Installed Building Products, Inc. (IBP) Q3 2017 Earnings Report, Transcript and Summary

Greetings and welcome to Installed Building Products’ Fiscal 2017 Third Quarter 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, Mr. Jason Niswonger, Senior Vice President, Finance and Investor Relations. Thank you, Mr. Niswonger. You may now begin.

Good morning and welcome to Installed Building Products’ third quarter 2017 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. 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 impact of hurricanes Harvey and Irma, our estimated interest expense, the demand for our services, expansion of our national footprint, products and end markets, our ability to capitalize on the new home construction recovery, our expectations for the residential end markets, our ability to strengthen our market position, our ability to pursue and integrate value enhancing acquisitions, the impact of Alpha on our revenue and profitability, expansion of our commercial business, our growth rate and ability to improve sales and profitability and expectations for demand for our services and our earnings for the remainder of 2017. 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 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 Factors 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, adjusted gross profit and adjusted selling and administrative expense. You can find a reconciliation of such measures to their 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. Good morning to everyone joining us on today’s call. I am happy to have the opportunity to talk to all of you about our record 2017 third 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 questions. Sales for the 2017 third quarter represented another record for IBP as we benefited from strong residential sales growth, the contribution of recent acquisitions and a favorable revenue mix and pricing environment. Since our IPO in February of 2014, IBP has significantly grown sales and earnings and I am extremely proud of this performance. I would like to start today’s call by addressing the effects, Hurricanes Harvey and Irma had on our third quarter results. These unprecedented hurricanes cause significant damage to communities in Texas and Florida, which directly impacted IBP’s employees and customers. As a result of the hurricanes, we closed our locations in Texas and Florida during and in the days immediately following the storms. After our locations reopened, we have worked diligently through business disruptions within each market to support our customers’ needs. This including supporting customer’s closing schedules by returning to previously finished projects and completing needed repair work. In addition, we had crews arrived at job sites for installations, only to find certain locations were not ready for IBP’s services. These factors combined with each markets cleaned up in affected local infrastructure negatively impacted our efficiency, productivity and profitability during the quarter. During the storms and throughout the recovery process, we have focused on supporting our employees and local communities in their time of need. We incur direct cost associated with paying our employees, while our locations were closed as well as cost prepared for and cleanup from the damage caused by the hurricanes. All of our facilities in Texas and Florida are now open and did not incur any significant storm damage. In total, we estimate these events negatively impacted third quarter adjusted EBITDA by approximately $1.5 million to $2 million, across the IBP locations and Alpha locations in Texas, Florida and Georgia. Despite the effects of the hurricanes for the 2017 third quarter, IBP’s adjusted EBITDA increased 33% to a record $39.3 million compared to the same period a year ago. As the recovery continues in our efficiencies and productivity in these affected markets increase, we expect profitability will improve. Looking at overall trends for the 2017 third quarter, IBP experienced strong