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Installed Building Products (NYSE:IBP)
Q4 2019 Earnings Call
Feb 27, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings. Welcome to the Installed Building Products fiscal 2019 fourth-quarter financial results conference call. [Operator instructions] Please note, this conference is being recorded. I would now turn the conference over to your host, Jason Niswonger.

Please go ahead.

Jason Niswonger -- Senior Vice President, Finance, and Investor Relations

Good morning, and welcome to Installed Building Products fourth-quarter 2019 conference call. Earlier today, we issued a press release on our financial results for the fourth quarter, which can be found in the investor relations section on our website. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of the Federal securities laws. These forward-looking statements include statements with respect to the housing market and industry conditions, our financial and business model, our efforts to manage material inflation; our ability to increase selling prices; the demand for our services and product offerings; expansion of our national footprint, products and end market; our expectations for our end markets; our ability to strengthen our market position; our ability to pursue and integrate value-enhancing acquisitions; our diversification efforts; Alpha's revenue and growth; expansion of our commercial business; our growth rates and ability to improve sales and profitability; and expectations for demand for our services and our earnings in 2020.

Forward-looking statements may generally be identified by the use of words such as anticipate, believe, expect, intend, plan and will or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical fact. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Any forward-looking statement made by management during this call is not a guarantee of future performance, and actual results may differ materially from those expressed in or suggested by the forward-looking statements as a result of various factors, including, without limitation, the factors discussed in the Risk Factors section of the company's annual report on Form 10-K for the year ended December 31, 2018, as the same may be updated from time to time in subsequent filings with the Securities and Exchange Commission.

Any forward-looking statement made by management on this call speaks only as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for the company to predict these events or their effect. The company has no obligation and does not intend to update any forward-looking statements after the date hereof except as required by federal securities laws. In addition, management uses certain non-GAAP performance measures on this call such as adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted share, adjusted gross profit and adjusted selling and administrative expense.

You can find a reconciliation of such measures to the 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. I will now turn the call over to Jeff.

Jeff Edwards -- Chairman and Chief Executive Officer

Thanks, Jason, and good morning to everyone joining us on today's call. I'm happy to have the opportunity to talk to all of you about our fourth-quarter results. As usual, I will start today's call with some highlights and then turn the call over to Michael Miller, IBP's CFO, who will discuss our results and capital position in more detail before we take your questions. I am pleased to report that IBP produced another strong year of record revenue and earnings during 2019, and we have grown revenue and earnings every year since our 2014 IPO.

In fact, revenue is three times higher than in 2014, representing the compound annual growth rate of 24% while net income from continuing operations was almost five times higher, representing a compound annual growth rate of 37%. This consistent performance is a direct result of the business model we have developed, improving conditions across our markets and the hard work and dedication of our nationwide team of employees. The financial growth we have experienced corresponds with our expansion and I would like to use my time today to review end markets, the platform we have assembled, and the strategies we are pursuing to continue creating value for our shareholders, customers, employees and local communities. Looking at our end markets in more detail, 2019 was a strong year of residential, multi-family and commercial growth across many of our geographies.

Total residential completions increased 6% in 2019 led by a 7.6% increase in single-family completions. Single-family housing demand in 2019 benefited from low mortgage rates and favorable demographics as more millennials entered their homebuying years. In addition, homebuilders' land positions improved throughout the year and many adjusted their communities to develop more affordably priced entry-level homes. We believe these trends will continue, supporting further growth as the industry approaches stabilization in the years to come.

In the 2019 fourth quarter, our multi-family revenue increased 21%, compared to the prior-year quarter and increased 13.5% over the full-year 2018. We continue to perform well in the multi-family end market as a direct result of our sales strategy. As you may remember, in 2015 we acquired C.Q. Insulation, a Florida-based insulation installer uniquely focused on the new multi-family end market.

C.Q. has been extremely successful in selling IBP's insulation services to multi-family customers, and we have used their sales approach to leverage branches in other markets that historically didn't serve multi-family customers. While most of C.Q.'s success to date has been in the southern U.S., we believe there are additional opportunities to further leverage their multi-family sales platform across our existing branches throughout the country. As expected, 2019 also benefited from a pricing environment more in line with historical trends than what the industry experienced in 2018.

