Participants

Darren Hicks; Vice President of Investor Relations; Installed Building Products Inc

Jeffrey Edwards; Chairman of the Board, President, Chief Executive Officer; Installed Building Products Inc

Michael Miller; Chief Financial Officer, Executive Vice President, Director; Installed Building Products Inc

Stephen Kim; Analyst; Evercore ISI Institutional Equities

Alex Isaac; Analyst; J.P. Morgan

Susan Maklari; Analyst; Goldman Sachs & Co. LLC.

Michael Dahl; Analyst; RBC Capital Markets

Trey Grooms; Analyst; Stephens Inc.

Maggie Miller; Analyst; Jefferies

Kenneth Zener; Analyst; Seaport Research Partners

Adam Baumgarten; Analyst; Zelman & Associates

Jeffrey Stevenson; Analyst; Loop Capital Markets

Presentation

Operator

Greetings, and welcome to the Installed Building Products first quarter 2025 financial results conference call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce Darren Hicks, Vice President of Investor Relations. Please go ahead.

Darren Hicks

Good morning, and welcome to Installed Building Products first quarter 2025 earnings conference call. Earlier today we issued a press release on our financial results for the first 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 federal securities laws. These forward-looking statements are based on management's current beliefs and expectations and are subject to factors that could cause actual results to differ materially from those described today.
Please refer to our SEC filings for cautionary statements and risk factors. We undertake no -- no duty or obligation to update any forward-looking statement as a result of new information or future events, except as required by federal securities laws. In addition, management refers to certain non-GAAP and adjusted financial measures on this call.
You can find a reconciliation of such non-GAAP measures to the nearest GAAP equivalent in the company's earnings release and investor presentation. Both of which are available in the investor relations section of 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 we are also joined by Jason Niswonger, our Chief Administrative and Sustainability Officer.
Jeff, I will now turn the call over to you.

Jeffrey Edwards

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 delivered solid first quarter financial results reflecting our focus on maintaining a high level of installation service for our customers across the US. Our core home building customers continued to navigate industry-wide housing affordability challenges in a slower than expected spring selling season. Still, we continue to play our integral role in making homes and buildings as energy efficient and efficiently constructed as possible.
We expect housing demand to remain connected to changes in affordability and the macroeconomic backdrop this year. In the current environment, we are competing from a strong financial position, and our home building customers are operating from a position of health as well, which helps in navigating market uncertainty.
Longer term, our view on demand for our installed service is unchanged. We believe long term trends across our residential, commercial end markets are favorable as builders work to meet demand through the increased supply of houses, apartments, and commercial structures.
IBP's business model remains consistent and centered around geographic and product and market growth with a disciplined approach to capital allocation. Throughout our business, we believe that less than 10% of the adverse products we buy and install are sourced outside of the US. We are working with our suppliers to reduce any potential tariff impacts. At present we do not anticipate meaningful disruptions to our business.
Our business continues to generate strong operating cash flow, and we remain committed to investing in growth and prudently returning capital to shareholders throughout economic cycles. During the first quarter, we continued to grow through acquisition. Paid nearly $57 million in cash dividends or $2.07 per diluted share and repurchased approximately $34 million of our common stock.
As we pursue initiatives focused on achieving profitable growth and maximizing returns for our shareholders, we remain committed to doing the right thing for our employees, customers, and communities.
Looking at our first quarter sales performance, consolidated sales decreased 1%, and same branch growth was down 4%. In our largest end market, new single family installation sales were down relative to the same period last year, partially due to one less selling day in unusually difficult weather which impacted our ability to complete jobs during the quarter.
On the same branch basis, multifamily sales in our installation segment decreased 5% following a strong year-over-year comparison of a 13% increase in the first quarter of last year. We continue to see strategic growth opportunities as our centralized service-oriented model continues to partner with our existing branch network to broaden our geographic footprint and product offering in the multifamily end market.
On the same branch basis, first quarter commercial sales in our installation segment declined modestly from the prior year. Strong same branch sales growth within our heavy commercial business was offset by a decrease in sales from our light commercial markets.
The strength in our heavy commercial and market was driven in part by successfully winning jobs in the rapidly growing data center construction industry. Based on our current backlog, we expect growth in heavy commercial sales to continue throughout this year.
During the first quarter, cash flow from operating activities increased 9% to $92 million which primarily reflected effective management of working capital. Acquisitions continue to be our top priority as we consider all of our options for capital allocation.
Despite our growth over the years, we believe a meaningful opportunity still exists for us to expand our geographic presence and diversify the mix of building products we install across our national branch network.
During the 2025 first quarter and in May of 2025, we completed the following acquisitions. A South Carolina-based installer of a diverse mix of after paint products, including closet shelving, shower doors, mirrors, primarily in the new residential and market with annual revenue of nearly $6 million and a Wisconsin-based installer of spray foam and air barrier products in the commercial end market with annual revenue of nearly $4 million.
To date, we have acquired over $10 million of annual revenue and although dealt is hard to predict, we expect to acquire over $100 million in annual revenue in 2025. Based on the US Census Bureau, single family starts year-to-date through March 2025 have decreased by 6%.
We continue to believe that our business is supported by a fundamental undersupply of residential housing and gradual building code adoption for the purpose of improved energy efficiency across the US. Our strong customer relationships, experienced leadership team, national scale, and diverse product categories across multiple and markets are advantages when navigating the ebbs and flows of demand related to the US construction market.
Although the uncertainty around tariffs, inflation, and consumer sentiment influences prevailing market conditions in our industry and many others, we remain focused on profitability and effective capital allocation to drive earnings growth and value for our shareholders.
I'm proud of our team's continued success and commitment to doing an excellent job for our customers. To everyone at IBP, thank you. I remain encouraged by our competitive positioning and optimistic about the prospects ahead for IBP and the broader installation and other building product installation business. So with this overview, I'd like to turn the call over to Michael to provide more detail on our first quarter financial results.

