Installed Building Products Inc (IBP) 2017 Q3 法說會逐字稿

Greetings, and welcome to Installed Building Products Fiscal 2017 Third Quarter Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Jason Niswonger, Senior Vice President of Finance and Investor Relations. Thank you, Mr. Niswonger, you may now begin.

Good morning, and welcome to Installed Building Products' Third Quarter 2017 Earnings Conference Call. Earlier today, we issued a press release on our financial results for the third 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 may contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include our financial model and seasonality; the impact of Hurricanes Harvey and Irma; our estimated interest expense; the demand for our services; expansion of our national footprint, products and end market; our ability to capitalize on the new home construction recovery; our expectations for the residential end market; our ability to strengthen our market position; our ability to pursue and integrate value-enhancing acquisitions; the impact of Alpha on our revenue and profitability; expansion of our commercial business; our growth rates and ability to improve sales and profitability; and expectations for demand for our services and our earnings for the remainder of 2017.

Forward-looking statements may generally be identified by the use of words such as anticipate, believe, expect, intends, 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 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 statements 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, 2016, as the same may be updated from time to time in 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 their effect. The company has no obligation and does not intend to update any forward-looking statements after the date hereof, except as required by federal securities laws.

In addition, management uses certain non-GAAP performance measures on this call such as adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted share, adjusted gross profit and adjusted selling and administrative expense. You can find a reconciliation of such measures to their 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'm happy to have the opportunity to talk to all of you about our record 2017 third 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.

Sales for the 2017 third quarter represented another record for IBP as we benefited from strong residential sales growth, the contribution of recent acquisitions and a favorable revenue mix and pricing environment. Since our IPO in February of 2014, IBP has significantly grown sales and earnings, and I'm extremely proud of this performance.

I'd like to start today's call by addressing the effects Hurricanes Harvey and Irma had on our third quarter results. These unprecedented hurricanes caused significant damage to communities in Texas and Florida, which directly impacted IBP's employees and customers. As a result of the hurricanes, we closed our locations in Texas and Florida during and in the days immediately following the storms. After our locations reopened, we worked diligently through business disruptions within each market to support our customers' needs. This included supporting customers' closing schedules by returning to previously finished projects and completing needed repair work. In addition, we had crews arrived at job sites for installations only to find certain locations were not ready for IBP services. These factors, combined with each markets cleanup in affected local infrastructure, negatively impacted our efficiency, productivity and profitability during the quarter. During the storms and throughout the recovery process, we have focused on supporting our employees and local communities in their time of need. We incurred direct costs associated with paying our employees while our locations were closed as well as costs to prepare for and cleanup from the damage caused by the hurricanes. All of our facilities in Texas and Florida are now open and did not incur any significant storm damage.

In total, we estimate these events negatively impacted third quarter adjusted EBITDA by approximately $1.5 million to $2 million across the IBP locations and Alpha locations in Texas, Florida and Georgia. Despite the effects of the hurricanes, for the 2017 third quarter, IBP's adjusted EBITDA increased 33% to a record $39.3 million compared to the same period a year ago. As the recovery continues, and our efficiencies and productivity in these affected markets increase, we expect profitability will improve.

Looking at the overall trends for the 2017 third quarter, IBP experienced strong growth across many of our end markets. Single-family same-branch sales increased approximately 7%, while total single-family sales increased over 18% compared to the increase in total U.S. single-family completions of approximately 7%. Within the multifamily market, our locations benefited from robust demand. And during the 2017 third quarter, same-branch multifamily sales increased 60%, while total multifamily sales increased 103%. Combined, residential branch sales increased nearly 12%, while total residential sales increased 26% compared to an increase in total U.S. completions of approximately 8%. We expect residential end markets to improve towards stabilization of approximately 1.5 million total housing starts over the next several years and our business will continue to benefit from the recovering housing industry. According to the U.S. Census Bureau's historical data and the October 2017 Blue Chip consensus forecast for housing starts, total U.S. housing starts are forecasted to increase at a 5% compound annual growth rate from 2016 to 2018. During the 2017 third quarter, total U.S. housing permits increased 3%. This was primarily due to an approximately 9% increase in single-family permits. We expect residential end markets to benefit from various factors, including improving employment, rising household formations and consumer confidence.

