Installed Building Products, Inc. (IBP) Q1 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to the Installed Building Products First Quarter 2026 Financial Results Conference [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ryan Ricketts, Director of Investor Relations and Financial Planning and Analysis. You may begin.

Good morning, and welcome to Installed Building Products First Quarter 2026 Earnings Conference Call. Earlier today, we issued a press release on our financial results for the 2026 first 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 federal securities laws. These forward-looking statements are based on management's current beliefs and expectations and are subject to factors that could cause actual results to differ materially from those described today. Please refer to our SEC filings for cautionary statements and risk factors. We undertake no duty or obligation to update any forward-looking statement as a result of new information or future events, except as required by federal securities laws. In addition, management refers to certain non-GAAP and adjusted financial measures on this call. You can find a reconciliation of such non-GAAP measures to the nearest GAAP equivalent in the company's earnings release and investor presentation both of which are available in the Investor Relations section of our website. This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer; Michael Miller, our Chief Financial Officer; and we are also joined by Jason Niswonger, our Chief Administrative and Sustainability Officer; and Brad Wheeler, our Chief Operating Officer. Jeff, I will now turn the call over to you.

Thanks, Ryan, and good morning to everyone joining us today. As usual, I will start the call with some highlights and then turn the call over to Michael, who will discuss our financial results in more detail before we take your questions. We delivered solid top line results despite the impact of having many fewer working days at several branches due to extreme weather conditions, which resulted in a $20 million missed revenue opportunity as we previously mentioned on our 2025 fourth quarter call in February. The macroeconomic backdrop also changed midway through the first quarter, partially due to geopolitical factors raising uncertainty for U.S. consumers and making new home sales more challenging. Service quality is a controllable factor that we continue to maintain at a high level for our customers during the quarter. Emphasizing product diversification and prudent expense management have continued to be key initiatives. Our commercial end market continued to show strength, delivering double-digit installation sales growth with heavy commercial sales growth exceeding 20% during the quarter. Even with industry-specific headwinds expected to continue to affect our new residential installation segment in the near term, our overall business has been resilient. All the credit goes to the hard-working men and women across our more than 250 branches throughout the United States and those who support them from our office in Columbus, Ohio. To everyone at IBP, thank you for your hard work and dedication. Looking at our 2026 first quarter performance, consolidated sales decreased 4% and same-branch sales declined 6%. Positive same-branch commercial sales growth was more than offset by residential same-branch sales growth headwinds within our Installation segment. With respect to our new single-family end market, activity has been slower than we had hoped by this point in the spring selling season with some geographic markets feeling more upbeat than others. We continue to effectively manage both material and labor to meet the needs of our customers and remain flexible to adjust to the varying demand across regions. In our multifamily end market, both our contract backlog and partnership across branches to win business and deliver Installed services continues to grow, which is encouraging. Our commercial end market remained a bright spot in the 2026 first quarter with sales in our Installation segment up 11% on a same-branch basis from the prior year period. Our heavy commercial end market continued to be the dominant driver of same branch sales growth, which more than offset weakness in our light commercial end market. Based on the growth in our heavy commercial contract backlogs, we believe heavy commercial sales and profitability are poised to remain healthy in 2026. During the 2026 first quarter, we completed a total of 4 acquisitions, representing approximately $28 million of annual sales from a diverse product set in both residential and commercial end markets. Acquisitions during the quarter included an installer of insulation across new residential and commercial end markets throughout Texas, Louisiana, Arkansas and Oklahoma with annual sales of approximately $5 million. A provider of a wide range of value-added mechanical insulation services for diverse commercial and industrial applications serving key commercial and industrial hubs across Wisconsin, Iowa, Minnesota, Michigan and Illinois with annual sales of approximately $13 million, an installer of insulation primarily across new residential and light commercial markets throughout Kansas and Oklahoma with annual sales of approximately $3 million and an installer of waterproofing applications across new residential, multifamily and commercial markets throughout Minnesota with annual sales of approximately $7 million. Although deal timing is hard to predict, our current outlook for acquisition opportunities in 2026 is strong, and we expect to acquire at least $100 million of annual revenue this year. In terms of broader housing construction activity, U.S. Census Bureau data for the 2026 first quarter showed single-family starts decreased 6% from the prior year, while multifamily starts were up 21% for the same period. I'm proud of our team's continued success and commitment to doing an excellent job for our customers. Once again, to everyone at IBP, thank you. I remain encouraged by the fundamentals of our industry, our competitive positioning, and I'm optimistic about the prospects ahead for IBP and the broader insulation and complementary building products installation business. Before I turn the call over to Michael, I want to thank Darren for his contributions over the past 5 years as he pursues another opportunity, and I wish him all the best in his future endeavors. Ryan Ricketts has been appointed Director of Investor Relations and Financial Planning. He has played an integral role in our financial planning and analysis function and is a natural fit to lead our Investor Relations efforts. I look forward to his contributions as we continue to execute on our strategy and engage with the investment community. With this overview, I'd like to turn the call over to Michael to provide more detail on our 2026 first quarter financial results.

