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Greetings, and welcome to Installed Building Products Fiscal 2022 First Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn this conference over to your host, Mr. Darren Hicks, Director of Investor Relations. Thank you, sir. You may begin your presentation.
Good morning, and welcome to Installed Building Products First Quarter 2022 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 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 COVID-19 crisis general economic and industry conditions, 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 our 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 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, adjusted net income per diluted share, adjusted to 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 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 driven by strong demand within our core residential housing markets and the benefits of record quarterly price mix growth. Record first quarter sales and profitability are encouraging as we overcame continued inflationary and supply chain challenges as well as the lingering impacts of the COVID-19 pandemic, primarily within our commercial market.
Our financial and operating results reflect the resiliency of our business model, the benefits of our product, end market and geographic diversification strategies and the hard work of our team members nationwide.
The dedication of our team members is especially important in the current environment as homebuilders navigate ongoing supply chain constraints and struggle to keep up with significant demand for new homes. IBP's value proposition resonates with our customers because of our focus on providing an exceptional level of service by completing jobs correctly and on schedule. As a result, our local branches have done an excellent job aligning our selling prices with the value we offer our customers, which has supported profitability and strong incremental margins. To everyone at IBP, thank you for your commitment, your hard work and a tough job always done well.
Before I go further into our highlights, I would like to note that this quarter, we have realigned our operating segments to reflect changes in our business. We now have 2 reporting segments: installation and other, which includes our distribution and manufacturing operations. Michael will touch more on this later in the call.
So looking at our first quarter results in more detail, we experienced another quarter of strong residential growth, while the COVID-19 pandemic continued to impact activity within our commercial operations. For the quarter, within our Installation segment, we experienced a 28.3% increase in residential same-branch sales from the prior year period, which was driven by a 29.4% increase in installation single-family same-branch sales growth and a 23% -- 23.1% increase in installation multifamily same branch revenue.
By comparison, total U.S. residential completions decreased by 5.5% during the first quarter, which we believe was influenced by extended residential construction cycle times. During the first quarter, price/mix increased 14.6% over the prior year period. Consistent with the inflationary trends in the construction industry and the increasing demand for our services, our pricing efforts and stabilized mix compared to the prior year have contributed to the strongest quarterly increase we have achieved since becoming a public company.
We continue to make prudent adjustments to align our pricing with the value we offer customers in inflationary trends. As expected, the supply chain for many of the building products and materials we install remained constrained during the first quarter. We anticipate that supply chain challenges will continue for the foreseeable future but our asset-light business model should enable us to remain flexible and generate strong cash flow.
Our branches benefit from our national scale, material buying advantage and strategic plans aimed at diversifying and expanding our products, end markets and geographic presence. While mortgage rates have increased since the beginning of the year, favorable demographics and tight supply have continued to support housing construction. In addition, with the record number of permitted units that have yet to be started, new housing construction is expected to remain supportive of our business throughout 2022.
Within our heavy commercial business, same branch sales were roughly flat in the 2022 first quarter with bidding activity remaining stable and project bid acceptance steady relative to the 2021 first quarter. We estimate our large commercial backlog was $177.7 million at March 31, 2022. The heavy commercial construction market continues to represent a significant long-term growth opportunity for IBP, and we remain focused on improving our operational efficiency while expanding our exposure within compelling commercial markets nationwide.
Looking at our acquisition strategy in more detail, we continue to prioritize profitable growth through acquiring well-run companies that install insulation and complementary building products. During the first 2022 first quarter and April, we acquired a North Carolina-based installer of spray foam insulation, fiberglass insulation and fireplaces in the Asheville, North Carolina market with annual revenue of approximately $8.5 million and a New Jersey-based distributor of gutter supplies and accessories to the U.S., Northeast and Mid-Atlantic markets with annual revenue of approximately $45 million.
Since the first quarter ended, we are excited to become an early investor in Energi.ai and a part of the innovative AI-driven platform they are developing. Their platform provides actionable insight into a company's energy usage and carbon emissions using artificial intelligence.
