Installed Building Products Inc (IBP) 2015 Q4 法說會逐字稿

Greetings and welcome to Installed Building Products' fourth-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to Jason Niswonger, Senior Vice President Finance and Investor Relations. Thank you, please go ahead.

Good morning. We would like to thank you for joining us today for Installed Building Products' fourth quarter and full year 2015 earnings conference call. Earlier today, we issued a press release on our financial results for the fourth quarter, which can be found in the Investor Relations section on our website.

On today's call, management's prepared remarks and answers to your questions contain forward-looking statements within the meaning of the Federal Securities laws. These forward-looking statements include the demand for our services, expansion of our national footprint, our ability to capitalize on the new home construction recovery, our ability to strengthen our market position. Our ability to pursue value enhancing acquisitions, our ability to improve profitability and expectations for demand for our services for the remainder of 2016. Forward-looking statements may generally be identified by the use of words such as anticipate, believe, expect, intend, plan and will, or in each case their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical fact. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.

Any forward-looking statement made by management during this call is not a guarantee of future performance, and actual results may differ materially from those expressed in or suggested by the forward-looking statement. As a result of various factors, including without limitation, the factors discussed in the Risk Factors section of the Company's annual report on Form 10-K for the year ended December 31, 2014, as the same may be updated from time to time in our subsequent filings with the Securities and Exchange Commission. Any forward-looking statement made by management on this call speaks only as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for the Company to predict these events or how they may affect it. The Company has no obligation and does not intend to update any forward-looking statement after the date hereof except as required by Federal Securities laws.

In addition, management uses certain non-GAAP financial measures on this call such as adjusted EBITDA and adjusted net income from continuing operations. You can find a reconciliation of such measures to the nearest GAAP equivalent in the Company's earnings release which is available on our website.

This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer, and Michael Miller, our Chief Financial Officer. I will now turn the call over to Jeff.

Thanks, Jason. Good morning to everyone joining us on today's call. I am happy to have the opportunity to talk to all of you today about our strong fourth quarter and impressive close to 2015. I will start today's call with some highlights, and then as usual, turn the call over to Michael Miller, IBP's CFO, who will discuss our results in more detail before we take your questions.

Things are going very well here at IBP. We had a phenomenal fourth quarter, delivering the highest quarterly sales figure in the Company's history while continuing to grow the business with three successful acquisitions. The fourth quarter was a perfect example of just how well the business performed in 2015. It was a strong year for IBP. We completed acquisitions with more than $100 million in trailing 12-month revenues, and our existing operations achieved strong year-over-year growth, ending the year with record revenues and earnings. The positive momentum we experienced throughout 2015 was a direct result of delivering on our growth strategy, improvements in the residential housing market, the hard work of our local branch operations and the benefits we are achieving from our well-established and efficient platform. I'm very pleased with the team we have in place, and where we are headed at the start of 2016.

For the full year 2015, we increased our net revenues 28% to a record $663 million compared to $518 million last year, driven by strong organic growth and the contribution of our recent acquisitions. The increase in revenues combined with operating efficiencies and leverage translated into significantly higher earnings. For 2015, adjusted EBITDA increased 62% to a record $71 million, and adjusted net income from continuing operations were up 65% to $0.89 per diluted share.

Acquisitions were a meaningful driver of 2015's financial performance as we completed nine deals that had over $109 million of annualized revenue. As we have stated in the past, acquisitions have been an important part of IBP's business plan for nearly 2 decades, and will continue to be a key component for our growth strategy in the future. Our experienced business development team provides us with a compelling infrastructure to identify candidates, successfully integrate newly acquired companies and immediately achieve operating synergies through our scale and national buying power.

