Installed Building Products, Inc. (IBP) Q3 2022 Earnings Report, Transcript and Summary

Greetings, and welcome to the Installed Building Products Fiscal 2022 Third Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Darren Hicks, Managing Director of Investor Relations. Thank you. You may begin.

Good morning, and welcome to Installed Building Products Third Quarter 2022 Conference Call. Earlier today, we issued a press release on the financial results for the third quarter, which can be found in the Investor Relations section of our website. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include statements about future expectations, anticipation, beliefs, estimates, forecasts, plans and prospects. These forward-looking statements are based on management's current expectations and involve risks and uncertainties. Any forward-looking statements made by management during this call is not a guarantee of future performance and actual results may differ materially as a result of various factors, including, without limitation, the adverse impact of the COVID-19 crisis, general economic and industry conditions, inflation and interest rates, the material price and supply environment, the timing of increases in our selling prices and the factors discussed in the Risk Factors section of the company's annual report on Form 10-K as may be updated from time to time in our SEC filings. Any forward-looking statement speaks only as of the date hereof. The company undertakes no duty or obligation to update any forward-looking statements as a result of new information or future events, 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, adjusted net income per diluted share, adjusted gross profit, adjusted gross profit margin 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 and additional reconciliation for adjusted EBITDA for earlier fiscal quarters in our investor presentation, which are 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; and we are joined by Jason Niswonger, our Chief Administrative and Sustainability Officer. I will now turn the call over to Jeff.

Thanks, Darren, and good morning to everyone joining us on today's call. As usual, I will start the call with some highlights and then turn the call over to Michael, who will discuss our financial results and capital position in more detail before we take your questions. I am pleased to report IBP achieved another quarter of record net revenue, net income and adjusted EBITDA, which was led by a favorable volume and pricing environment across our residential end markets and the hard work of our team members. Beyond the record results, our role in creating a sustainable future through installing products that promote energy efficiency is an important component of how we define success. During the third quarter, we published our second annual ESG report outlining the progress we have made along our ESG journey over the past year. Since our inception, we have worked hard to promote the culture of doing what's right and we believe we can continue to make a positive impact in the lives of our employees and the communities in which we operate. The dedication of our team members remains extremely important as we navigate an increasingly complex economic, social and business environment. To everyone at IBP, thank you for your commitment, your hard work and a tough job always done well. Looking at our record third quarter results, we experienced another quarter of excellent residential sales growth. For the quarter, within our installation segment, we experienced a 35% increase in residential same-branch sales from the prior year period, which was driven by a 35% increase in single-family same-branch sales and a 33% increase in multifamily same branch revenue. By comparison, total U.S. residential completions increased by 6.5% during the third quarter. While completions growth did improve both sequentially and year-over-year, we believe U.S. housing completions continue to be affected by labor, material availability and extended residential construction cycle times. During the third quarter, price mix increased 27% over the prior year period. Consistent with the inflationary trends in the construction industry and the increasing demand for our services, our pricing efforts and stabilized product mix compared to the prior year have contributed to the largest quarterly increase in price mix we've achieved since becoming a public company. We continue to make prudent adjustments to align our pricing with the value we offer our customers in ongoing inflationary trends. Additionally, the supply chain for many of the building products and materials we install remain constrained during the third quarter. We anticipate that supply chain tightness will continue to persist, but our experience managing through this environment over the last 1.5 years has prepared us for future challenges. We are closely watching our markets for changes in residential activity as the homebuilding industry navigates a rising mortgage rate environment. We continue to believe IBP is better positioned than in any other time in our history to manage the business throughout the U.S. housing cycle. In addition, we believe the elevated number of houses currently under construction according to the U.S. Census Bureau should remain supportive of our residential business throughout 2022 and into 2023. Within our commercial business, same-branch sales increased 3% in 2022 third quarter with bidding activity remaining stable and project bid acceptance steady relative to the 2022 second quarter and we remain focused on improving our operational efficiency. Looking into our acquisition strategy, we continue to prioritize profitable growth through acquiring well-run companies that install insulation and complementary building products. During the 2022 third quarter, we acquired an Orlando, Florida-based installer of spray foam and fiberglass insulation to residential, multifamily and commercial customers with annual revenue of approximately $2.4 million. Our acquisition pipeline remains robust and includes opportunities across multiple geographies, products and end markets. To date, in 2022, IBP has acquired over $73 million of annual revenue. As a result, we believe 2022 will be another strong year of acquisition growth and we expect to acquire at least $100 million of revenue. As we look to the remainder of 2022 and beyond, we remain encouraged by our market opportunity and our relative position as a leader in the insulation and building products installation industry. In order to make the most of the opportunities ahead of us, we anticipate that effective management of our supply chain will continue to be a priority. Our team will continue to work with our suppliers and customers to help ease industry-wide supply chain challenges. With access to labor, a strong position with our customers and suppliers and a healthy backlog, we believe 2022 is shaping up to be another successful year, focusing on our strengths, executing our growth strategy and creating value at IBP. So with this overview, I'd like to turn the call over to Michael to provide more detail on our third quarter financial results.

