Greetings, and welcome to the Installed Building Products' Fiscal First Quarter 2017 Earnings Conference 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 of Finance and Investor Relations for Installed Building Products. Thank you. You may begin.

Good morning, and welcome to Installed Building Products' first quarter 2017 earnings conference call. Earlier today, we issued a press release on our financial results for the first quarter, which can be found in the Investor Relations section on our website. On today's call management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include our financial model and seasonality, 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, the impact of Alpha on our revenue and profitability, expansion of our commercial business, our ability to improve sales and profitability and expectations for demand for the remainder of 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 because they relate 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, 2016, 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 certain non-GAAP performance measures on this call such as adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted share. 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 good morning to everyone joining us on today's call. I'm happy to have the opportunity to talk to all of you about our first quarter results. As usual, I will start today's call with some highlights and then turn the call over to Michael Miller, IBP's CFO who will discuss our results in more detail before we take your question. This year is off to an excellent start driven by strong first quarter operating and financial results. The first quarter is typically our seasonally lowest quarter for revenues and profitability and as you may remember, last year's first quarter benefited from a significant catch-up in completion which favorably influenced IBP's revenue mix and profitability. This year is also off to a strong start though for different reasons leading us to believe that 2017 is shaping up to be an excellent year and yet have more of a normal seasonal pattern. As a remainder, the insulation installation process of a single-family home typically requires three separate trips to the construction site. The first phase is primarily associated with preparing and air sealing the house as well as install and insulation in locations that become difficult to access later after other trades performed, their rough in work prior to insulation install. This phase is more labor intensive with typically lower margins. We do a higher mix of this type or work during the first quarter. The second phase typically involves installing fiberglass batts in the wall cavity and the final phase primarily consists of blowing loosefill insulation in the attic. These later two phases are typically higher margin jobs and represent a greater mix of the work we complete during the second half of the year. Last year's first quarter benefited from a higher amount of phase two and…

Thank you Jeff and good morning everyone. We continue to make considerable progress growing revenue and improving profitability. For the first quarter, our revenue increased 33.4% to $255.7 million. Our same branch sales improved 8.7% due to an increase in volume across all of our end markets and favorable improvement in price and mix. Our same branch single-family sales growth was 4.4% and our total new residential construction same branch sales increased 8%. Additionally, we continue to experience strong organic growth in the commercial and repair and remodel market which increased a combined 11.9% on a same branch basis. As noted in previous quarters, we believe it is helpful to look at certain metrics over more than just a single quarter. Over the last 12 months, our total same branch sales growth was 11.9% comprised of 11.4% from our new residential end market and 14.2% from commercial and repair and remodel, all on a same branch basis. First quarter 2017 gross margin was 28.2% compared to 28.5% in the prior year quarter as a result of return to a more normal seasonal mix of installation services and increase in fuel costs. For perspective on the normal seasonally low first quarter margins, during the first quarter of 2015 gross margin was 26.3% compared to full year 2015 gross margin of 28.4%. For the 2017 first quarter, selling and administrative expenses as a percent of net revenue declined to 20.8% as compared to 21.7% for the 2016 period. As a percentage of revenue, administrative expenses were 15.4% in the first quarter compared to 15.8% for the same period last year. We improved our operating leverage even though we've continued to incur increased public company compliance costs primarily associated with the transition to a large accelerated filer. We expected general and administrative expensive…

Thanks Michael. So, I think that pretty well sums up the numbers and drivers of what was a fantastic quarter, and as you can see our growth-oriented business strategy continues to drive strong financial results. With the housing industry continuing to demonstrate improving trends, we're excited about our opportunities for 2017 and beyond. Operator, now let's open up the call for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Nishu Sood with Deutsche Bank. Please proceed with your questions.

Thank you. And I wanted to start at – by the way, I saw those great details about the seasonality, so no questions there. Mike, you mentioned gross margin in terms of the seasonal pattern, you used 2015 as an example where I think it was the 200 basis point difference between one and the full year. Does that mean we should be thinking about that same 200 basis point gap for 2017?