Thank you, Jeff, and good morning, everyone. Consolidated net revenue for the first quarter was down 4% to $661 million compared to $685 million for the same period last year. Same-branch sales for the Installation segment were down 7% for the first quarter as an 11% decline in new residential same-branch sales was partially offset by an 11% increase in commercial same-brand sales. Although the components behind our price/mix and volume disclosures have several moving parts that are difficult to forecast and quantify, price/mix was flat during the first quarter. However, when including heavy commercial, price/mix increased 3%. Volume during the 2026 first quarter decreased by 10%, partially caused by adverse weather. With respect to profit margins in the first quarter, our business achieved adjusted gross margin of 32.2% compared to 32.7% in the prior year period. The slight year-over-year decrease in margin during the quarter was driven by increased depreciation within cost of goods sold and higher vehicle insurance costs. Adjusted selling and administrative expenses were stable compared to the 2025 first quarter. As a percent of first quarter sales, adjusted selling and administrative expense was 20.9% compared to 20.1% in the prior year period. Administrative costs were impacted by higher medical and general liability insurance costs, which were 36% higher than prior year as well as higher facility costs. Adjusted EBITDA for the 2026 first quarter was $92 million, reflecting an adjusted EBITDA margin of 13.9% and adjusted net income was $48 million or $1.79 per diluted share. Although we do not provide comprehensive financial guidance, based on recent acquisitions, we expect second quarter and full-year 2026 amortization expense of approximately $10 million and $40 million, respectively. We would expect these estimates to change with any acquisitions we complete in future periods. Also, we continue to expect an effective tax rate of 25% to 27% for the full-year ending December 31, 2026. For the 3 months ended March 31, 2026, we generated $102 million in cash flow from operations, an 11% year-over-year increase. Our first quarter net interest expense was $10 million compared to $8 million for the 2025 first quarter, partially driven by a write-off of debt issuance costs. We would expect second quarter net interest expense of approximately $10 million. At March 31, 2026, we had a net debt to trailing 12-month adjusted EBITDA leverage ratio of 1.2x compared to 1.17x at March 31, 2025, which remains well below our stated target of 2x. At March 31, 2026, we had $346 million in working capital, excluding cash and cash equivalents. Capital expenditures and total incurred finance leases for the 3 months ended March 31, 2026, were approximately $18 million combined, which was approximately 3% of revenue. We ended the first quarter with $474 million in cash on the balance sheet, and we will continue to prioritize acquisitions with long-term strategic benefits and attractive returns on invested capital. We expect positive free cash flow will continue to support shareholder returns and stock buybacks based on prevailing market conditions. During the 2026 first quarter, we repurchased approximately 91,000 shares of common stock at a total cost of $25 million. At March 31, 2026, the company had approximately $475 million available under its stock repurchase program, which expires March 1, 2027. IBP's Board of Directors approved the first quarter dividend of $0.39 per share, which is payable on June 30, 2026, to stockholders of record on June 15. 2026. The second quarter dividend represents a more than 5% increase over the prior year period. We are committed to continuing to grow the company while returning excess capital to shareholders through our dividend policy and opportunistic share repurchases. 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 and commitment to our company. Our success over the years is made possible because of you. Operator, let's open up the call for questions.

[Operator Instructions]. Our first question comes from the line of Sam Reid with Wells Fargo.

I wanted to see if you had an updated outlook on industry pricing. I know one of the OEMs put through a price increase on the resi side earlier this week. Just maybe your high-level thoughts on achievability on that price, and ability to pass along to the builders, understanding full well that you over-index perhaps more to private custom builders versus some of the large publics.