Acquisitions continue to enhance our financial performance. In the third quarter, we completed 4 acquisitions, which included Kentucky-based Energy Savers with annual revenues of $2 million; Red Rock Insulation with locations in Nevada and Utah and annual revenues of $6 million; Astro Insulation with 2 locations in Illinois and $7 million of annual revenues; and Protective Coating, an installer of Levelrock floors in Appleton, Wisconsin, with $1.5 million in annual revenues. The acquisition of Alpha Insulation and Waterproofing, which was completed early in the first quarter, continued to have a favorable impact on sales and profitability this quarter. Alpha's backlog remains strong, and we continue to believe our commercial platform can support significant long-term growth opportunities across the country.

So far in the fourth quarter, we have completed 2 additional acquisitions. This includes A+ Insulation, an insulation installer in Kansas City, with annual revenues of $3.8 million; and Building Solutions, an insulation installer in Tulsa, Oklahoma, with annual revenues of approximately $2 million.

Since July, I'm excited to report that we've expanded our presence into 3 new markets, including Kansas City, Louisville and Las Vegas.

Year-to-date, we have completed 12 acquisitions, representing a total of approximately $159 million of acquired revenues. We continue to deliver on our acquisition strategy and remain confident in our ability to identify candidates, successfully integrate newly acquired companies and immediately achieve operating synergies through our scale and national buying power. Our pipeline of acquisitions remains robust with potential acquisitions in new geographies, products and end markets. And we anticipate the remainder of 2017 will continue to be another strong year of acquisition growth. IBP is well positioned for another record year in 2017, and we are approaching over $1 billion in annual revenues.

IBP has a fantastic team of experienced, dedicated and motivated employees, and I'd like to thank all of them for all of their hard work. I'm especially proud of our team's response in our Texas and Florida markets. Employees nationwide stepped up to help their colleagues impacted by the destruction caused by Hurricanes Harvey and Irma. And finally, on behalf of everyone at IBP, I'd like to also thank our suppliers as well as our homebuilding, multifamily and commercial customers. We appreciate your support, and we are committed to providing each of our customers with superior installation services.

Michael, I would now like to turn the call over to you to provide more details on our third quarter results.

Thank you, Jeff, and good morning, everyone.

We continue to make progress growing revenue and improving profitability. For the third quarter, our revenue increased 31% to $295.2 million. Despite the impacts of Hurricanes Harvey and Irma, our same-branch sales increased 9.4% due to an increase in volume and favorable improvements in price and mix. Our same-branch single-family sales growth was 7.2%, and our total new residential construction same-branch sales increased 11.7%. Additionally, we continue to experience strong performance in the commercial market.

As noted in previous quarters, we believe it is helpful to look at certain metrics over more than just a single quarter. Over the last 12 months, sales were $1.1 billion, an increase of 30% from the same period a year ago. This includes total same-branch sales growth of 10.1%, which comprised 11% from our new residential end market and 6% from commercial, repair and remodel markets, all on the same-branch basis.

Third quarter 2017 gross profit improved 27.2% to $85.6 million from $67.3 million in the prior year quarter. However, gross margin declined slightly to 29% compared to 29.8% in the prior year quarter, primarily due to the effects of Hurricanes Harvey and Irma and expense associated with our recently introduced stock-based compensation program for certain of our installers. Gross margin would have been 29.2%, adjusted only for this stock-based compensation program.