In fact, we like the platform so much. We decided to partner with Energi.ai to implement their solution at IBP as we work to reduce our greenhouse gas emissions. Our acquisition pipeline remains robust and includes opportunities across multiple geographies, products and end markets. As a result, we believe 2022 will be another strong year of acquisition growth and we expect to acquire at least $100 million of revenue in 2022.
As we look to 2022 and beyond, we remain excited by the direction in which we are headed and the compelling outlook across our residential and commercial end markets. We anticipate that effective management of our supply chain will continue to be a priority throughout this year. Our purchasing, logistics and warehousing teams will continue to work with our suppliers and customers to help ease these industry-wide supply chain challenges.
With access to labor, a strong position with our customers and suppliers and a healthy backlog, we believe 2022 is shaping up to be another year of profitable growth and value creation for IBP.
So with this overview, I'd like to turn the call over to Michael to provide more detail on our first quarter results.
Thank you, Jeff, and good morning, everyone. We are now providing additional information on our revenue and gross profit by segment within our quarterly earnings releases and filings with the SEC. This includes reporting revenue for our installation segment by residential new construction, repair and remodel and commercial end markets. We have also disclosed a separate other revenue category, which includes net revenue from our manufacturing and distribution operations. Going forward, we will continue to provide this revenue and gross profit information.
So with this introduction, let's look at our record 2022 first quarter financial results in more detail. Net sales for the first quarter increased to a quarterly record of $587.5 million compared to $437.1 million for the same period last year. The 34.4% year-over-year improvement in sales during the quarter was mainly driven by an increase in price/mix, higher volume of customer jobs completed and the revenue contribution from recent acquisitions.
From a segment standpoint, installation revenue increased 30% to $561.6 million driven by strong growth across IBP's residential and new construction market and improvements in our commercial end market.
Other revenue, which includes IBP's manufacturing and distribution operations, increased 407% to $26.7 million, driven by strong operating results and the December 2021 acquisition of AMD Distribution. This was the first full quarter of results for AMD. On a pro forma basis, other revenue increased 24.2% in the first quarter of 2022 compared to the 2021 quarter.
On a same branch basis, installation net revenue improved to 22.2% from the prior year quarter, driven by single-family same-brand sales growth of 29.4%, multifamily same branch sales increased 23.1%, our residential first quarter same-brand sales growth of 28.3% significantly outpaced the total U.S. housing completions decline of 5.5% during the quarter.
As Jeff mentioned, we believe this is in part a result of increases to residential construction cycle times, which remained extended during the first quarter relative to the prior year period. While we experienced growth, the lingering effects of the COVID-19 pandemic continued impacting our commercial end market. Installation, same-branch commercial sales increased 5.9% in the 2022 first quarter, while our commercial same-brand sales were roughly flat in the quarter relative to the same period last year.
Adjusted gross profit margin improved 70 basis points year-over-year to 29.4% in the first quarter. As we realigned our selling prices to reflect the quality of service we provide, inflationary pressure and material supply shortages. We estimate that supply chain disruptions in the first quarter of 2022 had an impact of approximately $1.4 million in gross profit during the quarter. The impact from these supply disruptions reduced adjusted gross profit margin by approximately 20 basis points.
Administrative expenses as a percent of first quarter sales were 13.5%, a 140 basis point improvement from the prior year period. Adjusted SG&A as a percent of first quarter sales improved approximately 180 basis points from the prior year period. The year-over-year improvements in SG&A expense relative to sales during the first quarter reflects our ability to leverage administrative costs during strong volume and price/mix growth periods.
On a GAAP basis, our first quarter net income increased 95.6% from the prior year quarter to $33.8 million or $1.14 per diluted share. Our adjusted net income improved 70.7% to $45.7 million or $1.54 per diluted share. We estimate the material supply shortages impacted first quarter earnings per share by approximately $0.04 per diluted share.
During the first quarter of 2022, the acquisition of new businesses drove an increase in our recorded amortization expense to $11.1 million compared to $8.4 million for the same 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 recent acquisitions, we expect second quarter 2022 amortization expense of approximately $10.6 million and full year 2022 expense of approximately $42.4 million. We would expect these estimates to change with any acquisitions we close in future periods. Adjusted EBITDA for the first quarter of 2022 improved 54.5% to $84.2 million. Adjusted EBITDA as a percent of net revenue was 14.3% for the 2022 first quarter, a 180 basis point improvement from 12.5% for the same period last year.
