TopBuild Corp (BLD) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the TopBuild earnings conference call. (Operator Instructions)

As a reminder, this conference is being recorded Tuesday, May 9, 2017.

I would now like to turn the conference over to Tabitha Zane, Investor Relations. Please go, ma'am.

Thank you, and good morning. 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.

Welcome, and thanks for joining us today.

Starting on Slide 3.

As expected, we came off a strong 2016 and moved into 2017 with an excellent first quarter. Revenue grew 6.6% and our adjusted operating margin expanded 150 basis point to 6.5% and adjusted EPS increased 48% to $0.46 per share. Our incremental EBITDA margin, a key metric for us, was 31.5% for the quarter. John Peterson will be following me with further details behind this high-level financial summary.

The trend in our financial results continues to provide clear evidence that our plan is working. Our unique operating structure positions us very well within the ongoing housing recovery. Our internal market share expansion and operational efficiency improvement initiatives are generating top and bottom line growth. And the execution of our capital allocation strategy is providing additional value to our shareholders.

Regarding the overall housing market, first quarter 2017 seasonally adjusted housing starts of 1,253,000 are right in line with how we have been viewing the status of the current cycle. With household formations growing and the general economy improving, the demand for new construction is strong and exceeds the current inventory. That equals pent-up demand for new construction that eventually will be satisfied with the higher level of starts for the next several years, an outstanding environment for TopBuild.

Our primary top line benchmark, 90-day lagged housing starts, was 11.5% for the first quarter of 2017. While our revenue increase of 6.6% was short of that, quarter-to-quarter fluctuation can be significant, particularly when comparing to the weather-driven unusually robust first quarter of 2016. As a reminder, we exceeded the 90-day lagged benchmark for all of 2016 and expect to do so in 2017.

Turning to Slide 4.

TopBuild has a unique operating structure that is serving as well today and will continue to do so throughout all phases of the housing cycle. We leverage TruTeam, the largest insulation installer, and Service Partners, the largest insulation distributor, to create both scale advantage and coverage across a very fragmented builder and contractor community. Both of our companies operate in the residential as well as commercial space. This structure and end market diversity is a differentiator for TopBuild, providing numerous opportunities for revenue growth and reducing the significance of our revenues cyclicality.

Moving to the next slide.

Improving our overall cost structure has been an important initiative for TopBuild since we became a publicly traded company almost 2 years ago. We've strengthened partnerships with our broad base of suppliers, improved labor efficiency, reduced and consolidated corporate center expenses and closed nonstrategic branches. While higher sales volume has certainly been a factor, our focus on cutting costs and improving efficiencies has dramatically improved the margin performance of our company.

To put this in perspective, let me give you a 2-year look. Comparing the first quarter of 2017 with the first quarter of 2015, with sales up 23%, total TopBuild operating margins have expanded 460 basis points, with TruTeam up 740 basis points and Service Partners up 120 basis points. Further evidence is the ongoing adjusted EBITDA drop-down, which was 29.4% for the total year 2016 and off to a good start in 2017 at 31.5%. Going forward, while we continue to caution that quarter-to-quarter fluctuations can be significant, we are confident that our ongoing focus on operational efficiency will continue to drive expanding operating margins and, therefore, strong conversion of revenue growth to the bottom line.

On Friday, we announced the settlement of our contract dispute with Owens Corning, enabling both companies to pursue a more productive relationship. As we have discussed on previous calls, we've always had confidence in the strengths, stability and cost effectiveness of our supply chain. Having strong partnerships with all of our suppliers is an important competitive advantage for TopBuild and enhances our market position as the housing recovery continues to progress.

Turning to our capital allocation strategy on Slide 6. For some time now, our number one priority has been to utilize our substantial free cash flow to fund acquisitions and then return additional available capital to shareholders through the repurchase of our stock. The types of acquisitions we are seeking are profitable, well-managed companies with solid customer bases that expand our market share and revenue quality in high-growth geographies. With a national footprint and industry-leading scale already in place, we intend to be very strategic regarding companies that make sense for TopBuild. The well-connected industry veterans on our management team has done a great job of filling the pipeline with candidates that fit our criteria. Our dedicated acquisition team has done an equally impressive job of working through the process to closing and then following up with the very important task of integrating these new partners into our company. Since August 2016, we have completed 6 acquisitions that are expected to generate approximately $60 million of incremental revenue. The current pipeline is robust, and we plan to be -- and we plan on being active throughout 2017 and beyond.

