Installed Building Products Inc (IBP) 2023 Q2 法說會逐字稿

Greetings, and welcome to the Installed Building Products Fiscal 2023 Second Quarter Financial Results Conference Call. (Operator Instructions)

It is now my pleasure to introduce your host, Darren Hicks, Managing Director of Investor Relations. Thank you, sir. You may begin.

Good morning, and welcome to Installed Building Products' Second Quarter 2023 Earnings Conference Call. Earlier today, we issued a press release on our financial results for the second quarter, which can be found in 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 statements about future expectations, anticipation, beliefs, estimates, forecasts, plans and prospects. These forward-looking statements are based on management's current expectations and involve risks and uncertainties.

Any forward-looking statements made by management during this call is not a guarantee of future performance, and actual results may differ materially as a result of various factors, including, without limitation, the adverse impact of the ongoing COVID-19 pandemic, general economic and industry conditions, rising home prices, inflation and interest rates, the material price and supply environment, the timing of increases in our selling prices and factors discussed in the Risk Factors section of the company's annual report on Form 10-K as may be updated from time to time in our SEC filings.

Any forward-looking statements speaks only as of the date hereof. The company undertakes no duty or obligation to update any forward-looking statements as a result of new information or future events, except as required by the federal securities laws. In addition, management uses certain non-GAAP performance measures on this call, such as EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, which is a net income per diluted share, adjusted gross profit, adjusted gross profit margin 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 and additional reconciliation for EBITDA and adjusted EBITDA for earlier fiscal years in our investor presentation, which are 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; and joined by Jason Niswonger, our Chief Administrative and Sustainability Officer. I will now turn the call over to Jeff.

Thanks, Darren, and good morning to everyone joining us on today's call. As usual, I will start the call with some highlights and then turn the call over to Michael, who will discuss our financial results and capital position in more detail before we take your questions. IBP produced another record quarter of operating and financial results, which included record second quarter sales, net income and earnings per share. Our financial results continue to benefit from our strategic focus on profitability over volume as well as our diversified end markets and products. As a result, we were able to more than offset softer single-family sales through ongoing strength and solid execution within our multifamily business and improving demand within our commercial business.

Our continued success is a direct result of the efficiency and diligent effort of our installers and employees across the country. Looking at our installation segment results for the second quarter. Total installation sales increased 2% year-over-year. This was driven by a 41% increase in multifamily sales and a 24% increase in commercial, which combined to more than offset a 10% decline in similar family sales. (inaudible) sales growth accelerated to 38% on a same branch basis, up from 30% on a same-branch basis last year. We have been successful in selling IBP's insulation services across branches in other markets that historically have not served multifamily customers.

Within our commercial business, second quarter same-branch installation sales increased 16%. Bidding activity and project bid acceptance rates in our heavy commercial business improved in the second quarter relative to the first quarter, while same-brand sales improved both sequentially and year-over-year. During the quarter, price/mix increased by 7.2% over the prior year period. We continue to apply our own -- our local market knowledge and improve job efficiency while making adjustments to align our pricing with the value we offer our customers. The strong growth in our modem and commercial end markets has also been a benefit to our price/mix disclosure as sales to these even markets have higher average job prices relative to our single-family end margin.

We continue to expand our product offering and geographic presence through acquisition and have closed 5 deals so far this year with annual revenue of over $48 million. We expect at least $100 million of annual revenue once again in 2023. During the 2023 second quarter, we completed 2 acquisitions, including a Florida-based installer of fiberglass and spray foam insulation serving residential chill and commercial customers with annual revenue for approximately $3 million in a Texas-based installer of fiberglass, spray foam and cellulose insulation, serving residential, multifamily and commercial customers with annual revenue of approximately $3 million.

Overall, our residential housing market remains resilient as stable employment and relatively low existing home inventory levels continue to support demand for residential new construction activity. We are very encouraged that the publicly traded homebuilders that reported results in the last 2 weeks and order growth of approximately 1%, the first is as a result for the group in over a year. While these orders will take time to impact our revenue, we believe that the recovery in single-family home construction is clearly underway. As for the [mall family] end market, the backlog remains at historically high levels with jobs standing beyond.