Same-branch incremental adjusted EBITDA margin was 22.9% for the first quarter compared to 10.5% for the same period last year. Similar to the impact on gross profit, we estimate that material supply shortages during the quarter impacted adjusted EBITDA by approximately $1.4 million, reducing our adjusted EBITDA margin by approximately 20 basis points.
For the 2022 first quarter, our effective tax rate was approximately 26.7% and we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31, 2022.
Now let's look at our liquidity, balance sheet and capital requirements in more detail. Our business model continues to generate strong operating cash flow. For the 3 months ended March 31, 2022, we generated $48.2 million in cash flow from operations compared to $37.6 million in the prior year period. The year-over-year increase in operating cash flow was primarily associated with higher net income, which offset increased working capital requirements aimed at reducing material shortages in an inflationary environment.
At March 31, 2022, we had $247.3 million in working capital, excluding cash and cash equivalents and investments. Capital expenditures and total incurred finance leases for the 3 months ended March 31, 2022, were $10.9 million combined, which is 1.9% of revenue at March 31, 2022 compared to 2.5% for the same period last year.
On February 17, 2022, we increased our asset-based lending credit facility to $250 million, which now matures on February 17, 2027. There is currently nothing drawn on the amended ABL facility. Through the use of interest rate swaps, we are limiting our interest rate exposure with no significant debt maturities until 2028, with $267.4 million in cash and cash equivalents, and borrowing capacity under our ABL facility, we have an excess of $500 million in liquidity to invest in our long-term growth opportunities.
At March 31, 2022, and we had a net debt to adjusted trailing 12-month EBITDA leverage ratio of 1.9x, which remains below our stated leverage ratio expectation of less than 2x. As such, we continue to perform on our acquisition strategy and return capital to shareholders.
During the first quarter, we returned $85.3 million to shareholders through dividends and share repurchases. Today, we announced that IBP's Board of Directors approved our second quarter dividend of $0.35 per share, which is payable on June 30, 2022, to stockholders of record on June 15, 2022. We are committed to continuing to grow the company while returning excess capital to shareholders through our dividend and share repurchase programs.
With this overview, I will now turn the call back to Jeff for closing remarks.
Thanks, 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 the line of Ken Zener with KeyBanc.
I appreciate the increased disclosure. Could you go into the thinking there. Was that something that had been contemplated last year? Was it really that you're seeing such different trends? Could you just expand that thinking? Because obviously, I think more clarity is helpful.
Ken, this is Michael. It really has to do with the December acquisition of AMD Distribution. So we decided that it made sense to break that out as a separate segment.
Okay. And given the strong price that we are seeing amid generally more tepid volume, can you describe how in the past this -- because I don't want to use the word stagflation, but all this price we're seeing across so many industries. And I understand it's related to cycle times in many people's mind. But can you talk about how this kind of resets in your view, in terms of more normalized process as you see it unfolding given your time in this industry, not so much the distribution side, but on the install side.
Yes, Ken, this is Michael again. So we had, we think, very solid volume growth of nearly 10% in the quarter. And when you look at that relative to completions growth, obviously, we considerably outperformed the number of units that were reported as completed by the Census Bureau.
We think that consistent, I think, with what you're hearing from a lot of companies, the inflationary environment is continuing. We don't necessarily expect a normalization of the inflationary environment to happen necessarily this year, but we're hopeful and encouraged that the rate of growth in inflation will start to come down.
But clearly, fiberglass continues to be on allocation, spray foam is very tight, and we're continuing to see a mismatch, if you will, between demand and supply as it goes through not just the products that we install, but the entire building products chain. When you look at the...
Go ahead.
I was just going to say, I mean, the authorized but not started unit numbers are at a historic high, and we're continuing to see very, very solid backlogs. One of the things that I think gets a little bit lost in the discussion about permits and units and orders is that everyone looks at it in unit terms, which makes sense in a typical normalized environment where there's little to no inflation.