During the 2015 fourth quarter, we completed three acquisitions. Sierra Insulation Contractors and Eco-Tect Installation, two Southern California insulation installing locations with combined trailing 12-month revenues were approximately $7.6 million. The Overhead Door Company of Burlington, primarily an installer of garage doors with locations in Vermont and New Hampshire, and trailing 12-month revenues of $7.5 million, and BioFoam of North Carolina, doing business as Prime Energy Group, an insulation installer with locations in Raleigh and Charlotte North Carolina and trailing 12-month revenues of approximately $8.9 million.

We are not slowing down in 2016, however, as we have acquired three businesses with combined trailing 12-month revenue in excess of $20 million in the first 60 days of 2016. Despite a busy first 60 days, we continue to actively pursue acquisition opportunities, and our pipeline of potential deals over the next 12 months is robust. We anticipate 2016 will be another strong year for acquisition growth.

Our business continues to benefit from a recovering housing industry which we believe has significant runway for ongoing improvement. According to the US Census Bureau's historical data and the February 2016 Blue Chip consensus forecast for housing starts, total US housing starts are forecasted to increase at an 11% compounded annual growth rate from 2014 to 2017. Total US housing starts increased 7% during the fourth quarter of 2015, and were up approximately 11% total in 2015. We continue to expect residential end markets to benefit from various factors, including improving employment, rising household formations and historically low mortgage interest rates.

Our core single-family same branch sales grew nearly 14% in 2015, and out paced the market growth of US single-family completions of approximately 5%. We have outperformed the market in each quarter as a public company, which speaks to our customer loyalty and leading market positions in some of the strongest US housing markets. We also continue to benefit from our national scale, long-standing supplier relationships and a broad customer base that includes production and custom homebuilders, [multi] family and commercial contractors and homeowners.

I'm very pleased with our operating performance and the financial growth we were able to achieve in 2015. We believe the recovery in the US housing market will continue in 2016, and we are excited about our business prospects for this year.

With that, I will now turn the call over to Michael to provide more details on our fourth-quarter and full-year results.

Thank you, Jeff, and good morning, everyone.

We continue to make considerable progress growing revenue and improving profitability. For the full year, our net sales increased 27.9% to $662.7 million compared to $518 million in the prior year, which was mainly driven by higher volume, price mix and our 2015 acquisitions.

For the fourth quarter, our revenue increased 31.8% to $191.5 million. Our same branch sales improved 14.8%, which was due to an increase in volume in all of our end markets and favorable improvement in price and mix. Our same-branch single-family sales growth group of 18.1% exceeded the 4.6% increase in single-family US housing completions during the fourth quarter, as a result of the dedication and commitment to quality installation services of our local branches.

Fourth quarter 2015 gross margin increased 140 basis points to 28.4%, compared to 27% in the prior-year quarter. This improvement was primarily due to labor productivity improvements, operating efficiencies, pricing and a more favorable customer and product mix than the prior-year quarter.

For the 2015 fourth quarter, selling, general and administrative expenses as a percent of net revenue was 19.4% compared to 20.1% for the 2014 period. As a percentage of revenues, general and administrative expenses declined sequentially from 14.2% in the third quarter to 14% in the fourth quarter. We expect general and administrative expense as a percent of net revenue to continue to improve over time, as we further scale our operations and benefit from higher sales.

As we've stated in previous earnings calls, it is important to note that as our acquisition strategy continues and as the volume of total acquired business operations become larger, we will incur additional non-cash amortization expenses. For example, in the fourth quarter, we reported $2.2 million of amortization expense, a 196% increase over the prior-year period and a 19.6% increase over the 2015 third quarter expense. This non-cash adjustment impacts net income, which is one of the reasons why we believe adjusted EBITDA is the most useful measure of profitability. Based on our acquisitions completed to date, we estimate first quarter 2016 amortization expense of approximately $2.6 million, and full-year amortization expense of approximately $10 million. These figures are subject to change with subsequent acquisitions.

