Installed Building Products, Inc. (IBP) Q4 2016 Earnings Report, Transcript and Summary

Greetings, and welcome to the Installed Building Products' Fourth Quarter 2016 Investor Call. At this time, all participants are in a listen-only-mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jason Niswonger, Senior Vice President Finance and Investor Relations for Installed Building Products. Thank you. You may begin.

Good morning, and welcome to Installed Building Products' fourth quarter 2016 earnings conference call. Earlier today, we issued a press release on our financial results for the fourth quarter and full year, which can be found in the Investor Relations section on our Web site. On today's call management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include 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 acquisitions, our ability to improve profitability, expansion of our commercial construction business and expectations for demand for our services in 2017. Forward-looking statements may generally be identified by the use of words such as anticipate, believes, expect, intend, planned and will or in each case their negative or other variations or comparable terminology. These forward-looking statements include all matter that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties that speak favorably to events and depend on circumstances that may or may not occur in the future. Any forward-looking statements 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 section of the Company's Annual Report on Form 10-K for the year ended December 31, 2015, as the same maybe updated from time-to-time in subsequent filings with the Securities and Exchange Commission. Any forward-looking statements 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 their effect. 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 the non-GAAP performance measures, adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted share on this call. You can find a reconciliation of such measures to the nearest GAAP equivalent in the Company’s earnings release, which is available on our Web site. 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. First I would like to say good morning to everyone joining us on today’s call. And that I am happy to have the opportunity to talk to all of you about our 2016 fourth quarter and full-year results. As usual, I will start today’s call with some highlights and then turn the call over to Michael, who will discuss our results in more detail before we take your questions. IBP achieved many milestones during 2016, including record revenues and earnings, the addition of nearly $80 million in acquired revenues and the announcement of the acquisition of Alpha Insulation and Waterproofing, the largest acquisition we’ve made to-date. In addition, during the year we generated a record $73 million of operating cash flow, which we continue to use by investing in our business and funding our acquisitions. For the 2016 full-year, we increased our net revenues 30% to a record $863 million compared to $663 million last year on a market opportunity or completions, which increased only 10%. Our net revenue performance was driven by strong organic growth across all of our end markets, and the contribution of our recent acquisitions. The increase in revenues combined with operating efficiencies translated into significantly higher earnings. For 2016, adjusted EBITDA increased 47% to a record $105 million, and diluted adjusted net income per share was up 51% to a $1.54 per diluted share. Impressively, our first filing as the public company reported our 2013 full-year financial results of $432 million and adjusted EBITDA of $25.5 million. Since then, we have doubled revenues and quadrupled adjusted EBITDA. I am extremely pleased with the financial and operating accomplishments we have achieved and believe IBP is well positioned for continued success in the future. So, let's look at what's driving our business today and why we are optimistic for continued expansion in 2017 and beyond. Solid organic growth, the contribution of our recent acquisitions and improvements in the rate of single-family housing completions, continued to favorably influence revenues. During 2016, single family same branch sales increased nearly 13.5% compared to growth in total U.S. single family completions of 14%. Throughout 2016, our branches benefitted from very strong model family demand, resulting in the same branch model family sales growth of over 38% for the year. IBP’s total residential same branch sales increased 15.3% for 2016 compared to total completions growth of 9.5%. During the 2016 fourth quarter, total U.S. housing starts increased 11.7%. This was primarily due to 12.5% increase in single family starts, while model family starts increased 11.3%. In many geographies with IBP locations model family construction remains robust and drove significant increases in model family revenues, while new model family constructions represented approximately 7% of IBPs revenues in the fourth quarter and for the year. We expect residential end-markets to improve towards stabilization of approximately 1.5 million total housing starts over the next several years. IBP’s acquisition strategy continues to supplement our organic market growth and 2016 was another robust year of acquisition growth. During the year, we completed nine acquisitions, which represented approximately $80 million of trailing 12 month revenues at the time of acquisition. This includes three acquisitions in the fourth quarter comprised of a Virginia based residential and commercial installation installer and Indiana based garage door installer, and an Indiana shower, shelving and mirror installer. These three acquisitions completed in the 2016 fourth quarter, represent approximately $26 million of combined trailing twelve months revenues. Of the $42 million increase in fourth quarter revenues, 52% was from acquired operations. For the year, nearly $97 million or 48% of the $200 million are increase in revenue came from acquisitions. We continue to see attractive acquisition opportunities and our acquisition strategy remains a key business driver. I'm particularly excited with the January 2017 closing of the Alpha Insulation and Water Proofing acquisition. Alpha represents a significant catalyst for us by stemming our presence with the large commercial construction market in diversifying our sales. Integration is going well and we expect the transaction to be immediately accretive to earnings. Alpha's project backlog at December 31, 2016 was approximately $84 million. We expect backlog to build throughout 2017, especially as we offer installation services beyond Alpha's existing footprint. We also expect our core residential installation business to benefit from Alpha's relationship with commercial contractors, developing mixed-use projects. With our diverse product offerings and nation footprint, we believe we can expand further into these mixed-use projects and expect incremental sales opportunities will enhance IBP's core business opportunity. With Alpha’s larger commercial focus and infrastructure in place, our access to commercial acquisition opportunities has increased. We are actively pursuing additional commercial acquisitions and expect these opportunities to enhance our acquisition strategy. However, our primary focus continues to be the new residential end market. In addition to Alpha’s closing, in January, we acquired Arctic Express LLC. Arctic is an insulation installer located in Corpus Christi, Texas with $1.6 million in trailing 12 month sales. Finally, I would like to use this opportunity to share with you a little about our employee initiatives in 2017. I believe the reason for our success is the dedication and hard work of each one of our employee. Starting as a family-owned business, it was important to me that we offer a full host of benefits, supporting our employees and their families. As the Company has grown through the acquisition of other family-owned business, I'm proud that we’ve been able to maintain that culture, but I believe we can do more. During the year, we’ll be offering a financial wellness program to our employees. The program is designed to help with financial education, planning and savings. It is an unfortunate fact that nearly 50% of Americans do not have enough of money set aside to pay $2,000 unexpected expense, and 27% of Americans have no savings whatsoever. I believe that this program will help prepare our employees so these unexpected events are not such a significant burden for them, and hopefully helping them live a better work and professional life. Believe it or not, personal financial issues are the number one cause of work place stress. As the strong believer and supporter of this program as the right thing to do for our people, I’ve tasked the executive team to develop a program to provide an incentive for participation in the wellness program, which I will personally fund. IBP would not be successful without our people, and this is the way for me to show my appreciation. I am extremely proud of 2016’s record results and I am encouraged with the direction we are headed. Our organic growth, combined with Alpha’s revenues and additional acquisition opportunities, positions IBP for a strong 2017. In addition, we expect profitability will improve through our focus on driving core operating profits. I’d like to thank our IBP families for their dedication and helping us achieve these record results, and the continued support of our customers and shareholders. With that, I would like to now turn the call over to Mike who will provide more details on our fourth quarter results.