For the 2017 third quarter, selling and administrative expenses as a percent of net revenue declined to 19.1% as compared to 19.8% for the 2016 period. As a percentage of revenues, administrative expenses were 14.1% in the third quarter compared to 14% for the same period last year, including increased public company compliance costs, primarily associated with the transition to a large accelerated filer and approximately $1.7 million in noncash stock compensation expense. Adjusting for noncash stock compensation expense and acquisition-related expenses, selling and administrative expenses as percent of net revenue improved by 110 basis points from 19.4% to 18.3%. We continue to expect selling and administrative expenses as a percent of net revenue 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 third quarter, we recorded $6.8 million amortization expenses compared with $2.9 million for the period last year. This noncash adjustment impacts net income, which is why we continue to believe that adjusted EBITDA is the most useful measure of profitability. Based on our acquisitions completed to date, we expect fourth quarter 2017 amortization expense of approximately $6.9 million. This figure will change with any subsequent acquisitions.

For the third quarter of 2017, adjusted EBITDA improved to a record $39.3 million, representing an increase of 33.2% from $29.5 million in the prior year. As a percent of net revenue, our adjusted EBITDA improved to 13.3% in the third quarter, representing an increase of 20 basis points from 13.1% in the prior year quarter.

As Jeff stated in his prepared remarks, Hurricanes Harvey and Irma impacted operating efficiencies during the quarter, which reduced overall profitability by an estimated $1.5 million to $2 million. We continue to believe our financial model can return at mid-teens adjusted EBITDA margin as the housing recovery reaches stabilization.

IBP's same-branch incremental adjusted EBITDA margin for the 2017 third quarter was 15.9%. The adjusted EBITDA margin contribution from acquired revenues was 13.2% compared to 12.8% for the same period last year.

For 2017, IBP's full year incremental adjusted EBITDA margins will be impacted by the seasonality we experienced in the first quarter and the impacts of the hurricanes we experienced in the third quarter. For the first 9 months, same-branch incremental adjusted EBITDA margin is 15.7%, and the adjusted EBITDA margin contribution from acquisitions is 14.2%. Long term, we continue to believe our financial model can produce full year same-branch incremental adjusted EBITDA margins of 20% to 25%.

On a GAAP basis, our third quarter net income was $12 million or $0.38 per diluted share compared to net income of $11.5 million or $0.37 per diluted share in the prior year quarter. Our adjusted net income improved to $18.3 million or $0.57 per diluted share compared to $13.9 million or $0.44 per diluted share in the prior year quarter.

For the third quarter of 2017, our effective tax rate was 32.3% compared to 36.8% in the prior year quarter. For the full year, we continue to expect an effective tax rate of 35% to 36%.

Now moving on to our balance sheet and cash flow. At September 30, 2017, we generated $53.3 million in cash flow from operations, which we continue to use to fund acquisitions and reinvest in our business. Capital expenditures at September 30, 2017, were $22.9 million, while total incurred capital leases were $4.1 million. Capital expenditures and incurred capital leases as a percent of revenue declined 30 basis points to 3.2% in the 2017 9 months compared to 2016 despite a 32% increase in 2017 year-to-date revenues. We continue to expect gross capital expenditures and incurred capital leases to trend at approximately 3% to 4% of sales during this part of the housing recovery.

At the end of the 2017 third quarter, we had total cash and short-term investments of $92.1 million compared to $14.5 million at December 31, 2016.

At September 30, 2017, out total debt was approximately $344 million. Taking into account cash and short-term investments at September 30, 2017, our total net debt was $252 million at the end of the 2017 third quarter. Our capital structure remains conservative, and we have considerable flexibility as we continue to deliver on our growth strategy.

We anticipate net interest expense of approximately $4.4 million in the fourth quarter. This amount could change based on subsequent finance fleet purchases and short-term cash flows financing under our ABL facility.

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

Thanks, Michael.

In closing, I am very pleased with our financial performance during the quarter marked by significant challenges in Texas and Florida. With more than 30% growth in revenue and adjusted EBITDA, our financial results are another example of the strength of the insulation industry as well as the benefits for acquisition strategy, geographic diversification and continued improvement within and the overall construction industry. We're excited about IBP's future opportunity and continued success as trends within the housing market remains strong.

Operator, please open up the call for questions.