Thank you, Jeff, and good morning, everyone. Net sales for the third quarter increased to a quarterly record of $719 million compared to $510 million for the same period last year. The 41% year-over-year improvement in sales during the quarter was mainly driven by an increase in price mix, a higher volume of customer jobs completed and the revenue contribution from recent acquisitions. From a segment standpoint, installation revenue increased 34% to $673 million, driven by strong growth across IBP's residential new construction market. Other revenue, which includes IBP's manufacturing and distribution operations increased from $5.6 million to $46.2 million, driven by strong operating results and the recent acquisitions of AMD Distribution and Central Aluminum. On a pro forma basis, the other revenue segment increased 18% in the third quarter of 2022 compared to the 2021 third quarter. On a same branch basis, installation revenue improved 28% from the prior year quarter, driven by single-family same-brand sales growth of 35%, multifamily same branch sales increased 33%. Our 2022 third quarter residential same-branch sales growth was 35% above the prior year quarter. While we experienced strong overall installation sales growth, the lingering effects of the COVID-19 pandemic continue to moderate growth in our commercial end market. Installation, same-branch commercial sales increased 2.8% in the 2022 third quarter. Adjusted gross profit margin improved 10 basis points year-over-year to 30.8% in the third quarter as we realigned our selling prices to reflect the quality of service we provide, inflationary pressure and material supply shortages. It's important to highlight that our operating segments have different gross profit profiles. During the 2022 third quarter, our installation operating segment's gross profit margin was 33.1% compared to the other operating segment gross margin of 21.1%. We believe it's relevant to note the segment impact on our reported gross profit margin since our other operating segment includes our more recent acquisitions in the distribution business. The distribution businesses did not have an impact on the prior year third quarter as they had not been acquired at that time. The other segment impact reduced the 2022 third quarter consolidated gross margin by about 80 basis points. Adjusted selling and administrative expense as a percent of third quarter sales improved approximately 180 basis points from the prior year period to 15.7%. The year-over-year improvements in selling and administrative expense relative to sales during the third quarter reflects our ability to leverage administrative costs during periods of strong volume growth and higher operating expense leverage at the distribution businesses. On a GAAP basis, our third quarter net income increased 75% from the prior year quarter to $61 million or $2.13 per diluted share. Our adjusted net income improved 63% to $72 million or $2.51 per diluted share. During the third quarter of 2022, the acquisition of new businesses increased our recorded amortization expense to $11 million compared to $9 million for the same period last year. This noncash adjustment impacts net income, which is why we continue to believe that adjusted EBITDA is the most useful measure of profitability. Based on recent acquisitions, we expect fourth quarter 2022 amortization expense of approximately $11.1 million and full year 2023 expense of approximately $41.4 million. We would expect these estimates to change with any acquisitions we closed in future periods. Adjusted EBITDA for the third quarter of 2022 improved 54% to $120 million. Adjusted EBITDA as a percent of net revenue was 16.7% for the 2022 third quarter, a 140 basis improvement from the same period last year. Same branch incremental adjusted EBITDA margin was 24.7% for the third quarter, near the high end of our targeted full year long-term range of 20% to 25% compared to 13.2% for the same period last year. For the 2022 third quarter, our effective tax rate was approximately 26.6% and we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31, 2022. Now let's look at our liquidity, balance sheet and capital requirements in more detail. Our business model continues to generate strong operating cash flow. For the 9 months ended September 30, 2022, we generated $199 million in cash flow from operations compared to $116 million in the prior year period. The year-over-year increase in operating cash flow was primarily associated with higher net income, which offset increased net working capital requirements from our 38% increase in net revenue during the first 9 months of the year. At September 30, 2022, we had $311 million in working capital, excluding cash and cash equivalents and investments. Capital expenditures and total incurred finance leases for the 9 months ended September 30, 2022, were $37 million combined, which is 1.9% of revenue compared to 2.1% for the same period last year. Through interest rate swap agreements, we fixed the interest rate on $400 million of our existing variable rate debt until December 2028, limiting our interest rate exposure. Also, we have no significant debt maturities until 2028. At September 30, 2022, we had a net debt to adjusted trailing 12-month EBITDA leverage ratio of 1.6x compared to 1.9x at December 31, 2021, which is well below our stated target of 2x. With our strong liquidity position and modest leverage, we continue to execute on our acquisition strategy and return capital to shareholders. During the first 9 months of 2022, we have returned $166 million to shareholders through dividends and share repurchases. IBP repurchased 1.2 million shares of its common stock at a total cost of $112 million during the first 9 months of 2022, which includes nearly 142,000 shares repurchased during the 2022 third quarter at a total cost of $13 million, including commissions. At September 30, 2022, we had $188 million of availability remaining under our stock repurchase program. Today, we announced that IBP's Board of Directors approved the fourth quarter dividend of $0.315 per share, which is payable on December 31, 2022, to stockholders of record on December 15, 2022. We are committed to continuing to grow the company while returning excess capital to shareholders through our dividend and share repurchase programs. With this overview, I will now turn the call back to Jeff for closing remarks.

