Installed Building Products, Inc. (IBP) Q3 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the Installed Building Products Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] I would now like to turn the conference over to your host, Jason Niswonger. Please go ahead, sir.

Good morning. We would like to thank you for joining us today for Installed Building Products third quarter 2015 earnings conference call. Earlier today we issued a press release on our financial results for the third quarter, which can be found in the Investor Relations section on our website at www.installedbuildingproducts.com. On today’s call, management’s prepared remarks and answers to your questions contain forward-looking statements within the meaning of the Federal Securities Laws. These forward-looking statements within the meaning of the Federal Securities Laws, including with respect to the demand for our services, expansion of our national footprint, our ability to capitalize on the new home construction recovery, our ability to strengthen our market position, our ability to pursue value enhancing acquisition, our ability to improve profitability, and expectations for demand for our services for the remainder of 2015. Forward-looking statements may generally be identified by the use of words such as anticipate, believe, expect, intend, plan, and will or in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties, because they relate to events and depend on circumstances that may or may not occur in the future. Any forward-looking statement made by management during this call is not a guarantee of future performance, and actual results may differ materially from those expressed in or suggested by the forward-looking statements as a result of various factors, including, without limitation, the factors discussed in the Risk Factors section of the Company's Annual Report on Form 10-K for the year ended December 31, 2014 as the same maybe updated from time to time in our subsequent filings with the Securities and Exchange Commission. Any forward-looking statement made by management on this call speaks only as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for the Company to predict these events or how they may affect it. The Company has no obligation, and does not intend, to update any forward-looking statements after the date hereof, except as required by federal securities laws. In addition, management uses certain non-GAAP performance measures on this call, such as adjusted EBITDA, adjusted net income from continuing operations, and adjusted gross profit excluding depreciation. You can find a reconciliation of such measures to the nearest GAAP equivalent in the company’s earnings release, which is available on our website. This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer; and Michael Miller, our Chief Financial Officer. I will now turn the call over to Jeff.