For the full year, we improved our adjusted EBITDA to a record $71.2 million, representing an increase of 61.7% from $44 million in the prior year. In the fourth quarter, adjusted EBITDA was $23.5 million, a 54.1% increase from $15.2 million in the prior-year quarter. As a percent of net revenue, our adjusted EBITDA improved to 12.3% in the fourth quarter, representing a 180 basis point increase from 10.5% in the prior-year quarter. We are pleased with the successful steps we have taken to enhance our operating efficiency, and significantly increase our adjusted EBITDA margin.

We continue to believe our financial model can produce incremental full-year adjusted EBITDA margins of 20% to 25%. But as we discussed last quarter, the mix of organic and acquired revenue impacts our combined incremental adjusted EBITDA margin and a higher contribution of revenues from acquisitions can temporarily reduce our overall incremental margin. This happened in the fourth quarter and full year of 2015, given our success in completing acquisitions. As a result, our incremental EBITDA margins were 17.8% for the fourth quarter and 18.8% for 2015. This trend may continue in 2016, depending upon the size and amount of acquisitions we complete during the year.

To help demonstrate the impact acquisitions have on our incremental adjusted EBITDA margin, this morning's press release included a table depicting same branch and acquired incremental revenues and adjusted EBITDA margins for the full year 2015 and 2014 period. In 2015, same-branch revenues had a 23.3% incremental adjusted EBITDA margin versus 15.5% from acquired revenues. The 15.5% adjusted EBITDA contribution from acquired business was 480 basis points above the total Company adjusted EBITDA margins of 10.7% for the full year. We believe our continued success in same-branch sales growth in excess of total market completion, together with incremental adjusted EBITDA margins between 20% to 25% with a strong adjusted EBITDA contribution from our acquisitions, will allow us to achieve mid-teens adjusted EBITDA margins as the housing market reaches stabilization.

For the full year, adjusted net income from continuing operations was $27.9 million or $0.89 per diluted share, compared to $16.2 million or $0.54 per diluted share in the prior year. On a GAAP basis, for the full year we had net income attributable to common shareholders of $26.5 million or $0.85 per diluted share, compared to a net loss attributable to common shareholders of $6 million or $0.20 per share in the prior share year.

For the fourth quarter, our adjusted net income from continuing operations improved to $9.3 million or $0.30 per diluted share, compared to $6.2 million or $0.20 per share in the prior-year quarter. On a GAAP basis, our fourth-quarter net income attributable to common shareholders was $9.3 million or $0.30 per diluted share, compared to net income attributable to common shareholders of $5.1 million or $0.16 per diluted share in the prior-year quarter.

For 2015, our effective tax rate was in line with our expectation at 36.8% compared to 38.1% for the 2014 full-year period. For the fourth quarter of 2015, our effective tax rate from continuing operations was 38.4% compared to 38.3% in the prior-year quarter. As we noted in previous quarterly conference calls, we typically experience a higher effective tax rate during the first half due to the tax valuations related to losses in certain business entities which normalizes in subsequent quarters, and we expect this trend will continue in 2016.

Now moving on to our balance sheet and cash flow. At December 31, 2015, we generated $34.5 million in cash flow from operations, an increase of $14.9 million or 76.2% from the prior year. We continue to use this cash flow to fund acquisitions and reinvest in our business, while also repurchasing 315,000 shares of our common stock in the 2015 first quarter. Capital expenditures at December 31, 2015 were $27.3 million, while total incurred capital leases were $3.4 million. As expected, capital expenditures and incurred capital leases increased consistently with the year-over-year increase in our revenue. As a reminder during the fourth quarter of 2014, we shifted our approach to financing our fleet by utilizing vehicle and equipment loans. Which allows us to purchase vehicles with similar economics to capital leasing, but in a more tax efficient manner, allowing us to benefit from the depreciation for tax purposes.

