TopBuild Corp (BLD) 2016 Q1 法說會逐字稿

Welcome to the TopBuild earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded Wednesday, May 11, 2016. I would now like to turn the conference over to Tabitha Zane. Please go ahead.

Thank you, and good morning, everyone. On the call today are Jerry Volas, Chief Executive Officer; Robert Buck, President and Chief Operating Officer; and John Peterson, Chief Financial Officer. Please note we have posted Senior Management's formal remarks on the Investor Relations section of our website at TopBuild.com.

As shown on Slide 2 of today's presentation, many of our remarks will include forward-looking statements concerning the Company's operations and financial condition. These forward-looking statements include known and unknown risks, including those set forth in this morning's press release, as well as in the Company's filings with the SEC.

The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. In addition, we will also discuss non-GAAP financial measures which can be reconciled to the most comparable GAAP measures in a table included in today's press release. I will now turn the call over to Jerry Volas.

Thank you, Tabitha, and good morning, everyone. Please turn to Slide 3. We are very pleased to report an excellent first quarter, with strength in both revenue and the conversion of that revenue to the operating margin. Our results reflect the ongoing housing recovery, as well as the initiatives we've implemented over the past nine months designed to outperform the slope of that recovery and improve our cost model.

Total sales were up 15.5%, with TruTeam, our installation business, up 16.9%, and Service Partners, our distribution business, up 11.3%. These results are significantly beyond our benchmark of 90-day lagged housing starts, which were up only 7.3% in the first quarter.

Certainly the mild winter, which enabled builders to catch up on a portion of the fall season's backlog, contributed to our increased sales volume. Additionally, we believe that both TruTeam and Service Partners grew market share, as our Company-wide focus on local branch empowerment and customer service is generating positive results.

Our adjusted operating margin improved significantly to 5% compared to 1.9% for the first quarter of last year. The drop-down to adjusted EBITDA was 26.6%, and John will take you through those details during his comments. In previous calls and presentations, we have indicated a 20% drop-down with a reasonable way to model our business.

And as we've said, that's an average for the year, understanding that there will likely be quarterly fluctuations. We remain comfortable with that benchmark. Having said that, we will continue to be aggressive in making the changes necessary to optimize the operational performance of TopBuild within the context of any economic environment.

Also keep in mind that the seasonality of our business historically has the first quarter as the lowest of the year. Although we expect that to remain true this year, the magnitude of this seasonality may be less significant due to the strong first quarter, which as I mentioned earlier, benefited from a mild winter.

On Slide 4, regarding our share repurchase program announced on May 3, we purchased just over $1.5 million of our stock in the first quarter at an average price of $28.81. We view this program as an important component of our total capital allocation strategy, which also includes investments in our business and selective acquisitions. As circumstances change, we'll continue to balance these priorities in a manner that provides optimal return to our shareholders.

Turning to Slide 5, we remain bullish regarding the housing recovery and building housing starts will, at some point in the cycle, return at least to the historical annual average of 1.5 million. While a multitude of factors, such as credit availability, student debt, shifting attitudes regarding homeownership, and labor availability continue to make the ride bumpy, the strength of the underlying demand trends is very compelling.

So although the rate of the increase in this cycle is gradual, the recovery will likely last longer than previous cycles. This is a very good environment for TopBuild. Let me now turn it over to Robert for comments on our operations.

Thanks, Jerry. And good morning, everyone.

Turning to Slide 6, as Jerry noted, both TruTeam and Service Partners achieved solid revenue growth in the first quarter. Upfront, I would like to thank and congratulate the entire TopBuild team on a great quarter and strong start to the year.

TruTeam sales increased 16.9% compared to first quarter 2015, along with a 530 basis point improvement in adjusted operating margin to 5.3%. These results are primarily driven by strong execution in both the residential and commercial businesses. TruTeam was also very disciplined in aligning material costs with customer pricing in the quarter.

Service Partners grew revenue 11.3% compared to first quarter 2015 and adjusted operating margins increased 110 basis points to 9%. Distribution results were driven by strong insulation performance across all markets. Year-over-year pricing in the quarter for Service Partners was down slightly, given weaker gutter aluminum prices, as well as a more robust insulation pricing environment in Q1 2015.

Moving to the next slide, while we recognize a portion of our first quarter growth was attributed to the builders playing catch-up from the backlog created in the fall of 2015, a portion of growth is also directly attributed to the meaningful changes we made throughout our organization over the past year.