Thanks, Jason. And thank you everyone for joining us today to review our third quarter results. I will begin with a summary of our operating highlights, followed by an update on our markets. I will then turn the call over to Michael to review our quarterly results and capital position. After our prepared remarks, we will open up the call for your questions. Operating and financial results continued to gain momentum in the third quarter as we experienced another strong quarter. The favorable trends we are experiencing are a direct result of delivering on our growth oriented business strategy, improvements in the residential housing market, and the hard work of our local branch operations. Recent acquisitions had a significant impact on our revenue growth and we see this trend continuing as we look at our acquisition pipeline over the next 12 months. As always I would like to use this opportunity to thank all of our associates, whose hard work and dedication has contributed to Installed Building Products being recognized as an industry leader in the markets we serve. For the third quarter 2015, we increased our net revenues 29% to $182 million compared to $140 million last year, while our adjusted EBITDA increased 54% to $22 million. Given our third quarter revenue and earnings performance, we are well positioned to finish 2015 with strong financial results. Our business continues to be helped by a recovering housing industry, which we believe has significant runway for continued improvement. According to the US Census Bureau's historical data in the October 2015 Blue Chip consensus forecast for housing starts, total US housing starts are forecasted to increase at a 13% compound annual growth rate from 2014 to 2016. Total US housing starts increased 13% during the 2015 third quarter, and are up 12% in 2015 through September 30. We continue to expect residential end markets to benefit from various factors including improving employment, rising household formation and historically low mortgage interest rates. Through the first nine months of the year, our core single family same branch sales growth of 12% outpaced the market growth of US single family completions of approximately 4% over the same period. We continue to outperform the market, which speaks to our customer loyalty and leading market positions in some of the strongest US housing markets. We also continue to benefit from our national scale, longstanding supplier relationships, and a broad customer base that includes production and custom home builders, multi-family commercial contractors and homeowners. As we have stated previously, we believe our financial model can produce incremental EBITDA margins of 20% to 25%. In fact, the sequential incremental EBITDA margin from the second quarter of 2015 to the third quarter of 2015 was 22%. Our incremental EBITDA margin from the third quarter of 2014 to the third quarter of 2015 was 19%, which reflects the impact of the mix of organic and acquired revenue. Organic revenues have a higher incremental EBITDA margin as a result of the leverage we were able to achieve on administrative expenses. While the EBITDA margin contribution on acquired revenue is typically lower than the incremental organic EBITDA margin contribution. Therefore a higher contribution of revenues from acquisitions can temporarily reduce our incremental EBITDA margin. This trend is typical when acquired revenues are greater than organic revenues as we experienced in the third quarter. Looking at this on a year-to-date basis, our incremental adjusted EBITDA margin on organic revenues was approximately 24% compared to approximately 16% from acquired revenues, which produced a consolidated incremental adjusted EBITDA margin of approximately 19% through September 30, 2015. Acquisitions during this period contributed approximately $59 million to revenue growth compared to $39 million from same branch sales growth. For the same period last year our incremental EBITDA margin on organic revenues was approximately 22% compared to approximately 12% from acquired revenues, which produced a consolidated incremental EBITDA margin of 21%. We are pleased with the improvement in incremental EBITDA margins from both organic and acquired revenues we achieved so far in 2015. We have completed six acquisitions so far in 2015 that represent $85 million in annualized revenue. Acquisitions have contributed significantly to growth in 2015 as revenues from acquisitions represent approximately 70% of our third quarter sales growth and 60% of our nine month sales growth. With over 100 successful acquisitions since our inception, we have the infrastructure in place to identify candidates, successfully integrate newly acquired companies, and immediately achieve operating synergies through our scale and national buying power. During the third quarter 2015, we completed two acquisitions, EcoLogic Energy Solutions, a Connecticut-based insulation installer with trailing twelve month revenues ending April 30, 2015 of approximately $6 million, and Eastern Contractor Services, a New Jersey and Texas-based insulation installer, with trailing twelve month revenues ending July 31, 2015 of approximately $23 million. We remain disciplined in our acquisition strategy and have a strong pipeline of potential deals over the next 12 months. Our growth oriented business strategy continues to drive strong financial results. With housing continuing to demonstrate improving trends, we are excited about our opportunities for the remainder of 2015 and beyond. I will now turn the call over to Michael to provide more details on our third quarter results.