Thank you, Jeff and good morning everyone. We continue to make significant progress, growing revenue and improving profitability. For the full year, our net sales increased 30.2% to $863 million compared to $653 million in the prior year, which was mainly driven by higher volume, price mix and our 2016 acquisition. For the fourth quarter, our revenue increased 22.2% to $234 million. Our same branch sales improved 10.6% due to an increase in volume in all of our end markets and favorable improvements in price and mix. Our same branch single family sales growth was 7.7% and our total new residential construction same branch sales increased 9.9%. Additionally, we saw strong growth in the commercial and repair and remodel market, which increased the combined 13.7% on a same branch basis. Fourth quarter 2016 gross margin increased 80 basis points to 29.2% compared to 28.4% in the prior year quarter which was primarily due to operating efficiencies and a more favorable customer and product mix than the comparable period. For the 2016 fourth quarter, selling and administrative expenses, as a percent of net revenue, was 19.8% compared to 19.4% for the 2015 period. As a percentage of revenues, administrative expenses were 14% in the fourth quarter and flat from the same period last year due to higher cost to support our organic and acquisition growth. We also incurred increased public company compliance costs to primarily associated with the transition to a large accelerated filer. We expect general and administrative expenses, as a percent of net revenue, to improve overtime as we further scale our operations and benefit from higher sales. As we have stated in previous earnings calls, it's important to note that as our acquisition strategy continues and as the volume of total acquired business operations become larger, we will incur additional non-cash amortization expense. In the fourth quarter, we recorded $3 million of amortization expense, a 42% 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 full year, we improved our adjusted EBITDA to a record $105 million, representing an increase of 47.3% from $71 million in the prior year, a 140 basis point increase in adjusted EBITDA margin from 10.7% to 12.1%. For the fourth quarter of 2016 adjusted EBITDA improved to $30 million, representing an increase of 26.9% from $23.5 million in the prior year. As a percent of net revenue, our adjusted EBITDA improved to 12.7% in the fourth quarter, representing 40 basis point improvements from the prior year quarter. We are pleased with the successful steps we have taken to enhance our operating efficiencies and significantly increase our adjusted EBITDA margin. We continue to believe our financial model can produce full year incremental adjusted EBITDA margins from 20% to 25%. However, as we have stated on previous calls, the mix for timing of organic and acquired revenue impacts our combined incremental adjusted EBITDA margin and a higher contribution of revenues from acquisitions can temporarily reduce our overall incremental adjusted EBITDA margin. In the quarter, our combined incremental adjusted EBITDA margin was approximately 14.9%, while on our same branch sales growth, our incremental adjusted EBITDA margin was 20% for the quarter. For the full year, combined incremental adjusted EBITDA margin was 16.8%, while on a same branch basis our incremental adjusted EBITDA margin was 22.2%. With the addition of more commercial revenues, increasing same branch sales and as our acquisition growth stabilizes, we believe we can achieve adjusted EBITDA margins in the mid-teens as the housing market approaches stabilization. To make the financial presentation more consistent with other public building products companies, IBP has decided to include an add-back to adjusted net income for non-cash amortization expenses related to acquisitions. The addition of this add-back in the fourth quarter increased diluted adjusted net income per share by $0.06. As a result of this change, previously reported adjusted net income from prior periods will need to take into consideration in the amortization expense. We have provided an update as an appendix in our presentation that is available in our Web site. On a GAAP basis for the full year, we had net income of $38 million or $1.23 per diluted share compared to $26.5 million or $0.85 per diluted share in the prior year. For the full year, adjusted net income was $48 million or $1.54 per diluted share compared to $32 million or $1.02 per diluted share in the prior year. On a GAAP basis, fourth quarter net income was $11 million or $0.35 per diluted share compared to net income of $9 million or $0.30 per diluted share in the prior year quarter. For the fourth quarter, our adjusted net income improved to $14 million or $0.44 per diluted share compared to $11 million or $0.34 per diluted share in the prior year quarter. For 2016, our effective tax rate was 35.5% compared to 36.8% for the 2015 full year period. For the fourth quarter of 2016, our effective tax rate was 36.5% compared to 38.4% in the prior year quarter. For 2017, we would expect our effective tax rate to be in the range of 35% to 36%. Now moving on to our balance sheet and cash flow. For the 12 month period ended December 31, 2016, we generated $73 million in cash flow from operations, an increase of $39 million or 112.2% from the prior year. We continue to use this cash flow to fund acquisitions and reinvest in our business. Capital expenditures at December 31, 2016 were $27 million, while total incurred capital leases were $4 million. Capital expenditures and incurred capital leases increased were consistently as a percent of revenue year-over-year compared to 30.2% increase in our revenue. We continue to expect gross capital expenditures and incurred capital leases to trend at approximately 3% to 4% of sales during this part of the housing recovery. At December 31, 2016, we had total cash of $14.5 million compared to $7 million at December 31, 2015. At the end of the fourth quarter, we had nothing drawn on our $100 million revolver providing us considerable flexibility as we continue to deliver on our growth strategy. With that, I will now turn the call back to Jeff for closing remarks.

