Installed Building Products Inc (IBP) 2016 Q2 法說會逐字稿

Greetings, and welcome to the Installed Building Products second quarter 2016 earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jason Niswonger, Senior Vice President, Investor Relations. Thank you, you may begin.

Good morning, and welcome to Installed Building Products' second quarter 2016 earnings conference call. Earlier today we issued a press release on our financial results for the second quarter, which can be found on the Investor Relations section of our website. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of the Federal Securities Laws. These forward-looking statements include 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 facts. By their nature, forward-looking statements involve risks and uncertainties because they related 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 my differ materially from those expressed in or suggested by the forward-looking statements, as a result of various factors including without limitation, the factors discussed in the Risk section of the Company's Annual Report on Form 10-K for year ended December 31st, 2015. As the same may be updated from time to time in subsequent filings with the Securities and Exchange Commission. Any forward-looking statements made by management on this call speaks only as of the date here of, new risks and uncertainties come up from time to time, and it is impossible for the Company to predict these events or their effect. The Company has no obligation and does not intend to update any forward-looking statements after the date thereof, except as required by the Federal Securities laws. In addition, management uses the nonGAAP performance measures, adjusted EBITDA and adjusted net income on this call. 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 your about our second quarter results. As usual, I will start today's call with some highlights, and then turn the call over to Michael Miller, IBP's CFO, who will discuss our results in more detail before we take your questions. Following a very strong first quarter, our financial results strengthened significantly in this second quarter, and we experienced another quarter of year-over-year growth in net revenue same branch sales, and profitability. Our results continued to benefit from strength throughout the home building industry, growth at our existing branch locations, and the contribution of our recently acquired businesses. Our results represent the strongest quarterly revenues and profitability in our history. For the first time quarterly revenues exceeded over $200 million. These accomplishments are the result of continual improvement in the housing market, and another quarter of outperformance to the market. This record performance is a direct result of the strong local market presence of our branches, and the hard work and experience of our team.

Second quarter total revenues were $212 million, compared to $160 million in second quarter of last year, and $192 million in the first quarter of 2016. Solid organic growth, the contribution of our recent acquisitions, and improvements in the rate of housing completions, continued to favorably influence revenues, which were up 33% compared to the second quarter of last year. The higher revenues we experienced in the second quarter, combined with controlled spending and more favorable mix of installation services, helped improve our second quarter profitability with a 54% increase in net income, a 48% increase in adjusted EBITDA, and a 48% increase in adjusted net income per diluted share. As many of you are aware, our business model generates a significant amount of cash from operations, and I am encouraged that operating fast flow increased 135% to $36 million during the six-month period ended June 30th, 2016. As the housing recovery remains on track, we are continuing to invest our operating cash flow in the business to support our growth initiatives to fund our acquisition strategy. We continue to believe that the recovery in the US housing industry has room for ongoing improvement. According to the US Census Bureau's historical data in the June 2016 Blue Chip consensus for US housing starts, total US housing starts are forecasted to increase at a 9% Compound Annual Growth Rate from 2015 to 2017. During the 2016 second quarter, total US housing starts increased 1.1%, and single-family starts increased 7.3%. We continue to expect residential end markets to benefit from various factors, including stable employment, rising household formations, and historically low mortgage interest rates.

Our core single family branch sales grew over 13% in the second quarter of 2016, and outpaced the market growth of US single family completions of approximately 11%. We have out performed the market opportunity in each quarter as a public company, which speaks to our customer loyalty and leading market position 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 home builders, multi family and commercial contractors, and homeowners. Year-to-date, IBP single family same branch sales have increased nearly 20%, compared to growth in total US single family completions of approximately 14%. Turning to our acquisition strategy, acquisitions continue to enhance our financial performance, and represented 48% of second quarter revenue growth. In the second quarter we completed the acquisition of Alpine Insulation based in Sheboygan, Wisconsin. Alpine has five operating locations throughout the state, and had approximately $24 million in revenues in 2015. We also recently acquired FireClass LLC in Detroit, Michigan, FireClass sells complimentary products predominately to the new single-family market, with trailing 12 month sales of approximately $4 million. With our strong cash flow and approximately $213 million of capacity under our existing bank facility and available cash, we had significant liquidity to fund our acquisition strategy. We have a robust pipeline of potential deals over the next 12 months, and we anticipate 2016 will be another strong year of acquisition growth. I am extremely pleased with 2016's record second quarter, and very strong first half results, and I am excited about our business prospects for the remainder of the year. With two quarters to go, we are encouraged by our financial and business performance, and anticipate 2016 being another terrific year. I would now like to turn the call over to Michael to provide more details on our second quarter results.