growth across many of our end-markets. Single-family same branch sales increased approximately 7%, while total single-family sales increased over 18% compared to the increase in total U.S. single-family completions of approximately 7%. Within the multifamily market, our locations benefited from robust demand and during the 2017 third quarter, same branch multifamily sales increased 60%, while total multifamily sales increased 103%. Combined, residential branch sales increased nearly 12%, while total residential sales increased 26% compared to an increase in total U.S. completions of approximately 8%. We expect residential end-markets to improve towards stabilization of approximately $1.5 million total housing starts over the next several years and our business will continue to benefit from the recovering housing industry. According to the U.S. Census Bureau’s historical data in the October 2017 Blue Chip consensus forecasts for housing starts, total U.S. housing starts are forecasted to increase at 5% compound annual growth rate from 2016 to 2018. During the 2017 third quarter, total U.S. housing permits increased 3%. This was primarily due to an approximately 9% increase in single-family permits. We expect residential end-markets to benefit from various factors, including improving employment, rising household formations and consumer confidence. Acquisitions continue to enhance our financial performance. In the third quarter, we completed four acquisitions, which included Kentucky-based energy savers with annual revenues of $2 million, Red Rock Insulation with locations in Nevada and Utah with annual revenues of $6 million, Astro Insulation with 2 locations in Illinois and $7 million of annual revenues, and Protective Coating, an installer of level rock floors in Appleton, Wisconsin, with $1.5 million in annual revenues. The acquisition of Alpha Insulation and Waterproofing, which was completed early in the first quarter, continued to have a favorable impact on sales and profitability this quarter. Alpha’s backlog remains strong and we continue to believe our commercial platform can support significant long-term growth opportunities across the country. So far in the fourth quarter, we have completed two additional acquisitions. This includes A+ Insulation, an insulation installer in Kansas City with annual revenues of $3.8 million and Building Solutions, an insulation installer in Tulsa, Oklahoma with annual revenues of approximately $2 million. Since July, I am excited to report that we have expanded our presence into three new markets including Kansas City, Louisville and Las Vegas. Year-to-date, we have completed 12 acquisitions representing a total of approximately $159 million of acquired revenues. We continued to deliver on our acquisition strategy and remain confident in our ability to identify candidates successfully integrate newly acquired companies and immediately achieve operating synergies through our scale and national buying power. Our pipeline of acquisitions remains robust with potential acquisitions in new geographies, products and end-markets and we anticipate the remainder of 2017 will continue to be another strong year of acquisition growth. IBP is well-positioned for another record year in 2017 and we are approaching over $1 billion in the annual revenues. IBP has a fantastic team of experienced, dedicated and motivated employees that will like to take all of them for all their hard work. I am especially proud of our team’s response in our Texas and Florida markets. Employees nationwide stepped up to help their colleagues impacted by the destruction caused by hurricanes Harvey and Irma. And finally, on behalf of everyone at IBP, I would like to also thank our suppliers as well as our homebuilding multifamily and commercial customers. We appreciate your support. We are committed to providing each of our customers with superior installation services. Michael, I would now like to turn the call over to you to provide more details on our third quarter results.