Yes, Sam, this is Michael. Thanks for that question. As we've talked in the past, the time when the manufacturers are able to get traction in pricing, both us and them, quite frankly, is when the demand environment is strong and material is tight. That does not exist in the current operating environment. The production builders, particularly the entry-level market continues to be weak, and there's a ready supply of available material. You may know that one of the manufacturers is getting ready to bring back online a significant amount of capacity. We don't see there being any tightness in fiberglass material certainly in the near term. The demand environment just is not there that would really support a price increase. Now that's on the fiberglass side. On the spray foam side, there have been 2 announced price increases that are approximately a 25% price increase. We do believe that aprice increase will have traction and that the market will take a substantial percentage of that price increase. The spray foam manufacturers have significantly have -- their factory costs have increased significantly, and as a consequence, they're really not making money at the current pricing. They need and will get that price increase. Spray foam, as pretty much everyone knows, is really a semi-custom custom home product. The flexibility or willingness of the builders there and the homeowners there to accept a price increase on a spray foam application is pretty good. I would say that within the contractor base that is within the spray foam contractor base, there is a lot of discipline around price. We definitely think that we'll see that happen, and it will certainly benefit our price mix in the back half of the year. Just as context maybe, spray foam represents about 11% of our total sales. Now I would say on the spray foam side that there will probably be less incentive for certainly entry-level or even move-up buyers to switch to spray foam and they'll stay with fiberglass. Again, as we've talked before about the difference between spray foam and fiberglass, an average spray foam job is sort of 2x an average fiberglass job. That's not really a like-for-like comparison because your average spray foam house is going to be much larger on a square footage basis than a typical fiberglass job. Just to give you a relative sense of the difference between cost of spray foam and fiberglass. It definitely will have an impact on price mix for us in the back half of the year. As I said, we expect that the spray foam manufacturers will realize a significant percentage of that 25%.

Incredibly helpful color there. Maybe switching gears a little bit to industry capacity utilization. You alluded to some capacity that's coming back online. Then also, we have, however, seen, let's call it, a little bit better data on the start side. Again, I realize a lot of this is probably on the production builder side, but just curious your perspective on fiberglass industry capacity and where it sits today.

This is Jeff. There's absolutely no tightness right now in terms of material flow. I wouldn't anticipate it getting that way for at least some period of time.

Yes. As we've said in previous calls, the manufacturers are doing an excellent job of managing their capacity. We feel very good about the current environment and particularly with the additional plant coming online because there is some signs of the market getting better, production builder entry level is still weak, no doubt. The public builders, I think, have a relatively reasonably positive outlook for the rest of the year. We'll see if that materializes, based on some of the recent information, both survey information that we've seen, census bureau information, which currently we're not putting a lot of confidence in. We think that the year could end up being flat in terms of macro starts. We'll see. I would say that in April, we saw some very encouraging signs. Our private builder business was actually up in April. We've had continued weakness though in the public builder market, but our sales with them are really tracking their sales. Their homebuilding revenue in the most recent quarter was down low teens, and our revenue with them was down a little bit better than that. We're tracking well with them. It's just that there's a lot of weakness there on the entry level.

Our next question comes from the line of Stephen Kim with Evercore ISI.

I guess first question would be related to the multifamily outlook. You mentioned before that the backlogs were looking strong, and I think you got some easier comps here in the back half of the year. Are you still feeling pretty optimistic that you should be able to show strong year-over-year strength in multifamily? Is there anything that you saw in the March industry numbers in terms of multifamily starts. Does that kind of square with sort of the activity levels that you're seeing in your customer base?

Yes. This is Michael. Again, on the census information right now, we're just not putting a lot of confidence in those numbers. I would say we continue to be very encouraged on the multifamily side. Just to give you some sense, the high-rise multifamily, which we do very little of. It's less than 1% of revenue. It's about 5% of our multifamily revenue, but in the quarter, that high-rise multifamily revenue was down almost 50%, okay? As you know from our disclosures, that total multifamily revenue was down in the quarter on a same-branch basis, only about 10%. What's interesting and the reason why I bring that up is the high-rise multifamily backlog actually turned mid-single-digit positive in the quarter. We feel encouraged that even that part of the market, which is admittedly a very weak part of the market, we're seeing some light at the end of that tunnel. What I would consider traditional, so not high-rise multifamily, the backlogs continue to grow. We had a very good April within that sector. We feel good about what the back half of the year is going to look like. Now I have to put in a caveat, though, that we have seen some projects getting slow walk, if you will, and that are slowing down. Even though we feel very confident about the strength of our backlog, we don't have the ability to prevent, if you will, a GC from slowing down development of projects. Depending upon how that develops through the rest of the year, that could put us in a position where the comps aren't positive. Overall, as we look at the multifamily business for us, it continues to be the same story, but we're gaining share, profitably gaining share. Our team is doing an excellent job of going into new markets and gaining good profitable share in those markets. Even if we don't see a strong inflection in the back half of '26, we feel very confident in what we're going to see in '27.