Thank you Jeff, and good morning everyone. We continue to make significant progress growing revenue and improving profitability. For the second quarter, our revenue increased 32.7% to $211.9 million. Our same brand sales improved 16.9% due to an increase in volume in all of our end markets, and favorable improvements in price and mix. Our same brand single family sales growth of 13.2%, exceeded the 11.3% increase in single family US housing completions during the second quarter, as a result of the dedication and commitment to quality installation service of our local branches. Second quarter 2016 gross margin increased 40 basis points to 29.4%, compared to 29% in the prior year quarter, and was up 90 basis points compared to the 2016 first quarter.

The year-over-year and sequential improvements were primarily due to operating efficiencies and a more favorable customer and product mix within the comparable periods. For the 2016 second quarter, selling and administrative expenses as a percent of net revenue was 20.2%, compared to 20.9% for the 2015 period. As a percentage of revenues, administrative expenses declined to 14.6% in the second quarter, from 15.4% in the second quarter of 2015. We expect administrative expenses 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 have stated in previous earnings calls, it's important to note that as our acquisition strategy continues, and as the volume of total acquired business operations become larger, we will incur additional noncash amortization expense. In the second quarter, we recorded $2.8 million of amortization expense, an 89.2% increase over the prior-year period, and a 13.4% increase over the 2016 first quarter expense. This non-cash adjustment impacts net income, which is why we believe adjusted EBITDA is the most useful measure of profitability. Based on our acquisitions completed to date, we expect third quarter 2016 amortization expense of approximately $2.9 million. And full year amortization expense of approximately $11.1 million. These figures will change with each subsequent acquisition.

In the second quarter of 2016, adjusted EBITDA improved to $26.2 million, representing an increase of 48.3% from $17.7 million in the prior year. As a percent of net revenue, our adjusted EBITDA improved 12.4% in the second quarter, representing an increase of 130 basis points from 11.1% in the prior year quarter, and a 230 basis point increase from 2016 first quarter. We are pleased with the successful steps we have taken to enhance our operating efficiencies and significantly increase our adjusted EBITDA margin.

We continue to believe our financial model can produce full year incremental adjusted EBITDA margins of 20% to 25%. However, as we have stated on previous calls, the mix of organic and acquired revenue impacts our combined incremental adjusted EBITDA margin, and a higher contribution of revenues from acquisitions, contemporarily reduce our overall incremental adjusted EBITDA margin. In the quarter, our combined incremental adjusted EBITDA margin was approximately 16.3%, while on our same-brand sales growth, our incremental adjusted EBITDA margin was 22.2% for the quarter. We continue to believe our same brand sales growth in excess of total market completions, combined with the adjusted EBITDA contribution from our acquisitions, will allow us to achieve adjusted EBITDA margins in the mid-teens as the single family housing market approaches stabilization.

On a GAAP basis, our second quarter net income was $10 million, or $0.32 per diluted share, compared to net income of $6.5 million, or $0.21 per diluted share in the prior year quarter. For the second quarter, our adjusted net income improved to $10.7 million, or $0.34 per diluted share, compared to $7.2 million, or $0.23 per diluted share in the prior year quarter. For the second quarter of 2016, our effective tax rate was 33.2%, compared to 36.4% in the prior year quarter. For the full year, we expect an effective tax rate of 35% to 36%. Now moving onto our balance sheet and cash flow. At June 30th, 2016, we generated $36.2 million in cash flow from operations, an increase of $20.8 million, or 135% from the prior year. We continue to use this cash flow to fund acquisitions and reinvest in our business. Capital expenditures at June 30th 2016, were $13.4 million, while total incurred capital leases were $2 million. As expected, capital expenditures and incurred capital leases increased consistently with the year-over-year increase in our revenue. At June 30th, 2016, we had total cash of $13.7 million, compared to $6.8 million at December 31, 2015. We currently have nothing outstanding on our $100 million revolver, and $112.5 million of capacity under our delay draw term loan, providing us considerable flexibility as we continue to deliver on our growth strategy. With that, I will turn back to Jeff for closing remarks.