We believe we are well positioned to report another year of strong financial performance in (inaudible) as we continue to focus on profitability and effective capital allocation. Longer term, we believe the IP relationships, experienced leaders team, national skiers product categories across multiple end markets will help IBP navigate future changes in the U.S. housing market. Our strong balance sheet, coupled with our high operating cash flow generating capability supports ongoing acquisitions, dividends and opportunistic share repurchase activity.

We believe the installation industry is well positioned to benefit from demand driven by government legislation, including the inflation Reduction Act of 2022 in the bipartisan infrastructure law, which are intended to improve energy efficiency in residential homes. I'm proud of our continued success and excited by the prospects ahead for IDP and the broader insulation and other product installation business. So with this overview, I'd like to turn the call over to Michael to provide more detail on our second quarter financial results.

Thank you, Jeff, and good morning, everyone. Consolidated net revenue increased to a second quarter record of $692 million compared to $677 million for the same period last year. The improvement in sales during the quarter was driven by increases in multifamily and commercial sales, higher price mix from the prior year period and revenue from recent acquisitions. The 7.2% price/mix increase during the second quarter continued to benefit from stronger growth and a higher price per job in our multifamily and commercial end markets relative to our single-family end market.

Our installation segment revenue increased to $652 million, while our other revenue, which includes IVP's manufacturing and distribution operations, increased to $40 million. On a same branch basis, residential installation revenue declined 5% in the prior year quarter as robust multifamily growth of 38%, partially offset a 13% decline in single-family same-brand SaaS. Same-branch commercial sales increased 16% during the 2023 second quarter.

Adjusted gross profit margin improved 160 basis points year-over-year to 33.6% in the second quarter, which was a reflection of our strategic focus on securing the most profitable installation jobs over volume growth and the benefit of price mix improvement during the quarter. Adjusted selling and administrative expense as a percent of second quarter sales was 17.9% compared to 16.1% for the prior year period. Higher selling and administrative expenses relative to the same period last year primarily reflects higher variable compensation related to higher gross profit margin performance from the prior year period.

Our second quarter net income per diluted share of $2.18 increased 5% from the prior year quarter, and our adjusted net income per diluted share improved 6% to $2.62. As a percentage of revenue, our net income per diluted share and adjusted net income per diluted share came in at a second quarter record of 8.9% and an all-time record of 10.7%, respectively.

During the 2023 and 2022, second quarter, we recorded amortization expenses of approximately $11 million related to the acquisition of new businesses. Based on recent acquisitions, we expect third quarter 2023 amortization expense of approximately $11 million and full year 2023 expense of approximately $44 million. We would expect these estimates to change with any acquisitions we closed in future periods. This noncash amortization adjustment impacts net income, which is why we continue to believe that adjusted EBITDA is the most useful measure of profitability. Adjusted EBITDA for the 2023 second quarter improved to a record $122 million.

Adjusted EBITDA as a percent of net revenue reached a record 17.7% for the 2023 second quarter, slightly above the same period last year. In the second quarter, we experienced same-brand sales and adjusted EBITDA declines, resulting in a decremental same-branch adjusted EBITDA margin of 25.8% compared to an incremental margin of 25 points for the same period last year when sales and adjusted EBITDA growth for positives. We continue full year long-term incremental adjusted EBITDA margins in the range of 20% to 25%. For the 2023 second quarter, our effective tax rate was approximately 26%, and we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31, 2023.

Now let's look at our liquidity, balance sheet and capital requirements in more detail. For the 3 months ended June 30, 2023, we generated $64 million in cash flow from operations compared to $51 million in the prior year period. The year-over-year increase in operating cash flow was primarily associated with higher net income and lower net working capital requirements. Through interest rate swap agreements, we have fixed the interest rate on $400 million of our existing very low-rate debt until December 2028, limiting our interest rate exposure.