We have simplified the business, making it easier for customers to do business with our branches. We have improved the sales process and enhanced customer service, empowering local managers to run their operations as small business owners, with full accountability for their results.

We've also eliminated waste and inefficiency, closing underperforming branches and reducing costs. Bottom line, these initiatives have and will continue to enable us to create market share and provide us with a streamlined business platform from which we can leverage the continued growth in residential and commercial construction to expand margins and grow our bottom line.

Turning to Slide 8, I know we previously talked about our initiatives to grow our commercial installation business organically and through acquisitions. I want to give you a brief update on this side of the business where we see tremendous growth potential. As a reminder, commercial can be broken into two categories.

Light commercial, examples of which include chain restaurants, retail stores, and small projects; and heavy commercial, which includes high-rise buildings and larger projects. Currently, the majority of our over 170 TruTeam branches undertakes light commercial projects, while 15 or so branches handle heavy commercial projects.

On the light commercial side, we are seeing nice growth year over year and in our future backlogs. We're also seeing growth strengthening in heavy commercial. We have created a commercial hub within TruTeam to expand our market share organically.

Our commercial hub works with our local branches to identify, estimate, and help manage larger commercial projects. This commercial focus is producing solid results, as we've just closed work on three of the country's largest development projects. Tower 3 at World Trade Center and the Towers at Hudson Yard, both projects in New York City, as well as Nike's world headquarters in Oregon.

The total commercial market is estimated to be a $4 billion industry. While we believe we are the biggest player, we estimate our market share is less than 4%, so there's plenty of growth opportunity for TopBuild in the commercial space.

Finally, as shown on the next slide, we announced earlier in the quarter, TopBuild's Home Services Group was recognized by the US Environmental Protection Agency with the 2016 ENERGY STAR Partner of the Year: Sustained Excellence Award for our continued leadership in protecting the environment through superior energy efficiency achievements.

We have been an ENERGY STAR partner since 2002 and remain focused on helping builders meet the increasingly stringent energy codes and helping consumers recognize the benefits of energy efficient homes. Our team has done a great job of leveraging our business platform to drive growth and we expect this to continue throughout the year.

I thank our entire TopBuild team for their hard work, dedication, and continual focus on safety. With that, let me turn things over to John to discuss financial results for the quarter.

Thanks, Robert. To echo the sentiments of both Jerry and Robert, we had an excellent quarter and a nice start to 2016. Both segments had strong volume growth and we successfully leveraged our established business platform to expand margins and grow our bottom line.

Let's start with Slide 10. Revenue increased 15.5% to $414 million, primarily driven by sales volume growth from a strong industry demand for residential construction in both TruTeam and Service Partners. TruTeam also benefited from increased commercial construction activity and higher selling prices. Gross margin increased 100 basis points to 21.6%, and our reported operating margin was 4.8% compared to a negative 0.3% in first quarter 2015.

On an adjusted basis, our first quarter operating margin was 5%, a 310 basis point improvement from the adjusted first quarter 2015 operating margin of 1.9%. As noted in today's release, first quarter 2016 adjustments totaled $1 million, primarily related to 13 branch closings and staffing reductions in Daytona Beach, both of which we announced in March.

Adjusted EBITDA for the quarter was $25.3 million compared to $10.5 million in 2015 and our drop-down to adjusted EBITDA was a healthy 26.6%. Taking into account the previously disclosed $1.9 million legal settlement, which overstated operating profit and EBITDA in fourth quarter 2014, and which was corrected in first quarter 2015. Adjusted EBITDA in 2015 would have been $1.9 million better and our drop-down to adjusted EBITDA would have been 23.2%.

Turning to Slide 11, looking at TruTeam results, this segment delivered first quarter revenues of $272.9 million, a 16.9% improvement over prior year. TruTeam's adjusted operating margin was 5.3%, a 530 basis point improvement over first quarter 2015, driven by improved volume leverage due to strong residential and commercial construction activity, increased selling prices, and cost reduction initiatives.

Moving to Slide 12, Service Partners' first quarter revenue was $160.9 million, up 11.3%. Adjusted operating margin was 9%, up 110 basis points as a result of increased sales volume and cost control initiatives, partially offset by a reduction in selling prices.