Thanks, Michael. I think that pretty well sums up the numbers and drivers of what was another fantastic quarter, and as you see our growth oriented business strategy continues to drive strong financial results. With the housing industry continuing to demonstrate improving trends, we're excited about our opportunities for 2016 and beyond. Operator, please open up the call for questions now.

Thank you, the floor is now open for questions. (Operator Instructions). Our first question is coming from Bob Wetenhall of RBC Capital Markets.

Good morning, and very nice results this quarter. I wanted to ask you, we have had commentary from OEMs about capacity constraints impacting the industry, and I know this is something that you guys have seen before. I wanted to understand how you anticipate the price volume dynamic evolving, if capacity becomes constrained on the production side, and what you guys do to optimize the business mix if we go into that kind of market?

Hey, Bob, this is Michael. How are you? We feel very good about our ability to improve that business mix, which we think is demonstrated by, if you look at both the volume growth, and particularly the price mix growth that we have seen in the first half of this year going up approximately 9%, and that is on the backdrop where the OEMs have sufficient capacity to get things done, or to supply the industry. So as and if they get to a point where there is tight capacity, and we do see sustained material price increases, we believe that helps us even more. But as a company, we have demonstrated a very strong ability to continue to improve our price mix, regardless of what is going on at the OEM level.

Bob, this is Jeff. It would obviously be a positive development for all of the reasons why everyone would expect it to be, that would mean obviously that builders are busy, that we are busy, the consumers are feeling going enough about things to buy houses, so there are a lot of good things that happen in the backdrop. But we as a company are obviously in this for the long haul. And our customers are our partners, so we don't look at this in a way in which it's our job to be completely optimistic at all. Because again, we're in this for the long haul, and we want to do the best job we can for our customers, we obviously want to reflect any cost increases we have when we are in the business to make money, but at the same time, this is not something that we're thinking about tomorrow's sale, and not the next day, or tomorrow's customer and switching them out.

That is helpful color. Maybe then, if you could help me understand very nice price mix, if you look at stuff on a like for like basis, what was the split basically between pure pricing versus improved mix that Mike called out, and also, it seems that you're doing great in terms of market share growth. and if you could comment on what's going on with market share gains, and how you are getting it, and why you are outperforming the industry?

We haven't broken down the price mix between pure price and installation job, because every job we do is a little bit different. We would say that clearly there is some benefit on the price side. But at the same time, we have been consistent in saying this for the past couple of quarters, we're clearly benefiting as a Company within the single-family business, with the shift toward the local and regional builders. We're seeing good strength from both a price mix growth there, and also volume growth within that customer base, and we think that's critical to the market on the single-family side reaching stabilization.

That being said, as you can tell from what we disclosed in the earnings release today, our same brand sales growth for the quarter was approximately 17%, whereas our single-family same brand sales growth was about 13%. So obviously what that implies is that we had higher growth on a same branch basis from our other end markets, and we clearly did see outsized growth if you will, in both multifamily and commercial during the soaked quarter, and also on a year-to-date basis. So we feel very positive on the trends that we are seeing in the business on a go forward basis for not just the back half of 2016, but going into 2017 and 2018, as the single-family market really starts to come back.

Encouraging commentary, thanks for the great answers. I will hand it over.

Thank you, our next question is coming from Susan Maklari of UBS. Please proceed with your question.

Good morning. The incremental margin was right in that mid-teen range, but it did seem to take a step down from where we were in the first quarter. As we sort of look through the back half of the year, and just given the fact that maybe that catch-up that you had in the first quarter is behind us a bit, should we be thinking about staying in this mid-teen range? Or how do you expect that will trend?

Susan, this is Michael. So we definitely and consistently have stated, and there's nothing to make us change this perspective, that on the same branch organic basis, we believe that on a full-year basis, incremental EBITDA margins will be in that 20% to 25% range. As you know, we have been trending a little bit toward the higher end of that range, but we feel very good that the incremental margins will stay consistent with where they have been. On the acquired EBITDA, obviously, the EBITDA margin contribution from the acquired businesses is wholly reflected of the businesses that are acquired, so we acquire a business with a 5 margin or a 10 margin or 15 margin, that impacts the incremental margin, or the margin associated with those acquired businesses, which then, as we said in the prepared remarks, influences significantly what the total EBITDA margin contribution is.