But in the current environment that we're seeing a lot of inflation, I think you have to sort of dollar value adjust the backlogs. And if you look at just what the public builders reported in the first quarter, their units were up 5%, which is great, which is solid. But the dollar value of their backlog was up 26%. So I think you're seeing that certainly that's a combination of inflation, if you will, but it's also, I think, a combination of the type of product that they're building as well.
So when we look at that and we think of the demand environment that's out there, we believe it's extremely solid. And just as a reminder, the dollar value of the backlog is more relevant to us from a pricing perspective than the unit value of the backlog.
I appreciate that. And if I can just make a comment. Your operating leverage went to [19] -- well, different ways to do it, but it improved. Last year, you kind of talked about exposure to lower volume mix. Would you say that your exposure to large production builders is still part of that tailwind that you're seeing in the volume consistent with the industry's roughly 30% increase in inventory units?
Yes.
Our next question comes from the line of Trey Grooms with Stephens.
So just wanted to touch real quickly on -- I mean clearly, the lead times are still an issue, material availability. But with the outlook here, where it stands with kind of this lag between completions and starts and start to maybe taking a little bit of a pause. I mean, as you look out for the rest of the year, are you expecting any change at all in the material availability, especially around fiberglass and foam? And then -- but also, if you could kind of talk to how things are looking across your other product lines there.
So on the fiberglass and foam side -- this is Jeff, I think things are certainly a little better than they were for instance, this time last year or even a couple of quarters ago. Is it free flow, supply and get everything you want every day that you want it? No, absolutely not. And foam maybe a little more so than even fiberglass in that regard, although you just never know.
Everybody is running these -- the plants, et cetera, straight out, and when there's an issue or a downtime or even a plan to rebuild that kind of those things back into the mix again. Some of the other products are even may be more difficult, certainly in terms of lead time and probably potentially even -- they're a little harder to manage in terms of price increases, too, because there's not the same degree in many cases of kind of forward notification that you get inside the fiberglass industry. So that makes it a little more interesting, too. But in general, it's still not easy by any means, but we're getting adequate supply to obviously grow the sales the way we have been able to service our customers.
Got it. And then -- that's helpful, Jeff. And then lastly, on your commercial side of the business, it sounds like you've got some decent backlogs there and things like that. But can you talk about maybe a little bit more of the outlook there as we kind of progress through the year, just the demand levels, backlogs, conversations you're having with your customers on that front and kind of what their suggested outlook might be from where we stand today.
Yes, we continue to feel good about the -- both the light and the heavy commercial business. The light commercial business, which has a tendency to track very closely to residential construction, new residential construction. We're seeing accelerated growth in that segment, if you will, or that business, that end market for us, which we would have expected given the strength that we're seeing on the residential side.
On the heavy commercial side, backlogs are continuing to build. We feel good about the bidding there. And we believe as we get into the back half of the year, we'll see more meaningful growth in the heavy commercial business.
Okay. And last one from me. We kind of have a decent view into pricing on the fiberglass side and what's going on with them, things like that. But for the other parts of your business, the other products, obviously, a lot smaller for you guys, but what's going on there as far as from a pricing standpoint, I know everything is up. But directionally, if you could maybe give us some sense of magnitude? And then is there more to come on pricing across your other products?
I would say that the other products are up at least as much as -- the smaller ones are up at least as much as some of what you guys would normally consider kind of our core product lines around insulation. And I think I'd be naive if I didn't say -- in fact, I read an article right now by one of our Board members yesterday and some of the prognostications about how long this inflationary environment is going to last is probably pretty lengthy, right? A little bit -- I'll like to think of a little bit when Ken asked his question even too was it wasn't very long ago, and we would still say this, but I got to be careful in saying that where we would say a rising price environment was a good thing, right?
Well, now by any other name, it's inflation, right? And you got to be careful on the one hand, but in a top clearly, you got the Ukraine situation, you've got interest rates and everything else. But we feel constructive about our business and about the homebuilding industry. And it is a rising price environment, and we got to do our job and do the right job for the customers and get paid what we need to get paid in order to provide the service we provide and cover the costs that we're -- the cost increases we're taking in all product lines.