Moving on to our refinancing transaction and upsizing of our credit facility to $600 million. In addition to resetting our leverage to a more efficient level, it adds $300 million of committed liquidity to fund our growth investments and our ongoing share repurchase program. As part of the $200 million share repurchase program announced in February, we are also implementing a $100 million accelerated share repurchase program that we expect to be completed no later than the first quarter of next year. Because of restrictions under one of our separation agreement with Masco, which continues until June 30 of this year, the ASR is scheduled to become effective July 5. The upsizing of our credit facility and $100 million ASR demonstrate our commitment to optimizing the efficiency of our capital structure.

Let me now turn the call over to John Peterson.

Thanks, Jerry.

As Jerry noted, we had another strong quarter and a nice start to 2017. Starting on Slide 7, we saw volume growth and margin expansion in both business segments as we continue to successfully grow the top line, enhance labor and sales productivity while leveraging our established business platform.

Revenue increased 6.6% to $441.4 million, driven by sales volume growth at both TruTeam and Service Partners, selling price growth at TruTeam and $7.6 million of revenue from companies acquired since August 2016, partially offset by a price decline at Service Partners.

Gross margin increased 140 basis points to 23%, and our reported operating margin was a loss of 0.8 of 1% compared to 4.8% in first quarter 2016. On an adjusted basis, our first quarter operating margin was 6.5%, a 150 basis point improvement from adjusted first quarter 2016 operating margin of 5%.

First quarter 2017 adjustments totaled $32 million primarily related to the legal settlement of $30 million Jerry referred to earlier; $1.7 million primarily tied to a back-office consolidation, which we announced on our last call in February; as well as costs associated with the execution of acquisitions. With respect to the back-office consolidation, we expect to spend an additional $700,000 in the second quarter and, in total, expect a payback in less than 2 years. As we saw throughout 2016, our margins were positively impacted by increased sales volume, labor and sales productivity, lower material cost and overall higher selling prices.

Adjusted EBITDA for the quarter was $33.9 million, compared to $25.3 million in 2016 and our drop-down to adjusted EBITDA was a healthy 31.5%. On a same-branch basis, adjusted EBITDA was $33.5 million and our drop-down to adjusted EBITDA was 41.4%. This is the first quarter we've broken out the impact of acquisitions on our financial results, and we will continue to do so going forward.

For the first quarter, the $7.6 million in acquisition revenue had a 5.7% drop-down to adjusted EBITDA. The pull-through rate was impacted by typical start-up accounting items related to new acquisitions. On a pro forma basis, we'd expect the pull-through to be in the low to mid-teens range. The pull-through rate on acquisitions will tend to be lower than the base business due to the initial absorption of some fixed costs in year 1 of integration.

Looking at TruTeam results on Slide 8, this segment delivered first quarter revenues of $291 million, a 6.6% improvement over prior year. Breaking this increase down, volume accounted for 2%, increased selling prices 1.8% and revenue from acquired companies 2.8%.

TruTeam's adjusted operating margin was 7.4%, a 210 basis point improvement over a very strong first quarter 2016, driven by improved volume leverage, increased selling prices, lower material costs and operational efficiencies.

On Slide 9, you can see Service Partners' first quarter revenue was $170.2 million, up 5.8%. Volume grew by 8.4%, partially offset by a selling price decline of 2.6%. Service Partners' adjusted operating margin was 9.1%, up 10 basis points. Robert will discuss the pricing decline at Service Partners.

Turning to the next slide.

First quarter SG&A was $105.1 million and on an adjusted basis was $73.1 million, up $4.4 million from first quarter 2016 adjusted SG&A. This increase was primarily due to higher bonus, share-based compensation and legal expenses, partially offset by lower insurance costs.

Adjusted net income for the quarter was $16.9 million, up $5 million or 42.4% from prior year. As a result, EPS on an adjusted basis came in at $0.46 per diluted share compared to $0.31 a year ago.

CapEx in the quarter, as shown on Slide 11, was $3.8 million or 0.9% of sales.

Working capital as a percentage of sales was 8.8% compared to 7.6% a year ago. This 120 basis point increase in working capital was primarily the result of higher accounts receivable due to an increase in our commercial business, which comes with longer collection terms, as well as some increases in accounts payable impacted by the timing of material purchases. We continue to guide to a year-end target of approximately 7% of sales when modeling working capital in 2017.