Thanks, Michael. Well, I think that sums up the numbers and drivers of what was another fantastic year. Earlier this month was the three year anniversary of IBP becoming a public company. Shortly after our IPO, we issued our full-year 2013 financial results reported revenues of $432 million and adjusted EBITDA of $25.5 million. I'm proud of the hard work and devotion of the team in delivering results that have doubled our revenues and quadrupled adjusted EBITDA, while acquiring nearly $310 million in trailing 12-month sales. As you can see, our growth oriented business strategy continues to drive strong financial results. Operator, let’s open the call for questions.

Thank you. At this time, we’ll be conducting a question-and-answer session [Operator Instructions]. Our first question comes from the line of Bob Wetenhall with RBC Capital Markets. Please proceed with your question.

Jeff and Mike, good morning and congratulations on a really fantastic year, and I complement you guys on the wellness initiative. I think this is a terrific program, and deserve the shout out. That's a great thing to do. On the page 15 of your deck, you guys sight volume growth of 8.8%, which lagged the pace of single-family completion growth of 14%. I was trying to understand, because normally you guys have a closer relationship. And how is demand trended since the start of the year?

Bob, this is Michael. Thanks for the shout out, we appreciate that. And the way that -- and you’re right. Historically, from a single family perspective, those numbers have trended a little differently. But I think what this highlight is just the timing difference relative to starts and completions. And as we’ve said in previous calls, there tends to be noise in terms of when we’re actually installing our work. So, we feel very good about how we've been performing on an organic basis, and particularly if you look at it in the context of the entire residential market. So for the year, our residential same branch sales growth, so our organic growth just in single-family and multi-family, was a little over 15% and 15.3%, whereas the total market grew less than 10% or 9.5%. So, we feel very good about where we are from a market perspective and market presence perspective. And our team is doing an incredible job of really working with the right customers to do the right jobs at good pricing. And we think that's clearly reflective in the operating performance that we’ve had.

Yes, your profitability has been robust. Some of the OEMs are talking about tighter capacity in the industry. And I wanted to get your view on the likelihood that installation price increases get realized, the magnitude of those price increase, if you think, this does happen this year. And what's the impact on IBP’s margin performance in that scenario?