Story Continues

Michael Miller

Thank you, Jeff, and good morning, everyone. Consolidated net revenue for the first quarter decreased 1% to $685 million compared to $693 million for the same period last year. The modest decrease in sales during the quarter reflected single digit declines across all our core and markets, partially offset by revenue from recent acquisitions. Same brand sales were down 4% for the first quarter.
Although the components behind our price mix and volume disclosure have several moving parts that are difficult to forecast and quantify, we achieved a 1.5% increase in price during the first quarter. This result was offset by a 5.6% decrease in job volumes relative to the first quarter last year.
With respect to profit margins in the first quarter, our business achieved adjusted gross margin of 32.7%, down from 33.9% in the prior year period. The margin headwind during the quarter was in part related to higher vehicle insurance and depreciation expense.
Adjusted selling and administrative expense as a percent of first quarter sales was 20.1% compared to 19% in the prior year period. The increase was due primarily to lower sales and higher administrative wages and higher facility costs.
Of the $6 million dollar increase in adjusted selling and administrative expense, $4.4 million was due to acquisitions and startup expenses. Adjusted EBITDA for the 2025 first quarter decreased to $102 million reflecting an adjusted EBITDA margin of 15%, and adjusted net income decreased to $58 million or $2.08 per diluted share.
Although we do not provide comprehensive financial guidance. Based on recent acquisitions, we expect second quarter 2025 amortization expense of approximately $10 million and full year 2025 expense of approximately $40 million.
We would expect these estimates to change with any acquisitions we close in future periods. Also, we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31, 2025. Now let's look at our liquidity position, balance sheet, and capital requirements in more detail.
For the three months ended March 31, 2025, we generated $92 million in cash flow from operations compared to $85 million in the prior year period. The year-over-year increase in operating cash flow was primarily associated with improvements in working capital, which more than offset lower net income.
At March 31, 2025. We had a net debt trailing 12 month adjusted EBITDA leverage ratio of 1.17 times compared to 0.97 times at March 31, 2024, which remains well below our stated target of 2 times. At March 31, 2025, we had $351 million in working capital excluding cash and cash equivalents.
Capital expenditures and total incurred finance leases for the three months ended March 31, 2025, were approximately $21 million combined, which was approximately 3% of revenue. With our strong liquidity position and modest financial leverage, we continue to prioritize expanding the business through acquisition and returning capital to shareholders.
During the 2025 first quarter, IBP repurchased 200,000 shares of its common stock at a total cost of $34 million. At March 31, 2025, the company had approximately $466 million available under its stock repurchase program. IBP's Board of Directors approved the second quarter dividend of $0.30 -- $0.37 per share, which is payable on June 30, 2025, to stockholders of record on June 13, 2025. The second quarter dividend represents a 6% increase over the prior year period.
With this overview, I will now turn the call back to Jeff for closing remarks.