Thank you Jeff, and good morning everyone. We continue to make excellent progress in growing our revenue and improving our profitability. For the third quarter of 2015, our net revenues increased 29.3% to $181.6 million compared to $140.5 million in the prior year. The increase in net revenue included revenue from acquisitions of $29.4 million, while same branch growth was $11.7 million, which was attributable to an increase in the volume of completed jobs, favorable product mix, market pricing variations, and installation volumes driven by building code requirement. Our same brand single family sales growth of 8.9% exceeded the 3.6% increase in US single family housing completions during the third quarter reflecting strong market performance by our local branches and our well-positioned geographic footprint. Year-to-date, our same branch single family sales growth was 12.3% compared to US single family housing completions of 4.4%. We believe gross margin excluding depreciation more accurately reflects the progress we are making in our core operation. And for the third quarter of 2015 gross margin before depreciation expense expanded 150 basis points to 31.8% from 30.3% in the prior year quarter. This improvement was primarily due to labor productivity improvements, operating efficiency, pricing, and a more favorable customer and product mix than the prior year quarter. On a GAAP basis, third quarter 2015 gross margin increased 120 basis points to 29.4% compared to 28.2% in the prior year quarter. Selling and administrative expenses as a percent of net revenue was 19.9% for the third quarter compared to 20% for the 2014 period. On a sequential basis, despite a 13.7% increase in revenues, third quarter administrative expenses only increased 5.4%, and this increase was attributable predominantly to the administrative expenses of acquired companies. As a percentage of revenues, administrative expenses declined from 15.4% in the second quarter to 14.2% in the third quarter. As we stated last quarter, it is important to note that as our acquisition strategy continues and the volume of total acquired business operations become larger, we will incur additional non-cash amortization expenses. For example, in the third quarter we recorded $1.8 million of amortization expense, a 162% increase over the prior year period. This non-cash adjustment impacts net income, which is why we believe adjusted EBITDA is the most useful measure of profitability. For the third quarter of 2015, our adjusted EBITDA improved to $22.4 million representing an increase of 53.9% from $14.6 million in the prior year. As a percent of net revenue, our adjusted EBITDA improved to 12.4% in the quarter representing a 200 basis points increase from 10.4% in the prior year quarter. We are pleased with the successful steps we have taken to enhance our operating efficiency and significantly expand our adjusted EBITDA margin. For the third quarter of 2015, our effective tax rate from continuing operations was 33.9% compared to 36.9% in the prior year quarter. As we noted in previous quarterly conference calls, we typically experienced a higher effective tax rate during the first half due to the tax valuations related to losses in certain business entities, which normalizes in subsequent quarters. We continue to expect a full year effective tax rate of 36% to 38%. For the third quarter of 2015, adjusted net income from continuing operations increased 57.2% to $10 million or $0.32 per diluted share compared to $6.3 million or $0.20 per diluted share in the prior year. On a GAAP basis for the third quarter of 2015, net income was $9.5 million or $0.30 per diluted share compared to $6.2 million or $0.19 per diluted share. Now moving onto our balance sheet and cash flow. Through September 30, 2015, we generated $29.1 million in cash flow from operation, an increase of $14.4 million, or nearly 100% from the prior year period. We continue to use this cash flow to fund acquisitions and reinvest in our business, while also repurchasing 315,000 shares of our common stock in the first quarter. Capital expenditures through September 30, 2015 were $20 million while the total incurred capital leases were $2.8 million. As expected, capital expenditures and incurred capital leases have increased consistently with the year-over-year increase in our revenue. At the end of the third quarter, we had total cash of $5.3 million. In April this year, we entered into a new five year, $200 million senior secured credit facility with an accordion feature that allows the company to increase the borrowing capacity to $225 million subject to certain approvals. We currently have nothing drawn on our $100 million revolver and $15 million capacity under our delayed draw term loan providing us considerable flexibility as we continue to perform on our growth strategy. With that, I will now turn the call back to Jeff for closing remarks.

Thanks Michael. With approximately two months remaining in the year, we are very optimistic about our prospects. We believe the fourth quarter will show further dramatic year-over-year improvements to revenues and profitability. We have a robust pipeline of attractive acquisition opportunities and our financial model and capital position provide us with plenty of liquidity to fund our acquisition strategy. With the strong infrastructure and management team in place, we are well positioned for long-term profitable growth. Operator, please open up the call for questions now?

Thank you. [Operator Instructions] Our first question comes from Scott Rednor with Zelman & Associates. Please proceed.

Hi, Michael and Jeff, good morning.

Good morning Scott.

I was hoping you could clarify on the incremental EBITDA guidance, I think previously Michael you had said that the goal is to be in that 20% to 25% range on an annual basis, and that to get to the higher end you needed acquisitions given that you got the immediate benefit when you flow those through the model. So I was just hoping that you could clarify that with the comments today that this quarter the acquisitions were more dilutive to the year-over-year incremental?