Second question, I guess, relates to data centers. It's kind of been a topic of conversation for a lot of folks. Can you give us a sense for -- are you relatively over or under-indexed to data centers across your businesses? Is that something that is even sizable enough to really be worth calling out or not?

We do some of that work, but we are under-indexed to it, I would say, given the activity that's happening right now. Our heavy commercial business, as we noted, continues to perform at an extremely high level, even though the comps have gotten more difficult because of the outperformance there in the quarter, the heavy commercial business grew like 22%. They're doing a phenomenal job, and it is not data center driven. It's really across a lot of verticals. We can't say enough shout-outs about how -- what a great job that team is doing.

Your next question comes from the line of Michael Rehaut with JPMorgan.

First question just on gross margins. I think it was kind of the big variance between my estimate and probably the Street as well, and I would presume maybe weighing on the stock here today. I appreciate the color in terms of the year-over-year variance. I think you said higher depreciation, higher vehicle insurance. I was also wondering around the sequential decline of about 280 basis points, which is much greater than we've seen in the last few years. In the last 4 years, I'm going back here, there was a 90 bps decline last year. Before that, it was relatively flat. I'm wondering just what the drivers were sequentially and if this is a new bar to think about in terms of how we should progress throughout the year?

Yes, Michael, this is Michael. The gross margins did still come in within our 32% to 34% range. Again, we look at that range on a full-year basis, not in any one quarter. really, the decline from the -- and I'll call out some specific items, but really, it was the volume, right? When we lose volume, other cost of goods sold, so not material, not labor, the team did an excellent job of managing material and labor. The other cost of goods sold number is semi-variable and not directly variable. When we have lower volume as we did in the quarter, it compresses to some extent, the gross margin. To give you just some context for the gross margin, this is year-over-year, not Q4 to Q1, and this is something that we haven't really talked about before, but I think it's worth highlighting. Our product margin, so at the gross margin level before other cost of goods sold, the product margin was actually up 70 basis points from first quarter last year to first quarter this year. Unfortunately, it was offset by the mix from complementary products, which was a 20 basis point headwind to gross margin. The other distribution and manufacturing operations, which naturally have lower gross margins were a 40 basis point headwind to gross margin. Then which we called out in the prepared remarks, depreciation was a 30 basis point headwind to gross margin and vehicle insurance was as well a 30 basis point headwind to gross margin. Now somewhat offsetting that again was the 70 basis point improvement in product margin, again, something we haven't really talked about before and the heavy commercial business, which was a 20 basis point improvement to gross margin. The other thing about gross margin, I think it's important for us to point out, obviously, our vehicle costs are in gross margin, in other cost of goods sold. While fuel really did not impact significantly the first quarter, we would expect that to have an impact over the rest of the year of $15 million to $20 million in other cost of goods sold, assuming the current particularly diesel cost environment that we're under right now.

I appreciate all that detail, Michael. I mean just maybe to follow up on that, 2 kind of points. I guess, one, it does sound like you're saying, at least on a year-over-year basis, I'm curious if on a sequential basis that the pricing dynamics between yourself and the builders haven't changed significantly. I think the concern out there is perhaps that the builders are really pushing back on vendors and suppliers and perhaps yourselves around price. I'm just wondering if, number one, it sounds like what you're saying is that, that perhaps is not as big of a factor on a sequential basis. Maybe I'll just stop there and let you answer that before I ask another one.

Yes. Where there is pricing pressure for sure is at the entry level homebuilder, so the public builders at that level. Just as a reference point, that represents about 14% of total revenue. I would say the team has done a very good job of maintaining market share and working hard to maintain margin. There's definitely some pressure there given the weakness that is experiencing there. Now quite frankly, though, I think go forward, just based upon their guidance, what we're seeing, we believe a lot of that pressure is easing now and that the difficulties that we were having with that again is starting to ease. We're seeing good pricing with the private builders, with particularly the custom, semi-custom builders that work continues to meet our expectations. As I mentioned earlier, turned positive in April. We're feeling good from that perspective. Really, the gross margin pressure and actually the EBITDA margin pressure, and I'm sure somebody likes administrative expenses and we talk about that. It really was costs that are not directly variable that to some extent, we don't have a lot of control of. For example, vehicle insurance, which is up 25%. It's a significant number, particularly when you have flat to down sales environments.