Our next question comes from the line of Mike Dahl with RBC Capital Markets.
I wanted to follow up on kind of the new segmentation and I understand it kind of got triggered by the December acquisition, and you made the central aluminum acquisition in April, and this is kind of part of your new strategy on expanding your reach and building the distribution business. So as you formulated your plans, could you just give us an update on how you're thinking about how big and how broad you want to go down the road in distribution, maybe some product categories that are targets and maybe use that to also talk about the current M&A environment, if you would.
Sure. This is Jeff. Our entrants, especially into the installation distribution business has been something that's been contemplated for a very long period of time. There are not a tremendous number of insulation distributors, as you probably know. In most cases, they line up around manufacturers, and they're the horse for a particular region or a particular area or in some cases, even on a national basis. So it was not kind of a field where we had many, many, many all the time opportunities being presented to us.
So it took us some time to find kind of the right and land on the -- with the right partner. We think we did with AMD. But again, it's been on our list of things to try to get done for a long time. I mean it, over time, should be advantageous, not just because you're adding the distribution business, but more because it has the ability to aid and help us out on the install side of things.
And AMD in addition to doing just pure kind of distribution is also does a degree of laminating of fiberglass, which is a product that we use quite a bit in certain regions. So over time, we'll probably start to satisfy some of our own needs in that regard. Not a dissimilar idea with the acquisition of the gutter business over time. We've got some great supply partners on the gutter side. So -- and we're working with them and we'll continue to.
Our acquisition in New Jersey is really a small stand-alone business. Quite frankly, it was kind of opportune in that we were already purchasing from them from one of our most significant pieces of our gutter business and the 2 owners were trying to figure out what they were going to do kind of later in life. They're going to stick with us for quite some time. We really like them as a management team. And so it was an opportunity we thought we should jump on.
But I would say at your point of your question on the M&A pipeline, there -- we're not actively pursuing other distribution opportunities at this point. It's more sort of regular [way] deals that we're looking at.
Okay. That's very helpful, yes. My second question, just to go back to the volume side for a minute. So given the share gains year-to-date and what you're seeing and the mix of customers, how should we be thinking about volume as we go through the year, maybe either -- I mean, I guess, either in absolute terms or if you want to get kind of relative to the market?
And based on what we had discussed earlier in terms of just the unit volume growth with the big builders, we have a fairly high share with them, which is understandable given our overall national market share. So we feel very constructive around volume growth for this year and quite frankly, going into next year, particularly when you look at the backlog and the delta that has been created between starts and completions and the authorized but not started as well being at a record level. So we continue to remain very constructive around volume and also around price mix.
Our next question comes from the line of Susan Maklari with Goldman Sachs.
Congrats on a great quarter. My first question is, as you noted in your comments, Michael, your SG&A came in exceptionally low and really reflected the ability to get some leverage on the cost structure this quarter. When you look out, can you talk to the ability to sustain that level? And how we should be thinking about the SG&A longer term as you continue to grow the business?
Well, a lot of the increase in SG&A going forward is going to be a function of acquisitions because obviously, when we do acquisitions, we add their SG&A. But as we -- and I think as you -- if you look back in past quarters where we had excellent price/mix volume growth, it does help and lead to very good leverage on SG&A. Quite frankly, the efficiencies that we're gaining and being able to cover that with significant increases within the individual branches has just continued to lead to strong SG&A leverage. And based upon our previous comments about our constructive perspective on both volume and price mix, we would continue to see or expect to continue to see improvements in the leverage.
Okay. That's helpful. And then my next question is, obviously, when we think about the volume and the growth that you saw this quarter, in addition to the material side, it also speaks to the labor, right. And I know that you've done a lot over the last several years to attract and retain labor. Can you talk to how you're positioned to continue to support the growth as you think about the builder backlogs and what is coming through for the balance of this year and next year? And just any new initiatives that we should be aware of as it relates to a lot of the employee base?
Susan, this is Jeff. I think we're in really pretty good shape or as good shape as you could ever expect under these conditions, like probably better, I guess, if you pick up a newspaper or anything today that [announces me] as old, right? I just said pickup of newspaper, and I am old. But everybody is talking about labor and about wages. So we're not isolated from that many means, but we feel really good about our position there. I don't know that we necessarily have any real new programs to talk about, but all the programs we put in place in the past, we continue to run and refined, and it shows, I think, in our workforce.