In addition, we have no significant debt maturities in (inaudible). Our second quarter net interest expense fell to $9.8 million from $10.4 million in the prior year period as we were able to earn a higher interest rate on cash and cash equivalents invested throughout the quarter. At June 2023, we had a net debt to trailing 12-month adjusted EBITDA leverage ratio of 1.3x compared to 1.5x at December 31, 2022, which is well below our stated (technical difficulty).

June 30, 2023, we had $348 million in working capital, excluding cash and cash equivalents. Capital expenditures and total incurred finance leases for the 3 months ended June 30, 2023, were approximately $14 million combined, which was 2% of revenue, in line with the same period last year. With our strong liquidity position and modest financial leverage, we continue to focus on expanding the business through acquisitions and returning capital to shareholders. Our acquisition pipeline is robust, and our goal of acquiring $100 million of annual revenue in 2023 remains unchanged.

IBP's Board of Directors approved a third quarter dividend of $0.33 per share, which is payable on September 30, 2023, to stockholders of record on September 15, 2023. The third quarter '15 represents a 5% increase over the prior year period.

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

Thank you, Michael. I'd like to conclude our prepared remarks by once again thanking IBP employees for their hard work, dedication and commitment to our company. Our success over the years is made possible because of all of you. Operator, let's open up the call for questions.

(Operator Instructions) Our first question comes from Stephen Kim with Evercore.

Congratulations on a strong quarter. I was curious if we could start off with your comments about the overall market. Single-family starts have really rebounded nicely here. Multifamily, there's concerns about where that might go as we head into next year. I was curious as to how you're thinking about the change in thinking around starts, is that what is that kind of in line with how you see the world? And then I was also curious if you could talk a little bit about the setup for a fiberglass price increase later this summer in the context of that.

So on the starts perspective, yes, I would say that our thought process aligns with that, we've seen -- and I think everybody has seen sort of that inflection happen on the single-family side. And because the cycle times to build single-family have really normalized, and we talked about this in the last call, that means that from sort of start to when we do our installation or as normalized as well versus last year where you saw that very extended lag between SOX and Installed.

So we feel good on the single-family side as we go into the back half of the year. We would say in multifamily that we really have -- our team has just performed incredibly well on the multifamily side. And we believe that while maybe not at the same elevated levels that we're seeing now, they will continue to perform. Even if there is, call it, in back half 24-25 weakness in multifamily starts, we feel very good about our sustainability to continue to execute even in a more difficult multifactor environment.

(technical difficulty) it's been a matter of real market beneficiation. So in a lot of markets in which we weren't participating in the multifamily at all. And into the material tension material price increase environment, second half of the year, latter half of the year, I would think that more than likely in the material continues to be pretty tight, it's going to get more so as single-family comes back online based on the content that's involved and the fact that the multifamily is still strong at least in terms of what's being built in the field. So I would think that it'd probably be pretty conducive to the manufacturers taking a look at that.

I wanted to talk a little bit about this multi-fam. And I think one of the things that I want to make sure that we're clear on is how you all talk about volume. I know you all talk about it in terms of the number of jobs. But actually, it's really the number of trips, if I remember correctly. And I have in my notes here that a typical single-family job will take, I don't know, 3 to 4 trips with 2 to 3 of that being the insulation itself and then another one or so for other products. And commercial, which is -- sorry, multi-fam, which is mostly the garden-style apartments. I have in my notes like 4 to 6 trips. I was wondering if you could sort of clarify that for me, and just make sure that we got that right. And then how does commercial look, how does that sort of factor in from a volume perspective in the number of trips?

So obviously, it depends. But multifamily and light commercial are going to be fairly similar in terms of the number of phases or the number for trips, which are going to be fairly kind of similar. And on the single-family side, yes, there's -- your thinking there is -- makes sense. I would say though, that when we're counting jobs and we're on the volume side, disclosing the absolute volume of jobs, it is just the number of jobs compared to the price/mix calculation that, again, is influenced by a number of factors that we've talked about before. But in this quarter, the 2 biggest components that impacted price/mix were both higher growth rate from nonproduction builders on the single-family side and also the higher rate of single family -- or excuse me, multifamily and commercial jobs like commercial jobs in the price/mix disclosure.