So really, I'm sorry for maybe belaboring this point, but the organic business, consistently 20% to 25% incrementals, and the acquired businesses they come in at what the acquired businesses are, and that mix will change over the course of the year, and over the course of quarters, as different, the profitability of different businesses have a different impact within a quarter on those numbers.

Susan, this is Jeff, but in addition to that, there are and I've said this before I think, or maybe even a number of us have, but we perform a number of, let's just take installation for example. We have a number of functions or kind of installation services around insulation for our customers. And I think we have explained it before. Sometimes we're out early on a job and we're doing work to prep the job, or we are doing basement draining, or doing one of the other functions that we perform, and the typically we're back into the house to do that work, and then towards the end of the process, obviously we're in to blow the attic, and there is a difference in the profitability of those various functions that we perform.

And quite frankly, blowing the installation in the attic is one of the most profitable functions that we perform. And we would consider the second half of the year to be kind of blow season, so we have the benefit of that, that is kind of a historical norm enter us. But is really typical of the industry. So in addition to being seasonal, just from a volume and revenue flow, it is also seasonably better for us in terms of the functions that we perform in the latter half of the year also.

Okay, thank you, that's helpful. In terms of the M&A, you talked about having a strong pipeline there, it does seem perhaps that it was a little bit quieter in the second quarter. Can you just talk a bit about what you're seeing out there, and how things are going on that front?

Sure, and we're still as active as ever, really, on both the sourcing side and working deals that are currently in the pipeline. But you're not always in charge of the timing of when you actually get a deal closed. But we feel as positive as ever about the number of deals that we're in conversation with. And the pipeline and the opportunity to source other deals too.

Okay, thank you.

Thank you, our next question is coming from Trey Grooms of Stephens. Please proceed with your question..

Good morning, I guess the one I've got is going to be more high level, just kind of around your demand outlook. I mean it still sounds very positive, with others that have reported in the building material space, there has been some chatter about flattening, or deceleration relative to expectation, that sort of thing, as far as just the outlook goes. Can you talk about, as far as you guys and in your market specifically, looking into next year, or just your view on the rate of recovery overall, any change there with your outlook?

If anything, it has become more positive, quite frankly. If you look at what we think are some of the forward leading indicators on the single-family side, in terms of builders orders, construction lending in banks, just metrics and builder optimism and builder sentiment. All of those things, in our opinion, and maybe we are reading it incorrectly, but they point to a very strong continued strength in the single-family market. And as you know, while there is a large amount of multi-family work that is being done right now, because multi-family really reached stabilization very quickly, there's still a lot of room to run on the single-family side. And as I said earlier, we're seeing great strength among that regional and local builder, which really provides us a lot of confidence in the ability of the housing economy to get back to stabilization on the single-family side. So we feel better than we ever have.

And we couldn't feel really any better about the way we are positioned after the first six months of the year, and the way that we believe the market is going to perform for us the reminder of the year.

Our branch managers and local team are doing an excellent job of managing what is a very high growth rates, and making sure that we are servicing our customers effectively, and managing the balance of business that we are doing, so we see on a year-to-date basis price mix growth of 9%. So we feel very, very good about the business, and about the trends we're seeing in the business. I would say even to add to that, one of the things that has been very encouraging to us, is the strength that we're continuing to see in both the commercial and the repair and remodel side of the business.

Great. That's really encouraging, and I'm glad to hear it. Forgive me if I missed something here. I got dropped off, or hopped off for a second on the front of the call, but as we look into the back half of the year, given the acquisitions that you've done, is there any other factor that might drive some differences here, is there anything that we need to be aware of as far as cadence, as we look into the back half of the year, any reason for it to be different than what we have seen in the past from you guys? Just from a quarterly cadence standpoint?

Do you mean on the acquisition front?

No sorry, just really on the sales front, how the quarterly sales progress through the year, and the cadence that we have seen in the past and the quarterly allocation that we have seen in the past, is there any reason given the acquisitions that you've done, geographic or whatever, that could be different?