Definitely, Bob, as we shift more toward single family versus multifamily, as you know, more pounds of installation going in single family start and in multi-family start. And that trend will, we believe, continue to increase demand both for our services and also demand for installation. So, we think overtime if the market trends towards stabilization, it's going to create a market where there is a better environment, both for the OEMs and ourselves to continue to get price appreciation.

So, I would echo what Michael just said and I think it's really just a matter of when not kind of if, borrowing some other things that’s probably unpredictable. But I think as housing market continues to recovers, as Michael stated, single family really contain a lot more far robust than multi-family and the shift towards single family will benefit us, benefit the industry, and lead ultimately to healthy improving pricing environment for everyone.

And how much leverage, if you do get priced, what's the flow-through to for you? I mean, if your OEMs take price up 3% to 5%, you can raise prices by somewhere amount at a -- are we correct we assuming the benefit is material in terms of gross margin performance? Or is there a lag where you’re going to have a lag in your inventory versus your sell-through?

Bob, as you know, we go through our inventory, our return on inventory very quickly. So, there tend not to be too much of a lag. But we wouldn’t characterize it as getting a material improvement in our gross margin, just necessarily from those factors. We believe that our gross margin is going to continue a steady trend higher as we continue to have higher volume, get more efficiency, and continue to work to make sure that we get paid a fair price for the work that do.

I think that’s key point that Michael said about the fair price. So, I mean we, as you know, we’ve had this conversation, we're in this for the long haul. This is a marathon not a sprint for us. So, from a pricing perspective, we want to be fair priced, but yet treat our customer and homebuilders, part of developers and other fairly, which really is more of an ability for us to capture increases we’ve received and cover up other costs that may have increased by another go for instance or other or as fuel comes back. But, in general, again we're in it to do a good job for our customer, service or customer but make sure we get a fair price.

And one quick question, and then I'll pass it on. Any update on the integration with Alpha in terms of meeting your expectation, and what's the M&A pipeline looks like after a very strong '16?

Bob thanks actually, asking that question. We couldn’t be more excited about the Alpha transaction and the integration process to-date. Their team it's just embraced our team as all levels of the organization and has just been incredibly well, incredibly great to work with, we’ve been just really impressed with the quality of their people and the quality of their culture. And we really think that it's going to present an excellent opportunity for us, not just from an acquisition prospective in terms of future commercial acquisition opportunities but on the organic side, and our ability to really use their very strong relationships and leverage that on a more organic basis through our existing footprint.

And I’ll just chime in quickly, but pipeline is robust in terms of acquisitions. And as I mentioned, obviously earlier in the call, and Michael hinted that a little bit here in his comment too. Obviously, the Alpha acquisition has opened up a new field in terms of -- and we’ve been in the business as we’ve stated before, really in many of our branches but it's opened up a new avenue for acquisitions. And obviously, we’ll use the Alpha kind of as a platform inside of that segment of the business.

Thank you. Our next question comes from the line of Nishu Sood with Deutsche Bank. Please proceed with your question.

I wanted to ask also about Alpha. Jeff, you were talking about the importance of culture and the family-run business culture, and how important that’s been to your success. How do you ensure, I know across the residential business where the business that you’ve been in for decades and there is a high level of familiarity and similarity obviously as you bring out new businesses. The Alpha business that obviously are going to be fundamentally different on the ground, just given the end-markets and obviously the products and service that they are providing. How do you ensure that the culture that’s been in place at IBP for so long translates across to the Alpha business and obviously the new ones that you’re going to be adding on to that through acquisitions probably in coming years?

This is Jeff, obviously. So, interestingly enough, I think we’ve explained this at various times, but we’re pretty unique, I think, in the way in which we approach integration and approach the acquisitions and the on-boarding, to not say now other companies do this. But we’ve tried really at every turn to respect the culture in the businesses that we’ve acquired. And we typically integrate back-end functions. But to the extent that we can leave the front-end and leave the outward facing part of the business very similar the way in which we found it to start with and the way in which they relate both with their employees and with their customers, we’ll do so really at every term. And so rather than, for instance, imposing the IBP name across the organization or in some other way trying to change that or term that upside down, we do quite frankly the opposite. So, that I mean at times when one could probably follow us for making up for that at corporate and trying to make sure that we are sensitive to that to the highest degree, but in our particular model, we believe that that’s the way that works the best. I think history as it relates to a lot of other companies that have been acquisitive inside industries like this, and if you lose the knowledge and you lose the contact and the connections, it's usually a pretty -- it's not a good prospect. So, we’ve gone the other way. We think we’re pretty good at it, and it's really all about showing somebody else and another company that respect that you’d like to be shown as a company or as an individual yourself.