In other words, because I'm just looking last year, sales went down about $65 million and margins sequentially -- I'm talking about sequential went down 90 basis points. Here you have sales down $90 million and margins went down $280. It's really more of the -- some of the cost inflation dynamics that you're saying then the vehicle insurance maybe the logistical costs, fuel costs, things of that nature that is more of the culprit on a sequential basis. Is that fair to say in addition to maybe some of the under-absorbed fixed cost broadly speaking?

Yes, broadly speaking. I mean, I will say because we've talked about this product margin during the call, I mean, the sequential product margin was down from the fourth quarter to the first quarter, but that's pretty typical, right? Part of that is just mix. Again, there was some pricing pressure from the production builders. As I said, I think the team is doing an excellent job of managing that environment, maintaining share and also working very hard to maintain price. Clearly, a lot of the decremental from the fourth quarter to the first quarter in the margin was in other cost of goods sold. Again, vehicles, the vehicle costs were the biggest culprit there.

Your next question comes from the line of Susan Maklari with Goldman Sachs.

My first question is on the weather and the regional implications that, that had in the quarter. Can you talk a bit about how those branches performed in the first quarter? Is there a backlog that you have that's coming into the second quarter? Is that part of what's driving that improvement that you're seeing with some of those private builders? How should we just think about your ability to make up some of that volume and what that will mean for results in the upcoming quarters?

Yes. This is Michael. I mean we do think we'll make it up. The biggest impact to the regions was primarily in the Mid-Atlantic. Those are some of our most profitable regions. Obviously, you never like to see weakness in your most profitable regions, but we definitely think we'll make it back. It is definitely part of the reason why we think we're seeing -- while we're seeing positive comps in April with the private builders. Yes, I would say that we have the ability to make it up. I think it is going to be a slow makeup, to be honest with you. I mean, typically, in these situations, we would make it up 30, 45 days, but it seems like it's just stretching out a little bit in terms of our ability to get on top of that.

Then turning to M&A. Can you just talk a bit about the environment that you're seeing there? It seems like you're continuing to be fairly active for deals. Just give us an overall update on the pipeline and including the ability to perhaps do some more deals on that commercial industrial side?

This is Jeff, Susan. Yes, I would say it's a healthy environment in terms of an M&A backdrop. We will continue to make deals that we've done historically. Pipeline is good and strong. We did recently close a smaller mechanical industrial installation business, and it continues to be an area of focus for us.

Your next question comes from the line of Phil Ng with Jefferies.

Michael, I appreciate you don't give guidance, but I think you were talking about how at least on the survey work, what you're seeing out there, potentially single-family starts could be flat, and certainly, we're not going to hold you to it. From the context of single-family, your same-store sales single-family business is down double digits in 1Q, and it was a little softer in fourth quarter as well. Weather was a factor. At least April sounds okay for your private side. Give us a little context how you see the shape of the year shaking out and how activity panned out to start 2Q?

Yes. I mean, on a consolidated basis for the Installed. That includes the heavy commercial business. Organic growth, we were up, including acquisitions, but organic growth was down like 2%. What did help the organic growth, quite frankly, though, is price/mix is up over 4%. Price/mix was up excluding the commercial business, but the heavy commercial business, just like it did in the first quarter, helped the price/mix. Volumes were down, but they're down less than they have been over the past several months and over the past quarter. The volume weakness really is still coming from the entry-level production builders. If we think about the business right now, the production builder business continues to be soft, but other parts of the business are starting to show resiliency, both from a volume perspective and a price mix perspective.

I mean it sounds like volumes have firmed up a little bit versus 1Q. That's encouraging. I guess your largest competitor, obviously, is merging with a large distributor in roofing and LBM. Jeff, perhaps how do you kind of think about that impacts your ability to compete, your go-to-market strategy? On the procurement front, I mean, from what I can tell, you guys buy super well already in insulation. This has changed how you think about the competitive landscape and perhaps your philosophy on the M&A side as well.