Thank you, Jeff and good morning everyone. We continue to make progress growing revenue and improving profitability. For the third quarter, our revenue increased 31% to $295.2 million. Despite the impacts of hurricanes Harvey and Irma, our same branch sales increased 9.4% due to an increase in volume and favorable improvements in price and mix. Our same branch single family sales growth was 7.2% and our total new residential construction same branch sales increased 11.7%. Additionally, we continue to experience strong performance in the commercial market. 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, sales were at $1.1 billion, an increase of 30% from the same period a year ago. This includes total same branch sales growth of 10.1%, which comprised 11% from our new residential end-market and 6% from commercial repair and remodel markets, all on the same branch basis. Third quarter 2017 gross profit improved 27.2% to $85.6 million from $67.3 million in the prior year quarter. However, gross margin declined slightly to 29% compared to 29.8% in the prior year quarter primarily due to the effects of hurricanes Harvey and Irma and expense associated with our recently introduced stock-based compensation program for certain of our installers. Gross margin would have been 29.2% adjusted only for this stock-based compensation program. For the 2017 third quarter, selling and administrative expenses, as a percent of net revenue declined to 19.1% as compared to 19.8% for the 2016 period. As a percentage of revenues, administrative expenses were 14.1% in the third quarter compared to 14% for the same period last year, including increased public company compliance costs, primarily associated with the transition to a large accelerated filer and approximately $1.7 million in non-cash stock compensation expense. Adjusting for non-cash stock compensation expense and acquisition-related expenses, selling and administrative expenses as a percent of net revenue improved by 110 basis points from 19.4% to 18.3%. We continue to expect selling and administrative expenses as a percent of net revenue to improve over time as we further scaled our operations and benefit from higher sales. As we have stated in previous earnings calls, it is 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 third quarter, we recorded $6.8 million amortization expenses compared with $2.9 million for the period last year. This non-cash adjustment impacts net income, which is why we continue to believe that adjusted EBITDA is the most useful measure of profitability. Based on our acquisitions completed to-date, we expect fourth quarter 2017 amortization expense of approximately $6.9 million. This figure will change with any subsequent acquisitions. For the third quarter of 2017, adjusted EBITDA improved to a record $39.3 million representing an increase of 33.2% from $29.5 million in the prior year. As a percent of net revenue, our adjusted EBITDA improved to 13.3% in the third quarter, representing an increase of 20 basis points from 13.1% in the prior year quarter. As Jeff stated in his prepared remarks, hurricanes Harvey and Irma impacted operating efficiencies during the quarter which reduced overall profitability by an estimated $1.5 million to $2 million. We continue to believe our financial model can return at mid-teens adjusted EBITDA margin as the housing recovery reaches stabilization. IBP’s same branch incremental adjusted EBITDA margin for the 2017 third quarter was 15.9%. The adjusted EBITDA margin contribution from acquired revenues was 13.2% compared to 12.8% for the same period last year. For 2017, IBP’s full year incremental adjusted EBITDA margins will be impacted by the seasonality we experienced in the first quarter and the impacts of the hurricanes we experienced in the third quarter. For the first 9 months, same branch incremental adjusted EBITDA margin is 15.7% and the adjusted EBITDA margin contribution from acquisitions is 14.2%. Long-term, we continue to believe our financial model can produce full year same branch incremental adjusted EBITDA margins of 20% to 25%. On a GAAP basis, our third quarter net income was $12 million or $0.38 per diluted share compared to net income of $11.5 million or $0.37 per diluted share in the prior year quarter. Our adjusted net income improved to $18.3 million or $0.57 per diluted share compared to $13.9 million or $0.44 per diluted share in the prior year quarter. For the third quarter of 2017, our effective tax rate was 32.3% compared to 36.8% in the prior year quarter. For the full year, we continue to expect an effective tax rate of 35% to 36%. Now, moving on to our balance sheet and cash flow. At September 30, 2017, we generated $53.3 million in cash flow from operations, which we continue to use to fund acquisitions and reinvest in our business. Capital expenditures at September 30, 2017 were $22.9 million, while total incurred capital leases were $4.1 million. Capital expenditures and incurred capital leases as a percent of revenue declined 30 basis points to 3.2% in the 2017 9 months compared to 2016 despite the 32% increase in 2017 year-to-date revenues. We continue to expect gross capital expenditures and incur capital leases to trend at approximately 3% to 4% of sales during this part of the housing recovery. At the end of the 2017 third quarter, we had total cash and short-term investments of $92.1 million compared to $14.5 million at December 31, 2016. At September 30, 2017, our total debt was approximately $344 million. Taking into account cash and short-term investments at September 30, 2017, our total net debt was $252 million at the end of the 2017 third quarter. Our capital structure remains conservative and we have considerable flexibility as we continue to deliver on our growth strategy. We anticipate net interest expense of approximately $4.4 million in the fourth quarter. This amount could change based on subsequent finance fleet purchases and short-term cash flow financing under our ABL facility. With that, I will now turn the call back to Jeff for closing remarks.