Nishu, hi, it's Michael. Good question and you broke up a little bit there, I don't know if it's our connection or not, but in terms of our comment around both the first quarter 2015 and full year 2015 gross margin, it was really more to provide context for how gross margin improved during the course of the year. Now, that's not us trying to provide guidance around a larger increase in gross margin as we go through the year. I think we talked about in last quarter's call and a couple of quarters before that as well, we've continued to make very good progress on improving gross margin. And one of the things that I would highlight out in this quarter is we're continuing to get more selling and administrative expenses leverage, which is something that we think is key as we trend towards that mid-teens EBITDA margin that we've talked about as we approach stabilization. So, we weren't trying to give guidance towards continued improvement necessarily as it relates to 2017 gross margin on a specific basis, other than to make it clear that historically, the first quarter is our lowest gross margin quarter.

Got it. No, that's helpful. Sorry about the breakup there. But that is exactly what I was asking about the 200 basis points that you mentioned. So, understood, not providing anything specific. The incremental EBITDA margins on acquired businesses was very strong, I think it's the strongest year you may have on record. You mentioned obviously Alpha, the commercial business having higher incrementals, but you also maintained the longer-term expectations for 20% to 25% incremental EBITDA margins. Wouldn't the Alpha mix the commercial mix, especially if you start to grow that business potentially through acquisitions as well, wouldn't that tilt that number higher. So, you know maybe that just means within the 20% to 25% range we should be thinking at the higher end of that, or – so how should we think about that? Shouldn't commercial push that number up?

We would expect over time that, yes, commercial would help us get to the higher end of that 20% to 25% same branch incremental EBITDA margin. But also keep in mind that the Alpha business was acquired in January of this year and it won't become same branch or organic until January of next year. So, it will continue to influence the acquired incremental EBITDA margins, or acquired EBITDA margins for the rest of this year, but then next year it will lap into the organic incremental margins. So, we believe, you know again on a full year basis and overall time particularly as we lap in if you will Alpha into the organic business and also as we continue to see good progress on the single-family side of the business. We're confident that we will fall in that 20% to 25% range.

Got it. One final, if I could, debt-to-EBITDA $269 million against $112 million trailing adjusted EBITDA. You had about 2.4 times, obviously you are entering the strong cash flow period of the year. Where are you targeting that to be by the end of the year and you could clarify what your – what you would be assuming in terms of acquisitions for where you would want that to be by the end of the year?

As you know we don't provide guidance both on EBITDA and/or future acquisitions. What I would say though is that the number that you are using are not pro forma, and obviously the Alpha acquisition while it contributed EBITDA to the first quarter on a trailing basis there would be three quarters in which their EBITDA wouldn't be in that number. So, you know on a net basis the leverage is obviously better on a pro forma basis. So, as we think of leverage, just you know in aggregate, not necessarily as a target towards the end of the year, but at this point in the cycle and what we're seeing from very strong cash flow perspective, you know being in that you know kind of 2 to 3 times is very comfortable for us and it gives us with our strong cash flow and our pipeline of deals, gives us a lot of flexibility, keeping in mind that we do have currently approximately $100 million of cash on the balance sheet. So, we have a lot of flexibility. The new capital structure we believe provides us even more flexibility than we had before and we're very confident in our ability to properly use the cash that we have and the cash flow that we generate not only to invest in the organic side of the business, but also with the acquisition opportunities that we see.

Great. Thank you.

Thank you. Our next question comes from the line of Bob Wetenhall with RBC Capital Markets. Please proceed with your question.

Hey good morning. I was going to get technical and say that you guys are crushing it. How about that?

Thanks Bob. That is very technical.

Yeah. Highly technical. So, seasonality and you are making some comments about return to a more normal rate of seasonality and we are looking to organic volume growth coming in around 5.5% in the first quarter. And by implication, just in terms of how you've seen the pace in cadence of EBITDA. Does that mean organic growth is going to accelerate during the balance of the year in order to get to a more normalized seasonal pattern?

Again, we don't provide guidance, but I would point to a couple of things. And things that we were very pleased with in the quarter and that was the organics growth that we saw in the quarter on the multi-family side which was over 40% under parent remodel, which was 17% and on the commercial side again this is all organic. So it doesn't include any of the Alpha revenues, EBITDA at 9%. And what particularly encourages us for the remaining balance of the year is the data that you were all seeing relative to single-family permit growth, what the builders have reported in terms of new orders. You know the private surveys that were seen relative to the non-public builders in terms of their new order growth, it looks as if we're going to have one of the best spring sell-in seasons we've had in a long time, which that then is very, very encouraging for our single-family same brand sales growth as well as we head into the balance of the year. So, we feel as if the first quarter has set us up very well to benefit from what we believe is going to be a very solid recovery in the single-family side of the market.