The second thing I wanted to ask about, the weather obviously does affect your business. Last winter was quite mild to some extent in 4Q, '15 much more so in 1Q, '16. You didn’t really seem to have much of an effect on the year-over-year comp for your 4Q '16. But obviously, it's a much bigger number or hurdle for the comp for 1Q '16. So, we're already two months into the quarter. How is that looking, how should we be thinking about that?

We continue to feel good about continue to seeing recovery, particularly in the single family market. We think what you've seen a lot of the public builders reporting in terms of order growth is a strong indication that we're going to have a good spring selling season, and we're very encouraged by that. We have, and clearly a lot of other building products companies have, singled out whether in any particular quarter. As Jeff said earlier, we're in this for as a long-game not the short game, so we're looking at it in terms of as the market continues to recover, not just this year but as we progress towards stabilization, particularly in the single family market. That being said, demand for our services really relates to when the house is ready. And we believe that we provide our customers superior service and we will adjust our schedules to make sure that where they are, we show up on-time and get the installation job done when they need us. And if that means working on Saturday or adjusting work schedules to do that, because they may have had a weather delay, as a company that's what we do because we believe in servicing the customers. So, we don't like to really call-out the weather in any one particular quarter as impacting our results, because we want to look at it overtime. And we believe, clearly overtime, the single family market in the United States is trending towards stabilization.

You have shown some weather resilience in the past quarters. But you had 26% organic sales growth comp last year, which I think is the largest quarterly number you've seen. Will you be able to -- do you think expect to generate organic growth off of that comp in 1Q, '17?

The question is that do we expect to see organic growth in the first quarter of '17, not versus the percentage necessarily. And as you know, we don't provide guidance but we feel very good about the continued recovery in the single family housing market. And as you know, single family sales are the largest percentage of our overall sales. Quite frankly, we've been very, very pleased with the progress we've made outside of single family on an organic basis. I mean if you look at the organic growth in our multi-family business this year on a same branch basis, it was almost 40%. Our growth in repair and remodel and the commercial business on an organic basis was over 13% in the quarter. So, we feel very good about all of our end markets and the opportunities that we're seeing there. And we're continuing to make good progress.

And let's be honest, this hasn't exactly been a cup winner so far either. There’s certainly been some weather events in certain parts of the country, but probably in total, I'd argue this is probably another mild winter. So, as we have -- keeping with the past, our intention is not to use weather an excuses, we haven’t before and we don't tend to going forward.

Thank you. Our next question comes from the line of Scott Rednor with Zelman & Associates. Please proceed with your question.

On the multi-family side, I believe in the past you've referenced that you have a longer lease types on those. I think you called out 38% for the year, Michael, but correct me if I’m wrong. Do you still see that kind of level of activity in backlogs as you look to ‘17?

We think that, just which is consistent with I think markets’ overall expectations relative to the multi-family. We would not expect the tail to be as long and as large on an organic growth basis as it has been particularly this year. Because we believe even though the completions growth has been a little bit, on multi-family side, has been a little choppy I would say. There still seems to be a fairly large disconnect on the multi-family side between starts and completions. So we definitely think there is a lot of opportunity there. One of the things that’s actually helping us significantly on the organic growth side as it relates to multi-family is; one, the strength to our footprint in the non-coastal markets; and also, a strategy that we started deploying in ’15 of going after more of that opportunity within our existing footprint. So what you’re seeing is not just the growth in the overall market opportunity but a concerted effort on our side to make sure that we’re maximizing our opportunity in our existing organic market.

So, if I hear you, there is nothing that suggest that there is a pending slowdown, but don’t expect that growth rate to continue. Is that a fair characterization?

We would continue to expect to see positive organic growth in the multi-family side, but we would say that ’16 definitely had outsized growth. And it's because of the lot of these initiatives that we've been working on.

And then when you guys -- can you guys maybe just drill a little bit more into the organic benefit you see from Alpha. Clearly, investors can appreciate the inorganic opportunity. But maybe if you can give a little bit more color on where there is white space that your branches weren’t heavily penetrated where now you’d see one plus one is more than two?