At December 31, 2015, we had total cash of $6.8 million. Yesterday, we announced a new five-year $325 million senior secured credit facility, with an accordion feature that allows the Company to increase borrowing capacity to $400 million subject to certain approvals. We currently have nothing drawn on our $100 million revolver and $125 million of capacity under our delayed draw term loan, providing us considerable flexibility as we continue to perform on our growth strategy.

With that, I will now turn the call back to Jeff for closing remarks.

Thanks, Michael. It's evident our growth oriented business strategy continues to drive strong financial results. With housing continuing to demonstrate improving trends, we are excited about our opportunities for 2016 and beyond.

Operator, please open up the call for questions now.

(Operator Instructions)

Nishu Sood, Deutsche Bank.

This is actually Tim Daly on for Nishu. My first question, can you guys talk about what you are seeing on the pricing front in terms of announcements and realization?

Hello, Tim, this is Michael Miller. Good morning. When you say that, are you saying pricing on our end or pricing from the manufacturing side in terms of the cost of material?

The manufacturing side, apologies.

So as you probably know, the manufacturers announced a price increase to be effective in January. And that announcement has been out there for actually quite some time, given the delay that occurred this year in terms of the announced price increase and the actual effective date of the price increase.

And as we've stated previously, we look at price increases as opportunities for us to work with our customers to make sure that we have the right mix of pricing on their end as well as pricing on our side. And use it as an opportunity to hopefully improve our relative pricing to the overall market. So what the actual market has realized is consistently different between what we actually realize.

Great. Thank you for that. So I guess my next question is more on the acquisition front. So you've made several acquisitions this past quarter, and thus far in 1Q 2016. Can you talk about how you sourced them, and how and where you plan to build out on a geographic presence moving forward?

Hello, this is Jeff Edwards. To answer the question, we continue even though and we have done numerous acquisitions since having gone public in February of 2014 there's still quite a number of holes really, as far as we are concerned, from a geography perspective in the map. We are still not as strong as we would like to be.

Obviously in the Southwest United States there's parts of the middle part of the country that have major holes in them. And even a number of cities where we technically have operations now that are not -- where we are not a number one or number two or don't have the market share that we would like. So that generally speaking, along with maybe getting into some other product lines, drives our acquisition strategy.

We have benefited over the last probably 12 months with maybe more inbound calls than we would have had in many prior years in terms of potential acquisition candidates actually reaching out to us with an interest in joining up with IBP. But in addition to that, our team here on the acquisition side makes outbound calls.

Ladies and gentlemen, please stand by. The conference will resume momentarily.

Hello, this is Jeff Edwards again. I'm not quite sure where I got cut off.

Jeff, it's Tim. We just caught you essentially when you were talking about essentially you guys all source teams still making outbound calls.

So try to remember exactly where that was in my answer. We do still have geography that we don't feel like we cover adequately, either because we have no operations in that particular location or because we don't feel like we have the share or maybe even a particular product expertise that we'd like to get or contacts locally.

So we do continue to chase both geography to a degree, share in some places to a degree and also product lines to a degree. And we do that by either taking inbound calls which continue to be more than they would have been in the distant past, let's say. And we've got inbound calls and have had really fairly heavy for the last 12 or 18 months, and though in addition to that our team here makes outbound calls really to solve one of those three earlier issues that I spoke to.

Understood. And just a quick follow up. I know that you said yes you're going to be expanding on the product end. So essentially, do you see that more in the spray foam product mix or end market mix? Is the commercial end market attractive for IBP?

It can be, so it can the existing home market. There is plenty of other places to do the things that we do, and for other groups of customers that are attractive to us.

So I don't know that I would -- and I would also say that there is plenty of other products that we install, and even don't install now that are attractive to us or could be attractive to us. So I would not want to in any way pigeonhole ourselves into saying that we're going to concentrate entirely on foam or anything like that, nor would we concentrate entirely on one customer client.

I think it is definitely both an end market and product diversification relative to our strategy from an acquisition perspective, and of course diversifying the geography as well.