Thanks, Michael. I'd like to conclude our prepared remarks by once again thanking IBP employees for their hard work, dedication and commitment to our company. Our success over the years is made possible because of all of you. Operator, let's open up the call for questions.

[Operator Instructions] Our first question comes from Stephen Kim with Evercore.

Appreciate all the color. You -- I think last quarter, if we look at our notes, we see that you talked about anticipating there will be another price increase from the manufacturers, which, of course, on the fiberglass side, which, of course, actually turned out to be true. I was curious if you could talk about how you're seeing that pricing flowing through? Or are you getting any pushback from customers that manifested itself in 3Q sales? Are you -- are there certain areas of the market where maybe you're getting greater pushback than others?

Stephen, this is Michael. I would say that there was not an impact in Q3 from the announced price increase because it hasn't taken effect yet. And it's probably still too early to assess or determine exactly how much the market is going to take relative to that price increase because it always takes time to see how it ends up being accepted by the marketplace.

I guess I was referring to just pricing in general because there have been price increases. So certainly, I understand that we have a December price increase coming as well. But in terms of just price pushback, in general, given all the inflation that we have seen, put through over the last couple of years, that's kind of what I was referring to, did you see any of that sort of manifesting itself in 3Q?

Our customers continue to be primarily focused on working through the backlog of homes that exist right now and they continue to value the quality of our service and install the products that we're installing. So we continue to stay focused on working with our customers to make sure that that backlog is managed as effectively as possible and that they can get their homes finished closed and sold as quickly as possible.

Yes, that makes sense. Just a housekeeping item, installation revenues and other revenues, could we get that number for 4Q '21? I think we have most of the other numbers we need, but not for that period. If that's a number you can give us, that would be great. And then also, I just wanted to follow up on the AMD distribution business you acquired on almost a year ago. At that time, you wanted -- you talked about wanting to be mindful of potential channel conflict, but you also wanted a platform that was big enough to scale quickly. I was curious if you could give us a sense for how has that scaled? And how have you been able to manage the potential channel conflict?