No, we expect to have a sort of typical second half seasonality. Though as we commented on the first quarter, I mean clearly, the industry had an outsized on a seasonal basis first quarter. I think that the story this year may be not a quarterly story, but a half story, so if you look at the first half results relative to the second half results, I do think you'll see a similar level of seasonality, but probably not as extensive as you saw in the first half of 2015 compared to the second half of 2015. Just because most people had a weaker half of 2015.

I mean it is all the scheme of things, given the size of numbers that we are talking about here, just because the first quarter was a little stronger, and we explained that obviously we benefit from the weather, but still in the scheme of things, it is not materially differentfrom the seasonality of the business. Right.

Absolutely. But I would say in the back half of the year, the largest acquisition that we have done so far this year, Alpine will fully contribute in the back half of this year, whereas it only partially contributed in the first half of the year.

Okay, great, that is super helpful guys. Thanks a lot, good luck.

Thank you. Thank you, our next question is coming from Ken Zener of KeyBanc Capital Markets.

Good morning, gentlemen.

Good morning.

The growth rate for your same branches exceeding single-family indicates obviously higher growth in those categories, since you're talking about operating leverage, more in the sense of acquired revenue, versus your organic, which I understand, then you highlighted the attic, and blowing insulation is a more profitable activity, is there really much margin mix between that commercial repair versus the new? How should we think about that? That is something that I haven't really thought about. Because you always seem to talk about the incremental leverage in your existing branches, and the commercial, the multifamily people obviously focus on, but is there much of a difference between the commercial, the repair and the remodel, multifamily?

Yes, that's a good question. So on multifamily, generally speaking, you're going to have a slightly lower gross margin, but your cost of service is different, so the EBITDA margin contribution is similar. On repair and remodel, you are generally speaking going to have a higher gross margin, but again your cost of service is higher in that business. So you'll have very similar EBITDA margin contribution, and then the commercial side of the business is similar to the multifamily in that you may have lower gross margin, but your cost of service below gross margin is going to be less, so that ultimately where you end up, is that all of our end markets have very similar EBITDA margin contributions.

Go ahead.

Which is why we talk about the consistency in that 20% to 25% incremental EBITDA margin, is not really influenced by the mix of the end markets. Because they all come in generally speaking as a similar EBITDA margin contribution.

Right, so the volatility in the gross margin of the SG&A, okay, that is a good point, so that means the gross margin step-ups might not be perhaps as steady, but you're getting the benefit on the G&A side, which ultimately is the same leverage. How long then, I appreciate that, price mix, and public peers reported as you know on the distribution side, the pricing appeared to be down year-over-year, which is interesting, the price mix, while you're not breaking it out, would suggest that your price mix is higher than stated 6.8% in this last quarter. Is that a reasonable conclusion? And if so, how long can these comes with the price mix, can those go on forever as you continuously add more value? Because they see your labor as a very attractive, and your showing up on time is a very attractive value proposition?

We believe that our service at the local level, and the way the team is performing at the local level is one of the things that is very important to us to be able to get a good, solid price mix appreciation. And historically, we have done that at an above the market level, if you will, and we believe that our focus on profitability and not sales, and as Jeff was saying earlier, our focus on the customer relationship for the long-term is critical for us to be able to maintain, which we have historically, a good price mix increase.

Thank you.

Thank you, our next question is coming from Nishu Sood of Deutsche Bank.

Yes, going back to the acquisitions, so the pace, the acquired revenues to date this year, I think is about half of what it was last year. Obviously, there's no reason there should be a flow to that. But I wanted to revisit the broader thought process that you've laid out that this has been a good time for you folks to be acquiring since there is so much growth left in single-family in particular. Is that still the case? Or is the slower pace an indication that you think that there's a maturing cycle and then maybe it's time to slow down?

No. Nishu, this is Jeff. Not at all in that way. Any time you've got human beings involved in a situation like this, people making what in most cases are very important life decisions from a seller perspective about things like this, you can't absolutely control the pace of those deals. Again we feel great about the pipeline, we feel great about our opportunities. We have acquired after this last acquisition a FireClass fireplace business in Detroit. I think we have acquired roughly about $50 million--

$50 million --

Maybe a little more than that, in revenue through the first half of the year, we feel great about the continued pace, it would be not dissimilar to what we even had last year, so it's really just a timing issue from our perspective.