Thank you.

Susan Maklari, UBS

This is actually Ben Miller on for Sue. Can you talk a little bit about the mix this quarter between the large public and non-production private builders compared to last year? And what that impact -- what the impact of this bid was on margins, and where do you see this moving either next year or over time?

This is Michael, Ben. So we saw very good growth, both with the national builders or the production builders as well as the regional and local builders as well. During the course of the year, we definitely saw a higher level of growth from the regional and local builders which we've talked about our previous calls. Which we think is key as the market continues to recover.

If you look at the top 100 builders, they're approximately 30% of the single-family new single-family market. So seeing strength among that 70% of the market we think is a very good sign for the overall market, and we did see an acceleration of that growth rate with the local and regional builders in the fourth quarter relative to last year.

So we feel good about that aspect of the business, quite frankly. And that is a very positive -- that's a positive for us. While we love the national builder business, again, we think the local and regional builders are really important to a healthy and stable recovery in the housing market on the single-family side.

Okay, great. And then maybe could you talk a little bit about your leverage and what levels you feel are appropriate either on a net debt to EBITDA or capital basis? And how quickly would you be able to delever if we come into a less supportive macro environment?

That is a good question. Right now, we're levered at a little bit less than two times.

One thing that I would caution you when you look at our leverage, what you're not seeing is the pro forma effect of acquired EBITDA. So our true leverage is lower on a debt to EBITDA basis using the acquired EBITDA revenue that we have that has not yet been in our reported numbers.

From an overall leverage perspective given where we are in the cycle, we feel very comfortable that we have plenty of flexibility to increase our leverage to continue to do acquisitions. Because as we've demonstrated, that leverage comes down very quickly as we successfully integrate those acquisitions and as the existing business continues to grow and generate good cash flows and good EBITDA for the business.

That being said, if there was a -- which we don't see that happening here in the near term at all. But if there was a flattening in the housing market, the business generates a lot of cash flow. And we are very confident in our ability to delever very quickly in either a flat or a declining housing market.

Great. Thank you.

I just wanted to follow up on that. That being said, where we are now at two times or even if we bring that leverage up to continue to do acquisitions, we believe we're very conservatively levered for a company even a cyclical company.

Okay.

Scott Redner, Bellman & Associates.

Good morning. My question on the top line if we look at the same-store sales growth of 14.8% which saw good acceleration from 3Q. You guys report that the completion numbers weren't much changed quarter over quarter. So I just want to get your temperature there on what you think drove the acceleration in your core performance quarter over quarter.

That is a good question. I think part of it is the lag in the actual data that comes from the US Census Bureau. So, Scott, as you know, we use completions, but it is not necessarily a perfect measurement tool. And I think the US Census Bureau statistics are going to eventually catch up with what's happening fundamentally within the homebuilding industry.

And not just us. And I would also say that we feel as if the business, we know the business on a same-branch basis performed exceedingly well during the fourth quarter. And we're continuing to feel very good about 2016, and what we're seeing on a same-branch basis as well.

This is Jeff. But it is blocking and tackling in the field, and so we owe it to everybody in the field doing a great job and taking care of customers. And therefore, a little better than the market would otherwise have us do.

If you look at just the Delta between our single-family same-brand sales growth relative to single-family completions in the quarter, we were at 13.5% above the actual market growth. And for the year, we were 9.1% above the actual market growth, which was an acceleration both in the fourth quarter of 2014 and the full year of 2014. So as Jeff said, we're performing well at the local level and feel very good about that and feel that that momentum is continuing.

So paraphrasing what you guys are saying, to the best you could quantify, some of it is market and some of it is share as we think about 3Q to 4Q in terms of improvement.

Yes.

Okay. And then, if -- yes, go ahead.

I was just going to clarify. And it's getting the right share, not just more share. So it's making sure that we're working with the right customers that are in the right subdivisions, and doing that blocking and tackling everyday that Jeff was talking about.