Operating cash flow was $14.8 million for the quarter and cash on the balance sheet was $80.4 million down $54 million from year-end 2016. During the first quarter, cash was allocated to acquire 4 companies totaling $41.2 million, and we spent $17.4 million on share repurchases.

Our effective tax rate was a beneficial 63.8% for the first quarter. The higher-than-historical rate was due to a small overall pretax loss and the impact of discrete benefits related to share-based compensation and the legal settlement. Based on the current information, we still expect the annual effective tax rate to be approximately 38%.

Turning to Slide 12.

This morning, we also announced the successful upsizing of our term loan and revolving credit facility by $275 million to $600 million. TopBuild's new $600 million senior secured credit facility further strengthens our liquidity position, adding $300million of committed term debt and revolver availability and extends our debt maturity to May, 2022, almost 2 years beyond our prior loan maturity date. The new facility includes a upsized $250 million revolver, a $350 million term loan plus an additional $200 million uncommitted accordion feature. At transaction close, $250 million of the term loan commitment was drawn. We have access to the remaining $100 million delayed draw term debt over the next 12 months. On a pro forma basis, assuming the full $350 million of term debt is drawn, our gross leverage would be 2.3x using trailing 12-month adjusted EBITDA of $153 million. On a net leverage basis, after netting our first quarter ending cash balance of $80.4 million, our proforma leverage multiple is about 1.8x. Obviously, we expect these multiples to decline as we continue to grow the top and bottom line.

As Jerry noted, we initiated a $100 million ASR as part of the $200 million 2-year share repurchase program our board authorized in February. We expect the ASR to be completed no later than the first quarter of 2018. Both of these programs demonstrate our commitment to optimizing our capital structure and returning capital to shareholder. At the same time, we'll remain very active on the M&A front and both our own cash generation and the upsized credit facility provide ample liquidity and flexibility to support our growth plans.

To add to Jerry's earlier remarks, we have made substantial accomplishments over the past 3 years, and our strong results reflect this. Our platform for profitable growth is creating value for our shareholders. And we'll remain focused on continuing to execute on our strategy. Robert?

Thanks John, and good morning, everyone. Starting on Slide 13. As both Jerry and John noted, 2017 should be another solid year for TopBuild, and our positive momentum is building in many areas of the business. Our team is working hard and we are focused on profitably growing the business organically and through acquisitions.

We're very encouraged by the overall operating environment. Homebuilder sentiment is positive and the spring selling season has gotten off to a great start. Commercial construction also has good momentum and general contractors seem very optimistic about their potential book of business.

At TopBuild, we're seeing growth in the vast majority of our markets on both the residential new construction and commercial side of our business. And despite the difficult comp to first quarter 2016, both TruTeam and Service Partners grew their top line and expanded operating margins.

Moving to the next slide.

Our entire organization is focused on key growth initiatives and driving operational excellence, including labor and sales productivity. From a growth perspective, our spray foam business increased in excess of 15% in the quarter. This is a result of a more dedicated sales effort to this product as well as the adoption of new energy codes. Q1 also saw our commercial business continue to expand as we gained share in both light and heavy commercial.

Our commercial business now accounts for approximately 20% of total revenue. As we've stated before, the commercial insulation segment represents a $4.8 billion opportunity and our bundled solutions create a value proposition that is very appealing to general contractors. From TopBuild's perspective, the commercial business is particularly appealing given that the margins on this business are generally higher than our residential new construction.

Let's turn to supply and pricing on Slide 15.

As we've stated consistently, we are confident in the stability and the flexibility of our supply chain. We also believe there is more than sufficient capacity available to meet ongoing demand. It is also worth noting that spray foam sales continue to increase, now accounting for between 15% to 20% total market share in the industry.

We have seen some success with the manufacturers' January fiberglass price increases. The manufacturers have announced another increase for early June. However, it's much too early to predict how successful this will be. Assuming positive housing trends continue and the labor market remains tight, we expect both of our businesses will continue to see stronger selling prices throughout the year.

Labor and service continue to be top of mind in the industry and among the builders as we expect a robust housing environment in 2017. At TruTeam, our local operators are doing a great job managing our installer base and being responsive to the needs of our customers, which includes meeting their demanding schedules and providing great service locally. This focus is enabling us to grow our share and capture price.