(Operator Instructions) Our first question is from Bob Wetenhall with RBC Capital Markets.

Nice job navigating the hurricane disruption. I would hope, Mike, maybe you could clear up some confusion I'm having. It looks like your reported same-store incremental branch margin performance was about 14%, but that's -- and that's below your long-term target. But when you add back the $1.5 million to $2 million of hurricane impact from recent storm activity, it looks like the incremental same-branch margin was more like 23% to 25% or 26%. Is that higher figure the right way to think about profitability in terms of making an adjustment for recent hurricane disruption?

Yes, Bob, thanks for that question. Part of the disruption also came in the acquired businesses. So it impacted not only the incremental margins from the same-branch or existing business, it impacted the incremental margin from acquired businesses as well. And what we would say is that, accounting for that, the incremental margins from the same-branch or base business is consistent with the 20% to 25% range that we've talked about. And also the improvement in incremental margins from the acquired businesses would have been consistent quarter-over-quarter.

Understood. That's helpful. It sounds like operationally then you're working at the at or above the high end of the range. Jeff, could you give us an update on your expectations for insulation pricing? Some of the OEMs have talked about price increases and wanted to see what you're seeing in the field and how we're thinking about that going into '18?

Okay. What I -- I think what I'd probably say is similarly to what I said last call, in that just the busier the industry gets in general and the more capacity that is utilized by the manufacturers, the more receptive the marketplace is pretty logically to the increases. As you probably know, there was a increase in September. Also, announced increase in -- at least by the number of manufacturers in January. There are, I think, few capacity events that are scheduled to happen even yet this year and one -- and another one next year. So I guess we could debate, and have at times, how fully utilized the supply -- manufacturer chain is. But as I've always said, I mean, rising price environment really, I guess, it bodes well for the entire economy because it speaks to a healthy economy, a healthy housing market. And although that's something that we all navigate, it's ultimately a good thing. So...

Yes, we believe '18 is setting itself up to be a positive year from a pricing perspective.

Got it. And just one final question then I'll hand it over. Torrid pace for acquisitions, you have some great progress with acquisitions like Alpha to more recently announced smaller purchases. What's the growth potential of the 15 acquisitions that you guys made this year? How instrumental -- at this point in the cycle, how aggressive do you want to get with M&A? What are your expectations for '18? Very nice execution. Very strong quarter. Good luck.

Pipeline is robust. I mean, I know, we're pretty consistent in saying that. But I got to say it is robust as it's probably ever been as we spoke to in our comments. We're particularly excited about some of the geographic expansion that we've had recently. We're also excited about, in some instances, entering new product lines. We feel great about the opportunities for all of those businesses and really see no kind of clouds on the horizon at all as it relates to kind of that part of our strategy. We still believe, and we don't -- it's hard to comment on the general economy, let's say, and things outside of our control. But we still see the housing market particularly having legs to run, and so we plan to kind of stay on the same path for the discernible future.

Yes, and I would say that the pipeline is the widest and deepest it's been in the 20 years we've been working on acquisitions in terms of the types of deals, the products, the end markets. So we're very excited about that opportunity. And as we've talked about in previous calls, we believe that our current capital structure gives us considerable flexibility to continue to perform on the acquisition. And in terms of that, I think this is part of your question about the -- our expectations of growth from the acquired businesses. And generally speaking, we would say that the acquired businesses are organically growing at a similar rate to our organic growth rate. So we feel good about the deals that we're doing, and we feel confident about our ability to continue to do them.

The next question is from Susan Maklari of Crédit Suisse.

I guess, given the impact of the storms in the third quarter, can you just help us think about maybe how business has come back subsequent to that? And how we should be thinking about, perhaps, some increased volume coming through relative to the normal seasonal trends that you see?