And when you guys think about the delays in the construction cycle or the extension that has been well-publicized I think by building product companies and home builders, do you think that that's a catalyst for you guys to increase share?

Yes absolutely. Any time that there is a increased level of demand, our ability to service that demand gives us the opportunity to make sure that we have the right market share mix within a market. So to the fact that there is this pent up demand, which we believe is starting to get alleviated, which may not be fully reflected yet in the US Census Bureau numbers. But that demand provides us a greater opportunity to continue to work with our customer base to make sure again that we have the right market share in a market.

And then just lastly, for either of you. But, Jeff, on your comments on the acquisition, understanding you don't want to pigeonhole yourself, but at the same point, how do you balance going into new end channels and new product categories without sacrificing the golden goose you guys have on the residential fiberglass side?

We have never really gotten into this in super great detail. But we have certain locations that are in every product that we install, and really to every market in terms of end market that we install into. So it is definitely not -- and honestly, that is what we as a Company would aspire or have all of our branches aspire to, to do everything we can install so then it makes sense in that particular market to our entire customer base.

And so I don't really think that they need too - or it does -- we have actual living breathing branches that are in all of these products and doing very well with them with a very complex customer base. So I don't know that they -- that it necessarily -- it doesn't mean it's easy and you can't get into all of them at once. But over time, the ultimate mature footprint and in product line for IBP would be to have full geographic coverage with full-blown product lines.

And a lot of times, Scott, when we are strategically acquiring non-insulation installers, it typically is a -- it's a way for us to gain a customer base in a certain region that we then can cross sell them insulation as well. So we did that up in Vermont early or late last year, and it's a great opportunity for us.

So while clearly new single-family fiberglass insulation is going to be our primary focus from an acquisition perspective, there are particular opportunities where it does make sense to pick up individual end product lines in individual markets depending upon our competitive opportunities there.

Thanks, guys.

Trey Grooms, Stephens.

Good morning, guys, this is Drew Lipke on for Trey. First question I had was just on the acquisition contribution. I realized you guys see purchasing synergies on day one.

And these acquisitions do bring additional selling and administrative expense. How quickly does it take for you to get this selling and admin cost in line with your corporate average, or really how quickly can you leverage acquisition SG&A from the time you announce an acquisition?

We get -- it basically gets levered day one. And I think that's evidenced by the fact that we have such strong, currently, such strong EBITDA margins from the acquired businesses. So their direct margins or simple margins are not that different from the overall business, but we get good leverage from a selling and G&A perspective from those businesses.

Okay. And then on the labor piece, it's been an issue for the homebuilding industry. You guys have done a good job navigating this tighter labor environment, and I know your installers are less skilled and paid based on an install amount. But starting to hear more about wage pressures, broadly speaking, what are you seeing with your installer labor force and what are you seeing in terms of your installer productivity and concentration of work there?

We continue to see, as we've said on past calls, improvement in our labor efficiencies. If you look over the last 16 quarters, our labor percentages were the lowest in the fourth quarter of 2015 then they have been in any of those past 16 quarters.

So we are continuing to see improvement. Now, that does not mean that the installers are getting paid less, they are actually getting paid more. But we're seeing higher levels of productivity from them, and continuing to see that improvement.

We feel very good fundamentally that were continuing to see again sequential decline in our labor percentages, as the market continues to recover. Which is exactly what we would have expected to have happen.

In terms of hiring, that's what we do. We hire everyday. Installers, we hired installers even during the downturn. So it's not any different than most other construction trades. So it's just a confidence that you develop, and you deal with the labor force that is out there. And at this point, it's not to say that it is easy, but we feel confident of our ability to source installers and more than keep up with the pace that we're on.

That is helpful. And then just one last one for me, what benefit did you see in 2015 from lower diesel and lower gasoline costs?