Yes, and it is - I am sorry if that is the way that it came out Scott. But really what we are trying to – particularly within the quarter is trying to clarify for people was that incremental organic revenue had the higher incremental EBITDA margin contribution than typically acquisitions will because they are going to come in as they are sort of [Indiscernible] with our margins. So if you look at year-to-date where the incremental acquired EBITDA percentage of 16% is fundamentally a very good margin, and is, from our perspective very clear indication of our ability to continue to get towards that mid-teens EBITDA margin. Now on the organic revenue, and going back to that 20% to 25% the incremental EBITDA margin on our organic sales growth year-to-date is now at about 23.7%, 24%, the high-end of that 20% to 25% range. So really where acquisitions help us is not so much on the incremental EBITDA margins, but getting to on an accelerated basis the mid-teens EBITDA margins. So we feel very good about the progress we are making and the progress that acquisitions add to us getting to that mid-teens EBITDA margin. And if you look at just on a gross margin basis in terms of improvement in the business, if you look at the third quarter [2013] gross margin compared to the fourth quarter 2015, I mean, we have improved gross margins over 400 basis points over that period, and that is a combination of us making sure that we have the right customer mix and acquisitions, which are now contributing significantly to that gross margin improvement as well.

If we look at 2Q, is there anything you need because the same dynamic that you are highlighting didn't show up last quarter?

Because the revenue contribution, revenue from acquisitions wasn’t as great as it is in the third quarter. So in the third quarter of ’15 – of the increase in revenue, 70% of it, a little over 70% of it was acquired revenue versus on an organic basis it was 30%. So if you are looking at that this is the heaviest quarter that we have had from an acquisition perspective in terms of its contribution to revenue growth.

And – thank you for that and then just shifting gears real quick on the sales line just organically, clearly we are hearing a lot about extending construction cycles, builders having difficulty closing homes, just curious to kind of what you saw progress through the quarter and what you are hearing from your customers in terms of planning for 4Q?

Yes, I mean, we definitely feel as if and from what we are hearing and just looking at the – both the local and national statistics, there has definitely been an increase in the lag even from say last year, so that whether it's generally speaking a longer let lead time during the third quarter because it is the busy quarter from a construction perspective. It has increased probably anywhere between 8% to 10% in terms of number of days we believe to complete a house, just because it's some of the things that happen, weather wise and for demand. I mean, if you look at completion from relative to start, there has been an increase in the growth rate of or decrease in the rate of completions relative to start. So, for the first six months of the year, stocks increased approximately 14% while completions only increased 6%. So, what we believe for us and for our business and starts are a good leading indicator of future demand, we feel very good that there is still a lot of pent up demand out there with the high growth and starts that will do the installations for coming fourth quarter and first quarter and future quarters, in the rest of the year and the beginning of next year. So, we feel very good about sort of where the market is, even though there has been a bit of an extension if you will for time to complete the house. Interestingly for us and labor is an issue that a lot of people talk about and as we talked about in many instances, while our average installer is getting paid more our direct labor percentages or the installer labor as a percentage of the cost of the job is the lowest it has in the third quarter it's the lowest it's been since the recovery has begun.

And we feel good about where we're positioned from a labor perspective. This is Jeff Edwards. But we feel great really about where we're positioned from a labor perspective. And as we've said before, the lags not coming from our inability to get the work done.

Great. I appreciate all the color.

Sure.

Thank you. Our next question comes from Nishu Sood with Deutsche Bank. Please proceed.

Thanks. It's actually Rob Hansen and not Sood Nishu.

Hi, Rob.

Hey, guys. If you think about your pure volume growth and the comments you made kind of in the release that of your same branch revenue, with was 8.4%, right. 40% came from completions growth, right. So, is that should be interpreted that as that the volumes were up 3.5% and how does this look compared to prior quarters [indiscernible] and if so, what are your [indiscernible] and why what cause it?

Yes. We feel very good at the relationship between sort of our same brands for organic sales growth relative to the market growth. Because if you look at it in the context, sort of the full year or year-to-date basically, the volume growth has been about 48.5% or about we will call a 50%. And our same brand single family sales growth has been about a little bit over a 12%, while single family completions have grown a little bit over a 4%. So, we feel good about the delta between sort of volume, sort of completions growth and volume growth in the business because we would much rather get price mix and customer mix, improving on the organic side extension volume. All right. Because it's more profitable for us to have an average higher job price and a better customer mix than to just go after volume. And as we've said multiple times, I mean, we're not going after just volume growth, what we're going after is good organic growth as well as acquisition growth. So, we feel good about where we are relative to the market. And as I said in the previous comment, we feel really good give in sort of the pent up demand that the stores indicate, will happen in the remaining quarter of the year and then also in the beginning of next year.