Well, I would say that we aren't anticipating any great changes. They've been a competitor all along as long as we've been public and beforehand even, and we expect that to continue. From an M&A perspective, potentially, this could be an upside in that they may not be quite as interested in some of the Installed businesses based on their trust more towards the distribution end of things.

I'm just curious, in terms of your customers, builders, when you go to market and you negotiate, I believe it's all local, and that's how you bid it. Is there much overlap in terms of interaction for like an LBM guy versus Installed guy for insulation in terms of that go-to-market strategy? I'm just trying to gauge if that has any impact from a bundling standpoint as you compete with them more head on from that standpoint.

No, we don't.

No, because keep in mind that what we're providing is Installed solutions, so the material and the labor. On the distribution side, whether it's roofing or lumber or whatever, the distributors drop shipping the material there and then the builder is subcontracting out the labor to another contractor.

Your next question comes from the line of Mike Dahl with RBC Capital Markets.

I want to go back to the gross margins. Again, I appreciate you don't give the guidance. When I think about the components that you laid out, it certainly seems like some things, to your point, would be volume leverage that shipped throughout the year, but then you've got like-on-like insurance costs the fuel costs that you mentioned? Then it seems like maybe at least in the near term, given the relative growth of complementary and other products, maybe some headwinds there. Think about that 32% to 34% range. Is there anything like in those pieces, there do seem to be some incremental certainly year-on-year headwinds relative to what you were seeing last year. Anything you can do to help drill down a little more on within that range where we should be thinking about?

Yes. To be honest with you, a lot is going to depend upon where the production builders come out in terms of the year. If they get closer to looking at their guidance basically, they're talking about homebuilding revenue being down the rest of the year about 5% and us being down, say, 5% with them. I think that puts less pressure, if you will, on gross margin. To your point, some of the headwinds that we experienced in gross margin in the first quarter are going to follow us throughout the year. We still feel confident about the 32% to 34%. There's a lot going on right now. As we mentioned, the spray foam price increase is more than likely to stick at a very high level. Gutters, which are about 6% of total revenue, aluminum costs are up 20%. We don't see that subsiding anytime in the near future. There are definite headwinds to gross margin going forward. The team has done an incredible job being able to manage the price/cost headwinds that we've experienced. We have complete confidence that they will continue to do that. I think that's evidenced by the fact that the product margin that we talked about earlier was up 70 basis points year-over-year. They're doing a great job, but there are a lot of headwinds out there for sure. On a full-year basis, we continue to be confident that we will fall in that 32% to 34% range.

Then a follow-up just specifically on the fuel dynamic. Was it 15% to 20% just for the balance of the year, so then there's some run rate into 1Q. It doesn't sound like based on some of your other comments, you've implemented or contemplated surcharges, but any comments around pass-through mechanisms versus other internal actions you can do to help mitigate that?

Yes. There's no doubt we will work hard to try and offset it. It's certainly something that is on top of mind for everybody in terms of the additional fuel costs. That $15 million to $20 million is for the rest of the year. Call it a little bit over $5 million per quarter that we would expect to feel the impact there. We are getting fuel surcharges from some of the manufacturers, particularly the fiberglass manufacturers based on the additional transportation shipping costs. As a percentage of our overall cost structure, that's honestly fairly small. Again, we're going to work very closely with our customers to make sure that our costs and our prices to them are aligned properly.

Your next question comes from the line of Trey Grooms with Stephens Inc.

You mentioned seeing some projects being delayed or slow rolled in multifamily. Just curious, is that more geographic specific? Or if so, where are you seeing most of that? Or is this these delays more widespread?

I wouldn't say it's necessarily geographic specific. I mean it's really -- it's project specific. It depends upon the specific project in a specific market, but I wouldn't say that it's highly concentrated in one market over another.

You mentioned some of the pricing pressure around the entry level, which you mentioned is 14% of your revenue. Are you seeing any more pricing pressure, if you will, on the multifamily side of things now that you're -- we're starting to see a little more delays, a little softer market there?

No, I would say that environment has been pretty stable. I would say, yes, there was some pressure during the course of '25, but I would say that it's very stable, especially as we start to inflect positively here from the units under construction. I think that -- I mean, clearly, I'm making that clearly, but we believe that multifamily basically is in balance in terms of cycle times. Obviously, with the exception of if things are getting slow rolled that might impact it a little bit. Then cycle times on single-family are extremely well, probably the lowest they've been in a decade or more.