And we obviously did see price in the quarter, and we're continuing to experience the sort of residual benefits, if you will, from the pricing actions that we took in the back half of last year. But as we're going through the year and the comps get tougher, that benefit continues to reduce, particularly because we've been in an extremely benign inflationary environment across the board.

Our next question comes from Ken Zener with Seaport Research Partners.

I wonder if you can talk to-how to start-- I think you commented on that we've obviously seen momentum coming out (technical difficulty) being better. So looking at the residential side, we estimate that the public have base (inaudible) starts to almost 50%, up from low 40s last year, having reduced inventory. So my question is, could you comment on what you're currently seeing versus the price mix -- and I will be tying that over to your comment about price mix benefiting from the non-production builders, which is -- might be different from what you're seeing right now in the bidding process?

I think there's a difference between (inaudible) and when we're doing the installation work. And as we've talked about, I think, in the past couple of calls, is that we expect, as we go into the back half of the year to see higher rates of growth from the production there as the non-production builders, the regional and local guys. And I think that's consistent with statement for (inaudible). And as Jeff mentioned in his prepared comments, they saw at least the public filers that have disclosed their second quarter results so far, they saw a really solid order growth, which they hadn't seen it I think, almost universally, everyone is talking about accelerating their spec starts and their spec inventory, right?

So I think what that lends absolute validation to is your comment and belief that they are continuing to pick up their percentage of overall starts. It's just that those starts are a forward-looking impact on our install revenue versus a back-- on our Installed revenue.

And the reason I asked this as the public the gross margins, which obviously impact your operating leverage, which has been consistent, which is good. How do you think about price mix in FY '23. It's been strong in the front half. Is it basically going to be a wash for the year because it's going to be weak -- not in a bad way, but just it's a mix issue in the back half. So it's kind of a wash. And where I'm going with this is as you guys -- as your exposure to larger production builders increases, I'm just thinking about how you think about the pros and cons for operating leverage being affected by gross margin mix going down. As you guys recall, a couple of years ago, the public builders accelerated their starts. There was kind of confusion, I think, around your operating leverage as price/mix was impacted by those public builders, which would be the opposite like in the first half of this year. So if you could just kind of clarify that and talk about how you think you're going to be offsetting right, a weaker mix as it relates to the operating leverage of the business?

I mean you have that's directionally correct relative to the big national builders because the average job price for us is lower there than it is with the regionals. To the extent we see a higher rate of growth from them, it does lower the price/mix disclosure. And as we said earlier, it is a very pretty benign inflationary environment. But as demand picks up, we have -- as a company, I think we've shown particularly in the past couple of quarters that we are going to focus on profitable work fairly for the installation jobs that we do over volume, and that will continue, particularly as the pace of construction on the single-family side starts to accelerate. But you think about price on a full year basis going into '24, there is -- we expect that there will continue to be benefit in the price/mix component of the price/mix disclosure, given the strength we're continuing to see on the multifamily and like commercial side.

Our next question comes from Joe Ahlersmeyer, Deutsche Bank.

If I could just talk about with you guys, the single-family same-branch sales number and not wanting to get too much into the mix and volume at the total residential level, just the single-family same branch sales. I think you had said in the past a couple of quarters that the second quarter was likely to be the weakest environment for our sales on single-family. Wondered if you had any updated thoughts on that relative to the back half? And then I've got a follow-up there.

We feel good about the back half of the year. I mean it is going to, as we said in the prepared remarks, I mean it takes time for the pickup Installed to translate into our install volume. But as we look at the context of the entire year, we feel pretty good. I mean I think there's a possibility despite where our starts have been at least the Census Bureau numbers, would say, (inaudible) first half of the year, down something like 20%.

If we see the current trends continue through the back half of the year, theoretically, you could be an employment we're not just talking about single family, not single-family multifamily. But you could get to a point where single-family starts for the year are pretty flat year-over-year at close to $1 million.

Well, to your point, I think we obviously last call mentioned that we thought the second quarter would be the roughest, and I think that's probably still accurate as where our heads down.