This is Jeff. So I mean we knew though -- I mean, when we say we wanted to buy one that was a platform big enough to scale, I mean, this will take time, clearly. And I believe we probably said that. And primarily, they're doing business in the western -- more western states. Believe it or not, a lot of the business that AMD does, we don't have a channel conflict -- they're fairly penetrated in kind of the ag business to a degree in some of the smaller markets where we don't do a whole lot of work. And really, for us, it was a matter of trying to improve in essence, the buying of some of the supplies and things that we would typically not be able to buy direct. And we just continue to try to develop that really every day. But like everything else with supply chain issues and COVID, it just takes longer than you'd like today. But I think, ultimately, it still was the right decision, and we'll get it there in that regard, too. And they're doing a little bit of laminating material for us and some other things that make sense, too.

Is that the metal building insulation, is that what you mean?

Yes, we also -- we install a lot -- in certain markets, a lot of basement blanket that has painting on it. And so we're looking into that idea too. And rather than buy everything from a third-party laminator because not all the fiberglass manufacturers actually laminate their own product. I think that's an opportunity for us too.

And then to answer your question about the other segment in the fourth quarter of last year it was roughly $12 million. It was roughly $12 million of revenue.

That was the other segment?

In the fourth quarter of '21. But keep in mind, the distribution acquisitions, both AMD and Central Aluminum really didn't contribute very much revenue to the fourth quarter last year.

Our next question comes from Mike Rehaut with JPMorgan.

Doug Wardlaw on for Mike. First question is, how should we think about decremental margins in mid-down market, say, 10%? And would that lead to any timing changes? How should we kind of think about that moving forward?

Well, any one that assumes that we would have a decline in revenue in that kind of environment. But if we did see a decline in revenue, so much of it really depends on the timing of when we experience the decline. Keep in mind that we do have a lot of advanced knowledge, if you will, both from macro metrics that we received from the U.S. Census Bureau as well as from our customers in terms of whether or not there's going to be any slowdown. That gives us tremendous opportunity to readjust our highly variable cost to meet our expectations of future demand. So we have talked about decrementals being similar to our incremental of sort of 20% to 25%, but we believe we can very effectively manage that knowing that we have a decent amount of time and that we have really very little "true fixed cost" and the ability to adjust those variable costs, again, to meet the demand that we know is coming from a combination of our customers and some of the macro information that's available.

Great. And then lastly, can you give some insight on some trends you're seeing in single-family, multifamily, respectively? And where do you think that's going moving into 2023?

Well, I think there's 2 parts to answer that question because clearly, we're seeing a deceleration in single-family orders, single-family permits and single-family starts. However, the single-family backlog continues to be at highly elevated rates. And once a builder starts a house, they finish the house, right? So we're continuing to see a lot of demand for our services and installed solutions on the single-family side. On the multifamily side, which has been really -- our team has done an incredible job of gaining market share and really improving our presence on the multifamily side. I think as everyone well knows, the backlog in multifamily is really quite unprecedented. I mean if you look at just the units in backlog right now, it's a single-family -- roughly half single-family, half multifamily. I mean, the multifamily backlog so based on historical averages, one can argue is multiyear. So we're continuing to see very good demand trends on the multifamily side. But -- and very good demand trends on the single-family side, but we can't ignore the fact that what's happening on the completion stores and orders on.

But I'd add still though that labor, even though we've been able to manage through it, labor remains tight. And although supply chain disruptions and issues are getting better, it's still not easy and it's still problematic in terms of continuing to cause an elongated build cycle and therefore, we're remaining busy.

Our next question comes from Susan Maklari with Goldman Sachs.

My first question is, you mentioned in your prepared comments that the supply chain continues to remain constrained. Can you just give a bit more color on where you're seeing those pressures and any improvements or any moves that you've seen more recently there?