At Service Partners, our focus is on organic growth and garnering additional operating efficiencies. We had a very strong volume in the quarter, 8.4%, offset by a 2.6% price decline. It's important to note that selling prices in Q1 2016, were the high-water mark for the entire year. Sequentially, Q4 2016 to Q1 2017, we have seen improved selling prices and lower material costs. Going forward, we expect the relationship between material costs and selling prices to continue to align.

Moving to Slide 16. TruTeam's growth is also being bolstered by the 5 acquisitions we've completed year-to-date, including 2 residential insulation firms since our last call in February, Capital Insulation and Superior Insulation Products. Combined, these 2 companies generate $19 million of annual revenue and will expand our footprint and market share on the West Coast, specifically Sacramento, California, and the Tacoma, Seattle areas of Washington. Both acquired companies have experienced management teams, strong customer relationships and good installer bases. It is important to mention that we are also pursuing acquisition candidates in the distribution space.

On an integration front, our team is doing an outstanding job moving the companies we've acquired onto our ERP and accounting systems. It has been a smooth process, and we are benefiting almost immediately from the synergies you would expect.

Finally, as you can see on Slide 17, we announced earlier in the quarter that TopBuild's Home Services group was recognized by the U.S. Environmental Protection Agency with the 2017 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 2012 and remain focused on enabling builders to 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 this 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 Jerry for closing remarks.

Thanks Robert. We're very confident as we look to the balance of 2017 and beyond. The housing recovery is on track and providing an excellent external environment for TopBuild. Internally, we are driving higher with execution in all aspects of our business, which will generate top line growth, maximize the conversion of that revenue growth to the bottom line and provide the free cash flow to fund an efficient capital allocation strategy.

One quick housekeeping note before opening up the call to questions. On Tuesday, October 3, we'll be hosting an Investor Day in New York City. More details to come on that, but I wanted to make sure you put this on your calendar.

Operator, we are now ready for questions.

(Operator Instructions) Our first question comes from the line of Mike Wood with Nomura Instinet.

This is actually Mason on for Mike. Can you give some additional color on the 31.5% EBITDA conversion margins, which are well above your targets? Specifically, how much benefit came from pricing cost? And what was productivity gains?

Yes, I think price -- this is John Peterson. Price was about 2/10, as you -- as we talked on the prepared remarks. TruTeam was up about 1.8%, but Service Partners declined about 2.6%. So the biggest pieces we got we're great volume leverage at TruTeam, consistent with last year, really good sales and labor productivity at TruTeam and Service Partners. The other thing we announced last year is we closed some branches at the end of first quarter and early second. We got a full quarter's benefit from that also part of the transition. And then the final piece that really counts is lower material costs that we got in the quarter versus a year ago due to the overcapacity of supply last year and the reduction of material cost in the industry. So the 31.5%, which was the combined also, same branch was 41.4% and our M&A or acquisitions were about 5.7%. So kind of thinking about it going forward, we still really hold to the fact that we at least can deliver at least a 20% drop-down. I think some of the things that I just mentioned, for instance the closed branches, we got the full impact -- the last impact of that really here in the first quarter of '17. So second quarter, the comp on -- had that benefit in it. And again, we're going to be a little conservative in terms of our projection. So at least the 20% on a go-forward is the way to think about the business.

Okay, great. And one follow-up. What have the trends been in your labor inflation? And how does your scale and structure on labor help play to your advantage?

Good morning, this is Robert. Relative to that, we do a lot of things with labor productivity in the field. So, I mean, just driving continuous improvement in the field, getting folks on the job site quicker, night-loading our truck, those types of things. So we've really been able to -- there's been some inflation in certain areas. But overall, we've done a really good job with our local operators relative to offsetting that with productivity and really driving simplification in the business. So I think as we talked about multiple times on the call here, labor productivity has surely been in the field at the installer level on the job site.

Our next question comes from the line of Matthew McCall with Sea Group (sic) [Seaport] Global Securities.

So maybe go back to that last one. John, I think you said 20% drop-down. And earlier, I heard you say -- or when you guys said that you're going to trend toward low to mid-teens, I just to make sure I'm -- or is the 20% drop-down organic in the low to mid-teens? Is the trend for the acquired companies? What -- connect those dots for me.