And so thinking about that down 13 revenue, maybe the third quarter, and I realize you don't give guidance, but the third quarter decline is likely less than that if it's still a decline after all. And then the fourth quarter, you might actually see flat single-family sales year-over-year. Is that close?

As you said, we don't provide guidance, but we feel good about the second half of the year relative to the first quarter of the year.

Relative to the first half and the second quarter?

Particularly in the second quarter, yes.

And then just maybe a bigger picture question, how you feel about industry manufacturing capacity relative to some of the tailwinds around incentives with the inflation Reduction Act and other things that you've discussed.

I mean, clearly, everybody kind of remembers the last couple of years and how tight the market was that volumes were a little bit elevated from here. There's really only the least announced under construction on capacity add in Texas, the map has under construction that I think is still online or on schedule to come on second -- at the end of the second quarter of next year is, which had definitely some capacity. But clearly, if both the volume returns, the levels we're talking about and then even still past that, there becomes some tailwind from some of the energy proposals that have been put forth that are kind of working their way through the system that it's likely to get tight again. I think there's probably some other main manufacturers, although I'm sure not announced that are probably strongly considering capacity add, but that will take some time.

Our next question comes from Mike Rehaut with JPMorgan.

Just a quick question for me. I was willing if you guys could just give a little bit more color on your gross margins this quarter, particularly strong. And just how sustainable you feel that is moving forward? And if you can give a little bit more insight on what drove the upside, that would be great.

Yes, we had a very strong gross margin quarter. I mean there are a lot of puts and takes in that. But if you just go up a book over the past 5 quarters, right, I mean, gross margin has averaged around 32% and I think that we've talked about this before that in that 30% to 32% range is, I think, makes sense, particularly when you're looking at it on a full year basis. So we feel good about where we are gross margin-wise, but we also feel good at that kind of 30% to 32% range as well.

So you feel that range is, I guess, manageable moving forward for the rest of the year?

Yes.

Our next question comes from Susan Maklari with Goldman Sachs.

Congrats on a nice quarter. My first question is, as we think about a more normalized operating environment in terms of the starts pace as well as perhaps some of the pricing that will come through on the material side. Is it reasonable to think that your volume versus price/mix over the next, call it, I don't know, 1 year, 1.5 years or so. We'll start to move closer together, the way that we've sort of seen those 2-line items move historically?

Yes, definitely.

And then I guess following up, you talk about the bigger production builders sort of taking more of the volume on the ground. What are the implications as it relates to the ancillary products in there and your ability to continue to add value to that and how that will perhaps come through in the results.

I mean we have good penetration of the other products with the big production builders. It's probably a little bit less than it is with the regional hole and local guys. But we would not expect that to have necessarily a material impact on the price/mix disclosure. And if you look at year-to-date and even particularly this past quarter, the price or the other products really didn't impact the price/mix disclosure this quarter.

Our next question comes from Trey Grooms with Stephens.

So we kind of alluded to it just a little bit ago but as part of some of the new actions (technical difficulty). I think the public comment period you've been ended here -- but do you guys have any early views of the tip that this mandate might have for you guys, for the industry timing. If you could just educate us a little bit more on kind of your thoughts around that.

Assuming that the FHA acquired I don't think anybody in the industry expects it to have an impact until probably early '25. And that if Fannie and Freddie go down the same path, it probably won't be until late early '26 that has the full impact. And obviously, (technical difficulty) will see greater energy efficient crews code gets-- as the higher energy codes get across the country. It could be a noticeable uptick in sales. We feel pretty good about that, but it's a 25, 26 event, not necessarily '23, '24 then.

And I know this is further out, but still-- it's a pretty interesting thing that's going on with the industry. Is there any way to kind of parse out, I think now the most recent kind of updated energy codes that are required are -- I think maybe 2009, at least required from HUD. Is there any way to kind of parse out what that incremental amount of insulation could be if they were to have to update the more recent, I guess, 21 editions.

Yes. So I'll be honest with you, there's a lot of work going on within the industry to really get a good handle on what the kind of increased pound usage estimation is going to be by state. And we're sort of working with that information and really haven't finalized our conclusions. But I would say that it is definitely positive and reasonably significant in relation to our single-family revenue.