Jeffrey Edwards

Thanks, Michael. I'd like to conclude our prepared remarks by once again thanking IBP employees for their hard work 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.

Question and Answer Session

Operator

(Operator Instructions)
Stephen Kim, Evercore ISI.

Stephen Kim

Hi, this is a (inaudible) for Stephen. Thanks for taking the question. I just wanted to get an idea of how you're managing your labor force in this pressure demand environment.

Michael Miller

Hi, this is Michael. Good morning. I think you really have to break it down into the various labor components in terms of the install labor versus the salesforce and then the G&A labor. The install labor really fluctuates consistently with the volume of jobs.
So our intention is really never to hold crews when it comes to the install labor. There is an exception to that statement, and it would be times like we had in the first quarter where you had both the California fires and some of the severe weather in the bottom half of the country.
In those instances you will hold labor because you know that it's a temporary situation. But when you're in a situation where there's a prolonged headwind relative to volume you would then obviously adjust your install labor to meet that demand expectation. As it relates to the salesforce. I mean, generally speaking, you're not adjusting your sales force in terms of headcount unless it's a situation where you expect to have significant prolonged headwinds as it relates to volume.
In terms of the G&A labor force, we're constantly looking to optimize and have the right headcount and right people doing the right things within G&A. I would say that, clearly a focus of ours has been to make sure that, we have optimization within the G&A ranks, and that's obviously something that we're continuing to focus on and will focus on. And would expect to see some reductions in the G&A workforce as we're going forward here through the rest of the year.

Stephen Kim

Great, thank you. And if I could just get one more follow up on the multi-family side, can you, it was touched upon briefly in the prepared remarks, but can you talk about how the [CQ] team is helping the branches manage through pressure in that end market?

Michael Miller

Sure, that's a great question. As you know units under construction right now are down 20% from their peak last year, so from March of last year to March of this year, which is a huge headwind, and we are extremely proud of what the team was able to do with a 20% headwind having multi-family revenue only down 5% is in part a direct result of the benefits that we're seeing from CQ.
As I think everyone on the call knows, CQ does not manage all of our multi-family revenue. They only manage around 45% of our multi-family revenue. And they continue to show up positive results on the multi-family revenue that they're managing. Their backlog continues to be very solid, so we feel very strongly that we will continue to outperform the multi-family opportunity.
That being said, we believe that units under construction need to come down at least another 10% in order to stabilize relative to historical trends based on current multi-family starts rates, although we do think multi-family starts have bottomed, as I'm sure everybody realizes, multi-family starts here today, as reported by the Census Bureau are up 9%. So We think that's encouraging for multi-family, the multi-family industry in '26, but we do think that the headwinds for multi-family for us and for the industry will persist through 2025.

Stephen Kim

Thanks for that. It's Steve. I just wanted to follow up real quickly. You mentioned the California fire and the weather impacts in the corridor on the residential [Singam]. I was wondering if you could quantify, roughly how large each of those was as a headwind in the quarter, and do you expect to fully recover that in 2Q or just how do we, how should we be thinking about the going forward outlook there?

Michael Miller

Yeah, I mean the lost day is, call it $10 to $12 million. The day is lost, so for the year we have one less settling day. So that, we don't really necessarily make that up in terms of the weather impact, we estimate that was on a net basis because we did make some of it up in March was probably another $10 million to $20 million. Unfortunately, there's a little bit longer tail on that than there normally would be for a couple of reasons. One, the continued softness or the softness in single family combined with the fact that it wasn't just that we couldn't get to the job site, it was that all the other trades couldn't get to the job sites as well.
So it's just sort of pushed out the recovery, if you will, of that additional revenue. And I think it'll be sort of measured throughout the second quarter and third quarter basically that we catch up on that lost revenue opportunity.

Stephen Kim

Okay. Great. Thanks a lot guys.

Michael Miller

Sure.

Operator

Michael Rehaut, JP Morgan.

Alex Isaac

Hi, this is Alex Isaac on for Mike. Thanks for taking my question. I want to ask related to trends in single family. How do you view between different end markets like production, regional, like local and custom, as well as like different regional areas. How do you sort of view the trends in those specific end markets?