On Slide 13, we see that first quarter SG&A declined $5.3 million and as a percentage of sales, improved 410 basis points to 16.8% compared to 20.9% a year ago. On an adjusted basis, SG&A was up $1.5 million and as a percentage of sales, improved 210 basis points versus prior year. The increase was primarily due to higher stock-based compensation costs and fixed asset disposals taken in the period.

Please turn to Slide 14. Adjusted net income for the quarter was $11.9 million, up $9.7 million from prior year. As a result, the EPS on an adjusted basis came in at $0.31 per diluted share, up $0.25 from prior year.

On Slide 15, we note CapEx in the quarter of $2.9 million, 0.7% of sales in the quarter. Working capital as a percent of sales improved 50 basis points from March 2015 to 7.6%, driven by improved performance in inventory and accounts payable. Operating cash flow was $3.4 million for the quarter and cash on the balance sheet was $108.2 million, a decline of $4.7 million from year-end 2015.

As we've stated in the past, the first half of the year is the weakest cash flow period for TopBuild, driven by seasonality in the business, and in this case, higher first half disbursements tied to an inventory build late in 2015 in anticipation of a fiberglass pricing increase. Our effective tax rate for first quarter 2015 was 38.8%, but we still believe a normalized tax rate of 38% is representative going forward.

Before opening the call for questions, I want to underscore a point Jerry made in his opening remarks. This was an unusually strong first quarter with sales helped by the mild winter and extended lag from 2015. We're confident in the strength of our business, but expect a more normalized seasonal performance for the remainder of the year.

Jerry has some summary comments before we're ready for questions.

We continue to execute consistently well on our strategy. We're driving topline growth in our core residential insulation business, ahead of the housing recovery curve. We're supplementing that with strong growth in commercial, a close adjacency that we've been active in for years.

We're converting that topline growth to stronger margins with our consistent focus on operational improvement. And we have a capital allocation plan that balances and prioritizes the needs of our business, selective M&A, and our share repurchase program. So going forward, count on us to be very disciplined with our consistent execution of this strategy.

Operator, we're ready for questions.

(Operator Instructions)

And the first question comes from the line of Rohit Seth with SunTrust. Please proceed with your question.

Good morning. Question is on pricing. You mentioned lower pricing distribution was driven by aluminum tough comp. Can you expand on that? Are you expecting lower pricing to persist through the year?

Good morning. This is Robert. Yes, so aluminum pricing, raw material aluminum pricing was down and that actually impacts us in the government business, which is a part of the service partners distribution product. So I would say that, overall for the year, we saw some traction in the first quarter of this year around pricing, fiberglass and other areas. So no, we wouldn't anticipate that on the aluminum side keeping up for the remainder of the year.

Okay. And just a follow-up. You mentioned ENERGY STAR awards. That always makes me wonder about the mix shift in insulation. Are you seeing any changes in preferences by builders for product mix and fiberglass and other materials?

Robert again. In areas where the codes are being more stringently adopted, you do see higher R values going into place. Some folks are open to some different solutions relative to spray foam, other types of dipfrap applications, blown-in blanket type applications of fiberglass as well. Where we see better adoption, we do see some opportunities for advanced type of solutions such as spray foam, or again, higher R values in fiberglass.

Got you. And then there's some code changes going on in certain states, certain big states. Do you guys have a feel for what type of volume increases have come from those increases? I think as Texas is supposed to be changing soon.

Yes, relative to the -- those changes, again, it comes down to -- it's so nuanced is at such a local level of code officials and how they are enforcing the new codes, so it's very nuanced and hard to say how much do we expect to see from an increase of the code adoption. But we do consider it to be positive tailwind.

Not just residential, but in -- also on the commercial side of the business. You were talking earlier about what we see, but commercial codes are changing as well. Although it's hard to quantify an exact number, it's absolutely great tailwind for TopBuild and both businesses.

Got you. All right, thanks. I'll pass it on.

And our next question comes from the line of Trey Grooms with Stephens, Incorporated. Please proceed with the question.

Hi, good morning. Congrats on a great quarter.

Thank you.

I guess first, could you guys -- I mean you mentioned backlog a little bit, but can you talk about some of the trends you guys have been seeing in April and May, and I mean, I know you guys mentioned that the first quarter is always the lowest of the year, which you pointed out in the press release and you expect that to remain true this year, but possibly a little less seasonality.