Yes, I think the -- at least 20%, we would say, is for the total business at this point. So what we will see, based on the acquisitions, is that low to mid-teens is kind of the pull-through. And as I discussed on the prepared remarks, the reason that's a little lower than the base business is because in the first year of acquisition, obviously we're adding some fixed costs that come with the acquisition targets and selling, fixed overhead and G&A. So we're still comfortable even with that kind of drawdown below the 20%. Still saying at least 20% for the overall business as we think about TopBuild in total.

Okay. Okay, got it. And then on Service Partners, you talked about you've seen improvements in selling prices, but material costs have move lower. I'm just trying to understand what you were trying to say with the relationship -- Bob, I think this was you -- the relationship between material costs and selling prices will continue to align. Will pricing still be negative but your costs are going to more than offset that? Is that what you were implying?

Yes, it's Robert again. So we absolutely expect that to align as we're going into -- finishing up first quarter going into second quarter. And that's coming from continuing to -- having to push selling price, which the team is doing. And then as you know, there's been some -- there was an announced increase that happened in January this year. There's another announced increase in the industry for June 1 as well.

Okay. All right, got it. And then the last one, I'm just curious about the commercial outlook. More specifically, it sounded pretty bullish. But can you put any numbers behind that, what you're trying to bake into your plan for the year?

We're probably aren't giving specific guidance on the forward look, but I would just tell you -- again, this is Robert. But from the general contractor perspective, looking at the backlog of work, talking to general contractors relative to even 2018 volumes as well, I mean, they're very positive about the environment. And again, looking at the opportunity we have of $4.8 billion, it's really about our team growing share in light and heavy commercial, and they're doing a great job of that. So we are very, very optimistic about commercial, and we see that in the field on a day-to-day basis as well. The other thing I would add to that, Matt, from an acquisitions viewpoint, one of our significant acquisitions in January was in the commercial space, that being Midwest. And as we look forward, our pipeline includes commercial players. So we're -- as we've been saying for many quarters, we're very serious about the commercial piece of the business, very important to us, and it's on the radar from an acquisition viewpoint.

Our next question comes from the line of Ken Zener with KeyBanc.

Focusing on price. Obviously, between TruTeam and Service Partners, there are different metrics, but could you talk about the -- on the service side that if -- year-over-year, if it's down, what is it kind of going sequentially? I apologies -- I apologize if I missed that.

Yes, Ken, this is John. Sequentially up a little bit on the Service Partners side. So the 2.6% decline was the year-over-year. But we're up a little bit sequentially from fourth quarter.

And then usually -- I mean, you talked about pricing coming in a little bit. And obviously, your quarter had some beginning inventory in it. But what would you say the exit rate was in sales price versus, let's say, January 1? Just a way to get kind of a sense of how much change over the quarter exit inventory?

I'm sorry. Help me understand the question, Ken, in terms of...

Oh, the pricing -- well, how much was pricing up by the time you exited the quarter? Pricing, I assume, would have been more than the average or than the beginning of the quarter simply because price increases in your -- started to go through. You started to use up lower-cost inventory. Is there a sense of how much it moved by the end of the quarter?

Yes, difficult to answer that question.

(inaudible) in the quarter?

Yes, I don't have data to answer that. Obviously, throughout the first quarter, TruTeam side and Service Partners, prices were increasing. I don't have the -- I can't give you the timing in terms of how much of that was March versus January, et cetera. But certainly, it was on the ramp-up throughout the first quarter and obviously ramping up through the end, so.

Okay. Now as you -- one looks to the volume side on the TruTeam, you talked about a lot of volume leverage. But given that you're under-indexing versus the starts, it didn't seem like you had as much volume as you have perhaps by the time year ends when you actually outpaced lag start number. Can you just kind of talk about how you'd marry those 2 comments, that you got the volume leverage but it was fairly light. And then your idea that EBIT leverage, very strong this quarter overall. So your outlook is a bit more conservative when, in fact, your volume should be lot better as we move through the year.