Michael Miller

Well, there I would say that in the quarter, right, our regional and local builder business was slightly better than the production builder or public builder business. We kind of think of the production builder business being aligned with the public.
In the fourth quarter call last year, we mentioned that one of the things that we do every quarter is we measure orders and backlog at all the production builders or public builders combined with either their guidance or consensus relative to their revenue.
When we compare that to -- and weight that based on our revenue with those public builders as we mentioned in the fourth quarter call, a couple of months ago, that based on those numbers or estimates, it came out to be a plus 3% for us on single family revenue with the public builders. Doing that same analysis this quarter, it's a minus 3% on the single family side with the public builders.
So we think that's a fairly key or a fairly decent indicator of where the public will be, at least based on people's expectations now. We would probably expect that we're going to continue to see the regional and local builder doing slightly better than that just given our footprint and our experience with them.
There has been a relative strength in a very in a weak market with some big custom home builders. Obviously the custom builders are less susceptible to some of the both macro-economic uncertainty and current rate environment just given the nature of the customer there. In terms of on a regional basis for single family, I think it's a lot of people have talked about this. Florida is very weak. Texas for us is still pretty solid, the West Coast is solid.
We feel good about the Northeast and the Midwest, quite frankly. They seem to be pretty solid as well. The Mid-Atlantic is good, not great. But clearly our expectations for single family on a macro level just like everyone else's has changed in the past couple of months where I think we were all constructively at least flat to modestly up, whereas I would say that we'll be at best flat, probably down, mid to low single digits on the single family side this year.

Alex Isaac

Thanks. That makes a lot of sense. Appreciate all the color on that. And then, as my follow up was curious, on material prices like throughout the year and then into '26, how do you view those, especially with more like installation supply coming online?

Michael Miller

I mean the environment continues to be very benign.

Jeffrey Edwards

Yeah, it's healthy. But certainly probably not inflationary.

Michael Miller

With the exception, of course, of, there's a lot of uncertainty around the tariff impacts. Fortunately, we source very large portion over 90% of what we buy, we source domestically, based on what we're -- what's been announced combined with working with our suppliers and negotiating with our suppliers for the things that we don't source domestically. We estimate that the impact of the tariffs could be anywhere between $10 million to $20 million which is about 1% of the cost of sales for us. So it's a pretty nominal impact, but it's still there.
And obviously we will work to pass on any of those costs to our customers, but clearly it's not the best operating environment when it comes to any kind of an increased cost in an environment where -- you're seeing headwinds from a volume perspective.

Alex Isaac

There's a lot of sense. Just a quick follow up on that. Would you say that the sourcing is -- like your individual sourcing is uniquely like more domestic or that's industry wide?

Jeffrey Edwards

That's pretty representative of the products that we handle in the industry that we compete in that's pretty representative of the industry.

Michael Miller

Yeah, and I would say that there are some of our suppliers, like, for example, our big suppliers of spray foam, there's a lot of talk about MDI and the cost of some of the inputs for spray foam going up that are sourced internationally.
The bulk of our spray foam suppliers source their products and their chemicals domestically, so they're not susceptible necessarily to some of those restrictions. Now one thing that we haven't factored into that $10 million to $20 million and I think is really uncertain as to what the implications will be is. What if any -- so we feel fortunate that our suppliers are sourcing their materials domestically, but because other vendors may be sourcing their materials internationally.
We don't know what the impact that will be on the overall price in the market. I mean, theoretically, a domestic distributor, supplier would increase their price of goods if the price of the internationally sourced goods are going up because of tariffs.

Alex Isaac

Right. Yeah, that makes a lot of sense. I appreciate all the color on that.

Michael Miller

Sure.

Operator

(Operator Instructions)
Susan Maklari, Goldman Sachs.

Susan Maklari

Good morning, everyone.

Michael Miller

Good morning, Susan.

Susan Maklari

Thinking a bit about the Gross margin, it sounds like there were some one time or sort of unique things that came through in the first quarter that may have been factors to that. So I guess can you talk a bit about what we saw in the first quarter and then how you're thinking about this set up for this year, given your focus on profitability and the service that you offer relative to the environment that we are in which starts coming down.