Yes. We would say that it's definitely gotten better. There's no doubt about that. Spray foam, which is a fairly important product for us is finally lessening up in terms of the availability of both open cell and closed cells. So that's very encouraging. I would say the other products outside of fiberglass, we're seeing decent availability partially because we've adjusted to the extended lead times in terms of getting those products. And as I think most people on this call probably realize that fiberglass is still under allocation, but we would say it's getting better and not getting worse, that's for sure. But we're in kind of what we consider to be loose-fill season right now because it's the fall. So that creates a little bit of tightness for loose fill. But I would say we feel better now than we have in probably the past 18 to 24 months about the availability of material.

I say longer than that because it's certainly not pre-code and flow, but it's certainly better, as Mike said. Yes.

And then you also mentioned that the other segment reduced your gross margin by about 80 basis points in the quarter. As we think about what you're seeing with AMD and the price cost that is coming through the business, how are you thinking about the broad trajectory? I know you're not going to give guidance, but just sort of the broad trajectory there and the ability to kind of sustain those level of profitability that you're seeing on the gross margin line?

Well, the reason we specifically called it out was just because the impact of the other segment was fully realized, if you will, in this quarter. And we believe it will have a similar impact on future quarters. We do feel good about that business. We think there's a lot of opportunity over time to recognize the benefits, which we've talked about. That business, while, yes, it structurally has lower gross margins than the installation business. It does have very good OpEx leverage. So the EBITDA margin contribution from those businesses tend to be similar to the overall company average.

Our next question comes from Adam Baumgarten with Zelman.

Just a question on industry fiberglass capacity as we look out to next year. I mean, do you have a sense for -- given all the planned maintenance across the manufacturers, what percentage of total industry capacity may be down at some point next year?

We would say roughly mid-single digits.

And then just maybe on commercial. I know you gave same-store sales growth of about 3%. Can you maybe break that out between heavy and light commercial?

Yes. So we experienced -- it was a challenging quarter for us in the heavy commercial business, and we did see organic declines in that business, but we saw a very good strength in the light commercial business. So we've been -- we're continuing to focus less on volume in the heavy commercial business and more on profitability. And we're going to continue to focus on that through the rest of the year and into next year. So.

Our next question comes from Jeff Stevenson with Loop Capital.

Congrats on a nice quarter.

Jeff, thank you.

So I'm just wondering how we should think about organic volume growth on the installation side as we move into the fourth quarter. So the elevated housing backlog should support positive volumes through early next year. But are you expecting a deceleration in year-over-year volumes from the high single-digit rate you've reported the last 2 quarters?

Well, we've always -- I mean, we don't provide guidance. We've always talked about volume being sort of a mid-single-digit number. We -- the volume number, obviously, moves with completions. There's not always a one-for-one correlation, but it trends very closely to completions over time. So we would expect that trend to continue going into '23 and '24. And to the first part of your question, yes, the backlogs are very elevated, and we believe that is constructive for a positive completions environment through '23.

And then the M&A pipeline sounds active right now and I know you plan to be active on the acquisition front throughout the cycle. And I just wondered, do you believe there could be an increase in motivated sellers and kind of more attractive valuation levels as we move into 2023, given the uncertainty on the residential side?

This is Jeff. Yes, maybe some a little, but I mean, I would say having been in and around the business for, I guess, close to 30 years now. There's been a number of cycles and usually, I mean, unless there's an age or a health issue or something like that, if there's not circumstances under which a seller can kind of get what he feels is a life work just lean paid for or it doesn't from whatever you can get doesn't provide for what he's expecting kind of ultimately in retirement, it doesn't line up. So they end up pretty much kind of continuing to run the business. But will it be a little less frothy probably.

Our question comes from Keith Hughes with Truist.

On your tremendous price/mix numbers in the quarter. Can you give any more details on mix, where mix is helping you and particularly going to a downturn kind of turnaround to a negative single-family falls off faster than other markets?