This is Jeff, but the difference between 2009 fillers to 2021 to is significant -- very significant. But there are not that many states in some of the states that are still carrying the 2009 codes are not really large markets either. There's maybe I'm going to guess to say 10-ish or so, but it's a lot of -- I know like Alaska and a number of others are some of the upper Midwest states, Wyoming, et cetera, some of those states where there's just not the number of pills and maybe it's 10 or a dozen or so, but the rest are not at 2009. Obviously, the difference between whatever codes they're adhering to and wherever local code might even be adhering to are much closer to the 2021 stacks to the 2019.

In the top half of the country, you might have a jurisdiction that as the 2009 code, the building practices to build the 21 out read.

Well, switching gears here on multifamily, I think you mentioned that you expect that multifamily to remain strong for maybe another year. I'm sure that's based on what you're seeing from your backlog there or maybe your customers' backlog there. And that sounds better than what some are looking for as far as from multifamily and as far as the duration of strength there. Clearly, multifamily has been a focus for you guys. Do you feel like you've been gaining some share there on multifamily? Or what's driving that relative strength for you guys, especially looking into next year?

I mean it's a couple of things, quite frankly. It is that we're gaining share. We're doing multifamily in markets that previously we hadn't done multifamily -- and we're also doing a very good job of cross-selling the other products into multifamily, which we hadn't previously done. So it's a combination of things that is leading to the outperformance there. And it's that outperformance, well, again, we don't anticipate that the growth rates are going to continue to stay at such great levels. But we do think that even in a more difficult operating environment from a multifamily perspective that our team is going to be able to continue to perform above the market.

Our next question comes from Adam Baumgarten from Zelman & Associates.

If you think about the 7% increase in same-store installation price/mix, how much of that would do to mix versus pure pricing?

More of it was mix and price, but there is price in it.

And then maybe switching gears to commercial. If you could talk through how the heavy commercial business performed in the quarter? And then just maybe an update on the profitability profile of that business. I know there's been a big effort behind the scenes for -- just any update there would be helpful.

Yes. It was a great success story during the quarter, and we're feeling good about it as we go into the back half of the year. They had high single-digit organic growth in the quarter, and the margin profile while still not what we expect it to be or close to the company average, it did have a considerable improvement over the last year's quarter.

Our next question comes from Phil Ng with Jefferies.

Congrats on a really strong quarter. I guess this is a question for Michael. It appears you're at least committing to volumes perhaps boding out in 2Q. We appreciate, obviously, orders (inaudible) have inflected. When you see that kind of funneling through to your volumes, is that a fourth quarter or 3Q then? And when we kind of look out to 2024 with easier comps, do you see your volumes inflecting positively on a year basis by, call it, early 2024?

Well, I mean, I hate to sound like a broken record. We obviously don't provide guidance. But I think just given what we've talked about and assuming things continue along, the positive trajectory that we've been talking about, I think it's fair to assume at this point that you'll see full year positive volume in '24, especially given what the production builders have sort of committed to and what you've seen from an order growth and a commitment to spec homes, which we think makes a lot of sense in the current operating environment. the starts growth that we're starting to see definitely takes time to become Installed sales for us. So there's definitely on a relative basis, given how strong '22 is there's still weakness there, but we're very encouraged as we look towards the full scope of the back half of the year that there's going to be a decent volume of single-family work for us in the back half of the year.

And then from a commercial activity standpoint, certainly tighter lending conditions well documented. Appreciating you're not very big in office, I would imagine. How is commercial bidding by kind of progressing? And any color on your commercial exposure in terms of perhaps heavy commercial, that's a little more insulated from some of the concerns people have on office and retail.

As you know, the heavy commercial business in aggregate for the company is like 7% or so. So not meaningful but as I said earlier, we are seeing decent growth there and refining margin uptick. We have across the board on the commercial side, we're being very sort of cautious because we obviously are not ignoring the fact that everyone is talking about the tight date of credit. But I think that goes to multifamily as well. We have not seen it in bidding and in terms of bidding activity in our backlogs, but we're being extremely mindful of it and monitoring it as closely as we can.