Michael Miller

Yeah, thanks for that question, Susan. So within cost of goods sold, our fleet expenses basically for the install fleet. So that includes depreciation, fuel and vehicle insurance. Because of the decline in sales and the increase in depreciation and increase in vehicle insurance, that was a headwind to the gross margin in the first quarter of about 60 basis points. While those costs are not fixed, they certainly don't. There's not variable relative to the volume of jobs very quickly. So they have a very lagging effect from a variability perspective.
Then, as we had mentioned in the fourth quarter call as well, on both spray foam and the other segments, so again that's our distribution and manufacturing segment which naturally has a lower gross margin, had better sales growth relative to the install segment. So as a consequence, those two things combined had about another 30 basis points of headwinds to gross margin in the quarter.
Going forward for the rest of the year, I mean, we have talked about on a full year basis adjusted gross margin being in that range of 32 to 34. Obviously in the first quarter, we were at the lower end of that range. Historically, the first quarter is the lowest gross margin quarter because it's your lowest volume quarter. We would expect that to be the case through the rest of the '25 as well.
However, I would caveat that and say that, we believe that, as we said in answer to the previous questions, that there will definitely be headwinds to volumes and demand for single family and multi-family throughout '25.

Susan Maklari

Okay. That's very helpful color, Michael. And then, speaking about price mix and appreciating the comments that you've already given, but it's good to see that that's holding positive even with a tough comp in there. As you think about just the set up for this year, can you talk about your ability to continue to see the benefits of that coming through and to keep that positive?

Michael Miller

Yeah, quite honestly, it's really lapping increases from still increases that happened in the -- kind of back half of last year. So as we said, relative to material costs that are very benign, we would expect that pricing would be very benign as well and that we wouldn't continue to see positive benefits throughout the year.

Susan Maklari

Okay, thank you. Good luck with everything.

Michael Miller

Sure.

Operator

Michael Dahl, RBC Capital Markets.

Michael Dahl

Hi, thanks for taking my question. Let me talk through kind of the cadence a little bit more. I mean, appreciate the comments around the changing macro views. Yeah, you're a large supplier was talking about download in mid 10s in US resi yesterday and in their installation business. Your peers seem to be indicating pretty sharp declines in 2Q.
Yeah, I think both those are probably a combination of some of the single family and multi-family, but, can you just talk through kind of near term cadence, how you'd expect that volume progression to look particularly on the resi side but then I'm also curious the blend of heavy versus commercial. You were still down in the quarter on commercial overall. So maybe just talk through that that part as well, how that blends out.

Michael Miller

Sure, as you know, we don't provide guidance, but we definitely do think that there are going to be headwinds in the residential side, both single family and multi-family through the year, not just in the second quarter. So we think that those headwinds are going to persist unless there's some significant change in consumer confidence.
We do think -- particularly on the single family side. As we said to the answer to an earlier question, we do think that multi-family starts the bottom. We think that given the affordability issue that exists with single family. It does play into the strains of multi-family in terms of people's need for housing, but looking to multi-family as a temporary step before they do buy a single family home. As Jeff said in his prepared remarks, we feel very confident about the long term prospects of the core residential business, and so we feel very good about that.
But again, we're going to have headwinds in throughout '25 in our opinion as it relates to both single family and multi-family. As it relates to the commercial business, I mean, the heavy commercial business is performing exceedingly well.
That business was up over 14% in the quarter, and we're continuing to see very strong, solid backlogs and bidding in that business, and we suffered through a lot of pain in that business for a couple of years and are really pleased to see how well the team is just performing and executing in the heavy commercial side.
Offsetting that was a little over 10% decline in the light commercial business, as you can tell from those differences, the light commercial business is still larger than the heavy commercial business, although that will probably flip by the end of the year given the current sales trends that we expect.
But we do expect the light commercial business, which is the worst performing part of our business or end market right now to continue to be weak. We would expect some recovery as we go into sort of the back half of the year, but when we think of it on a full year basis, the light commercial business will definitely be the weakest part of our end market segments.

Michael Dahl

Okay, that's very helpful. The second question, maybe just digging into the margins a little bit more, so I guess those impacts from like the vehicle stuff in particular, presumably it works in both directions so you would have benefited from it when sales were up and now sales are down. So it's getting spread across the smaller base. So when we think about that through the year -- is that something that's going to pressure your decrementals like there's a lot going on right with Nick and with that, but how do you think about the decrementals in the environment?