Got it. And then just on the gross margin, right, I think the level this quarter excluding depreciation 31.8%, looks like it was pretty much your highest level kind of end of cycle?

Yes.

How much of that is mixed right, and then as you get this single family growth kind of going forward, right, I think your mix probably changed, right. Though, is this kind of 31% plus kind of level, is that sustainable going forward or is that going to be a little bit of a mixed drag?

As anything we believe that the mix change more towards single family, helps improve the gross margins, because generally speaking, we're going to have slightly higher gross margin on single family work over multifamily work. So, we believe that the gross margin obviously it will change quarter-to-quarter and as you know, the first and second quarters tend to be our weaker quarters from a profitability perspective, but we believe not only is it sustainable but we're going to continue to see improvement as we go through the cycle. And the mix improves from our perspective more towards single family and away from multi family.

All right. Thanks, guys. I'll get back in the queue.

Thanks.

Thank you. Our next question comes from Susan Maklari with UBS. Please proceed.

Hi. This is actually Ben Miller on for Sue.

Hi, Ben. Okay.

The SG&A was a little bit higher than what we had expected it to be. Could you maybe talk about what the drivers were in this? This sound more of a near term thing due to the acquisitions this quarter or is it more structural? How should we think about that?

Yes. Just highlighted in or as we highlighted in the script. I mean, we found those important to highlight that there basically G&A was flat from the second quarter to the third quarter, excluding acquisition. So, your question, yes, I mean, when we acquire companies, they bring in G&A, but the kind of core business or the existing business, the organic business, we are controlling cost within that business and as I said G&A was flat from the second quarter to the third quarter despite the fact that revenues increased almost 14%.

Okay, great. And then maybe could you walk us through your geographies and what are you seeing on the local level, are there any areas of your strength or weakness that you are seeing?

Certainly, there are variations from kind of market to market. But if you think of it in terms of just the Census Bureau regions, so and we are as we've talked before we have a higher representation in the Census Bureau regions in the mid-West and the North East than we do in the South and the West. But the business is, as we continue to do acquisitions, it's getting more balanced between the four Census Bureau regions. But we saw 20% plus growth in the quarter in every single one of the Census Bureau regions. So, our growth really is balanced within the regions. We did see sort of more outsized growth within the West because we did a significant acquisition in the first quarter of the year in the West, but we feel very good about sort of our balanced portfolio and the geographic dispersion that we have and the opportunity the acquisitions create to get into new geographies.

Are there any particular geographies that you're looking at that you -– other are in and want to get in to or would like to get larger in?

This is Jeff we still mentioned this before but are underrepresented in many markets phenomenally out West and maybe more particularly in the South West United States. But again, also there is plenty of other metropolitan areas that appear at least in map and things that we publish that shows coverage where we're still under represented in some of the major metropolitan areas too. So, they are still on target list. And in addition to that, predominately or a lot of times we've led with installation but we continue to see a lot of opportunities in even other products that we install in some cases even other different segments of the market where we participate too.

Okay, great. Thank you.

Thank you. Our next question comes from Robert Wetenhall with RBC Capital. Please proceed.

Hey, good morning. How is everybody?

Very great, Rob. Thank you. How are you?

Good, thanks. Hey, I just wanted to get kind of like a mark to market what you're seeing in terms of demand trends for October and you guys, I like your same store sales, it's a really good number 8% versus but it [indiscernible] versus 10% and we have got a couple of investor questions this morning like hey you have 10% same store sales growth second quarter and that's down to 8% and I'm just trying to understand and this is a function of timing or also kind of like slower growth in the quarter and how does that work going into October?