Yeah. I seems robust, should we expect the market you know, you are talking about lag between starts and completion. So, how should we think about market growth coming in ahead of your results for same store's performance in terms of the length of the lag right now, with what's going on?

You know Bob, it's actually a little early to tell yet in terms of how much that lag is going to be this year just given the increase in volume. Historically where there has been kind of mid-teens growth in say permits, those are – permit growth was on a single-family basis 13.5% in the first quarter. So, when you have that kind of growth, there typically tends to be a greater lag that's created between permit and completion. We do believe that the industry has scaled up more say than in 2015 when we created that big lag that created in the back half of the year. So, we believe the industry is going to be able to address it a little bit better. But certainly when you have the kind of growth in the single-family market that we're experiencing right now, lags are extended. So, it's a little bit early to tell just what's going to happen in the back half of the second quarter and going into the third and fourth quarters. But we feel confident on more than just a quarter basis, certainly for the full year, 2017 is really starting up to be a good year for single-family.

What are you seen in the marketplace that's priced realization and do you expect any other pricing actions during the year?

I assume Bob you mean relative to the insulation manufacturers or on our…

Yes sir.

Bob, hi, it's Jeff Edwards it is. Jeff Hire is also in the room. But as you probably know there is a unannounced price increase out in the market currently from the fiberglass manufactures. You know demand is good, the market is better, so really in every case as we have a rising tide, I mean our ability and our confidence that the industry you know in fact improves in that regard you know gets better.

And we think their ability to realize price obviously goes up at a time when single-family demand which as you know is a large portion of their incremental demand. As the single-family demand increases, it gives them greater ability to realize price increases. And as we stated consistently, we're supportive of rising price environment in the market, because over time we've demonstrated our ability to appropriately and fairly you know realize the benefits associated with that – with our customers.

Got it. That's helpful and one last question. Working capital as a percentage of sales is higher and is this a byproduct of the integration of the larger branches with Alpha? Or is it something else just in the timing of cash flows?

Yeah. That's a great question Bob, and I'm glad you asked it. So, really it's more of timing from an accounting perspective. So, we acquired Alpha in January of this year, so their full balance sheet if you will was in the March numbers, but only a quarter's worth of their revenue. So, we have all of the working capital on our balance sheet but only a quarter of the revenue associated with them. So, it distorts a little bit that calculation this quarter. We would expect that over time, and as they become more organic rather than acquired, that ratio would fall more in lines with historical patterns.

Got it. Terrific quarter. Congratulations. We're excited for you guys good luck.

Thanks Bob.

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

Hey good morning, everyone. My drive of question on the incremental margin just for the core business, I appreciate the mixed aspect relative to last year. Have you seen that bounce back already here in May and I know you've been in referred to 20% to 25% for the year. Would it be wrong to think that you guys couldn't get back there on an annual basis?

Yes. You know in our prepared remarks, Scott, we did talk about our beliefs that on a full year basis the incremental margin of 20% to 20% we still feel confident about. I mean obviously given where we are in the first quarter, it make it a little bit more difficult this year to get there. And also keep in mind, as we pointed out in the prepared remarks, the organic business there is the incremental cost associated with things like supporting our growth, converting to a large accelerated filer which we're still increasing at higher levels accounting and legal fees associated with that. So there is a lot of that organic or legacy business, a lot of incremental cost that it bears, just the way that we calculate those numbers. So, we definitely feel good over time particularly when you look at it on an LTM basis or a full year basis that, that 20% to 25% is the right number. And as the mix of business as we believe is going to happen through the course of this year, as we continue to get good hopefully single-family volume growth, that obviously helps the organic business from an incremental margin perspective.

And then just maybe shifting to Alpha? I think you've disclosed that it's been, it ran last year at 20% EBITDA margin for the full year, clearly we only have one quarter to work with. But coupling that with Jeff's commentary in the release extracting ahead of expectation, how should we think about the margin profile, if you think about it annual is, is that a right target or should you leverage that 20% margin?