Michael Miller

Yeah, there's no doubt that it provides a headwind to the decrementals because we -- that in essence those costs are relatively fixed and we've talked a lot about decrementals and variable costs and we like to think of all costs being variable over time, but the reality is that when you're looking over say a 12 month to 18 month time frame, some of your costs are fixed.
There's certain insurance costs that are fixed. In essence, brand facility costs are basically fixed. And so when we think it over sort of a 12 month time frame, we think of there being and I'm thinking of our total cost structure now, not just cost of goods sold, but that roughly 10% of our cost structure is fixed, about, 15% of our cost structure is lagging variable, so it takes time before it adjusts to changes in volume.
And then about 75% of our overall costs are directly variable. The largest components of that being material and the install labor. So when you're in a situation when you have volumes decline when you had an expectation for volumes being flat or up, the fixed and lagging variable component of your cost structure really presents a significant headwind to margins and decremental margins. And that obviously came through in our same branch incrementally the margin, decremental margin in the quarter as everyone saw.

Michael Dahl

Okay. Thank you very much.

Michael Miller

Sure.

Operator

Trey Grooms, Stephens.

Trey Grooms

Hey, good morning, everyone. Thanks for taking my questions. I guess to start on -- maybe working capital and free cash flow, you guys put up some good free cash flow in the quarter, seeing improvements in working capital. Michael, do you think this is or this kind of year-over-year improvement continues as we kind of look through the year, with the outlook you have for demand, or how should we be thinking about that?

Michael Miller

Yeah I mean it's one of the great things about this business is that when you are in a volume challenged, if you will, environment, the balance sheet naturally shrinks and you generate good free cash flow and given our commentary around what we think volumes are going to be like through on a full year basis, we would expect that we would continue to generate good free cash flow.

Trey Grooms

Yeah, and then on the M&A side, you still have a target of $100 million revenue for this year. Clearly it's up to a little slower start maybe, and I know these things can be lumpy, but have you seen any change at all up there in the kind of in the pipeline as the outlook has gotten maybe a little more challenged and demand has, been a little weaker. Any change in the appetite on the M&A side from sellers?

Jeffrey Edwards

No, this is Jeff, but no, not really, not at all. They're just like as you said, and we've said before, they are kind of lumpy and we're not control the timing a lot of times, but there's plenty of still kind of active negotiations and you know candidates out there.

Michael Miller

And M&A is absolutely our number one priority.

Trey Grooms

Yeah, sure. Okay, got it. I'll pass it on. Thanks.

Michael Miller

Sure.

Operator

Philip Ng, Jeffries.

Maggie Miller

Hey, guys, this is Maggie Miller on for Phil. First, going back to price mix that piece is holding up. Maybe you could break out the price versus mixed components of that and how you see specifically the mixed piece trending through the year.
And I know you've called out a relatively benign cost environment so far, but if we continue to see these demand headwinds, and you know there there's additional capacity coming on -- how do you think about the risk that fiberglass pricing falls and your ability to hold price and that type of backdrop?

Michael Miller

So I'll just -- I'll talk to the first part of that question and then Jeff can kind of talk to the second part of that question, although I would say we don't expect fiberglass pricing to to decline. As we've talked on numerous calls, the price mix disclosure for us is a very complicated disclosure, and there are a lot of moving pieces to it.
What I would say is a couple of things, it does not include the price mix and volume disclosures do not include the heavy commercial business, right? So the fact that that business is very solid, pricing is very good and is up. It is not reflective in the price calculation.
What you're seeing in the price mix calculation is, as I mentioned in the answer to a previous question is there's definitely carry over pricing from last year that is keeping that positive, if you will. Combined with the fact that the production, as I mentioned earlier, the regional and local builders are performing slightly better than the public builders within our revenue base, just given the nature of our customers there.
What is presenting a challenge though to the price mix calculation, at least the way that we disclose it, is that you know the multi-family sales being down slightly more than the other components of price mix is obviously a headwind to that.
So what our expectation would be and I sort of alluded to this and the answer to -- one of the other questions is that, if things sort of stay the way that they are right in terms of a little bit more pressure on, well, significantly better than the overall market opportunity, more pressure on multi-family volumes than single family volumes. It would continue to add pressure and headwind to the price disclosure. I don't know if you want to add.

Jeffrey Edwards

On the material side, I mean, I think it's important to kind of back up a year, if not years, and look at how tight things were. I mean, it really got to the point where it was inefficient. It was harder for us to do business. There were SKUs we couldn't get, we were what we talked about before having to go to distribution sometimes and even the big boxes in terms of supply of materials. So I'd categorize this as moving closer to having an efficient market. It's still, fairly healthy despite the year-over-year decline, and quite frankly, it's kind of working the way it's supposed to.