During 2018 and '19, we worked closely with our suppliers and customers to improve our cost and pricing structure to recover from the unprecedented insulation material inflationary environment that occurred throughout 2018. Recent results reflect the continued success of our strategies as price mix improvement accelerated to 6.3% during the fourth quarter, the highest in 2019, and was up 5.4% for the full year. We expect the material pricing environment in 2020 will be in line with historic trends and we believe we will continue to benefit from the cost and pricing strategies in place. In addition to an improved market environment in 2019, our financial results have continued to benefit from our geographic, end market, and product diversification strategies.

These strategies are aimed at diversifying our end markets and customer base, increasing complement our product sales, which ultimately leverages our local brand's cost structure and consequently dampens cyclicality in our business. 2019 was another strong year of growth in our commercial end market. Revenue from commercial customers as 18.2% of revenue in 2019, compared to 16.5% in 2018. Our large commercial instruction business, Alpha Insultation and Waterproofing, has been a key contributor to our commercial growth strategy.

Since we acquired Alpha in January of 2017, we have made a number of meaningful investments to properly scale and support this business. During 2019, we opened one commercial location in Phoenix. We feel that we have opened Alpha de novo locations in attractive growth markets and will continue to assess other market expansion opportunities, but will nevertheless continue to focus our priorities on acquisition growth in this end market. Similar to our residential markets, we believe the commercial market is well-positioned for continued growth.

We believe we have the right platform and team to begin a more active acquisition strategy within the commercial installation market. From a product diversification perspective, our non-insulation revenue increased to 36% of total revenue in 2019, compared to 34% in the prior year. Our other product strategies, similar to insulation, whereas we purchase the products direct from the manufacture and installer employees take them to the jobsite and install. We believe providing our customers with the high-quality service solution to these low-cost products strengthens and enhances our relationship.

As a result, established IPB brands using more mature housing markets, typically provide a greater amount of installation services, producing higher sales and profitability per local permit than insulation-only branches. Additionally, 2019 was another strong year of acquisition growth. In total we completed eight acquisitions representing approximately $64 million of annual revenue. While the number of acquisitions and acquired revenue was lower than what we've experienced in previous years, the acquisitions were predominantly insulation installers in new geographies.

This includes the 2019 fourth-quarter acquisitions of Premier Building Supply LLC, a residential insulation and garage door installer in Utah with annual revenues of $23 million; and Gulf Coast Insulation, a spray foam and fiberglass insulation installer in Florida with annual revenues of $4.7 million. The success of IBP's organic and acquisition growth strategy is a direct result of the platform we have created and the dedication and commitment of our employees across the U.S. Since 1977, we have grown from one location in Columbus, Ohio to over 180 locations serving all 48 continental states in the District of Columbia with more than 8,000 employees. Speaking of our employees, let's turn for a moment to a topic of discussion I've spoken to in the past.

As you know, we have made a significant investment of time and resources implementing a number of programs for the benefit of our employees. I would like to update you on the further progress we made in 2019. More than 5,000 employees have participated in our financial wellness program. As you may recall, the program is focused on helping people to begin saving, establishing a personal budget, paying down debt, and saving for retirement.

We are pleased with the rate of participation and encouraged by survey results of those who have completed the program. Of those surveyed, 90% now have funds set aside to deal with the financial emergency. Additionally, 94% of those with debt now have a repayment plan in place and 72% are saving for retirement. The program has been a major success, providing employees with the tools and the knowledge necessary to control their financial futures, reduce stress, and be more productive.

The longevity stock program recognizes the contributions and commitment of our most-tenured, non-management employees. To date, more than 1,000 employees have received IBP stock through this program and more gain eligibility every year. Earlier this year, we announced the Installed Building Products Foundation with the pledge to donate more than $1 million to nonprofit charities and employees in the first year of the foundation. I am pleased to report that we have exceeded our goal, providing scholarships to 44 employees and their family members, nearly 20,000 in grants to help employees due to a financial hardship, and announced $825,000 in grants to nonprofit organizations dedicated to building or renovating homes for those in need.