Yes, that's good question. It really is a function of the market. So, if you look at the second quarter, our same brand sales growth of 10% was compared to single family completions growth of about 9% or 8.7%, whereas in the third quarter this single the same brand sales growth of 8.4% compared to single family completions growth at 3.6%. So, we actually in the quarter, grew our same brand sales at a higher delta or more positive delta to the actual market growth than we did in the second quarter. So, it really as we look at it is completely a function of the market opportunity. And as I was saying earlier given where stocks are relative to completion, we think that boats' really well for the first part of your question, demand through the fourth quarter and the first quarter.

And in October.

Yes. We feel as Jeff said in with basically two months left to go, so with October nearly under our belt, we feel very good about --

Getting strong close to the end of the year.

Yes.

And how is October?

We feel very good about the rest of the year.

I am just trying to say your same store sales in October like more towards the 8% or the 10%?

Yes, since we haven't really, we've chosen not to give guidance. I guess we prefer not to give a specific number there, other than the same we feel very good about the rest of the year.

Got it.

Typically October, if historically speaking is one of our strongest month.

Both in terms of the day count in a lot of years and also in terms of volume of business that's out there.

Yes. I mean September and October usually are the best.

Right.

Cool, got that. Back to that incremental EBITDA margin. If I'm understanding you right, you got all the acquired revenues in and at the start of it that's less profitable and as you rationalize cost and you get buy synergies you get more efficient and increased profitability. So, is it kind of like this is strictly an incremental margin that reflects your mix and then you're going to kind of like it's suppressed right now but are you saying or suggesting that it can go back up towards kind of that 20% to 25% range once you cycle through the integration?

I mean, ultimately, acquisition become us after some period of time and so ultimately if you put any distance between when we make an acquisition immediately and then in the future we're not in any way backing off of what we said is a 20% to 25% overall incremental EBITDA contribution margin which after a period of time includes all acquisition. It's just the make-up of the way they come in the near term as Michael pointed out, I guess in more detail, so did I, that differentiate between early acquired operations in those that have been in the house much longer.

Yes. And it's really, Rob, it's the difference between organic revenue and existing revenues. So, when we do an acquisition that growth is not incremental, the revenue growth is not incremental, it's what it comes in that and when you think about it what we were trying to communicate year-to-date that incremental margin. So, from acquisitions was about 15% and if you compare that to our year-to-date adjusted EBITDA margin of about 10% that means the acquisition their kind of standalone EBITDA margin is coming in 600 basis points above our standalone EBITDA margin. Which is what we were saying earlier, which is why we believe it's going to get us to that mid-teens EBITDA margin the acquisition strategy, we get it for that mid-teens EBITDA margin even faster than the recovery would normally provide. And then if you look at the incremental sales or organic sales growth the incremental EBITDA margin on that business came in at about 24% which is at the high end of that range that we've been giving a 20% to 25%. So, we feel very strongly about the positive impact both of the incremental revenue that we're seeing and also acquisitions. We wouldn't really expect the acquisitions to come in on a [200] [Ph] basis at 20% to 25% EBITDA margin because then that would say that the business should be running at 20% to 25%. Now, not saying we can't get there but then the acquisitions getting in and coming in at 16% and they are sort of non-organic revenue growth, we think it's pretty impressive.

Yes, that's very helpful; it makes a lot of sense what you are saying. Follow-up question, you guys when you were marketing the IPO talked about 30 million to 40 million a year of acquired revenues, you are well ahead this. That's great, you're executing on the M&A strategy. How should we think about like 2016 and just the M&A pipeline what you're seeing and your ability to sustain growth? Thanks, and good luck.

This is Jeff. We feel as we stated but still very strongly about both the number of potential acquisition targets out there and the quality of the fields that we are able to look at. So, we're very busy on that front field, very positive about the deals we have got in front of us as I mentioned, at least 12 months. There is a lot activity out there for us and we're excited about this in any way it's been in our way to continue to perform on that strategy.