Our next question comes from the line of Adam Baumgarten with Zelman.
I guess first on -- I believe last quarter, you guys said you expected about a mid-single-digit growth for 2022 in completions. Any change to that outlook at this point?
Obviously -- this is Michael. I mean, obviously, with the decline that we saw in the first quarter, as reported by the Census Bureau, it's going to be more difficult to get to that number. But we definitely believe that there will be completions growth this year on a full year basis. And obviously, we're prepared to support that. We do think though that, again, the sort of the dollar value of what's in the backlog, not as much the units that are in the backlog is pretty important when you're looking at the opportunity set for us going forward.
Okay. Got it. And then just on the topic of mix, any meaningful impact in the quarter, whether positive or negative?
The other products were fairly neutral in the quarter from a mix perspective. We did see higher growth with our national builders, which, as you know, is a lower -- tends to be at lower price just because of the product that they're building. So we had some headwinds from the growth in the national builder business on the mix side. But the other products, again, were fairly neutral.
Our next question comes from the line of Stephen Kim with Evercore ISI.
It's actually Trey Morrish on for Steve. With the cycle -- with completions dropping and builder cycle times extending and you guys put up a 9% volume growth on same branch. I mean you talked about it a little bit, but I wonder if you could be a little bit more specific on what do you guys do or what you were able to garner this quarter to be able to actually see volume growth when the environment more broadly speaking, seems more challenged to get volume to even flatten out.
It's consistent with our historical trend of providing high-quality service and really trying to have the best customers in every market. And when we say the best customers, we mean the customers that are winning market share in those markets and doing everything we can to support them in their efforts to meet their time lines and get their houses completed.
And it's back to the labor to get too, still we're positioned pretty well on labor, and I think maybe some others are.
Got it. And then looking at the share authorization and the repurchases you did in the quarter, [$250 million] definitely a good chunk of cash there and you highlighted in your release that you still have about $150 million left. How should we think about your willingness and particularly aggressiveness in using that to buy back shares?
This is Michael. I mean, we have positioned the balance, gee, very favorably. Our leverage, we think, is very prudent. We have considerable cash and availability under our ABL facility. I would say that the way that we have looked at share repurchases is that they are always opportunistic. So we're making those purchases in essence, in the open market based upon, again, the opportunity that's in front of us.
I would say that in the first quarter, we, as you know, purchased approximately $50 million of shares at about $100 a share. Obviously, we thought it was very attractive then. We feel better about the business now than we did in the first quarter. So I think we're pleased that we're positioned very well to be able to look at multiple ways to return capital to shareholders.
Next question comes from the line of Keith Hughes with Truist.
A question on gross margin. Gross margin in the quarter was actually slightly higher than we had a couple of years ago. Our gross margins that we saw in 2020, is that something that could be repeatable from what we know today for 2022?
Yes.
Okay. And what -- is that just better price realization versus last year? Is there anything else that would cause that year-over-year increase?
A lot of it is price realization as well as the volume growth. Both contribute meaningfully to improvements in gross margin and as a consequence, EBITDA margin.
Okay. All right. And 1 comment, Jeff, I also pick up newspaper so you're not alone.
Our next question comes from the line of Mike Rehaut with JPMorgan.
Doug on for Mike. I was wondering if you guys could give a little bit of further color on COVID's impact on the commercial business. I know you've referenced the backlog a few times now. I'm just wondering what the impact on COVID is on this business now? And where do you see that moving forward, especially as COVID seems to be subsiding a little bit?
We're definitely continuing to see lingering delays in the time to complete projects and start time of projects. So projects that we thought when we did them, say, last year or the year -- even the year before last, that we thought would have gotten started and we would have done the work within 6 months. It's getting extended to 12 and 18 months. But fortunately, the backlog continues to be there. We think the backdrop for commercial work, particularly heavy commercial work, is extremely constructive. And we feel encouraged about the ability of that business to start having some meaningful growth rates as we go into the latter half of '22 and the beginning of '23.
