weighing on the stock here today. I appreciate the color in terms of the year-over-year variance. I think you said higher depreciation, higher vehicle insurance. I was also kind of wondering around the sequential decline of about 280 basis points, which is, you know, much greater than we've seen in the last few years. In the last four years, I'm going back here. There was a 90-bit decline last year, but before that, it was relatively flat. But I'm wondering just what the drivers were sequentially and if this is kind of a new bar to think about in terms of how we should progress throughout the year.

Speaker 13

Yeah, Michael, this is Michael. So, you know, the gross margins did still come in within our 32 to 34 range. And, again, we look at that range on a full-year basis, not in any one quarter. really the decline from the, and I'll call out some specific items, but really it was the volume, right? Other cost of goods sold. So not material, not labor. The team did an excellent job of managing material and labor. The other cost of goods sold number is, you know, semi-variable and not directly variable. And when we have lower volume, as we did in the quarter, it just, it compresses, to some extent, the gross margin. So to give you just some context for the gross margin, this is year over year, not Q4 to Q1, and this is something that we haven't really talked about before, but I think it's worth highlighting. So our product margin, so at the gross margin level before other costs of goods sold, the product margin was actually up 70 basis points from first quarter last year to first quarter this year. It was offset by the mix was a 20 basis point headwind to gross margin. The other distribution and manufacturing operations, which naturally have lower gross margins, were a 40 basis point headwind to gross margin. And then, which we called out in the prepared remarks, depreciation was a 30 basis point headwind to gross margin. And vehicle insurance was as well a 30 basis point headwind to gross margin. Now, somewhat offsetting that, again, was the 70 basis point improvement in product margin, again, something we haven't really talked about before, and the heavy commercial business, which was a 20 basis point margin. The other thing about price margin I think is important for us right now. Okay. Now, I appreciate all that detail, Michael. I mean, just maybe to follow

Speaker 12

up on that, you know, two kind of points, I guess. One, it does sound like you're saying, at least on a year-over-year basis, I'm curious if it's on a sequential basis, that the pricing dynamics between yourself and the builders haven't changed significantly. I think the concern out there is perhaps that the builders are really pushing back on vendors and suppliers and perhaps yourselves around price. And so I'm just wondering if, number one, it sounds like what you're saying is that that perhaps is not as big of a factor on a sequential basis um maybe i'll just stop there let you answer that before i i ask the another one yeah so you

Speaker 13

know where there is pricing pressure for sure is at the entry level um you know home builder you know so the public builders at that level and just as a reference point that represents about

Speaker 12

14% of total revenue. I would say the team has done a very good job of maintaining market share

Speaker 13

and working hard to maintain margin. But there's definitely some pressure there, given the weakness that is experiencing there. Now, quite frankly, though, I think go forward just based upon their guidance, what we're seeing. We believe a lot of that pressure is easing now and that the, you know, the difficulties that we were having with that, again, is starting to ease. We're seeing, you know, good pricing with the, you know, the private builders, with particularly the custom, semi-custom builders. That work continues to, you know, meet our expectations and, as I mentioned earlier, you know, turn positive in April. So, we're feeling good from that perspective. Really, the gross margin pressure, and actually EBITDA margin pressure, but it really was costs that are not directly variable that, you know, to some extent, we don't have a lot of control of. You know, for example, vehicle insurance, which is, you know, is up 25% flat to down sales environments. Okay. So, in other words, because, you know,

Speaker 12

I'm just looking last year, you know, sales went down about $65 million and margins sequentially went, I'm talking about sequential, went down 90 basis points. Here you have sales down $90 million and margins went down $280. So it's really more of some of the cost inflation dynamics that you're saying then, the vehicle insurance, maybe the logistical costs, fuel costs, things of that nature. that is more of the culprit on a sequential basis? Is that fair to say in addition to maybe some of the, you know, underabsorbed, you know, fixed costs, broadly speaking?