It's definitely been a net benefit. We have a fairly sizable fleet, but we have not really broken out I think before that specific number. But it's definitely been a benefit, as it has been to any company that buys fuel.

Thanks, guys. Best of luck.

Thank you.

Ken Zener, KeyBanc.

Good morning, gentlemen.

Morning, Ken.

I appreciate how you guys broke out the same-store sales in the press release. That is very useful. I'm referring to slide 3 in your deck where you say local presence on a national scale.

One of the things that's come up in my conversations with investors is perhaps how you might be over or under index to some states. So obviously, you talk about the public homebuilders.

But could you give us a sense, Texas what percent of sales it, California or Florida? Just so we can get a sense of how your state exposure might be different. Obviously given your Midwest exposure, you probably are under indexed in some of those larger states that get headline numbers.

Yes, that is exactly right. We are -- because of our great presence in the Great Lakes, Northeast and Midwest, we are a little under indexed, I like that to some of that other states that other people talk about. Which is a great opportunity for us as a company, because even if you -- I know a lot of people are talking negatively about Houston these days.

But clearly, Houston long term, is a great housing market. For us, Houston is less than 3% of revenue, the state of Texas is about 8% of revenue. But you have to look at that in the context of some other parts of the country that you talked about where Southern California is about 5% of revenue, but at the same time, you look at markets like a Cleveland, Ohio which is approximately 4% of revenues. So we are very -- we do have that broad geographic diversification across the country without any concentration in any one given market.

Okay. And then looking at your breakout at the end of the press release. If we were to add back amortization, one can see that your EBITDA margins are pretty similar to your existing branches.

Could you just walk us through that amortization component? How long does that generally -- if you were to stop the acquisitions, how long would that take for that amortization to go away? Is it three years, is it -- just so we can get a sense of that, I know you guys have it in your K?

Ken, this is Jason. So generally, that amortization is going to run over different years based on what type of [hand tools]. But generally it's five to seven years.

And could you refer to -- we know the manufacturers have asked for pricing. Owens Corning talked about it being more moderate, and it had some of those related to its own production issues.

But how should we think about your conversation around, you had a 20% to 25% incremental margins on existing sales relative to let's say a year or two ago how you would have thought price gains would have contributed to your ability to expand the EBIT margin? How has that changed?

It has not changed. And we still feel very comfortable about full-year incremental EBITDA margins at 20% to 25% on the organic revenue growth. And we think that a rising demand environment presents an opportunity for us to continue to improve our customer mix and our price mix, which then leads to what you are seeing is continued increase in our gross margin and profitability.

And would you assume the relationship between your price mix and volume would shift at all in 2016? Thank you very much.

The price mix volume price mix is going to change quarter to quarter, depending upon what is happening in the overall market. So I think the volume number and our ability to continue to grow, which we have volume above the permit growth, or excuse me, the completions growth. We don't think that mix is going to necessarily or our volume is going to change relative to the overall market.

But that being said, as a company, we're not focused on volume, we're focused on profitability. So getting increased sales through better price mix is something that we look to each and every day.

Thank you.

(Operator Instructions)

Matt McCall, BB&T

Thanks, good morning, guys. So maybe following up on one of the last questions. Mike, do you have the price mix for Q1 through Q3 of last year that you could share?

We disclosed it, I don't have it right in front of me.

You did, I am sorry if I missed it.

It should be in our previous disclosures, not in the current disclosure.

Yes, we put it in the MD&A discussion as well as in the press release for each quarter.

Okay, I missed that one. All right, well I'll fill that in. Is there anything -- you said for the full year that the trends should be the same. Is there anything we should look out for from a seasonal perspective that would make next year look abnormal quarter to quarter?

No, I would say that 2016 should be -- obviously there's the typical construction season. I would say this year, it seems a little interesting in that we have had a pretty modest or mild winter in the Midwest and in the Northeast. And I do think that we are seeing a smoothing out of this lag that has been created last year when you see the Delta between starts and completions.