Thanks, Michael. In closing, I am very pleased with our financial performance during the quarter marked by significant challenges in Texas and Florida. With more than 30% growth in revenue and adjusted EBITDA, our financial results are another example of the strength of the insulation industry as well as the benefits of our acquisition strategy, geographic diversification and continued improvement within the overall construction industry. We are excited about IBP’s future opportunities and continued success as trends within the housing market remains strong. Operator, please open up the call for questions.

Thank you. [Operator Instructions] Our first question is from Bob Wetenhall with RBC Capital Markets. Please go ahead.

Good morning.

Good morning, Bob.

And nice job navigating all the hurricane disruption, let’s hope, Mike maybe you could clear up some confusion I am having and it looks like your reported same-store incremental branch margin performance was about 14%, but that’s – and that’s your long-term targets, but when you add back to $1.5 million to $2 million of hurricane impact from recent storm activity, it looks like the incremental same branch margin, there was more like 23% to 25% or 26%. Is that higher figure the right way to think about profitability in terms of making an adjustment for recent hurricane disruption?

Yes, Bob. Thanks for that question. Part of the disruption also came in the acquired businesses. So, it impacted not only the incremental margins from the same branch or existing business, it impacted the incremental margin from acquired businesses as well. And what we would say is that accounting for that, the incremental margins from the same branch or base business is consistent with the 20% to 25% range that we have talked about and also the improvement in incremental margins from the acquired businesses would have been consistent quarter-over-quarter.

Understood. That’s helpful. It sounds like operationally that you are working with at or above the height of the range. Jeff, could you give us an update on your expectations for installation pricing, some of the OEMs have talked about price increases and wanted to see what you are seeing in the field and how we are thinking about that going into ‘18?

Okay. I think what I would probably say is similarly to what I said last call in that just busier the industry gets in general and the more capacity that is utilized by the manufacturers, the more receptive the marketplace is pretty logically to the increases. As you probably know, there was an increase in September, also announced increase in at least by the number of the manufacturers in January. There are I think few capacity events that are scheduled to happen even yet this year and one and another one next year. So, I guess we could debate and have at times how fully utilized the supply manufacturer kind of chain is, but as I have always said, I mean rising price environment really I guess it bodes well for the entire economy, because it speaks to the overall healthy economy, healthy housing market and although that’s something that we all navigate it’s ultimately a good thing.

Yes, we believe setting us up to be positive year from a pricing perspective.

Got it. Just one final question, then I’ll hand it over. Toward pace of acquisitions, you have some great progress with acquisitions like Alpha to more recently announced smaller purchases, what’s the growth potential of the 15 acquisitions that you guys have made this year, how instrumental at this point in the cycle, how aggressive you want to get with M&A, what are your expectations for ‘18? Very nice execution, very strong quarter. Good luck.

Thanks Bob. Pipeline is robust, I mean, I know we are pretty consistent in saying that, but I got to say it’s as robust as it’s probably ever been. As we spoke to in our comments, we are particularly excited about some of the geographic expansion that we have had recently. We are also excited about in some instances entering new product lines we feel great about the opportunities for all of those businesses and really see no kind of clouds on the horizon at all as it relates to kind of that part of our strategy. We still believe – and it’s hard to comment on the general economy, let’s say and things outside of our control, but we still see the housing market, particularly having legs to run and so we plan to kind of stay on the same path for the discernible future.

Yes. I would say that the pipeline is the widest and deepest it’s been in the 20 years we have been working on acquisitions in terms of the types of deals, the products, the end markets. So, we are very excited about that opportunity. And as we have talked about in previous calls, we believe that our current capital structure gives us considerable flexibility to continue to perform on the acquisitions and in terms of it, I think this is part of your question about our expectations of growth from the acquired businesses and generally speaking, we would say that the acquired businesses are organically growing at a similar rate to our organic growth rate. So, we feel good about the deals that we are doing and we feel positive about our ability to continue to do.

Very encouraging. Good luck, gentlemen.

Thanks.

Thank you. The next question is from Susan McClary of Credit Suisse. Please go ahead.

Good morning.

Good morning, Susan.

I guess given the impact of the storms in the third quarter, can you just help us think about maybe how business has come back subsequent to that and how we should be thinking about perhaps an increased volume coming through relative to the normal seasonal trends that you see?