Keith, this is Michael. So really, the past couple of quarters, mix has not been a headwind either through production builder work or through the other products. So a lot of the price/mix growth, not all of it, but a lot of the price mix growth is really price job price. In terms of what will happen with price/mix if single-family changes, it really depends upon the rate at which it does. And we would not -- well, I guess I should back up and say the price/mix growth that we've experienced this year and particularly in the back -- the second quarter and the third quarter, we're coming next year into very tough comps. We believe it will be an environment that is not the inflationary environment we're in right now. So we would not -- we would expect price/mix to normalize next year as opposed to being at these extremely elevated rates or levels, and we think that makes sense. The mix turning negative in the price/mix calculation, again, really just depends upon the timing. I think if that's going to -- if it does happen, it would probably happen more towards the back half of next year versus the front half of next year.

Our next question comes from Phil Ng with Jefferies.

This is actually Collin on for Phil. I was just wondering if you could quantify the size of those backlogs or maybe how far out your booking jobs in both residential and commercial that gives you confidence into early 2023? And then when you would expect to see the impact of any slowdown come through your volumes?

So on the multifamily side and commercial side, I mean, our backlogs extend through '23, and we're continuing to see good bidding and good acceptance of bids in both the multifamily and commercial side of the business. On the single-family side of the business, honestly, it is really dependent upon the trades in front of us and how quickly they can get the houses ready for us to do the install work and the ability of the industry to complete the backlog that's there. I mean if you look at it just at the macro information from the Census Bureau, we continue to be very elevated from a cycle time perspective. And we believe that the backlog in the single family at a macro level is supportive of -- again, single-family completions, single-family construction through '23. But clearly, all the information that is out there on a macro level from the Census Bureau would point to weakening in the second half of '23. Absent a change in the current trajectory, if you will, of starts.

And then just a follow-up question. Commercial has been a little bit of a slower growth coming out of the pandemic. What do you see in terms of the commercial outlook? And how do you think about the impact of a slower residential construction environment on your light commercial business?

Well, the light commercial business, as you know, is more closely tied to single-family than the heavy commercial side of the business. So it has a tendency to trend to single family, but it does trend behind single-family, both going up and coming down. So we're still feeling very good about the light commercial business. The heavy commercial business, I mean, if you look at, again, and I'll point to the macro information that's available. I mean, I think the leading indicators, if you will, there would say that it's in a different kind of growth environment or growth expectation relative to where single-family is or has been on starts and orders perspective.

Our next question comes from Mike Dahl with RBC Capital.

This is actually Ryan Frank on for Mike Dahl. I wanted to come back to the pricing side. I understand kind of the dynamics going on, but more just simply around the comps that you guys are going to start lapping, I mean, how quick of a -- how quick of a deshell do you think this could be? Is it something that we could start being flat in 1Q next year? Or is it -- have more legs to it?

So I'm sorry, would you ask that question again?

So really, just trying to get a sense for -- I mean, you guys are -- you said it the comps that you're coming up against some price starting 4Q and into next year are pretty significant. So assuming pricing kind of just stays where it is now, how quickly should it deshell into like a low mid-single-digit range?

Well, it would -- I mean, if you just look at sort of where we've been over the past couple of quarters -- we would expect that we're going to have a more normalized price mix as we're going through '23, right? And that's a function of, one sort of lapping the price/mix that we've had over the trailing sort of 4 quarters, if you will, combined with what we believe will be a much more benign inflationary environment going forward.

And do you think -- I mean, I could see a step function lower starting next quarter? I guess just kind of surprised to see a sequential increase this quarter.

Well, we continue to work very closely with our customers and our suppliers to make sure that price costs are aligned properly. And we do that all the time, and we'll continue to do that.

And then just a follow-up on the M&A. I mean, we're only 2 months away from the end of the year. And I think you're still saying that you're going to acquire an additional $25 million. Are there some bigger deals in the pipeline at this point?