Maggie Miller

Okay, that's super helpful. And then how should we think about the opportunities you have in the SG&A line as we move through the year kind of taking into account those fixed and semi-fixed costs that you called out, and at what point would you be looking to start taking those costs out, if things are kind of steady state from here, down year-over-year but not getting worse, or would you have to see a material step down from where we are now to start making those cost out actions.

Michael Miller

Yeah, that's, I appreciate the question, and we are focused on sort of optimizing G&A. We've targeted at least $15 million of cost reduction, which we have already taken steps to realize those savings which we believe we'll start feeling the impact of -- in the third quarter.
Those costs we are going to take out even if volumes improve from where our current expectations are, and we're going to continue to focus on optimizing the G&A cost structure as much as we can, quite frankly. This is an opportunity for us to kind of fundamentally optimize the spend on G&A, and the entire company is focused on getting there and getting that done.

Jeffrey Edwards

The job one.

Maggie Miller

Alright, thank you so much.

Operator

Ken Zener, Seaport Research.

Kenneth Zener

Good morning, everybody.

Michael Miller

Good morning, Ken.

Kenneth Zener

Michael and Jeff (inaudible) one or two, feel free to chime in. I think you've made some very, again, luminative comments about the market and you're talking about demand, public and private, so I just would like to get your question one concept of right supply and demand. So we all can see what the publics are doing, and I think you broadly reflected that. But I'm surprised on the supply side, the census data talks about units under construction closer to [380 90,000].
Virtual the long term average of 280 and it seems that that's more on the private side where you have that excess. So can you think the strength you're seeing in the privates versus the apparent high supply that they have, if you would or do you think the data is wrong verse your perception of privates?

Michael Miller

Well, our perception is guided by our experience, not necessarily that macro information that you're looking at, and I think you're speaking just a single family and not multi-family, correct?

Kenneth Zener

Correct.

Michael Miller

Okay, so I would just say that over the past two quarters our experience has been that the sales level with the regional and local builders has been better than it has been with the production builders. Now, in the beginning of last year, that was not the case. The production builders -- the production builder business was pretty solid. It's still solid now, but I'm just talking about it on sort of a relative basis. In terms of there being a lot of excess inventory at the regional and local builders, I really don't think that's the case, quite frankly, at least that's not our experience and that's not the feedback that that we're hearing.

Kenneth Zener

Very interesting cause the census at least presents something different. So I appreciate that. You gave comments, I know you don't give guidance but you did highlight that one gross margin, tends to be the lowest, structurally. And we saw SG&A, which also tends to be the highest in one cue, and that was up about 100 bits. You talked about $15 million targeted savings, but is it fair to assume the 100 basis points SG&A had when we saw in one cue, to kind of persist. If you think about it a year of years, the year progresses. As well, if you could mirror your gross margin comments to SG&A, that would be very helpful.

Michael Miller

Yeah, I mean, the difficult thing is that say let's just take G&A for example, G&A is relatively static, and we talked about this in the fourth quarter call, earlier this year is that, we expect G&A, absent these targeted reductions that we're making.
We expect G&A to grow with general inflation really outside of what's happening with volumes generally speaking, right, because it is we think of it as a dollar amount and not necessarily as a percentage of revenue, right?
So if you look at the adjusted selling and administrative expense increase from the first quarter of last year to the first quarter of this year, the dollar increase was about $6 million. Of that $6 million increase, $4.4 million was related to acquisitions because obviously acquisitions come with selling a general administrative expense of their own.
And then the startup costs associated with the internal distribution efforts that we've talked about now for a couple of quarters, which is going very well, by the way, but there still are startup costs associated with it. So our objective, and G&A, I'm kind of going back and forth between SG&A and G&A here, but G&A generally speaking is running between $105 million to $110 million a quarter.
And it's our objective on an annualized basis to be able to get that down, by say $15 million, although there will continue to be inflationary pressures within G&A. So we're working as Jeff said, and it's absolutely true. Job number one for us is to optimize G&A and we're working on that and we will continue to work on that throughout the year.

Kenneth Zener

Thank you.

Michael Miller

Sure.

Operator

Adam Baumgarten, Zelman & Associates.