Just any additional color on how we should be thinking about the quarterly cadence, given the strong 1Q, and any color you might could give us on what you've been seeing in the last six weeks or so?

Trey, Jerry here on that one. I would say that, historically, if you look at the last three years in our business, there's been a really consistent seasonality. Like, if you plot the quarterly sales as we've done in some prior releases, some prior presentations that we've had, I would certainly say this year, given the strong Q1, and we do believe that what happened is the lag between starts and completions probably shrunk a bit in Q1 because of the weather.

The weather permitted that to happen and the builders make that happen. So I would suggest to you that Q1, as it relates to the whole year, is going to be stronger. We still see strength in the rest of 2016. The business is doing well. We would expect 2016 to continue to perform really well.

But I would say that just given the magnitude of -- even though we can't put an absolute dollar on it, it's impossible to be able to tell you of our total sales upside in Q1, how much of that was one-time due to the factors that I mentioned.

I would say that the seasonality quarter by quarter is going to look different. Q1 likely will still be the lowest, but the magnitude of it will not be the same. But that's what I was just going back to, I think.

Okay. All right. Fair enough. And then on the margins, I mean, obviously, huge margins in the quarter. Big focus for you guys, and you kind of reiterated your goals on that for the year, but I guess two things. One, how do we think about the seasonality around those margins, since it was such a big lift in the first quarter and I know you guys are focusing on that.

How should we be thinking about kind of the seasonality there with the margins given the big 1Q? And then bigger picture, could you talk about kind of the longer-term margin goals and kind of the puts and takes on how you guys get there?

Jerry, again, Trey. Certainly, the 20% that we've talked about historically is still, as I indicated in my comments, still the way we would suggest you model the business. We always talked about the lumpiness in our quarterly results. There were some quarters last year where we were not at 20%.

Here's an example of a quarter where we came over top of that quite a bit; and you're right. There certainly is an underlying focus that we have in the Company on operational improvement. So as time goes on, it's our goal as a management team to take that 20% to a higher level on a longer-term basis.

But at this point in time, I would suggest to you that there still is lumpiness that happens in our business relative to the incidents at certain expense levels and things of that nature that potentially then contribute to a quarter being below 20% and some other quarters being above.

So don't want to be too evasive in terms of giving you some feedback on that, but I would still say that as this year progresses, it's still going to go up and down and we think 20% is a good way to model. We would be pleased as can be as a team here if the year ended and we were over top of that.

And again, that's our focus in terms of what we can control with our operating model and the kinds of improvements that we can make and we'll continue to make. We want to make sure -- we want that to happen as time goes on. But that's how I would answer that question at this point in time.

Okay, and then on the commercial side, obviously, a focus for you guys, too. Sounds like you guys have been winning some pretty big high-profile projects, which is great. But some of the non-res data out there has been a little bit choppy over the last several months.

Can you talk about your expectations there? Sounds like commercial's doing really well for you guys and I'm guessing you guys are gaining some share along with that. But just overall on the commercial side of things, can you talk about some of the trends you're seeing out there, specifically around commercial?

And then I guess my last question is a follow-on to that. Can you give us just even maybe if it's directionally, how to think about margins and pricing in commercial versus residential? Thanks a lot.

Okay. Good morning, Robert. So I'll take the first part of that question and John will take the second part on margins and trends. I think the general contractors and we have these relationships actually across the country. I think they are feeling pretty strong about their backlogs as they look at what they have secured, work that's been approved, all the way into 2017.

So I'd say the trend and the sentiment for our general contractors is pretty positive across the country. Relative to the TopBuild business that you hit on, this is about us in a business we've been in for a while, really making our expertise and growing our share nationally across the country.

Again, light commercial, really across the footprint and then heavy commercial in those select locations where we have that expertise. And as you heard, we made an investment in our commercial hub, which is organically growing the business, going out, bidding big projects, providing expertise across the country, helping our business as well.

So I would say summing up the sentiment, general contractors are optimistic, actually into 2017, as in we're gaining share, you're right, and actually across the business, light commercial and heavy commercial. We just think it's a great, great growth opportunity for TopBuild as a whole.

And Trey, this is John. In terms of the question around the margins and pricing, typically in the commercial side, if you split it between light commercial and heavy commercial, light commercial tends to track pretty closely to residential in terms of the type of margin performance we see. Heavy commercial tends to be a little bit higher, recognizing there's a higher level of both expertise and potentially risk on a project like that. So that tends to be the trend line we've seen and expect to continue to see in the future.