Got it. And then just secondly, how are you thinking of the M&A pipeline over the next 12 to 24 months? And has it changed at all? And does the current rate environment make you any less active?
No, I don't think that the current rate environment would make us less active. The pipeline remains robust. As I've said many times before, most sellers in the businesses where we're looking to buy other smaller in general contractors, I mean, the sellers -- there's a life cycle to when they want to sell, and it's not driven by really much -- some macro thing, it's really their life and kind of where they are in their life.
Now do sellers like to sell in a down market? No, in general. A lot of people say, well, don't you get a good deal in a down market? Not generally. I mean, because most of the people we're talking to have been in this business for a while and have written up and down a few kind of good markets and bad markets in the housing industry.
And so I don't know that it's any different than it's really been in terms of our opportunities going forward from an acquisition perspective. We feel pretty good about the pipeline and really the returns around associated with buying the businesses, which doesn't -- isn't hugely impacted by the kind of cost of capital increases that we're talking about here.
Our next question comes from the line of Dan Oppenheim with Credit Suisse.
I guess wondering in terms of that, you talked about the opportunistic share repurchase and the acquisition pipeline. How is your thoughts as you sort of weigh the 2 opportunities? Should we expect to see share repurchasing continuing and still some acquisitions here? I guess I'll start with that.
Yes. We have purposely positioned the company to have ample liquidity, combined with low leverage so that we can continuously and actively and opportunistically pursue both acquisitions and share repurchases, and combined with the fact that the company generates considerable free cash flow. So we feel very good about our ability to invest in acquisitions, invest in the growth of the business and also opportunistically do to share repurchases.
Great. And I guess the second one, and with the comments about the share repurchase, you had said that you feel better about the business than during the first quarter. And just understanding that the backlog in continuing, is that talking about feeling better now? Is that more on the -- you're seeing on the commercial side or something on the residential side that's just still continuing to be strong? What's sort of leading you to feel even better than in the first quarter?
It's really all of the above. We feel better about the commercial business. We're seeing some positive trends there, which is encouraging. Combined with what we're seeing -- continuing to see on the price mix side as well as the backlog that we've been talking about that is out there. So all of those things continue to, we believe, move forward on in a constructive way.
[Operator Instructions] Our next question comes from the line of Ryan Gilbert with BTIG.
First question from me, I'm wondering if you saw any change or an increase in the sense of urgency from your homebuilder customers to get on inventory up ahead of the spring selling season, especially in light of higher mortgage rates. And if that's -- if you think that influenced your quarter's results at all.
Yes and yes.
You want to expand on that at all?
I think it's been well discussed by the public that the public others that they want to get houses completed and they want to start getting foundations for getting out of this framed. And they want to start delivering at an accelerated basis as many houses as possible because they continue to believe, as do we, that there's still very solid demand out there despite the increase in mortgage rates and that they're better served and we're better served by working hard to meet that demand.
Now obviously, the completions growth as reported by the Census Bureau was fairly disappointing. But we believe that, that just points to the strength of the underlying backlog, and we're going to continue to work with our customers to help improve their cycle times as much as we can because we know how important that is to them.
Okay. Great. That's really helpful. And then I guess just given the completions and backlog, if we do see higher mortgage rates impact demand at some point maybe in the second half of this year and that causes some deceleration or deterioration in starts, do you think you have enough -- at least as you see it, is there enough backlog to support growth through the rest of '22? And then whatever we see if there is some deterioration, that ends up being a 2023 issue? Or do you think that could bleed into '22?
Obviously, it depends upon the deceleration, but we believe that there is plenty of work to do in '22 and into '23. I mean it's really unprecedented the dollar value of the current backlog.
Well, on the expansion of the time that it takes to build a home. It's a lot different than historically, we've all defined it to be.
And quite honestly, a slowdown in starts would help reduce that construction cycle time, and it's we don't expect it to be "normal" anytime soon. But anything we can do to reduce it even a couple of weeks, we believe is very constructive.
Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Jeff Edwards for closing remarks.
Thank you for your questions, and I look forward to our next quarterly call. Thank you.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation during the rest of your day.