Yes. Susan, that’s a good question. I think that it was more of the impact on revenue in say the fourth quarter or in 2018, I think is going to be – the positive impact, if you will, is going to be fairly nominal, because most of the disruption came from delaying our ability into inefficiencies and the lack of productivity we had, because we were paying installers even though we weren’t able to get to job sites where there weren’t even able to get to our facilities. So, there is certainly houses that didn’t close, that will close in the fourth quarter and in the first quarter, but in terms of a big pickup in demand because of damage that we have done to certain houses that’s not necessarily expensive works, number one and number one, it’s just not going to drive our overall number. So, we would expect that pending impact in the fourth quarter of ‘17 or in ‘18 is going to be pretty nominal.

Okay, thank you. And then you noted in your remarks that Alpha continues to do well, it’s got a strong backlog. I guess, can you just give us a little bit more color there on how business is coming together and how their projects are trending?

Yes. I mean, Alpha is similar to my previous comment about acquisitions. I mean, they are trending particularly on revenue along with our expectations and they are continuing to look at and starting the process of opening additional locations, which is definitely a key part of our strategy with Alpha and they are getting jobs in new markets and we are very encouraged by what we are seeing there operationally both from a revenue perspective and a year-over-year improvement.

Yes. I mean, in Alpha, it’s Jeff obviously, but Alpha was clearly a platform play for us, which would imply in my mind at least partially acquisition opportunities, which we will continue to pursue in that business, but ultimately really it maybe even more importantly is an opportunity for organic growth and they have done a great job so far even in the short period of time that they have been in the fall at pushing, opening new locations in markets that are relatively contiguous to the markets they are already in and that’s really the way they grow, but we are particularly excited about the organic opportunities with Alpha.

Okay. Thank you.

Sure.

Thank you. The next question is from Keith Hughes of SunTrust. Please go ahead.

Hi, good morning. This is actually Jake on for Keith. I am just curious on gross profit with the mix in the quarter, did that impact gross profit at all or maybe anything from Alpha as well?

Gross margin gross profit were – in the quarter were much more impacted by the hurricanes, because really that’s where the extent if you will associated with that came in. So, that if you look at making that adjustment which we did in any of the numbers, but it definitely is in line with what we would have expected. So, the gross margin was more impacted by the hurricanes than it was by price mix or product mix.

Okay, thanks.

Thank you. The next question is from Scott Rednor of Zelman & Associates. Please go ahead.

Hi, good morning, Jeff and Michael.

Good morning. How are you?

Michael, I know you don’t like to give any forward guidance, but I was hoping you could quantify the sales impact from the storms in the quarter, maybe you could talk about where you are running July and August and then September, just so we could get some flavor for the 9.4% same-store how that kind of trended?

Yes. So, we estimate that the revenue impact was somewhere between $4 million to $6 million. Keep in mind too that the quarter compared to last year had one less selling day as well, which I know doesn’t seem like a good matter, but that does matter as well. And so there were a couple of headwinds if you will as it relates to volume growth and same branch sales growth. We definitely are encouraged as we are starting the fourth quarter in terms of the activity that we are seeing, but we are only one month into the quarter. So, we will see how it goes, but as you know historically the third and fourth quarter are tend to be our best quarters. So we are looking forward to a good solid rest of the year.

Yes, please go, yes.

Yes, so I was just going to say though, I would say though like going into ‘18 just from what you are seeing it as well as we are just some of the numbers on the permits and the starts which are good future indicators of demands for the single family side as well as what we are seeing from some of the builders and new home orders. We are very encouraged about what ‘18 is going to look like for the whole industry.

So the rough math you could have been running low double-digits you add back to storm, you add back today and you are probably several 100 basis points higher than that in July and August, is that a fair representation of where the business is running?

It is reasonable, but as you prefaced your question, it was the fact that we don’t like to give guidance, I would say that, that math is the right math.

Thanks for that. And one last one, the step up in the share-based compensation that you called out for the installers, I was hoping one, you could just give more clarity on the mechanics of that, because I think that will continue to run through net income for a period of time, but also the strategic play with that as well?