Makes sense. Thanks a lot for taking my questions.

Sure.

And our next question comes from the line of Mike Wood from MacQuarie Capital. Please proceed with your question.

Hi, good morning.

Good morning.

Can you give us a sense of the trends you've seen this quarter in terms of the labor and material costs and your outlook over the rest of the year? And on that point, are you diversifying your supply base and does that have any inflationary impact on materials?

So good morning, Mike. It's Robert. Relative to labor, I see a strong first quarter, but relative to our installation business and our distribution business, we've talked about labor being an employer of choice in the past. Everyone really did a great job.

The team, our individual businesses out in the field did a great job of servicing our customers, keeping up with that, and quite honestly, building for the future. So we feel really good about our work around labor and providing great service across the footprint. That's been a real positive and we feel good about that going forward. Relative to on the material side of things, we did see some traction relative to pricing in Q1.

Not to levels of what was publicly announced on the increases, but we saw traction in Q1. I think on the strength for the rest of the year, we'll see what the manufacturers decide to do from a pricing announcement perspective, but we did see some traction pricing-wise in Q1 in the business. Relative to our diversification, I'll turn that over to Jerry.

Mike, on that question, I would say to you that we, as a priority, we have strong relationships with all the manufacturers out there and we will continue to do that. It makes a lot of sense for us to be able to maintain that level of relationship with all the players and strategically, that's the way we view that and that's the way we'll continue to drive forward with it.

Got it. And on the 13 branch closures in the release, can you just talk about what the common thread was or rationale there for those?

Yes, that was really around one of the -- one of the things we do really well here is we have a lot of focus on the branch-by-branch P&L. There's very high visibility from the executive team in terms of how our branches are performing. So we do that analysis every month, every quarter.

And what we did here recently is really go branch by branch and understand those that were performing substandard, we took a really good look at what the future holds. And we asked ourselves the question, is there a line of sight to the financial performance getting to a level that we think is acceptable, meaningfully better than it has been.

And so factors might include branches in a geography that we don't think, from a housing recovery viewpoint, are going to grow very fast. That's a factor. And you think about the customer base, the competitive set, any of the factors that we think contribute to performance of a branch, we took into account.

And if there were a handful of branches that we just believed there was not a line of sight to meaningful improvement, then we did not want to continue to be substandard performing there. And quite frankly, if we leave some focus on fixing some of those branches, it allows us to really focus ourselves on the rest of the portfolio, which is very strong. We still have a national footprint.

And we think as time goes on, you'll see us maybe do that again. There could be some pruning that happens here and there, but you're also going to see some M&A as time goes on eventually, whereby we're going to look to add to our presence in geographies that we think are high growth.

So I think what you can look forward to is the constant analysis that we've done and the results of that is going to be some closures and some additions as time goes on and we'll just continue to refine our national footprint as circumstances dictate.

Great. And finally, just wanted to ask about SG&A. You did a very good job leveraging the growth and keeping SG&A in check this quarter. What should we expect there going forward in terms of -- do you think about this as more of a dollar basis, trying to hold at these levels and really, how much is fixed versus variable in that SG&A line?

This is John, Mike. So in terms of SG&A, you're right. Did a great job in the quarter, up $1.5 million and essentially all of that was non-cash type of costs that hit us between some stock-based comp and some fixed asset disposal. On a go-forward basis, we are going to remain focused certainly in terms of managing that SG&A footprint.

You will see sometime over time here, some increase in dollars, but certainly, we're going to leverage. As we've said many times, we've got a footprint in place both in the field and we've got a back office in Daytona Beach that's set from a much higher level of volume. You're going to see significant leverage off of that in the future and that's our expectation.

Thank you.

You're welcome.

And our next question comes from the line of Keith Hughes with SunTrust. Please proceed with your question.

Thank you. I have two questions. One, digging into one of the previous questions on diversification of suppliers, given your structure as it stands today, and forgetting any kind of price increases or decreases that could happen during the year, has your price, year-over-year price of insulation you're buying, has it gone down with some recent moves, or would it be more or less flat from what we saw in prior year?

Keith, that's not a question we can really answer with any specificity. I can only tell you that an important part of our model, and again, to reiterate what I said earlier, one of the things we do well, is we maintain relationships with all four of our manufacturing partners. And it's been and will continue to be a great partnership because with their high fixed cost model in their manufacturing environment, we can be a very valued partner for them in terms of the scale that we have.