Ken, this is Jerry here. I would answer that by telling you that there's a lot of variables when you compare our revenue -- top line revenue to housing start lag. And that's why it's always better to look at that over a longer period of time, because on any quarter-to-quarter basis, there are lots of variables that can shift that around, anything from lag times with builders to the unusual quarter we had a year ago. So we rely on longer periods of time. That's why when you look at total year 2016, you see that we did outstrip the housing -- the lagged housing start metric. That's important for us on a top line basis. And we would expect that to be true again in 2017. As it relates to the whole dynamic, as you -- I'm sure you can appreciate, between top line selling prices for us and our material costs, that is a very, very important dynamic for us to align properly. Again, the last nuance there on the material cost side, we worked really hard on our fire base that's very important to us. I made the comment earlier, I think, that all of our suppliers are very important. And we have a lot of scale that we can leverage, and it's very important that we have great relationships with all of our suppliers. That's huge. On the price side, as we go through our geographies, each one of our geographies is a bit different than the one sitting next to it, all with different dynamics across the country. And it's very alive every week, every month in terms of finding that right balance between volume and price. Now the only thing about price I would say now is the manufacturers are out there with price increases. We think there has been some stickiness to the January, and we don't know about the June. I mean, it's just way, way too early, to Robert's point, to have a comment on that. But we will -- we, generally speaking, have a history of doing well from the standpoint of pricing, of passing on whatever material costs we incur, and make our margins work accordingly. So that's -- we believe it's a good situation for us right now.

I think that is the case, huh, Bob. Does there tend to be a little lag if pricing does go through? Like probably about 1.5 years ago, it seems that I can kind of recall that from you where there would be a little less. If pricing comes through stronger than, let's say, we -- I expect, would there be a little bit of a lag on your ability to pass through to customers, therefore a little less EBIT leverage? Is that something that we should be thoughtful of if pricing does come through better, which, I think, is ultimately good for you, but it could be a quarterly hiccup from the leverage perspective? Is that something you would be sensitive to?

Ken, this is John. So typically, we got a good line of sight in terms of material cost increases when they're coming. So we reflect that in our pricing, on jobs that are going to basically execute the same time those material costs are coming in. So I would say generally, we feel pretty good about the ability to match up the material cost increase with our selling price increases. I mean, on occasion, there's some inventory that flow through, et cetera. There's different things that happen depending on the cycle and depending on the lag in the industry. But overall, we feel pretty good about the timing and the ability to recover that incremental material cost in our selling prices kind of at the same time.

(Operator Instructions) Our next question comes from the line of Keith Hughes with SunTrust.

I have 2 questions. First, on Slide 15 you refer to first of all, to sufficient capacity to meet ongoing demand. What kind of time frame -- given the way you see the insufficient world, is there sufficient capacity? I guess my question really is, when is the first situation going to get tight?

It's Robert. So I think given the outlook on housing starts for this year, we think that capacity is in a good place for 2017 here. I think folks are looking at 2018, at what the environment may be there as well and considering capacity and starts to the needs there. So I think we're in a good shape here in '17, and I think people are looking at the operating environment for '18. And the last thing I would just point out that we talk a lot about is just what's happening on spray foam side of the business. I mean, there's spray foam that's continuing to gain share. We're seeing that in our business. We're seeing that with builders being much more interested in that product. So I don't think you just make it just a fiberglass discussion. It has to be a total solutions discussion, including spray foam.

Okay. Second question on TruTeam on the volume of approximately 2% excluding acquisitions. I know that your numbers don't always match up with completion. Let's get below completion. So was there anything specific to your geographic mix or any other things you can call out in the quarter that put pressure on that number?

Keith, again Robert. We feel really comfortable when comped in that number looking across the country. So if I look at census regions across the country and I think about the Northeast, we're right on top of the Northeast numbers, the South. If you look at Midwest, single family compared to multifamily, we feel very confident there. But if you look at multifamily Midwest, a big part of the growth percentage in the starts in the first quarter were multifamily. And then if I go to the West Coast, I think West Coast starts are up plus or minus, I'm going to call it, about 30% in the West, California being specific. By far, 2/3 of that is multifamily, so has a longer lag. That's what we see in our business. And then California. Obviously, it was a wet start to the year in California. So we see that again with the builders, and they're starting up their prep work and stuff as well. So we feel really comfortable with Q1 number, and then we look at it by multifamily, single-family and how that may affect the lag and -- across the country. That's what we saw, and that very much aligns up with the census data.

Yes, through all the noise, we look very carefully. We have a lot of granular data relative to share. So the important thing for us to understand, and we do, through all the noise and the different variables that impact when trying to compare lag housing starts to our top line is that we're maintaining a growing share, and we believe that to be true.

And just on California, is that -- you overweight, underweight in California versus its percentage of the national housing picture?

No, I would say we're about -- compared to starts, we're about on the average in California and the Pacific Northwest.

Our next question comes from the line of Blake Hirschman with Stephens Inc.