So from on organic perspective, we’re really only Alpha is in nine locations. And many of the predominant -- the customer base predominantly obviously is largely shown on contractors, many of which are either national or regional in terms of their presence and scope. So clearly, just the simple idea, it sounds simple, obviously it's always about performance and execution. But the idea that those relationships could be supported and expanded across larger geographic footprint and certainly one of the easy I think ways to connect the dots in terms of organic growth opportunities for Alpha. In addition to that, they are in some ways -- again, working for very different customer but in some ways, in terms of the product that they install, they install typically products that are in, I guess, scope smaller in scale than say some of the like many similar things like that. They installed not as similar set of products from what IBP does albeit much larger contracts, because of who they’re doing it for and the size of the job. But the prospect and the idea of having Alpha also expanded other products that they don’t perfectly offer. It's also really a pretty understandable I think an easy way for us to grow that business organically. So, those are probably the two things that come to mind for me, top of mind I guess, in terms of may be easiest ways to drive organic growth through Alpha and we’ve, I think, talked plenty about the idea that we would potentially acquire our way into commercial presence also. But -- and many of our bigger and larger branches are in, not the similar products but in a lot of instances, they would be doing it on a smaller job. For instance, let's stay retail strip center versus convention center, or a professional sports stadium, or something like that. So, we may have been in the product but we were probably installing it in a slightly different or in some cases dramatically different setting.

And I would emphasize too, on the organic side with Alpha. That's not something that happens in a quarter. It's something that to do it right it takes time. It takes a lot of work on our side. But I think both ours -- the Alpha team and the IBP team see that opportunity and we’re working hard to make sure that we effectively realize what that organic opportunity could be, and it's going to be a multiyear benefit that we believe we’ll see.

And Alpha was in that mode really one from the beginning when we started talking a year, year and half ago. And they continue to be in that modem. We’re going to, as IBP, in term from a backbone backlog is prospective do what we can to help them be able to concentrate more on the sales in the expansion part of the business. But again, they were already working in that direction when we were able to look up.

And then just lastly, can you give us some update on where 2016 for Alpha finished, may be just EBITDA margin and how fast bigger sales organically?

We have not disclosed that yet. And their numbers for '16 haven't been finalized. But I would say that preliminary results we feel good about the trend that we're continuing to see in that business.

Thank you. Our next question comes from the line of Keith Hughes with SunTrust Robinson Humphrey. Please proceed with your question.

The contribution margin from the acquisitions has been below what we saw last year. So I guess the two fold question; one, is there something about the deals this year that cause or ties your geographies; and number two, does that not set you up for a nice profit bond as you get to center in addition to those deals coming in at 2017?

It really is reflective of the companies that we acquired and their margin, which is completely reflective in the purchase price, we believe. Most of the synergies, the initial synergies that we get from our scale by an advantage, we realized the day-one. But the synergies that I think you're referring to and they -- we will get those benefits, not just in the first year of acquisition but overtime, is to be part of the IBP team and hopefully continue to have more of our perspective of getting a fair price for the job, working for the right customer, being able to increase their customer base by introducing more national builder business. One of the things that we track within our top, the top 20 builders and our sales to them is the difference in the product sales to them on an installation basis versus our other products that we’re installing. And during the year and during the quarter one of the things we felt very good about is that with those top 20 national builders, we felt greater growth. We feel very good growth across all of our product lines, but we actually saw greater growth with the other non-installation products, which means that we were doing a good job of cross-selling the other products to those national builders. And that’s really an important part of our strategy to get greater adoption and use of those other products, at this point in the cycle, so that we can be more balanced when the market, which we think is multi- years out, reach a stabilization. And part of that is reflected in the fact that as we looked through some of the acquisitions that we did last year, a lot of them were about their product categories and those acquisitions are helping us improve our local operations through those other product category acquisitions.

So that’s the aspect going to the other products as you move forward in deals, do you think you’re going to be a higher percentage on what we’ve seen in the past before we shift back to more of an installation type, obviously the residential component?

Our primary focus is going to continue to be residential installation acquisitions. But we are seeing a good number of opportunities in the other product categories. And we think that we can benefit by getting additional scale in some of those other product categories as well. So, it really is trying to balance out both our commercial business the residential business and the other products, as well as the installation business. So, we’re looking for opportunities across our footprint to enhance and diversify what we have and improve our operations.

When we like to live with installation, Keith but in some instance, both what happened historically last year and even on a go forward basis, a lot of time if we run into an opportunity whether its geographic or whether its breaking into a customer base, it's kind of this for one reason or the other just the stubborn opportunity for us to take advantage of, a lot of times what we’ll try to see is back-up a minute and see if we can approach it with one of these other products. And that is kind of what happens. We can’t find a fiber glass installation acquisition in a particular markets maybe we’ll come in with another product or for having for one reason or the other, maybe an issue with accessing a particular customer base, say large track builders, maybe we’ll come at that to another product if we’re into. And maybe price related, maybe we don’t want to go where our market is on pricing, we’ll chose to try to get at it in another way, expand sales that way.

Thank you. Our next question comes from the line of Matt McCall of Seaport Global Security. Please proceed with your question.

This kind of maybe dovetails off of Keith’s question, but looking at price mix and thinking about ’17, it’s down about 6 points of price mix in the last couple of years without industry price at least last year, no industry price. And then with more multi-family as we seek potential price pick-up and we see more single-family. Is there the potential for that price mix number to move up, or is that 6% reflective of the managing that you were just talking about pursuing the most profitable best business?