Adam Baumgarten

Hey, thanks, guys. I guess I can appreciate that you talked about the material costs being stable. I'm assuming that was a sequential comment, but, and that your view is that they won't come down. But if the volumes get worse and capacity, or supply increases across the industry, why wouldn't prices come down like maybe they have historically in a weak macro and volume environment, Meaning that could benefit you guys.

Jeffrey Edwards

I mean it's severe enough, that's obviously the case, as you pointed out, you said historically that's what happens. We just don't see it at that point at this point, that way at this point.

Michael Miller

Yeah, if we're down, let's call it 3% on the single family side, and that's, I'm not saying we are, but we don't provide guidance, but say on the macro level, even if it's down 5%, that's not such a significant decrease in volume. That necessarily would warrant price -- lower price environment and as Jeff said we're in more of a normalized environment now versus the situation where we were at, 100% capacity and we couldn't get SKUs and material was hard to come by and right now material is readily available.

Jeffrey Edwards

I mean, manufacturers are capable of regulating the amount of material that they produce. I mean, clearly there's been some small amount of curtailment already, they like, obviously like to see the market be healthy and they're not going to make material that they can't sell or -- and not want to sell it in the price they can't sell that. So it's a little bit rational in that way as you would expect in terms of supply.

Adam Baumgarten

Okay, got it. And then just sticking on the cost side, any meaningful opportunities for branch consolidation looking at your current footprint that could save some cost as well?

Michael Miller

Yeah, we're continue, we always evaluate sort of the opportunities to bring branches together because it can be -- especially when we're doing these sort of small to acquisitions that we do that we don't really talk about. I mean that's part of the strategy of doing them is being able to combine locations.
And we have three locations or four locations right now that we're looking to combine, but that's just part of our sort of everyday management of the footprint to make sure that we're optimizing it as best as possible. I mean sometimes you'll say, if you have a lease that you're sort of stuck in, you might keep it open a little bit longer than you want to, but we really try to optimize the footprint as best as possible.

Adam Baumgarten

I got it. Thanks. Best of luck.

Michael Miller

Sure.

Operator

Jeff Stevenson, Loop Capital Markets.

Jeffrey Stevenson

Hey, thanks for taking my questions today. So first on the strong heavy commercial results during the quarter was a portion of that demand trend driven by previous delayed large commercial projects moving forward since the start of the year, and would you expect that trend to continue moving forward?

Michael Miller

We expect the trend to continue, and it was not any project specific.

Jeffrey Stevenson

Got it. Okay, understood. And then, a healthy installation price mix during the quarter, which was great to see and, thanks for all the color and, expectations on fiberglass pricing, moving forward, but just shifting to spray foam, did you see any, sequential improvement in the quarter and what are your expectations for pricing trends moving forward?

Michael Miller

Yeah, we did see some price in the quarter. That the spray foam business is still, it's a very solid business as we've talked the past couple of quarters. It has been a headwind, just because there had been a significant decrease in pricing that now is stabilizing and rising for a number of factors, but the headwind to gross margin was less this quarter than it was last quarter. So we feel good that the spray for business will in the back half of the year, not be a headwind to gross margin.

Jeffrey Stevenson

Great. Thank you.

Michael Miller

Sure.

Operator

Colin Veron, Deutsche Bank.

Good morning. Thanks for taking my question. Just one for me. A lot of them have been taken. So I guess just looking at working capital and inventory, you talked about releasing some of that and generating good free cash flow in a down market. But when I look at your inventory balance in the quarter, it's a bit sequentially in a good amount year-over-year.
So any colors that just what's driving that, how much of its M&A pricing or mixed versus actual units, and just how much opportunity there is from inventory adjustments this year for cash flow generations just given the current demand backdrop.

Michael Miller

Yeah, so not a lot of its M&A, but obviously that's a component of it. The biggest component associated with it though, quite frankly, is this internal distribution effort that we're doing because we are opening and setting up new distribution facilities that are primarily focused on internal distribution and obviously that means adding. Inventory to those locations.
So that is definitely a driver there of the higher inventory balances. What I would say is that just like it happened in the first quarter, I mean, clearly receivables and primarily receivables but receivables and inventory will trend up or down with higher or lower volumes.

Understood. Thanks for the color, and good luck.

Michael Miller

Sure. Thank you.

Operator

I would like to turn the floor over to Jeff for closing remarks.

Jeffrey Edwards

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

Operator

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

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