And as we said on multiple occasion, the fact that the housing recovery particularly on the single family side is taking a little bit longer to come near provision. We think it's a great positive for us in terms of our ability to do acquisition now and get them into the pipeline or into the business and integrate it before the recovery is in full swing. If you look at LTM single family completion there is still less than 650,000. So, call it 50% to 60% of kind of mid cycle market opportunity. So, we think now is the time to do as many acquisitions as possible because it really does make sense for us. We have the capital position and we have the pipeline to do it.

Makes sense. Good luck, thank you.

Great, thanks.

Thanks.

Thank you. Our next question comes from Matt McCall BB&T Capital Markets. Please proceed.

Thank you. Good morning, guys.

Good morning.

Good morning.

So, back to the same branch trends. I want to ask it a different way, maybe I can understand it. So, 8% this quarter, 10% last quarter, you compared that to the completion. So, if I did a quick math, it looks like you had a delta of about almost 4 points versus completion this quarter and only 1 point last quarter. So, you talked about price, you talked about mix. I guess your share gains in general, volume per job, can you just tell me why that the job if I'm looking at that correctly and then how should we look at '16 or Q4 '15 how do you want to address it from that perspective?

Honestly, we think that the best way to sort of look at the kind of same branch sales growth relative to completions because the timing of completions is not necessarily perfect. It's what we believe the closest metric to measure same branch sales growth. So, we think it's better to look at it over time versus then just looking at it at a quarter. So, if you look at it on a year-to-date basis, our same branch sales growth our single family same branch sales growth is about 12.3% and single family completions growth they are about 4.4%. So, that's a delta of about 800 basis points. And we feel that that's again a good number and a good balance that we're having from a kind of volume and mix perspective. And while we're not saying that trend is necessarily going to continue. It has been a consistent trend that the business has seen over the past couple of years.

And is there anything from a pricing or product mix or big builders giving way to custom builders or more single family versus multi-family that will help that trend or hurt that trend as we look out into future quarters?

Yes, that's great question. And the trend that we believe and we certainly saw it in the third quarter is higher growth rate from and we saw a good growth rate from production builders but we saw a higher growth rate from non-production builders. And the average stock price for non-production builders because they tend to build the bigger home is higher. So, as a consequence we see that trend continuing and that a continuation of that trend improves that delta of organic sales growth relative to completions growth.

Okay. And then one last one. Price cost, I guess the first part of it is, did you recognize the full purchasing synergy to all the acquisitions and the majority of acquisitions, is there any incremental opportunity from a synergistic perspective as we move forward from the deals already completed? And then can you talk about the overall price cost environment and how we should think about that impact on margin?

There is always room to improve on buying on the one end, we'd say that categorically probably across the board. But in general though we favor an increasing price environment, we said that before. So, it's not that we want to buy as well as we possibly can, but the fact that the market is expanding and we're able to go out and get price increases when it's justified; is really a positive for us.

Yes. And we have fully realized other than continuing to improve the business we fully realize the synergies that we've expected within the acquisition and we think that's reflected in the fact that their EBITDA contribution is that 600 basis points higher than the overall company. So, we feel very good about the acquisition. They are continuing to build a new form and our ability to continue to do those acquisitions.

Okay. Thank you, guys.

Thank you. Our next question comes from Keith Hughes with SunTrust. Please proceed.

Thank you. Given this structure and life, we hear a lot of different areas were covered and particularly given your North West over mid-West focus, realizing this, could this take several quarters give we're heading into when or and whether the things like that or would you realize that a little bit quicker?

You mean, in terms of the delay that it would get further pushed out?

Yes. It's because of the weather in the seasonal issues what I was concerned about. Would like your input on that.

Honestly, and always knows in the North East and the mid-West that be winter, so we don't, obviously we can't predict the weather but we don't expect to see any difference other than the typical seasonality that we see in the business in past quarters for the first and second quarter. So, no, we don't see anything that's kind of pushing us that way. And as I said earlier, given the acquisition our balance between sort of the South and West North East and mid-West it's definitely heading more towards the Southern one.