In terms of the price mix, I mean, you’re right. We’ve continued to steadily see progress year-over-year in the price mix numbers. And we believe that is a reflection of a couple of things happening one, is our focus on that fair price, making sure we're doing business with the best customers in an individual market. And also, as we spoken on several quarters’ calls, relative to the improvement in -- so that while we consider to be the third leg of the housing stool and that is the regional and local builder. We continue to see good price mix benefit not just with top 20 builders but very good price mix benefit with the regional and local builders. And, at least in our business and we believe that the national statistics will support this. We believe that that regional and local builder is really starting to come back and get to its more appropriate share of the overall housing market. And those two things will continue to benefit our price mix. Now, at the same time, as you know; one, we don't provide guidance; and two, what we're looking to do is to continue to improve our operations. So, there will be fluctuations quarter-to-quarter or year-to-year in both the volume and the price mix as we look to optimize our base of business.

But I guess the way to say differently don't assume much of a change, 6% not a guidance number. But there wasn't anything bumpy that will change in either direction as we move forward. There is enough within your control and that's heading in the right direction to offset the stuff that might turn or go in the wrong direction, which makes that number not have any ordinary?

To your point history would certainly suggest that it's an appropriate number.

So, did I hear you right, and outside of the backlog of $84 million, was that the number that you gave?

Yes that's what we disclosed.

And is that a typical lot more visibility, I mean I think if I remember trailing 12 revenue was, I think you said in release was $89 million. Is that typical for the commercial business to have that level of visibility, the full year being in backlog?

Obviously, it depends upon what their sales growth looks like. Generally speaking, their backlog -- because that’s, obviously, looking forward as opposed to looking back. Generally speaking, their backlog would be a percentage of their full year revenue. Obviously, that depends upon timing of projects and they can add in backlogs from projects that might not start for six months, nine months or even longer. So, there is a lot more visibility to your question in the commercial market and allows us to plan more effectively for resources and allocated resources in any given market. So, yes, it's the nature -- it's the part of that business, and it does help significantly from a planning perspective.

And did you provide any accretion out? I think I remember from the announcement that we had some of the components that we are waiting on some specifics around earn outs and maybe some purchase accounting. Did you give any insight into the potential accretion from Alpha this year?

We have not. And we will though be filing financial information relative to them here in the next couple of months. So, once everything is finalized and audited, we'll be able to present more of those details. But we can say, based upon the information we have presented and the preliminary results that we feel very good about Alpha’s results and their ability to add to the overall improvement of profitability in the business.

And I’ll one -- sneak one more in. You guys have talked a lot about the residential market, 65% exposure to all starts. Do have any insight into the commercial opportunity? I know you talked about going beyond the existing footprint for Alpha, and I think that it works both ways for the residential side as well. There will be talk about the addressable market and exposure to start. Can you talk about in the same terms or is there something different with that market where it wouldn’t be applicable?

It's harder to talk about it in the same board context that we can with the housing markets, because of the availability of the national data from the U.S. Census Bureau. So, we haven’t put it in that context. But what we would say is that just, as Jeff said earlier, they only have basically nine markets that they are in and we have over 100 markets that we’re in. So it's a much smaller percentage of the commercial market that we had access to currently. And we believe that there is a very strong opportunity for us overtime again, it's not going to be at quarterly thing, but overtime, a multi-year strategy for us to be able to expand our access to a much broader commercial market overtime through our existing footprint.

I mean to categorize opportunity as vast would not be in any way an overstatement. And the Alpha group has done a great job of growing their business organically over the last 20 plus years. But clearly, there is a lot of white space on a national basis.

Thank you. Our next question comes from the line of Blake Hirschman with Stephens Inc. Please proceed with your question.

My first one just on the labor shortage as you talked about in the past. Have you seen things get worse, remain pretty stable, or ease at all as we've moved into the beginning part of the year here? And then also along those lines curious how you’re thinking about starts first completions growth rates this year just kind of how they would compare to each other, and kind of more specifically on the single-family side there?

Our expectations on the start for the completions, I think particularly on the starts, is consistent with what analyst consensus is. We think that we’re going to continue to see stronger single-family starts growth than multi-family growth. Although, given what we've been able to do on the multi-family side, we think we’re going to continue to benefit from multi-family sales growth even if as that market continues to flatten.