And timing not necessarily for us in terms of the ability to get them done, it is exactly as Jeff said, these are big decisions for individuals, and that timing sometimes you cannot control like you may want to, and acquisitions by their nature are very lumpy. As we have said on several occasions, our acquisition process is purposefully very high touch, from our team to their team, so that we know there's a good, strong cultural fit between the organizations . And that takes time.

Got it. So that makes sense. Second question, strong jobs number today, there have been some wide ranging instances of labor rates finally moving to the lower two income quintiles. That's kind of squarely in the area that you'll be hiring, your new hires. So has there been any pressure that you've seen on wage rates? Especially the new folks that you are bringing in with all of the growth that you've been having? And what's your thought process there, or concerns, and how are you handling that?

We feel very good about our local team's ability to continue to attract and source high quality installers and personnel at the branch level. And we think that's reflective of both our same branch sales growth, our volume, our product mix, as well as our improvement in gross margin. As we have said on several calls, there's a positive feedback associated with our labor, and the way that we pay our folks, that the busier we are and the more efficient they are, they earn more money without it costing us more as a percentage relative to the cost of a job. We continue to be in that situation, we feel not that it's something that we're working on every day, and our team in the branches is working on every single day, but we feel very good about our ability to continue to grow at these rates, and higher rates and attract the high quality installers that we need to get that done.

Got it, so I can appreciate the feedback loop on once someone is in the door, but it doesn't sound like though, either that you're facing issues of getting people in the door at the outset, where they may be comparing across a range of job opportunities?

No, not more so than we would than we have every single day since we have been in this.

Thank you.

Did you have any other questions?

No, I'm sorry, Jeff, we would love to hear your thoughts as well?

I don't think that we're seeing anything appreciably different to be honest with you, and it's really completely independent of the current labor situation. We talk about labor being tight, both internally and externally, for probably 3 to 3.5 years at this point. But we are, this is a Company, and I wouldn't call it an aside, because this is very public information, but we're going to double down on an effort in terms of really making the job, and the way that we're sourcing people to perform the job, the absolute best process, and the best environment that we can, in an effort to, I mean our retention rate and our turnover rate is no different than the industry average, and it's no different from most construction jobs. At the same time, we can do better in that regard, and so I think we're making a corporate effort to try to improve that process, and try to move the needle a little bit from a retention perspective, which will be good for everyone involved, both the employees and the Company.

Okay, thanks for your thoughts.

Sure.

(Operator Instructions). Our next question is coming from Scott Rednor of Zelman and Associates.

Good morning Mike and Jeff. A question, Mike, you were one of the public comments, one of you publicly last quarter, you said seasonality would look a little bit different this year because of the weather, and obviously, the deceleration in same branch growth was more than what the street was looking for. So when you look to the balance of the year, should we expect that growth rate from 2Q to be stronger as we move into 2H 2016? Or is this kind of the new sustainable growth rate?

Scott, as you know, we don't provide guidance, but as we said earlier, we do think there will be typical seasonality in the back half of the year, but that because of the strength of the first half of this year, it may not be as typical as we saw in 2015, or even 2014. But we feel very good about going into the back half of the year with what we're seeing in our customer base, what we believe is a backdrop for a strong, for the whole industry as a whole, very strong single-family growth for some of the things that we had talked about earlier. So while we don't specifically provide guidance, we definitely feel we're going to see a positive, relative to the second half of the year from a seasonal perspective. So I'm not providing you maybe as much detail as you want, sorry about that, but we definitely feel good about business and the trajectory that it is on, again not just for the second half of this year, but for what looks like a good 2017 and 2018.

And Michael, maybe just to slice it another way. I think that you may have eluded to this, but if we sort through the quarterly volatility that we as analysts and investors see, for the first half of the year is underlying sales growth better or worse than you planned coming into the year?