First one for me, I was just curious if you could touch on the cadence of growth that you saw throughout the quarter just kind of from the beginning to the end, what the level of growth? Has it kind of picked up, stayed the same or even if it's slowed down a little bit? And then also, you touched on the spring selling season being off to a great start. I was wondering if you could provide some commentary on how the month of April looked.

It's Robert. So pretty consistent across the quarter. The only thing I would mention is out West, we started a little bit wet in January and February. But other than that, we were consistent throughout the quarter in what you'd expect in Q1 of the year and fairly decent weather across the rest of the country. Relative to spring selling season our -- obviously, we have great relationships with the builders at the corporate level and at the local level. And I would say the builders, as they're coming out of spring selling season and preparing for the summer months and the fall months, people are -- across the country in the majority of markets are very optimistic. As you've seen, the entry mid-level homes are doing well, and that's what we see with our large-production regional builders. And then the custom builders are gaining momentum as well. So coming out of spring selling, all the factors point towards a really robust 2017 housing here. Keep in mind, though, that I think -- I believe the builders that we talked to would still say that from a cycle viewpoint, they still struggle building as many homes as they think they could sell, hence the fact that the supply of new homes out there is low compared to what the demand is. So availability of labor, some of the cost challenges that they have, those are all things that I think builders continue to face as headwinds. And for us to look at the lag time, that certainly is a nuance, and that's a complexity in terms of us understanding what the lag times are from the start to completion.

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

So I just -- I guess just to clarify the couple questions that have been asked. Based on your view that you should catch up to what we've seen in the starts data and your view from your builder customers, is there any reason why your sales growth, if you look organically, should not accelerate through the rest of the year?

It's Robert. No, I think we feel comfortable and confident with that. To Jerry's point that he mentioned earlier, there's things that can affect lag. As you look at multifamily in certain regions of the country, that could affect lag or something. But I'd say overall, we feel good about the sales growth rate organically that we'll see here in 2017. No concerns from that perspective.

Okay, great. And then, John, not to piece out your words too tightly, but if you're now saying 20%, including acquisitions, in terms of that EBITDA flow-through, it would imply that you raised the core. So maybe you could talk to that, your confidence that the core business is running above that target. And then as you look to the balance of the year, it sounds like distribution margins should see better improvement year-over-year. So what's the offset relative to what was a much stronger 1Q flow-through than many of us were expecting?

When you say what's the offset, Scott, do you mean why would it drop from the levels we've seen down to the 20%?

Yes. Yes, exactly.

Yes, a couple of things I mentioned. One was the fact that we did get a nice benefit over the past 4 quarters, and it kind of ended in the first year on some closed branches we executed on. That's one. Two is we have gotten great labor and sales productivity across the platform. And it's not that we can't continue to deliver strong performance there, but there is some diminishing return basically you get over time. And so, again, we're being very conservative in terms of that. You're right, we kind of did up the ante a little bit by saying that -- by including the M&A discussion in the 20%. And again, M&A should typically be under that level. But by definition, the core or the organic business has kind of risen a little bit in our estimates, which I think is consistent. I think part of that is just the fact we now have almost 2 years under our belt in terms of performance. And we are always going to remain conservative, Scott, but I think generally, we feel good about our ability to continue to deliver at least 20% on a go-forward basis, and we don't expect that to end anytime soon. Everything we see right now in the second quarter beyond indicates that we'll be able to deliver that.

And then just on the settlement side, respecting that there's some confidentiality you can't disclose, but does that in any way reflect your concerns about your ability to get product?

Scott, Jerry here. No, I mean -- and you're right there's a strict confidentiality wrapped around the settlement. So not -- my ability to add any color on that is extremely limited. But as we've always said, our -- we felt good about our supply chain before, both from the standpoint of flexibility and cost effectiveness. We, as you can imagine, believe that this settlement is -- for TopBuild was in the best interest of our company going forward. So we're very happy to remove the distraction and put it all behind us. And again, as I indicated, having a good relationship with all of our suppliers, and I emphasize the word all, is very, very important. And so that makes our -- that really helps us right now. We've got significant scale here to offer to all of our suppliers, and that's why having a balanced approach is really important to us. And we're happy to have this behind us.

There are no further questions at this time. I will now turn the call back to you.

Thanks, everybody, for listening today and supporting TopBuild. We look forward to reporting our second quarter results in early August.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask you that you please disconnect your line.