Speaker 13

Yeah, broadly speaking. I mean, I will say because we've talked about this product margin, you know, during the call, I mean, the sequential product margin was down from the fourth quarter to the first quarter, but that's pretty typical. Right. Part of that is just mix. And, you know, again, there was some pricing pressure from the production builders. But as I said, I think the team is doing an excellent job, excuse me, of, you know, managing that environment, you know, maintaining share and also working very hard to maintain price. but clearly a lot of the decremental from the fourth quarter to the first quarter and the margin was in, you know, other costs of goods sold. So, you know, again, vehicles, the vehicle costs were the biggest culprit there.

Speaker 12

Great. Thanks so much. Appreciate it.

Speaker 2

Your next question comes from the line of Susan McLarry with Goldman Sachs. Please go ahead.

Speaker 8

Thank you. Good morning, everyone. Good morning, everyone. Good morning. My first question is on the weather and the regional implications that that had in the quarter. Can you talk a bit about how those branches performed in the first quarter? Is there a backlog that you have that's coming into the second quarter, and is that part of what's driving that improvement that you're seeing with some of those private builders? And how should we just think about your ability to make up some of that volume and what that will mean for results in the upcoming quarters?

Speaker 13

Yeah, so this is Michael. I mean, we do think we'll make it up. The biggest impact to the regions was primarily in the mid-Atlantic, and those are some of our most profitable regions. So obviously, you never like to see weakness in your most profitable regions, but we definitely think we'll make it back. It is definitely part of the reason why we're positive. I think it is going to be a slow make-up.

Speaker 8

That's helpful, caller. And then turning to M&A, can you just talk a bit about the environment that you're seeing there? It seems like you're continuing to be fairly active for deals. But just give us an overall update on the pipeline and including the ability to perhaps do some more deals on that commercial industrial side.

Jeffrey Edwards, Chairman

This is Jeff, Susan. You know, I would say it's a healthy environment in terms of an M&A, you know, backdrop. And, you know, we will continue to, you know, make the deals that we've done historically. Pipeline's good and strong. We, you know, we did recently close a smaller mechanical industrial installation business, and it continues to be.

Speaker 8

Okay. All right. Thanks for the color. Good luck with the quarter.

Speaker 2

The next question comes from the line of Phil and G with Jeffries. Please go ahead.

Phil Ng, Analyst — Jefferies

Hey, guys. Michael, I appreciate you don't give guidance, but I think you were talking about how at least some of the survey work, what you're seeing out there. Potentially, single-family starts could be flat, and certainly we're not going to hold you to it. But from the context of, you know, single-family, your same-store sale, single-family business is down double digits in 1Q, and it was a little softer in fourth quarter as well. whether it was a factor, and at least April sounds okay for your private side. Give us a little context how you kind of see the shape of the year kind of shaking out and how the activity kind of panned out to start 2Q.

Speaker 13

Yeah, so, I mean, on a, you know, consolidated basis for the install, so that includes the heavy commercial business, organic growth. We were up, including acquisitions, but organic growth was down, you know, like 2%. What did help, frankly, though, is price mix was up over 4%. Price mix was up, excluding the heavy commercial business, but the heavy commercial business, just like it did in the first quarter, helped the price mix. Volumes were down, but they're down less than... Okay, that's awful.

Phil Ng, Analyst — Jefferies

I mean, it sounds like volumes have firmed up a little bit versus 1K. That's encouraging. And I guess your largest competitor, obviously, is merging with a large distributor roofing at LBM. Jeff, perhaps, how do you kind of think about that impact, you know, your ability to compete, your go-to-market strategy, and on the procurement front? I mean, from what I can tell, you guys buy super well-ready insulation. But does this kind of change how you think about the competitive landscape and perhaps your philosophy on the M&A side as well?

Jeffrey Edwards, Chairman

Well, I would say that we aren't anticipating any great changes. They've been a competitor, you know, all along, as long as we've been public and beforehand, even. And we expect that to continue. And from an M&A perspective, you know, potentially, you know.

Phil Ng, Analyst — Jefferies

But I'm just curious, in terms of your customers, builders, when you go to market and you negotiate, I believe it's all local, and that's how you bid it. But is there much overlap in terms of interaction for, like, an LBM guy versus an install guy for installation in terms of that go-to-market strategy? I'm just trying to gauge if that, you know, has any impact from a bundling standpoint as you compete with them more head-on from that standpoint.