On the labor side, we've said this before but even during the downturn, we hire, I mean that's what we do every day. We source employees every day. We obviously have the normal kinds of issues to deal with its companies that are in the construction trade deal with in terms of turnover, and sourcing those employees to start with. But we think we’ve estimated a couple of issues in that vein in ’16 also by having full-time staff that is helping here corporately with the branches’ ability to get at and install our labor force. In addition to that we purchase some applicant tracking software, which we think would help us continue to be a better employer and indentify reasons why installers work here in the first place and why they’re either happy or in some cases if they left, and we do see turnover why effect it was. So, we’re working everyday to be a better employer. And though, we still feel positive, we don’t believe that we are or will be the bottleneck in any of the residential construction housing recovery. And I think history would show that in terms of our ability grow sales faster than the market opportunities ahead of us. So, is that something we work on everyday and is it -- you talked to our managers and our production managers, something that’s tough and they’ve got to work on every day, it is. But we seem to get through it, and don’t really consider it an impediment just started doing the job.

Again, anything we would say its steady state versus harder or easier. So, it's just that something we’re doing everyday and we feel good about it, we feel very about it.

And then just one more on M&A, I mean you obviously been pretty acquisitive here and your market share is bumping up against your biggest competitor. As you’ve touched on at some point your acquisition is going to stabilize, and in your opinion what inning do you think we’re in there? And where we are in relation to the point of stabilization or how far off are we from you may be taking your foot off the accelerator a little bit there? That’s it for me, thank you.

We don’t intend to take our foot off the accelerator at all.

No, and I acknowledging and it would be silly for me to not acknowledge that we're obviously deeper into the residential expansion in terms of our contract and service. But at the same time as we’ve mentioned I think we're in the infancy of been able to pursue commercial growth .And in addition to that, we really -- there is a lot of opportunity for us as a business, both on the residential and commercial side in terms of other installed products. So, I don’t know that I classify or could characterize exactly what inning we are in. But there is a lot of opportunity, a lot of runway in both other products and there is certainly a lot of runway on the commercial side. And again, from a geographic prospective, we’ve talked about this before. But it's not the same for every branch across our footprint in terms of how far we're willing to travel and where we think what's an efficient location kind of next to contiguous to other markets that we're in but I can tell you this that despite the fact that we cover in a state say that we're doing business in on some of the math, some of you may have seen, there is a lot of opportunity even inside of those states in other markets that we're not doing business. And in a lot of instances you’ll see that we do business in a particular state, if you go to our Web site, but ultimately that might be one location, one branch location within the state.

And we’ve stated we believe we have access to about 65% of permanent. So obviously, we still have quite a bit of room to grow, but we’ll probably never get to 100% of permits. Of course, we still have quite a bit of white spaces, as Jeff is saying, from a geographic prospective. And also keep in mind that last year single family housing completions were still only 738,000. And we believe that a stabilized number is 1.15 million to 1.2 million. So, we still have a long way to go in terms of the recovery of the housing market in our opinion, and we still have a lot a white space from and access to permits perspective as well.

[Operator Instructions] Our next question comes from the line of Ken Zener with KeyBanc Capital Markets. Please proceed with your question.

Mike, I wonder if I could have you expand on the costs that you think -- there was two comments you said you are focused on non-coastal markets, your strength to non-coastal markets should help you in the multi, as well as the fact you highlighted that. You think the small builders’ share, I think you used the word appropriate shares is going to be actually increasing. Can you talk to perhaps what that means given your original footprint? So, does that mean obviously the Midwest, southeast and parts of the mid-Atlanti.? And if your market share at I think 27% you guys had in this slide, which is obviously remarkable increase from 5% in ’05. But it means you have --if you look at the permit share, you’re about 40% market share overall, I think is the implication. Can you talk about that unit volume non-coastal it seems to be an implication in your comments? And then second and that will be my second question. Are you getting better pricing where you’re above that 40% market share? I mean, how should we think about that value you’re providing the market relative to -- and your margins relative to that 40% average market share? Thank you.

Again, my comment relative to the coastal markets, which is I think there is a general perception out there that some of the multi-family coastal markets, particularly the larger city market, maybe at exaggerated or over build part on the multi-family side. And we just wanted to highlight the fact that we’re not just on the West Coast and on the East Coast, and our efforts to expand our multi-family opportunity within our existing branch network has really been focused in where we’re strong as you pointed out in the centre of the country. So, we’re delighted with the progress that our team has made in terms of that additional market penetration. So, we think that presents good opportunity of us. In terms of our relative pricing in markets where we have higher market share, really what we’re focused on is, again getting, we’ve said this a quite a few times, so I apologize. But we really work on getting a fair price from our customers, whether we have greater than 50% market share in the market or 10% market share in market. It really is about having the right customer mix that works well with our local branch operations and working again with the best customers in the market. And we believe that’s reflective overall in our improving gross margins and our improving adjusted EBITDA margins.

Thank you. Mr. Edwards there are no further questions, at this time. I’ll turn the floor back to you for final remarks.

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