Our sales growth is very, very consistent with what we planned. Very consistent with what we planned. I would say the only thing that's slightly different is the mix, that end-product mix is better in multifamily commercial and repair and remodel than we had originally estimated, and I think that is a function of timing, in terms of the timing of what we had the opportunity to work on, and also our branch's ability to perform very well on those other end products, and our focus on those products. As a business, we're continuously working to diversify the end products and the end markets, and we believe our branches are doing a very good job of getting that done. So they're exceeding our expectations in that instance, and we believe the back half of the year is setting up for a good, solid single-family recovery. Again, the signs that you see from builder order growth, from bank lending growth on ADAC loans, and builder sentiment since then, and given what we're seeing from our customers, there's nothing that gives us pause or concern relative to the continued strength in the single-family market.

Great, and then on the acquisition margins, you are trailing last year by several hundred basis points. I was curious if there's anything that we should be aware of as we look forward, in terms of those contributions from the new deals, and then alternatively, I would guess that your return on your investments are actually higher by more dilutive assets? So should your incremental EBITDA for the legacy business maybe be stronger as we look forward, if you're buying not as profitable businesses day one?

I mean there's a difference between the two in terms of the way we break it out. So the incremental margins of 20% to 25% on the organic business is still a good way to look at it. I mean clearly, as we bring into the organic business, or the organic numbers, acquisitions that because when we acquired them, and with our scaled buying advantage had a very high margin, that obviously helps our overall margin and the organic business, not that they are not considered acquired as well. But I need to stress, as we have on other calls, that the acquired margin is what we acquire at the time of acquisition, plus our scaled buying advantage. So our expectations relative to what the acquired branches are doing right now, are consistent with what we expected because we knew what we acquired. Quite frankly, to some extent, the lower contribution margin from acquired businesses that you're referring to, presents additional opportunity for us, in terms of improving those margins, not just from a scale buying advantage perspective, but also from operational issues that we're working on with some of those acquired entities.

I would say improvements, in terms of any operational, I mean we know what we're buying going in. It's kind of interesting. We don't talk a lot about deal economics. It is more about kind of the forward, and I understand why, from your perspective and others in terms of modeling, but we as a group kind of had a conversation about this the other day. The fact of the matter is typically, obviously if we are buying a business that is less profitable, we're paying less for that business, and it doesn't really get talked about a lot. So ultimately from our perspective, buying businesses that are less profitable, and you hit on this a little bit earlier, but depending on the deal, depending on some of the attributes, whether it's a material advantage or whatever else, it can be a very good long-term deal for us to buy less profitable businesses.

So should we see it help your core incremental, your legacy incremental as we look to 2017, did the acquisition margins that you are acquiring continue to run lower than last year, could that help you push closer to 25% than 20%?

It will, but it is so small that, it certainly wouldn't change our perspective on that 20% to 25% full year. Because you're looking, these are things that represent single-digit percentage of overall revenue.

Okay, thank you.

Thank you, our next question is coming from Judy Merrick of SunTrust Robinson Humphrey. Please proceed with your question.

Thank you. This is Judy in for Keith Hughes. Just to follow-up on the labor question, did you have any, see any extended construction cycles, maybe varying by region, or do you think the completion rates kind of normalized? Any comments there, and maybe even from other trades?

If you look at just starts versus completions for the first half of the year, the delta between starts and completions on the single-family side was very consistent from 2015 to 2016, at about 85% to 86%. If you look at add starts versus completions on the multi-family side, there was what we would say a somewhat meaningful improvement in the start to completion lag. So in 2015 for the first half, it was about 72%, this is again on the multifamily side. And in 2016, it lifted to about 79% for the first half. So what that would indicate, is that the lag within single-family on a national basis is fairly consistent from 2016 to 2016, but that we're catching up on the multifamily side. Which makes a lot of sense when you think about it, given the significant ramp-up in multifamily starts that occurred significantly last year, and that deceleration or slowing the growth of the multifamily starts that there would be this catch-up. And that's reflected in our earlier comments of the high same branch multifamily sales growth that we experienced, not just during the first quarter, but during the first half.

Okay, thank you.

Thank you. At this time, I would like to turn the floor back over to management for any additional or closing comments.

Thank you. We look forward to our next quarterly call with all of you, and again we appreciate your time.

Thank you very much.

Ladies and gentlemen, thank you for your participation, this concludes today's teleconference. You may disconnect your lines at this time, and have a wonderful day.