So I think there might be a little bit of a smoothing this year relative to the normal seasonality. But we would expect that as in excluding acquisitions, that you would have a typical season of third quarter is your highest quarter, then fourth quarter, then second quarter and then first quarter. And all indications are right now from everything we have seen from our customers and everything that we have read, that it looks like it will be a very strong spring selling season.

So we believe that's a positive, and we believe it's a positive that we have had this mild winter which we believe is going to help abate some of the labor constraints that the industry saw in late 2015 middle of 2015. So it feels like it's setting up for a very good 2016 for the industry.

Perfect, thank you. So the detail on the organic versus inorganic that you gave to the full year is helpful. You talked about 20% to 25%, you did 23% for the year right in the middle for the organic. What -- it's just a couple hundred basis points, but you did 25.5% last year. Is there anything that structurally changed that now 20% to 25% makes more sense than -- and that 25.5% was an anomaly in some way?

No, not necessarily. The reason we provided the range of 20% to 25% is because it falls within the range, and that can depend upon product mix, geographical mix in terms of where we are getting that organic revenue growth from. So we feel very good.

The 23.3% is obviously above the middle of the range that we've talked to people about, and fundamentally we feel great about the business. When we look at just the field operations of the business, we have a tendency to focus on what we call direct margin. Which is basically the margin that comes after we pay for material and then the labor, the install labor on a job, and right now, that direct margin is the highest it's been in the past 16 quarters.

It improved sequentially from the third quarter by 80 basis points, and was up from the fourth quarter of last year by 110 basis points. So fundamentally from an operational perspective at the blocking and tackling direct margin level, we are very, very confident about the business, and feel great that in the past 16 quarters we have the highest direct margin we have ever had.

Mike, when you think about that number and you look at the components of what would drive that improved margin, is it -- what would point to first? Labor savings, material savings, better pricing, what is the driving force right there?

It's all of those and customer mix. So because of the jobs that our team is doing at a local level, we have the ability to make sure that we're working with the best customers.

The customers that have the right subdivisions, that are willing to pay us a fair price for our services, and we hopefully are consistently providing them excellent customer service. And we think that's key to continuing to improve the again that direct margin, which is fundamentally how well we are operating at a local level.

And if you look at the 2016 trends and your expectations about mix shift, whether it be from M&A or out growth from certain categories, what does it tell you about the trends that direct margin? Should we continue to see that move in that in the right direction, is customer mix going to be the best driver as we move forward again?

Customer mix is definitely important. We think that 16 quarter trend is definitely indicative of our ability to continue to see improvement in the direct margin. And as we've stated multiple times on these quarterly calls, we believe as we go towards stabilization that we will be able to get to a mid-teens EBITDA margin.

And we believe that one of the ways we do that and part of the way we get there is by continuing to improve direct margin. And if you look at our adjusted EBITDA margin for 2015, for the full year, we were at 10.7%, so double digits. And we're pretty close to getting to that mid-teens EBITDA margin.

And when you look at the contribution of the quality acquisitions that we're doing at a 15.5% incremental margin, they help us even get there faster to that mid-teens EBITDA margin. So we have never felt better about the business, quite frankly. When you look at record revenues, record quarter both on revenues and on earnings, and the continued improvement in our margins, we fundamentally feel very optimistic about the business.

Busy for us is better. So when we say we are moving towards stabilization, what we are really saying is is that when we are busy at the branch level, we have a lot of opportunities that either directly and immediately drop more money to the bottom line and work towards a better direct margin. Or we get choices that we can make that let us drive that.

Okay. Thank you, guys.

Thank you.

Thank you. This concludes today's question-and-answer session. I would like to turn the floor back to Management for closing remarks.

Great. I would just like to thank everyone for your questions, and we look forward to our next quarterly update and conversation. Thank you.

Thanks, everyone.

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