Well, I'm not sure what you're assuming in terms of average revenue per acquisition. I mean, I guess simple. But I mean, we've been -- it's been all over the board really in the last 2 to 3 years. So I mean the pipeline is pretty decent, I would say, on average, yes, some of the deals that are out there, again, not materially any larger, but yes, a little larger. So -- yes. And I would say we still feel very confident about hitting the target this year. But I will say this, is that acquisitions, to some extent, have a life of their own, if you will. And sometimes, when you get towards the end of the year, a seller likes to wait until January to close just from a tax management perspective. So we think we will get to that $100 million target. May it slip into January a little bit, that's potential. But based on our current pipeline, we feel pretty good about getting a couple of what we think are really solid deals done between now and the end of the year.

Our next question comes from Ken Zener with KeyBanc.

Michael, I realize you want keep any comments very close to the chest. So Jeff, [indiscernible] me 30 years, which is -- that's clearly some perspective you have. I'd suggest we've never had the macro inflation headwinds we've had now. So Michael, could you talk to the dynamics as we forecast, that's our job, changes in price and changes in volume, focusing on the residential dynamics. Can you talk to how we should think about -- if you knew you were going to have a 20% decline 2Q, 3Q because the builder starts are down 25% right now. Not -- it's just a matter of time that completion lag cycle time to start normalizing. But can you talk about how the volume with your branches being largely variable cost, how that would flow through? And then the price tailwind, which you guys might have been ahead, you might have been behind. But obviously, prices -- Jeff, I don't think you've ever seen prices go up when volume is down or in John manage all furnace in '17. So operating leverage on price on the volume, if you have plenty of notification, which I think you guys are reading the news. That's my first question or maybe that was 2.

I think it might be even 3. Yes, there's a lot to unpack there. I guess from a volume perspective, I would go back to our previous answer relative to volume that we do track on the residential side, we track fairly closely to completions. That being said, it's been our experience, maybe 20 years, Jeff 30 years, that when we see overall housing declines in our markets, our branches do an excellent job of expanding their service area and expanding the products that they're installing and installing multiple products to our existing customer base. So there's -- we have seen over time that our volumes can actually do better relative to what's happening in the completions market or in the housing market, the tougher things get. And we've spoken many times to our experience during the great Recession and how well we did during that time frame on an organic basis to really outperform considerably the market. So we don't expect certainly anything like the great Recession, but we have confidence that our team will be able to kind of outperform, if you will, any kind of volume declines that they're experiencing in their markets. So it's impossible, quite frankly, to predict exactly the course of what's going on in the permits start side on the single-family side. The multifamily side, though, as we were saying earlier, is really a completely different story. I mean, what's happening in terms of the backlog in multifamily combined with the continued reasonable strength in permits and starts really is very supportive of the multifamily business and the additional market share that we've gained with that. In terms of the inflationary environment and price/mix, I think what's important to note is that, yes, it has been in a highly inflationary environment. But we do not anticipate that there's going to be across the board for all the products that we install significant price decreases. right? What we're -- our expectation is that on average, we're going to see stabilization in that price cost, if you will, which would then lead to a more historical environment for us where we're having positive price/mix. Obviously, going back to a previous question, mix can become negative and can impact that. But we would continue to expect a positive price/mix environment, but just nothing close to the elevated levels we're experiencing right now.

And Ken, you made the point to degree the business is not to take anything away at all from any of our great managers, production managers, et cetera. But it does to a degree, correct itself based on volume, both at the labor side of things and even on the material side in terms of just purchasing to your point, there's a lot of variable costs there that we can get eliminated pretty quickly. And I guess another point that you made, too, we were much more fiberglass center and centric in before -- back in 2004 and '05, let's say, which is where -- when our footprint was kind of at its peak then, which was kind of more great Lakes, a little bit of Mid-Atlantic, I suppose, in northeast. But we -- I mean, the pricing power and the inflation that we were dealing with there in fiberglass was every bit as pronounced as it has been in the last 24 to 30 months here.

Yes. And I think something that's important to note is, again, we're trying to make the distinction between single-family and multifamily. But new single-family fiberglass insulation installation revenue is about 35% of our total revenue.

I would like to turn the call back over to management for closing comments.

Thank you for your questions, and I look forward to our call next quarter. Thanks again.

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