Yes. Susan, that's a good question. I think that it was more of the impact on revenue in, say, the fourth quarter or in 2018. I think it's going to be a positive impact, if you will. It's going to be fairly nominal because most of the disruption came from the delaying our ability and inefficiencies and the lack of productivity we had because we were paying installers even though we weren't able to get to job sites or they weren't even able to get to our facilities. So there are certainly houses that didn't close that will close in the fourth quarter and in the first quarter. But in terms of a big pickup in demand because of damage that was done to certain houses, that's not necessarily expensive work, number one. And number two, it's just not going to drive our overall numbers. So we would expect that any impact in the fourth quarter of '17 or in '18 is going to be pretty nominal.

Okay. And then you noted in your remarks that Alpha continues to do well. It's got a strong backlog. I guess can you just give us a little bit more color there on how business is coming together and how their projects are trending?

Yes. I mean Alpha is, similar to my previous comment about acquisitions, I mean, they're trending particularly on revenue along our expectations, and they're continuing to look at and starting the process of opening additional locations, which is definitely a key part of our strategy with Alpha, and they're bidding jobs in new markets. And we're very encouraged by what we're seeing there operationally, both from a revenue perspective and year-over-year improvement.

Yes. I mean, in Alpha -- it's Jeff, obviously. But Alpha was clearly a platform play for us, which would imply, in my mind, at least partially acquisition opportunities, which we will continue to pursue in that business. But ultimately, really, it may be even more importantly is an opportunity for organic growth. And they've done a great job, so far, even in the short period of time that they've been in the fold at pushing, opening new locations in our -- in markets that are relatively contiguous to the markets we're already in, and that's really the way they grow. But we're particularly excited about the organic opportunities with Alpha.

The next question is from Keith Hughes from SunTrust.

This is actually Jake on for Keith. I'm just curious on gross profit. Was -- the mix in the quarter, did that impact gross profit at all? Maybe they came from Alpha as well.

Gross margin, gross profit were -- in the quarter were much more impacted by the hurricanes because really that's where the expense, if you will, associated with that came in. So that if you look at making that adjustment, which we didn't in any of the numbers, but it definitely is in line with what we would have expected. So the gross margin was more impacted by the hurricanes than it was by price mix or product mix.

The next question is from Scott Rednor of Zelman & Associates.

Michael, I know you don't like to give any forward guidance, but I was hoping you could quantify the sales impact from the storms in the quarter. Maybe you could talk about where you're running July and August and then September just so we could get some flavor for the 9.4% same-store, how that kind of trended.

Yes. So we estimate that the revenue impact was somewhere between $4 million to $6 million. Keep in mind, too, that the quarter compared to last year had one less selling day as well, which, I know, doesn't seem like it should matter, but that does matter as well. And so there were a couple of headwinds, if you will, as it relates to volume growth and same-branch sales growth. We definitely are encouraged as we're starting the fourth quarter in terms of the activity that we're seeing. But we're only 1 month into the quarter, so we'll see how it goes. But as you know, historically, the third and fourth quarter are -- tend to be our best quarters, so we're looking forward to good solid rest of the year. Yes, so I'm just going to say though, I would say though like going into '18, just from what -- I mean you're seeing this as well as we are, just some of the numbers on the permits and the starts, which are good future indicators of demand for the single-family side, as well as what we're seeing from some of the builders and new home orders. We're very encouraged about what '18 is going to look like for the whole industry.

So the rough math, you could've been running low double digits. You add back the storm, you add back the day, and you were probably several hundred basis points higher than that in July and August. Is that a fair representation of where the business is running?

That is reasonable. But as you preface your question with the fact that we don't like to give guidance, I would say that, that math is the right math.

And one last one. The step-up in the share-based compensation that you called out for the installers, I was hoping, one, you could just give more clarity on the mechanics of that because I think that will continue to run through net income for a period of time but also the strategic play with that as well.