And obviously, on the other side of the equation, we expect to buy extremely well with all of our partners. So that's, that's the strategy. That's how we're working it. It's -- I can't really give you any insight into what the actual numbers have done.

I understand. Second question, you referred to some streamlining, which we heard a little bit about on the last call. But in your prepared comments, you discussed changes at the -- these are my words, but at the branch level. Seems like some of the local folks are having a little more autonomy. Can you just give us details of what's changed, what they could do now that was, would be new to them?

Good morning, Keith. This is Robert. So we've -- the term that we use is empowered. So we've absolutely -- we feel like we have great leaders at the local branch level. We think that is critical in this model. We focus on that.

And so having great leaders means you empower those local leaders to make decisions around getting the appropriate, everything from getting the appropriate labor to building great relationships with local customers, local custom builders and others in their local market to -- at the same time, make appropriate decisions to drive their P&L.

So we give them more authority to do that. To Jerry's point, we have a pretty robust review that we do at P&L level, monthly with our divisions, so we keep the appropriate finger on the pulse there, but we believe in great local leadership and great local leadership drives this business. And we have a high level of confidence in our team in the field.

And relative to the process, we've just improved process. Taking efficiencies out, made decision-making quicker, this ability to where our customers like doing business with our local divisions, again, baked from those relationships and stuff. So we're just taking a greater approach to that and streamlining and simplifying the business. It's getting great feedback from our customers, great feedback from our local leaders. We think it does continue to build on the value proposition in those local relationships.

Has the pricing power, has that been changed, the ability to price the job with some leeway?

We leave that -- it's always a local decision. We leave that at a local level as well. So we've given our local leaders have the ability through -- there's appropriate authorization that goes up to regional leadership and stuff appropriately, but they know their local markets the best and so we give the appropriate empowerment there with the appropriate regional leadership that looks at that as well.

Okay. Thanks very much. That's fantastic.

You're welcome.

(Operator Instructions)

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

Hi, good morning. Question, I want to get back to the recent trends. Jerry, your comments about that you can't quantify what the pulse forward is, and I think we can appreciate that from our angle, but is that conservatism given the strength that you posted in 1Q, or have the results in terms of topline growth actually decelerated here in April and into May?

We don't really give guidance, Scott, specifically on the upcoming quarter. I can only tell you that back to my overall comment, we think 2016, the balance of the year is going to continue to be good. And that's how we see the second quarter playing out.

Again, I'll tell you that as I indicated, Q1 was -- it had a benefit from a one-time mild winter pull forward of the starts to contingents lag. And that's not going to reoccur. In the magnitude, that's not going to reoccur for the balance of the year. But having said that and again, as I indicated, it's impossible for me tell you what that is, whether that's 1%, 5%, whatever it is.

So we don't see that repeating itself for the balance of the year. But I will tell you that there's strength in the business. We think the housing recovery is still on track. There's always going to be -- I realize the challenge you have is just the mild things come forward.

And I hate to use -- I hate to lean back on the obvious but there's always -- that's always going to happen. There are factors that are nuances in trying to equate our revenue linearly with what happens with housing. Things like the lag. I mean, the lag moves around. That has a big impact on our business.

So over the long term, as we indicated -- the longer periods you look at, if you looked at it for a year, we're quite comfortable that we're going to outperform whatever happens with housing. When you go quarter by quarter, it's a much more difficult proposition to line that up too well. So that's little more color for you. I don't know if I answered you exactly. But that's some color.

No, that is helpful. The other piece I want to get at, I think you put it in the letter to shareholders that your commercial insulation sales are up 20% or more. Did that continue to outpunch overall average in terms of growth in 1Q 2016 as well?

This is John, Scott. Commercial has performed extremely well. We continued to take share in that, both on the light and the heavy side. So that performed above our Company average in total.

And should we expect that to continue?

I think what we've given, the guidance we've given, which is about a 12% CAGR is still what we're comfortable with in total. You know, we may do better there versus an R&R versus residential. I think right now on a go-forward, we're comfortable with that type of guidance.

Just a few more comments for you on commercial, Seth. So as Robert indicated, we've been involved in commercial for a lot of years. It goes way back, our experience. But as we go forward, we view that as a growth engine for us. But having said that, we need -- we know that we need to do that in a very disciplined way.