Speaker 13

No, we don't. No, because keep in mind that what we're providing is an install solution, so the material and the labor. and on the distribution side, whether it's, you know, lumber or whatever. The distributor is dropshipping the material there, and then the builder is subcontracting out the labor to another contractor.

Phil Ng, Analyst — Jefferies

Okay. That's what I thought. Really helpful, Collar. Thank you so much.

Speaker 2

Your next question comes from the line of Mike Dahl with RBC Capital Markets. Please go ahead.

Speaker 15

Thank you, Mike, questions. I want to go back to gross margins, and again, I appreciate you don't give the guidance, But when I think about the components that you laid out, you know, certainly seems like some things, to your point, would be kind of volume leverage that shift throughout the year, but then you've got kind of like on like insurance costs, the fuel costs that you mentioned, and then it seems like maybe at least in the near term, given the relative growth of complementary and other products, maybe some headless there. So think about that 32 to 34 range. Is there anything, like, in those pieces, there do seem to be some incremental, certainly year-on-year headwinds relative to what you were seeing last year. So anything you can do to help drill down a little more on within that range where we should be thinking about?

Speaker 13

Yeah, to be honest with you, a lot is going to depend upon, you know, where the production and if they get closer to, you know, looking at their guidance, basically, they're talking about home building revenue being down the rest of the year about 5%. You know, there's a lot going on right now. As we mentioned, you know, the spray foam 6% of total revenue, you know, aluminum costs are up 20%. We don't see that subsiding any time in the near future. So there are definite headwinds to gross margin going forward. But the team has done an incredible job, you know, being able to manage the price cost headwinds that we've experienced. And we have, you know, complete confidence that they will continue to do that. And I think that's evidenced by the fact that the product margin that we talked about earlier was up 70 basis points year over year. So they're doing a great job, but there are a lot of headwinds out there for sure. But on a full-year basis, we continue to be confident that we will fall in that 32 to 34.

Speaker 15

I appreciate that. And then follow up just specifically on the fuel dynamic. Was it 15 to 20 just for the balance of the year so then there's some run rate into 1Q? And it doesn't sound like based on some of your other comments you've implemented or contemplated surcharges, but any comments around pass-through mechanisms versus other internal actions you can do to help mitigate that?

Speaker 13

Yeah, there's no doubt we will work hard to try and offset it. It's certainly something that is on top of mind for everybody in terms of the additional fuel cost. That $15 million to $20 million is for the rest of the year. So call it a little bit over $5 million per quarter that we would expect to feel the impact there. We are getting fuel surcharges from some of the manufacturers, particularly the fiberglass manufacturers. you know, based on the additional transportation shipping cost structure. And, you know, again, we're going to work very closely.

Speaker 2

Next question comes from the line of Trey Grooms with Stevens, Inc.

Trey Grooms, Analyst — Stephens Inc.

Hey, good morning. So you mentioned seeing some projects, you know, being delayed or slow-rolled in multifamily. Just curious, is that more, you know, kind of geographic specific? Or, you know, if so, where are you seeing most of that? Or is this these delays, you know, more widespread?

Speaker 13

I wouldn't say it's necessarily geographic specific. I mean, it's really it's project specific. It depends upon the specific project in a specific market. But I wouldn't say that it's highly concentrated in one market over another.

Trey Grooms, Analyst — Stephens Inc.

And you mentioned, you know, some of the pricing pressure around the entry level, which, you know, you mentioned is 14% of your revenue. Are you seeing any more, you know, pricing pressure, if you will, you know, on the multifamily side of things now that you're, you know, we're starting to see a little, you know, more delays, more, you know, a little softer market there?