Sure. I will talk a little bit about just the kind of mechanics of it and let Jeff talk a little bit more about kind of the long-term benefits that we believe we're going to experience from it. But yes, so it's -- we, as a company, and I -- sorry if I end up giving you too much information or background on this. But we, as a company, believe that engagement with our employees is absolutely critical. So we have worked very hard at all certain levels to increase that engagement. And one of the ways is for us to award stock to, really, as many people in the company that we think is -- that makes sense, and that includes the installers that are the key employees for us because they are the ones out there every single day making it happen. And as a consequence, we started this program, where we're awarding based upon longevity to the installers a certain level of stock. And it's really not about the dollar value of the stock that they're receiving. We believe it's more about the fact that they're actually receiving stock. So over -- as to this program, it's something we're going to continue to have in place. And so over time, you'll see that in gross profit, there will be this stock comp expense. It has to be in gross profit from a GAAP perspective because you align the compensation to where it is in the income statement. So again, it's an expense that's going to be there. We think it's -- and Jeff will speak to this. So we think at long term, it really helps with retention of our installers and acts as a great tool to recruit people.

So it's Jeff. But first, and foremost, we have embarked in both of these programs, both are momentum on up installing financial confidence program, where we're we helping really anyone in the business that makes under a certain threshold. We're helping them save dollars and create a safety net and then become a little more financially literate and educated around some things that, quite frankly, are confusing to a lot of us, kind of life skills financially. So we have both that program, and we have the stock program that Michael has referred to. And quite frankly, we did -- in both instances, we've embarked on this because it's simply the right thing to do. Now having said that, we do believe that there is math and economics behind it that make it not only the right thing to do, but in the long haul, the right thing for the business to do from an economic and math perspective. So is it an immediate payback? Probably not. Is turnover and retention expensive to our business? Absolutely. And we've looked at it and believe even on more of a kind of a hard cost, hard dollars basis, it makes sense for us, and that's even before we would look at it and get benefit from the capacity building that we hope it does for us by basically being able to -- enabling us as a company to be the employer of choice and to build a workforce that we're able to build faster and greater than we would without these, and therefore, take care of extra business, extra market opportunity that we otherwise couldn't. That's the logic, and it's the right thing to do.

The next question is from Matt McCall with Seaport Global.

So Michael, you talked about the impact of revenue from the hurricanes. Looking at the resi same-branch sales growth, it was only equal to Q3 single-family completions. I understand the goal for profitable growth, and I understand the need to look at the rolling averages, as you referenced. But is there any -- are there any pressures that you should or could call out in Q3? And/or did you see more pressure in existing branches from the hurricane, in that $4 million to $6 million maybe was skewed a little bit more towards existing branches which would impact that same-branch number?

Yes, that's exactly right. So we estimate that about 1/3 of the impact from the hurricanes was in the acquired businesses, and about 2/3 of the impact was in the same-branch or existing business. And keep in mind that it would put most pressure on single-family as well, right?

Right. Okay, okay. Got it. And so, let's see, price mix, I think it was double what you did in -- almost double what you did in the first half. Is there anything to call out there? I know that, that needs to be -- and as you talked about that mid-single-digit type number for a while and you hit 6%. But is there anything to call out there that we should we think about as we look forward?

No. I mean, we're still in the -- that sort of, again, mid-single digit. And I think we like to think of that number on a full year basis as opposed to quarter-to-quarter. And as you know, on an annual basis, we've really been consistent in that mid-single digit price mix growth. And as you also know, there are a lot of things that influenced that in terms of types of jobs and kind of mix of business, customer mix. There is a lot of things that influenced that. But it has been very consistent in that mid-single digit, and there's nothing that we see that would change that. Although I would say that, as we've said on many calls, that rising price environment on the material side, which we believe that '18 provides the right backdrop for that, would obviously increase the price mix over time.

Okay, okay. That's helpful. Let's see, 2 quick ones. So the gross margin, you said -- I think you said it would've been in line if you adjust for the hurricanes. So as the easy math, just taking the $4 million to $6 million on the top line and the $1.5 million to $2 million, understanding that it was mostly gross margin. Is that the way to get at what your expectation was from a gross margin perspective in the quarter?

Yes.