Then last one for me. We haven't talked too much about commercial, but it seems to be doing very well. It's been a bright spot here for a while now. With some of the shift in the macro that we're seeing, any signs of delays or similar kind of slow rolling or anything like that on the commercial side? Or is the backlog you have in place kind of suggesting you should continue to see this level of relative strength in commercial?

Yes. I mean other than the comps continue to get more difficult as we go through the rest of the year. The team is doing an excellent job. I mean the heavy commercial business was up over 20% in April. Even the light commercial business was up low double digits in April. That business, as you know, is coming off a very easy comps. Don't read too much into that, but yes, we feel very good about it. The team on the heavy commercial side has done a good job of even though they're putting up record revenue every quarter, they're actually continuing to grow their backlog. That's a very strong sign from our perspective.

Your next question comes from the line of Adam Baumgartner with Vertical Research Partners.

Just maybe sticking with heavy commercial. It sounds like pretty strong growth is expected to continue. Should we think about the composition of that growth, maybe more volume than price? Because it seems like price has been a big driver over the last year.

No, I think it will continue to be -- price will continue to be a driver there. Obviously, we'll say this probably a couple of more times is that the comps become increasingly more difficult for us just given the outperformance that, that business had experienced through 2025. We definitely think it's going to be more -- continue to be a price story as well. Part of that is because we're doing a much better job of selling multiple applications or products per job, right? In that instance, our average job, if you will, has a higher take per job, if I can use that terminology. That's really helping that business from a pricing perspective.

Then kind of flattish price/mix here. I know last quarter, mix was pretty nicely positive, offsetting some modest price pressure. Can you maybe break apart how price and mix in the quarter trended?

I'm sorry, say that last part again?

Just the split between price and mix because I know last quarter, mix was nicely positive, offsetting some modest price weakness. Maybe how that looked in the first quarter?

Yes. As you know, that price/mix disclosure is kind of very difficult to break down just because most people's price disclosures are like-for-like, and there's really no such thing as like-for-like from our perspective. I would say that the pricing pressure, as we've said earlier, really came from the production builders and on the residential side, pricing for the privates and the regional local builders was pretty solid. Now again, when I say that, it's all about average job price, right? What you're seeing within the production builders, while on a per square foot installed basis, there's not as much pricing pressure as you would expect, but if on average, they're building a smaller house, even though that doesn't impact us that much, it does have some impact on the price with the production builders, right? To the extent that they're trying to get their average ASP down and one of the ways they're doing that is by building a considerably smaller house that naturally, even if our per square foot installed price is the same, there's less square feet to install.

Your next question comes from the line of Ken Zener with Seaport Research.

The stock price reminds me of when you had the commercial heavy cost headwinds x years ago, and there seem to be a disproportionate impact from investors' perspective. You were very clear last quarter talking 32% to 34%, right, is your gross margin range. The Street with 3 quarters that had been above 34%, was surprised today. Yet you talked about your product margin being up and these headwinds seem to be persistent. Do you see the possibility of a sub 32% gross margin before we come out within your long-term range given the uncertainty around fuel surcharges, which I don't know if you're able to recoup those from customers quickly. Could you just talk about that range given the surprise we had today?

Yes, Ken, this is Michael. I mean I have to firmly reiterate that we don't provide guidance. What I would say is that we continue to feel confident that on a full-year basis, the gross margin will be between 32% and 34%. The gross margin in the quarter was in that range, led at the low end of that range. The first quarter is always at the low end of the range. Given the weakness that we saw in demand, again, the team did an excellent job of managing the costs that are directly variable. The reality is, is that they can't control depreciation, they can't control vehicle insurance costs. Those things were major headwinds to gross margin in the quarter. We haven't done it enough. We have to just really give a shout out to the team because they're continuing to perform in what is a difficult operating environment. Quite frankly, we continue to believe that they will do that through the rest of the year. As a result, the gross margin will be in that 32% to 34% range.

Really appreciate how you broke down, right, depreciation, insurance, distribution manufacturing inputs, would you expect that if we see some degree of normal seasonality 2Q from 1Q that these elements would be accretive to margins then? I mean, as you pick up, right, you obviously just sell 100 and you fell sequentially in sales and it's expected you're going to rise. Would most of those things be -- would you get volume leverage essentially from that sales gains? Is that a logical conclusion given you're positive on your product margin and your heavy commercial margins?