Sure. I will talk a little bit about just the kind of mechanics of it and let Jeff talk a little bit more about kind of the long-term benefits that we believe we are going to experience from that. But yes, so, it’s – we as a company and sorry if I have not given you too much information or background on this, but we as a company believe that engagement with our employees is absolutely critical. So, we have worked very hard at all certain levels to increase that engagement and one of the ways is for us to award stock to really as many people in the company that we think is that makes sense and that includes the installers that are the key employees for us, because they are the ones out there every single day making it happen. And as a consequence, we started this program where we are awarding based upon longevity to the installers at certain level of stock and it’s really not about the dollar value of the stock that they are seeking, we believe it’s more about the fact that they are actually receiving stock. So, over as this program is something we are going to continue to have in place and so over time you will see that in gross profit, there will be this stock comp expense. It has to be in gross profit from a GAAP perspective, because you align that compensation to where it is in the income statement. So, again it’s an expense that’s going to be there. We think – and Jeff will speak to this, but we think it long-term, it really helps with retention of our installers and acts as a great tool to recruit people.

It’s Jeff. But, first and foremost, we have embarked on both of these programs both are momentum on up installing financial confidence program where we are helping really anyone in the business that makes under a certain threshold we are helping them save dollars and create a safety net and then become a little more financially literate and educated around some things that quite frankly are confusing to lot of us kind of life skills financially. So, we have both that program and we have the stock program that Michael has referred to and quite frankly we did in both instances, we have embarked on this, because it’s simply the right thing to do. Now having said that, we do believe that there is math and economics behind it that make it not only the right thing to do, but in the long haul the right thing for the business to do from an economic and math perspective. So, is it an immediate payback? Probably not. Is turnover and retention expensive to our business? Absolutely. And we have looked at it and believe even on more of a kind of a hard cost, hard dollars basis, it makes sense for us and that’s even before we would look at it and get benefit from the capacity building that we hope it does for us by basically be able to – enabling us as a company to be the employer of choice and to build a workforce that we are able to build faster, greater than we would without these and therefore take care of – take care of extra business, extra market opportunity that we otherwise could. That’s the logic. And it’s the right thing to do.

Thank you very much.

Thank you. Next question is from Matt McCall with Seaport Global. Please go ahead.

Thanks. Good morning, guys. So Michael, you talked about the impact of revenue from the hurricanes, looking at same branch sales growth, it was only equal to Q3 single-family completions, I understand that both are profitable growth and I understand that the need to look at the rolling averages as you referenced, but is there any – are there other pressures that you should or could call out Q3 and/or did you see more pressure in existing branches from the hurricane in that $4 million, $6 million maybe was skewed a little bit more toward existing branches which would impact that same branch number?

Yes, that’s exactly right. So, we estimate that about a third of the impact from the hurricanes within the acquired businesses and about two-thirds of the impact within the same branch or existing business. And keep in mind it would put most pressure on single-family as well, right.

Right, okay. Okay, got it. And so price mix, I think it was double what you did and almost double what you did in the first half, is there anything to call out there, I noticed that needs to be as you talked about that mid single-digit type number for a while, 6%, but is there anything to call out there that we should think about as we look forward?

No. I mean we are still in the – that sort of again mid single-digit and I think we like to think of that number on a full year basis as opposed to quarter-to-quarter. And as you know on an annual basis, we have really been consistent in that mid single-digit price mix growth. And then as you also know there are lot of things that influenced that in terms of types f jobs and kind of mix of business, customer mix, there are lot of things that implements that, but it has been very consistent in that mid single-digit and there is nothing that we see that would change that although I would say that as we have said on many calls that a rising price environment on the material side which we believe that ‘18 provides the right backdrop for that would obviously increase the price mix over time.

Okay, okay. That’s helpful. Two quick ones. So, the gross margin you say, I think you said it would have been in line if you adjust for the hurricane, so is the easy math just taking the $4 million to $6 million on the top line and the $1.5 million to $2 million assuming it was mostly gross margin. Is that the way to get it what your expectation was from a gross margin perspective in the quarter?

Yes.