We think of it more of a high teens margin business and we feel good that it's tracking along under that basis. Jeff's specific comment was really talking about the growth that they saw if you will organically in the first quarter. Obviously that doesn't show up in our numbers. But we feel very good that both the integration of that business has been going very well and that the growth that they are seeing in the business is looking, very, very attractive. So, you know we feel very good about our ability to integrate that business and also to be able to use and leverage the skill set that they've developed and the team that they have to organically grow that business through some of our existing branches.

Great. And then just lastly, some of the recent acquisitions not including Alpha understandably, but seemed to be a little bit outside of the core fiberglass insulation piece. I believe you guys always referred to that as your best ROIC in terms of the deal. So, just curious if you can maybe elaborate there, is there any change in the strategy at all or maybe what's incremental about the additional bolt-on that have occurred over that few months?

Scott, hi it's Jeff, but as you know, not a change really at all. I mean we over the years have done and lot of other product company acquisitions we do as you know and you've heard us say a lot of times lead with or like when we enter a new market a lot of times, we'll lead with what is hopefully a fiberglass acquisition. In the idea of coming back through in markets where we already have a presence and making a bolt-on acquisition, it's another product, you know type, actually we believe makes perfect sense for us. I mean we ultimately have the ability to grow organically at the same time you know we're busy chasing insulation. We're busy running you know at a great market opportunity in our core business. And this just gives us extra lift and we're not as disruptive in the marketplace. We still get the cross sale you know and the ability to do cross sales and pick up that with an acquisition. So, to us it makes in a lot of instances even more sense than in certain business at least they have grown it organically and it just so happens that these you know transactions and deal presented themselves and we took advantage of that.

And also from an ROIC basis, they tend to be pretty attractive as well, because you know we will typically acquire them at least a full term multiple less than what we would be in typical fiberglass deal. So, we're very mindful of the ROIC that we're getting on full acquisitions.

Thanks. Appreciate the additional clarification.

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

Thank you. Good morning guys. So, the phase one through three of the construction side of that, that was helpful and I understand the impact on Q1 and I think, Michael you said that the expectations for the full year still in that 20% to 25% range. Is there a quarter that sees kind of this pressure flip and therefore we see extraordinarily high incremental for one quarter where that mix may have been different last than it's going to be this year. Or is it stabilization that gets us kind of back to that level of stabilization through the remaining quarters of the year?

Historically, the third and fourth quarter would typically be our highest and I just – and it does change because of the mix of business. But historically over a long period of time, the third and fourth quarter would typically have our highest incremental margins on an organic basis. That being said, clearly the trends for stabilization is very helpful and volumes growth in the single-family business is very helpful as well as we trend towards you know getting towards that 20% to 25% in incremental margins on a full year basis.

Okay. Alright, so we're not going to see a big spike to kind of cover that 1% next quarter, but the mix moves towards a different structure versus last year.

Yeah

Matt, this is Jason. Just to clarify, I think it's probably good to look back as a trend in 2015 and 2016 in this regard. If we look at last year, the incremental EBITDA on the same branch basis was 19% to 20% in the back half of the year. However, in 2015 it was ore so – I don't have any exact figures in front of me, but I think it was more so around 24% to 25%.

Okay. Got it.

So the seasonality continuously expecting it would – expect that's where the trend.

Okay. That's helpful. Thank you. So, my other question, so the price mix around 4%. I guess there was a tough comp. You are up against a 12% comp really strong price mix number in Q1 of last year. You also had this mix impact, which I assume had some impact on that number. Your comps get easier, the mix issue should be behind us, how should we look at the price mix going forward? Do we simply adjust for the easier comps, do we have to add another tickling because it is mix thing we're talking about. I'm just trying to figure out how to – what the expectation should be for price mix for the rest of the year?

So, I think one way to look at it is that on an LTM basis, price mix benefit was about 5% and if you look over time, our price mix benefit has been kind of in that 5% to 6% percent excuse me range on you know a full year or 12-month basis. And we feel good that we're – that continuing to get a healthy price mix and obviously any acceleration in demand and/or realize price increases from the manufacturers' benefits as well that price mix.

Okay. Thank you.