Historically, yes. Our margins improve as we go into the seasonally stronger quarters. The first quarter is seasonally always our weakest quarter from a volume perspective. As a consequence, the other cost of goods sold, particularly vehicle expenses hurt gross margin. Again, I would say that we expect the full-year gross margins to be in that 32% to 34% range. We do believe, even though there are considerable headwinds for things that we've talked about that will continue, we would expect to see a typical seasonal gain as we go throughout the course of the year on a quarterly basis.

If I can get one last question since you have such. Well, with TopBuild apparently going away, QXO, not doing conference calls, you're the big provider of a good understanding of new home sales given your good market share. Why is it that your confidence in the census data is so bad? I mean the publics don't respond to the census and they dominate the Southeast, obviously, that's one reason. Is there something more structural about the data that you see undermined? Or is it actually just more regional distortion that you're seeing? The Midwest makes sense, the Southeast doesn't. Could you expand on that given that we obviously have -- we investors look at that information historically, and you're saying it's not good.

Yes. I mean maybe I shouldn't have been so harsh, but I think on a month-to-month basis, we all know that, that information gets heavily revised. Particularly when you saw the numbers in multifamily with supply delta, I mean, that just I mean that's not practical. It just doesn't make sense that something like that would happen. You have to have less confidence in the actual numbers. Now on a full-year basis or on a trailing LTM basis, is that data worthwhile, particularly the permit data? Yes, absolutely. Obviously, we don't run our business based on what the Census Bureau reports. We continue to, again, see good strength, moderate strength, I guess, I should say, within the private builders. We feel good about where the multifamily business is doing and what it's doing, what the heavy commercial business is doing. Even though we continue to see weakness with the production builders, the public have noticeably increased their community counts, and there's reason to feel encouraged about the back half of the year, particularly based on some of their comments, not just publicly, but to our salespeople and field people. We haven't seen a strong inflection there yet.

It also sounds like you're saying the entry level is where the pressure is not at the move up or higher in custom as well, correct?

100%.

Our last question comes from the line of Collin Verron with Deutsche Bank.

You gave a lot of helpful color on the gross margin, but I just wanted to clarify, were any of the headwinds that you saw in the first quarter onetime in nature? Or do you expect to see any of the impacts from maybe mix reversing?

No, to be honest with you. I mean I think that the growth in the complementary products or in the complementary products are at a better sales rate, if you will, than insulation. When we say insulation, we mean fiberglass and spray foam. It definitely weighs on gross margin. The distribution and manufacturing business, which, as I mentioned previously, was a 40 basis point headwind to gross margin. It's good for EBITDA margins, but from a gross margin perspective, it definitely structurally, it's just the way that business is, does weigh on gross margins. It's relatively small, but it's performing extremely well, and we expect it to continue to perform well. Again, on the gross margin side, we feel confident about the 32% to 34% range on a full-year basis. I did want to get in just a couple of quick notes on the administrative side because I think it's important. I understand why everybody is focusing in on the gross margin. In the quarter, medical insurance was up almost 40%, which was a 50 basis point headwind to overall margin. Facility costs were up 12%, which is about a 40 basis point headwind to overall margins, and liability insurance was up 35% in the quarter, which was a 40 basis point headwind in the quarter to margin. Again, all of these costs that we've called out are not directly controllable. I mean they are over time. Believe me, we're working on managing those expenses, but when you're in a flat to down volume environment, it's hard to offset some of these costs that are going to increase just because of the nature of the market pricing for those costs. Now it's our job and our team's job to work hard to offset those costs to align our costs with our selling price and our customer mix. Everyone in the company is highly incented on profitability, and the team is working tirelessly to make sure that we're able to do that.

That's really helpful color and you saw my second question. I guess I'll just ask about your comment about the slower -- it just being slower to make up for the weather. I guess that was a little surprising just because it feels like there'll probably be capacity in the market given the slower demand and then the builder cycle times being low. I guess if you could just kind of expand on that, what's driving sort of the slow -- your slower ability to make up for that weather headwind?

I think it was just generally speaking, slower to come back than it normally is. I mean, it could be builders just slowing down a bit. I would say with the private builders, we were encouraged with what we saw in April, and we're encouraged with the dialogue really across the footprint.

This now concludes our question-and-answer session. I would like to turn the floor back to Jeff Edwards for closing comments.

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

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.