Okay. And then I will sneak one more. The selling expenses 4.8% last quarter, 5% this quarter, is that the right ballpark now that when you have layered in the additional stock comp. How much – I guess how much seasonality is that – is that the right way to look at it, just giving some more help?

Yes, that’s a great question. I am actually pleased that you asked it, because we have always talked about selling expenses being in kind of 5% to 6%, 5.5% to 6% range. One of the things that the Alpha business is doing is their selling expenses tend to be a little bit lower as a percentage of revenue and they are bringing that number down a little bit, so instead of us saying 5.5% to 6% that would probably range closer to 5% and 5.5% on a full year basis. So yes, there is improvement in selling expenses that the Alpha business is bringing on a combined basis to the business.

Okay, perfect. Alright, thanks, Michael.

Thank you. [Operator Instructions] The next question is from Nishu Sood of Deutsche Bank. Please go ahead.

Thank you. So, first I wanted to ask about the insulation growth rate, there has been a deceleration this year in that to kind of mid-teens year-over-year growth rate. Now obviously there is some influence from your shipping product mix, the commercial acquisitions as well as the related product category acquisitions, but even if you take that into account, it seems to have slowed down a little bit versus prior trends. I was wondering if you could just kind of dig into that a little bit, is there even on your core insulation business, is there a shifting product mix or what – help us understand that please?

I mean, we have been very pleased with the growth that we are seeing on the insulation side. I think it goes more towards your point relative to the fact that with Alpha coming in, there is a shift to the other end-market – or the products and you are seeing that sort of influence the overall combined percentages. I would say, spray foam growth has not been as high as fiberglass growth during the year and during the quarter, which is a little surprising quite frankly, but I think that’s just a question of timing. So, we feel very good about the growth that we are seeing and the overall mix of the business we think is improving, because we are getting a balance from these other products, because of outflow and other things that we are working though as we talked about in previous quarters. We are pushing hard the cross-sell of other products into our existing footprint, which we think is absolutely a right strategy to diversify our revenue streams. So, we feel very good about the revenue growth that we are seeing really across all end-markets and end products.

Got it, got it, okay. The valuation multiple, the environment for per acquisitions, obviously it’s gotten a little more competitive over time, what effect if any has that had on the valuation multiples on your more recent acquisitions versus before the acquisition that came before those?

If you look at our average adjusted deal multiples both for deals in the pipeline and deals that have been completed, I mean they are very consistent from ‘16 to ‘17.

Yes, got it, got it. And Jeff, I would like to get the update every so often on labor, you folks have clearly managed that very well and obviously in your labor, obviously in services of vertical here, the dynamics have been favorable as well. It continues to be pretty talked about subject and so just wanted to get the latest update on what you are seeing?

It is without a doubt as tight as it’s been, arguably probably more tight. It’s an effort really everyday for any of our managers, but that’s what we do. So, it’s probably as hard and tight as it’s been on the one hand. On the other hand, we have been able to both source and retain enough employees to manage the growth rates that we have been able to put on the board. I think, going forward, we have some opportunities, there is no doubt that, obviously wage rates and things are up and that there is pressure in that way. I think on a go forward basis giving the material price situation, we have got an opportunity I think to maybe recoup some of that which we have been able to – we have hand to kind of put out the door to stay where we are. We are working on a few new initiatives in terms of sourcing employees and it’s actually still kind of a place where we are really trying to put focus around both sourcing our workforce in the right places and then doing a better job of retaining those type that we have put time and effort into training, but as Jeff said, I mean, every single day, our field management team is doing an amazing job, we believe of making sure there is good well skilled labor and the things and the efforts that we are doing from a retention perspective in terms of selling financial confidence on our program and the stock comp awards, we believe all those things over time really help us continue to move the business forward in a strong organic basis and to make sure that we are working with the right customers in each of our markets.

Okay, great. Thank you.

Thank you. At this time, I would like to turn the conference back over to management for closing comments.

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

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time and thank you for your participation.