Okay. And then I will sneak one more in. And the selling expenses, 4.8% last quarter, 5% this quarter. Is that the right ballpark now that we -- when you've layered in the additional stock comp? How much -- I guess how much seasonality? Is that the right way to look at it? Just give me some -- just give me a little help.

Yes, that's a great question. I'm actually pleased that you asked that because we've always talked about selling expenses being in kind of a 5% to 6% -- 5.5% to 6% range. One of the things that the Alpha business is doing is their selling expenses tend to be a little bit lower as a percentage of revenue, and they're bringing that number down a little bit. So instead of us saying 5.5% to 6%, they would probably range closer to 5% to 5.5% on a full year basis. So yes, there's improvement in selling expenses that the Alpha business is bringing on a combined basis to the business.

(Operator Instructions) The next question is from Nishu Sood of Deutsche Bank.

So first I wanted to ask about the insulation growth rate. There's been a deceleration this year in that to the kind of mid-teens year-over-year growth rate. Now obviously, there's some influence from your shifting product mix, the commercial acquisitions as well the related product category acquisitions. But even if you take into account, it's seems to have slowed down a little bit versus prior trends. I was wondering if you could just kind of dig into that a little bit? Is there -- even on your core insulation business, is there shifting product mix? Or what -- help us understand that, please.

I mean our -- I mean we've been very pleased with the growth the we're seeing on the insulation side. I think it goes more towards your point relative to the fact that, with Alpha coming in, there's a shift to the other end market -- or the other products. And you're seeing that sort of influence the overall combined percentages. I would say spray foam growth has not been as high as fiber glass growth during the year and during the quarter, which is a little surprising, quite frankly, but I think that's just a question of timing. So we feel very good about the growth that we're seeing. And the overall mix of the business, we think, is improving because we are getting a balance from these other products because of Alpha and other things that we're working too, as we've talked about in previous quarters. We're pushing hard, the cross-sell of other products into the existing footprint, which we think is absolutely the right strategy to diversify our revenue streams. So we feel very good about the revenue growth that we're seeing really across all end markets and end products.

Got it. Got it. Okay. The valuation multiple, the environment for acquisitions, obviously, it's gotten a little more competitive over time. What effect, if any, has that had on the valuation multiples on your more recent acquisitions versus before -- the acquisitions that came before those?

If you look at our average adjusted deal multiples both for deals in the pipeline and deals that have been completed, I mean they're very consistent from '16 to '17.

Yes.

Got it. Got it. And, Jeff, you know I like to get the update every so often on labor. You folks have clearly managed that very well. And obviously, in your labor -- your -- and obviously, your services vertical here. It -- the dynamics have been favorable as well. It continues to be a pretty talked-about subject. And so I just wanted to get the latest update on what you're seeing.

It is, without a doubt, as tight that it's been. Arguably, probably more tight. It's an effort, really, every day for any of our managers, but that's what we do. So it's probably just -- it's -- probably, it's hard and tight as it's been at -- on the other hand. On the other hand, we've been able to both source and retain enough employees to manage the growth rates that we've been able to put on the board. I think going forward, we have some opportunities. There's no doubt that, obviously, wage rates and things are up, and that there's pressure in that way. I think on a go-forward basis, given the material price situation, we've got an opportunity, I think, to maybe recoup some of that, which we've been able to -- I've had to kind of put out the door to stay where we are. We're working on a few new initiatives in terms of sourcing employees, and it's actually still kind of a place where we're really trying to put focus around both sourcing our workforce in the right places and then doing a better job of retaining those that we've put time and effort into training.

But as Jeff said, I mean every single day, our field management team is doing an amazing job, we believe, of making sure there is good, well-skilled labor. And the things and the efforts that we're doing from a retention perspective in terms of the -- instilling financial confidence (inaudible) program and the stock comp award, we believe all those things, over time, really help us continue to move the business forward in a strong organic basis and to make sure that we're working with the right customers in each of our markets.

At this time, I would like to turn the conference back over to management for closing comments.

I'd just like to thank all of you for your questions, and I look forward to our next quarterly call. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.