Okay. And as you talked to your builder customers, what trade are they having the hardest time getting labor for that's causing these bottlenecks?

I think that they, I've heard pretty consistently I guess that they have struggled in some cases with maintenance and also with [indiscernible].

Okay.

That's partly though where those trades fall in terms of the construction cycle of the home too, right.

Yes.

So, ultimately overtime, I suppose that will change and move around other trades but -- I've heard as much of it is anything.

Yes.

And I think we all expect it to manifest itself at some point too in some of the license trades too. So, let's see.

Okay. And final question, kind of building on the last discussion. There was a price increase set for installation for roughly October. It seems like it's been pushed out into early next year. Can you give sort of your feel why that happened and or what's the appetite for further increases in 2016?

Well, I think relatively common knowledge. I suppose that typically when there is an increase in the installation manufacturing business, it takes obviously a lot of rigor from all manufacturers in regards to that. In a lot of times the timing is it's not science, it's sometimes more hard I guess than that and I am not sure the market was completely ready for it in October. I think it would be again I am not I can't fully represent the way the manufacturers would feel, but fact that they dropped back in January probably reflected for the fact that they at least collectively did feel it's the right timing. Logically speaking, it's easier I think for a lot of us that we're feeling with the price increase in beginning of the year, just from the calendar perspective, and in kind of what builders are trying to get done in the fourth quarter. So, I think that may have had as much to do with it almost with anything. But clearly there is the pressure for all of us to continue to try to improve margins and then they feel obviously no different than that. And again, like I've said all along though, is that we are happy to be in the rising price environment, excited about the amount of business there is out there for us to work on and so feel good about that, that part of the business.

Okay. Thank you.

Thank you. Our next question comes from Ken Zener with KeyBanc. Please proceed.

Hi, good morning. This is actually Adam Lawrence for Ken. So, you guys mentioned some selectivity in organic growth that is not getting additional volume while given the higher margins. And I am just kind of wondering as you guys grow margins year-over-year, do you find that you have to be more selective in the business that you take on, let's say looking back a year or does the more favorable pricing environment that you guys have sort of offset that. Thanks.

It's good question. It's a combination of things that we think is going to help our ability to continue to increase kind of gross margin and adjusted EBITDA margin. But specifically on the gross margin side, it will be the mix to a more normalized market. So, higher mix is single family and also a higher mix of non-production builders which that we're seeing in the business. And we believe that that trend is likely to continue and that's positive from an average job price for us and as a consequence our growth rate is relative to the overall market growth and our ability to sustain and increase gross margin.

Okay. Our next question is from [indiscernible]. Please proceed.

Hey, good morning.

Good morning.

Michael, and forgive me if you guys have touched on this, I dropped off the call just a second. But the negative impact to the incrementals from acquisition, how long does this usually this negative impact usually draw out? I know you said it's definitely temporary and that looks like has been the case in the past but what’s the general time frame there that we should expect in a time period where you guys are pretty active in M&A, the negative impact to draw out?

Yes, we definitely don't think of it as a negative impact. We think of it as a very positive impact because again when you think about the incremental EBITDA margin on the acquisitions being a 16%. So, a clear 600 basis points above the overall company. We see that it's very positive. It's in a quarter though where you have a higher mix of revenue growth coming from acquisition that it brings down the average of the incremental EBITDA margin. But again looking at the incremental EBITDA margin from the organic business at nearly 24%, we feel very good about that EBITDA margin contribution. So, from our perspective there is nothing negative about it. It's all positive because the acquisitions are coming at such a high EBITDA margin contribution and the organic revenue is coming in again at the top end of that 20% to 25% range.

Thank you. I would like to turn the floor back over to Jeffrey Edwards for closing comments.

I just like to thank everyone for all of your questions and I am looking forward to our next quarterly update and conversation. Thanks again.

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