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

Thank you. I've got a question on price mix. As you move forward – let me ask on the quarter, how much mix contribute to this and I assume with multifamily doing so well in the quarter, that's a negative mix review in terms of this calculus, right?

Right.

And so, single-family numbers I assume would have been higher than that. So, I think we're all sort of groping around the kind of the numbers at this point. Let me ask you this way, the mid-single digit number a doable number in the near term?

I would point to that historical trend where that mid-single digit number has consistently been there on an LTM and/or full year basis.

And then switching to Alpha and the commercial trends, are you noticing any changes within the type of jobs they do, any one sub-segment doing better than others as they were to book build for the year?

No. I think it's the mix that we would have expected. You know in certain markets and really even on a national basis, there is both thank and probably reality of the office market coming back a little bit more sternly and that would bring with it opportunity you know for them to in certain applications do things that when the office market is not strong, you can't do. So, there is probably more opportunity certainly we think in that regards and there is you know a downside in that.

Final question, this came out described before the call started and settlement we know this morning [indiscernible] long dispute here is that, does that play any role or impact on your portfolio?

No. It doesn't.

Thank you.

Thank you.

[Operator Instructions] Our next question comes from the line of Trey Grooms with Stephens Inc. Please proceed with your question.

I just want to go maybe a little bit higher level on the non-res side. You know with your exposure there through the recent acquisitions, what's the mix now of new non-res construction versus non-res R&R. How does that mix look now and then also kind of how much I guess the question is how much does new non-res construction really drive your non-res business there? Is it similar to mix on the res side?

So, on the commercial side, right now it's about 18% of total revenue and that's up from 11% last year for the quarter. But is your question specifically about the – within the commercial end market, the difference between new and parent remodel?

Yes. For your businesses that you've acquired, because it is, I mean non-res is becoming a more important part of the business for you guys. Just as we're hearing headlines about new non-res construction and things like that, we're – what I'm trying to gauge is, within your non-res business, what is the primary drivers, what's the mix of the business there between new non-res construction versus you know like a repair remodel or retrofit kind of application where somebody is coming in and just trying to the sufficiency of their building so forth.

Yes. So, okay, when looking at our commercial business and then breaking it down between new commercial and existing commercial, the existing commercial fees is very small. It's a very small percentage of the overall commercial revenue, which is – when you think about the products that we're installing particularly on the Alpha side of the business, they are typically not a retro application. There is some installation application that would be retro, but it's fairly small. So, the driver to your question, the driver of the commercial business is new construction.

Got it. Okay, that's helpful. And then, Michael you talked a little bit about the outlook for new res an starts and the lag and that sort of thing. But how are you looking at the other end market that you know the R&R for – more specifically non-res now, what's your outlook there? I mean I would guess it is probably pretty decent since you guy have been shipping away the additional acquisitions there, but could you give us any kind of thought about you guys see us in the cycle there for non-res? And what you are thinking about end market?

We feel very, very good about the organic growth that we've seen in the R&R. Again these are small – relatively small percentage of our overall business. You know R&R is about 7%. So, in the quarter, we saw a 17% organic growth in repair and remodel which is higher than you know – we were very pleased with that, because I think most people would expect that R&R growth to be sort of in the mid-single digits. So, if we add 17% again small percentage of our overall business, we felt very good with it. And then on the organic side, on the commercial side, we get nearly 10% growth on that, again that's including acquisitions, just on our existing commercial business. You know we feel very good that the trend there are very positive particularly when – what gets us very excited about the rest of 2017 is when we see what's going on in the single-family market as it relates to what I would talk about earlier both permit growth, order growth, surveys ads that you are seeing from the public builders, you know the bank lending data that you are seeing both on a mortgage perspective and also particularly on the land development perspective. So, we're very encouraged about what the single family market is going to do through the rest of 2017. It goes back to an earlier question about what does the lag look like between permits and completions, and as we've seen, like in 2015 when there is this high acceleration in single-family, you do get somewhat of a lag. So, the lag it gets longer than historical averages, but long-term you know and for the balance of 2017-2018 we feel very good about where the single-family market is headed. And as you know that is our bread and butter.

Right. Thanks a lot for taking my questions and good lucks guys.

Thank you.

Thank you.

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

Great. If I could thank all of you for your questions today, I look forward to our next quarterly call. Thanks again.

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