And we directly answer the part about office. Offices is an insignificant piece of our overall revenue and even more of our commercial business.

Our next question comes from Jeffrey Stevenson with Loop Capital Markets.

Congrats on the nice quarter. So inventories moved lower sequentially. And we've heard some commentary in the channel about some destocking ahead of the air pocket and single-family demand. I just wondered if you could attribute the sequential move lower to some destocking or something else entirely?

Well, I mean, we don't think of it as destocking. We think of it more as we're not -- we don't need to maintain as high an inventory level because there's, I mean, fairly wide material is fairly widely available now unlike, say, this time last year where material was so tight, we were just getting as much material as we could. And we're just working our inventory down to a more typical level relative to the sales. So I think you'll see as we go through the course of the year, we'll continue to normalize our inventory, assuming which is our assumption that we continue to have good availability of material. And we're also starting to see, which is good is that -- and we've talked about this a lot last year is that not only was material type, but certain types of material that are not as widely used as other types of material are now becoming available again, which has significantly probably the wrong word, but has helped productivity in the field because we have the material that we need in the right sizes and the right type and so that helps as well.

No, that's great color. And then I just wanted to touch on the increase in SG&A from higher variable compensation and just how you think that should track the rest of the year?

Yes. So it does link up, if you will, with -- particularly with gross margin on the selling expense side I would say, and we talked about this in previous calls about the fact that the only real sort of wage inflation that we saw last year was really in the G&A side. And what really came through in the second quarter is sort of the full realization of that sort of inflationary environment. And that's really behind us now. And I think as been talked a lot about in the press that wage inflation while still higher maybe than some people want is normalized considerably.

Our next question comes from Keith Hughes with Truist Securities.

Could you just give an update on where you are in terms of the mix of single-family first commercial versus multifamily and so?

So this is for the quarter and for the whole company. So it's not broken out by the Installed segment versus the other segment. But it's roughly -- excuse me, 56%, 57% single family, like 16%, 17% multifamily, about 7% R&R roughly 7%, 8% R&R, 7% heavy commercial and then the remaining 11%, 12% light commercial.

And what was the heavy again? I just couldn't hear you.

7%.

7%. And I guess within that, is there a distinction in multifamily between tower business versus garden apartments for some of this mixed-use that's out, is that all lumped in that same category?

That's a great question. It is all lumped in. It's all multifamily.

(Operator Instructions) Our next question comes from Mike Dahl with RBC Capital Markets.

Just going back to margins and specifically net price cost trends. Could you help or flesh out a little more color how much net price cost changed this quarter versus last quarter and then what your outlook is for the back half of this year, just given what you're seeing today on the inflation front?

We don't break that out. It's the kind of the price mix. But as we said, it was definitely more mixed, but there was definitely a price in the 7.2% price/mix growth this quarter.

I guess in terms of the inflationary dynamics there, is there some additional color you can provide on what you're expecting for what you saw this quarter, would you expect for the back up?

We still expect it to be a fairly benign environment. I would say, though, that we have focused, profitable work over volume. And to the extent that there's a higher acceleration in single-family than we're expecting, we would obviously anticipate that we would get paid fairly for that work, and we would lean into the more profitable work in that instance.

And just for my second question, just on capital allocation. I was hoping you can comment on what you're seeing today in terms of your M&A pipeline? How do you feel multiples have trended? And to the extent they're still elevated your willingness to return to share repos?

I don't know that we've seen any meaningful increase or decrease in multiples really for quite some time. To be honest with you, it's just not usually who our sellers are. They're kind of not the largest kind of lots of buyers, PEs, et cetera, typically. So we haven't seen that much variation in that regard. And the pipeline is good. Yes. The pipeline is good, but we continue, as Michael said many times, we continue to have plenty of capital to really kind of perform on all 4 or 5 of our efforts, including share repurchase.

There are no further questions at this time. I would now like to turn the floor back over to Jeffrey Edwards for closing comments.

Thank you for your questions, and I look forward to our next quarterly call. Thanks again.

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