Speaker 13

no i would say that environment's been pretty stable you know i would say there's you know there was some pressure um during the course of 25 but i would say that it's very stable especially family basically is in balance uh you know thanks for that and then the last one for me um we haven't

Trey Grooms, Analyst — Stephens Inc.

talked too much about commercial but um you know seems to be doing very well uh it's been it's been a bright spot here for for a while now um you know with with some of the shift in the macro you know that that we're seeing uh any signs of delays or you know similar kind of slow rolling or anything like that on the commercial side or or is the backlog you have you know in place kind of suggesting you should continue to see this this level of you know relative strength in commercial

Speaker 13

Yeah. I mean, other than the comps continue to get more difficult as we go through the rest of the year, the team is doing an excellent job. I mean, the heavy commercial business was up, you know, over 20% in April, even the light commercial in April. You know, that's a very easy comp.

Trey Grooms, Analyst — Stephens Inc.

Well, that's it for me. Thank you all. Good luck. Sure. Thanks, Rick.

Speaker 2

Your next question comes from the line of Adam Baumgartner with Vertical Research Partners. Please go ahead.

Speaker 3

Hey, good morning, guys. Just maybe sticking with heavy commercial. It sounds like pretty strong growth is expected to continue, but should we think about the composition of that growth, maybe more volume than price? Because it seems like price has been a big driver over the last year.

Speaker 13

No, I think it will continue to be, price will continue to be a driver there. obviously, you know, we'll say this probably a couple more times, is that, you know, the comps become increasingly more difficult for us, just given the outperformance that that business has had experience through 2025. But we definitely think it's going to be, continue to be a price story as well. And part of that is because we're doing a much better job of selling multiple applications or products per job, right? So in that instance, you know, kind of our has a analogy. Got it. That makes sense.

Speaker 3

And then looking at the kind of flattish price mix here, I know last quarter mix was pretty nicely positive, offsetting some modest price pressure. Can you maybe break apart how price and mix in the quarter trended? I'm sorry, say that last part again. Just the split between price and mix, because I know last quarter mix was nicely positive, offsetting some modest price weakness. maybe, you know, how that looked in the first quarter?

Speaker 13

Yeah, as you know, that price mix disclosure is, you know, kind of very difficult to break down just because, you know, most people's price disclosures are like-for-like, and there's really no such thing as kind of like-for-like from our perspective. You know, the pricing pressure, as we've said earlier, really came from the production builders. and that the, you know, on the residential side, you know, pricing for, you know, regional and local builders was... Now, again, when I say that, it's all about, right, so being within the production per square foot, even if our per square foot installed price is the same, if there's less square feet to install. Does that make sense?

Speaker 3

Yeah, it does. Thanks. Appreciate it. Best of luck.

Speaker 2

Your next question comes from the line of Ken Ziener with Seaport Research. Please go ahead.

Speaker 14

Good morning, everybody. Good morning, Ken.

Speaker 4

So the stock price kind of reminds me of when you had the commercial heavy cost headwinds X years ago, and there seemed to be a disproportionate impact, you know, from investors' perspective. So you were very clear last quarter talking, 32 to 34, right? is your gross margin range. The street with three quarters that had been above 34 was surprised today. And yet you talked about your product margin being up, you know, and these headwinds that seem to be persistent. So do you see the possibility of a sub 32% gross margin before we come out within your long-term range, given the uncertainty around fuel surcharges, surcharges, which I don't know if you're able to recoup those from customers quickly. Could you just kind of talk about that range, given the surprise we had today? Thank you very much.

Speaker 13

Yeah, Ken, this is Michael. I mean, I have to, you know, firmly reiterate that we don't provide guidance. And what I would say on a full year basis, the gross margin will be between 32 and 34 percent. You know, the gross margin in the quarter was in that range, granted at the low end of that range. The first quarter is always at the low end of the, you know, given the weakness that we saw in demand, again, the team did an excellent job of managing the costs that are directly variable. You know, the reality is, is that they can't control depreciation. They can't control, you know, vehicle insurance costs, and those things were major headwinds to gross margin in the quarter. So, you know, we haven't done it enough. You know, we have to just really, you know, give a shout out to the team because they're continuing to perform in what is, you know, a difficult operating environment. And quite frankly, you know, we continue to believe that they will do that through the rest of the year. And as a result, the gross margin will be in that 32 to 34 range.