I keep using that word because, as John spoke to the margins, he indicated that there's risk associated, some much -- heavy commercial in particular, there's a much more complicated job that requires a lot of expertise, starting with how it's quoted, starting with understanding the full scope of the job, the execution of it.

So we know from our experience in heavy commercial that we need to be very, very disciplined and as we increase our footprint there, as we become a bigger player in that space, which is a very big space, as we've indicated, we're going to do that in a really disciplined way.

We think that's really important. And I think over time, depending on what the trajectory is of the residential housing environment, we believe commercial is going to move up at a stronger rate, but again, that compares to how strong the residential moves up as well in terms of that comparison. But again, very important initiative for us and one that we're going to be very disciplined about how we execute it.

Appreciate that extra color. Just one last one. Was there any revenue impact from the branch closures in 1Q 2016?

No, we pretty much -- we had minimal impact from that. I think what we gave guidance on was a $10 million impact for the rest of the year. As of the end of March, the majority of those branches were shut down. We actually have two that are shutting down or finalizing in this quarter, second quarter, because of some customer commitments we had. So if you take the $10 million, you can spread it pretty evenly across the rest of the year in terms of the impact of 2015.

Thank you very much.

You're welcome.

And our next question comes from the line of Ken Zener with KeyBanc. Please proceed with your question.

Good morning, gentlemen.

Good morning, Ken.

I realize the lag, the weather, that type of stuff is difficult to tie off exactly. I wonder if you might be able to respond to it in a different way. What I'm looking at, the 7%, 8% starts lagged, range that you see kind of talked about. We see a lot of strength in the Northeast and the West; not so much in the Midwest and the South.

But did you guys see a big difference between what you would have expected by region? And the reason I ask that is I'm interested to see if that -- the delay that we've had between starts? And how long it gets a house to be completed it narrowing because there's more labor in general coming into the industry.

So are you able to see the weather impacting your expectations by region a lot, if you could comment on that? Or if you think it's just -- there's more labor.

This is John. Ken, as you would expect, where the weather had the greatest impact for us was in places like the Northeast and the upper Midwest where we saw better sales than we would have normally seen. So when we look at our performance year over year, that's where we saw a bigger spike, were those two. But again, we're indexed pretty well around the country at this point and so we saw growth everywhere. But certainly higher in those areas that would have been impacted by a significant weather we typically would have seen in normal seasonality. So --

Right. And then I guess you said in -- so ex those places where you saw the big spike-ups, did it feel as though the construction cycle was coming in better, i.e., the trade is bringing more labor to the market to get the framing up so you can get your installation in? Or is that --

This is John, Ken. I think generally the comment or the response on that is we saw, as we talked about last quarter, and I think others are talking about this quarter, we saw that lag from last year roll into the first quarter really everywhere across all regions. So we had the nice impact of that, along with mild weather across the entire country that really helped to contribute to a very strong first quarter.

Okay. And as a little more general question, but given some other publicly available data from other installers, could you just perhaps comment on the distinction between price that you guys get on material and the actual project and perhaps mix, which played -- it appears a larger factor at a --another peer.

Could you just comment on, is it the relationships that lead you to have really that stable business, which obviously you guys are driving a lot of revenue through? What might be some factors that keep you guys away from mix versus the volume side? Thank you very much.

Ken, Jerry here. I wouldn't -- I would say that we certainly saw the results that you're referring to. We don't obviously know the inside of how those numbers are constructed in terms of the buckets they are put in. But we can only describe it, like, in our case, Ken, our model is different than theirs.

I mean, we have a big distribution component of our business. The stage of the life of the Company is a bit different. We described our M&A strategy as being far more selective. We've gone through the roll-up. So you got two different companies that are in two -- in very different stages of development.

The components that are inside each companies are different, though. So all of that is my way of saying that it's very hard for me to respond to that difference. I mean, we know that we're very, very comfortable with the strategy that we have and we pay a lot of attention, obviously, to what we're doing. That's probably the best we can do in terms of responding.

No, that's fair. I do think obviously you're farther along in that maturing cycle. Thank you very much.

Thanks, Ken.

There are no other questions.

I want to thank you all on the phone today and those listening to the webcast for your interest in TopBuild. We appreciate your support in the Company. 2016 should be another strong year for TopBuild. And we look forward to reporting our second quarter results in early August. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day.