Speaker 4

So given these, and really appreciate how you broke down, right, depreciation, insurance, distribution, manufacturing, inputs, Would you expect that if we see some degree of normal seasonality, 2Q from 1Q, that these elements would be accretive to margins then? I mean, as you pick up, right, you obviously just sell 100 and, you know, you sell sequentially in sales and it's expected you're going to rise. would most of those things be, would you get volume leverage essentially from that sales gains? Is that a logical conclusion given your positive on your product margin and your

Speaker 13

heavy commercial margins? Historically, yes. Our margins improve as we go into the seasonally stronger quarters. And the first quarter is seasonally from a volume perspective. And as a consequence the other cost appreciate that and if i can get one last question since you have such

Speaker 4

well with top build apparently going away qxo you know not doing conference calls you're the big provider of a good understanding of new home sales given your good market share why is it that your confidence in the census data is so bad i mean the publics don't respond to the census and, you know, they dominate the Southeast, obviously. That's one reason. But is there something more structural about the data that you see undermined or is it actually just, you know, more regional distortion that you're seeing? So the Midwest makes sense, the Southeast doesn't. Could you expand on that, given that we obviously have, we investors, look at that information historically, and you're saying it's not good. Thank you.

Speaker 13

Yeah, I mean, maybe I shouldn't have been so harsh, but I think on a month-to-month basis, we all know that that information gets heavily revised. And particularly when you saw the numbers in multifamily with the wide delta, I mean, that's not practical. It just doesn't make sense that something like that would happen. So you have to have less confidence in the actual numbers. Now, on a full-year basis or on a trailing LTM basis, is that data worthwhile, particularly the permit data? Yes, absolutely. Excuse me. But we just – obviously, we don't run our business based on what the Census Bureau reports. And, you know, we continue to, again, see moderate strength, I guess I should say. We feel good about, you know, where. But it also sounds like you're saying the entry level is where the pressure is

Speaker 4

not at the move up or higher in custom as well, correct?

Speaker 14

100%. Thank you.

Speaker 2

Our last question comes from the line of Colin Varen with Deutsche Bank. Please go ahead.

Colin Varen, Analyst — Deutsche Bank

Thanks for taking my question. You gave a lot of helpful color on the gross margin, but I just wanted to clarify, were any of the headwinds that you saw in the first quarter one time in nature, or do you expect to see any of the impacts from maybe mixed reversing?

Speaker 13

I mean, I think that the growth in the complementary products or when the complementary products at a better sales rate, if you will, than insulation, and when we say insulation, we mean fiberglass and spray foam, it definitely weighs on gross margin. The distribution and manufacturing business, which, as I mentioned previously, was a 40 basis points headwind to gross margin. It's good for EBITDA margins, but from a gross margin perspective, it definitely structurally, it's just the way that business is, does weigh on gross margins. And that business is performing, you know, it's relatively small, but it's performing extremely well, and we expect it to continue to perform well. But, again, on the gross margin side, you know, we feel confident about the 32 to 34 range on a full-year basis. I did want to get in just a couple of quick notes on the administrative side because I think it's important. I understand why everybody's focusing in on the gross margin. But, you know, in the quarter, medical insurance was up almost 40%, which was a 50 basis point headwind to overall margin. Facility costs were up 12%, which is about a 40 basis point headwind to overall margins. And liability insurance was up 35% in the quarter, which went in the quarter to margin. So, again, all of these costs that we've directly, and believe me, we're working on managing those, you know, on profitability. Great, that's a really helpful color, and you stole my second question.

Colin Varen, Analyst — Deutsche Bank

So I guess I'll just ask about your comment about the slower, just being slower to make up for the weather. I guess that was a little surprising just because it feels like there would probably be capacity in the market given the slower demand and then the builder cycle times being low. So I guess if you could just kind of expand on that, what's driving sort of your slower ability to make up for that weather, Edwin?

Speaker 13

I think it was just generally speaking slower to come back than it normally is. And, I mean, it could be builders just slowing down a bit. But I would say...

Speaker 14

Brut, I appreciate all the color.

Speaker 2

This now concludes our question and answer session. I would like to turn the floor back to Jeff Edwards for closing comments.

Jeffrey Edwards, Chairman

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

Speaker 2

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.