We started each of these programs based on the direct input from installers and branch employees, as well as our desire to do the right thing. This improved engagement within the company and in our communities, and has had a profound effect on the employee experience at IBP. Since the beginning of 2017, these actions have helped reduce employee turnover by approximately 40% to a level significantly below industry averages. As employment rates remain near historic highs across most of the country, we have been able to attract, retain and develop talent.

To conclude my prepared remarks before turning the call over to Michael, our 2019 financial results demonstrate another record year of revenue and earnings, the strong platform we have created, and the success of our growth initiatives. Industry dynamics remain positive across our single-family, multi-family and commercial end markets, and we expect this will benefit our results throughout 2020. With this overview, I would like to turn the call over to Michael to provide more details on our fourth-quarter results.

Michael Miller -- Chief Financial Officer

Thank you, Jeff, and good morning, everyone. Net sales increased to a quarterly record of $401.2 million for the 2019 fourth quarter, compared to $353.1 million for the same period last year. The 13.6% year-over-year improvement in sales was mainly driven by improvements in price mix, higher volume and customer and product growth and the contribution from our recent acquisitions. Same-brand sales growth during the quarter of 9.7% was the highest in 2019, which was attributable to the 6.3% growth in price mix, also the highest of 2019, and 3.3% growth in volume.

It is important to note that these volume and price mix metrics we report do not include our large commercial construction business Alpha, which grew 10.2% in the quarter. Fourth-quarter 2019 gross profit improved 21.7% to $120 million from $98.6 million in the prior-year quarter. Adjusted gross profit as a percent of revenue increased to 29.9%, compared to 27.9% for the same period last year, representing the positive improvements we've made in pricing and margin expansion from the growth in our complementary product revenue. For the 2019 fourth quarter, selling and administrative expenses as a percent of net revenue was 19.6%, compared to 18.7% in the same quarter last year.

Adjusted selling and administrative expense as a percent of revenue during the quarter was 18.6%, compared to 18% for the same period last year. The 60-basis-point increase in administrative expense as a percent of revenue is primarily due to lower-than-historical trends at insurance reserves in the prior-year quarter. Additionally, acquisitions completed in the fourth quarter added approximately $600,000 of selling and administrative costs as compared to the third quarter of 2019. As we have stated in previous earnings calls, it is important to note that as our acquisition strategy continues and as the volume of total acquired business operations become larger, we will incur additional non-cash amortization expense.

In the fourth quarter, we recorded $6.4 million of amortization expense, compared to $5.7 million for the same period last year. This non-cash adjustment impacts net income, which is why we continue to believe that adjusted EBITDA is the most useful measure of profitability. Based on our acquisitions completed to date, we expect first-quarter 2020 amortization expense of approximately $6.6 million and full-year expense of approximately $25.7 million. This figure, of course, will change with any subsequent acquisitions.

For the fourth quarter of 2019, adjusted EBITDA improved to $55.6 million, representing an increase of 27.5% from $43.6 million in the prior year. As we've mentioned in previous earnings calls, this past year displayed the typical seasonal trends in both sales and adjusted EBITDA through each of 2019's quarters, and we expect to experience similar seasonal trends in 2020. Adjusted EBITDA as a percent of net revenue increased 150 basis points from the prior-year period to 13.9% as a result of positive seasonal trends, improved pricing, and complementary product growth. Our fourth-quarter same-branch incremental adjusted EBITDA margin of 29.5%, we believe demonstrates the strength of our financial model and reflects the strides we've made in improving our selling prices following the atypical material inflation environment in 2018 and the continued demand in our local installation markets.

For the year ended December 31, 2019, our full-year same-branch incremental adjusted EBITDA margin was 21%. On a GAAP basis our fourth-quarter net income was a record $19.2 million, or $0.64 per diluted share, compared to net income of $16.5 million or $0.54 per diluted share in the prior-year quarter. Our adjusted net income improved to $27.6 million or $0.92 per diluted share, compared to $21.8 million or $0.72 per diluted share in the prior-year quarter. For the 2019 fourth quarter, our effective tax rate was 27.6% and we expect a full-year effective tax rate of 25% to 27% for 2020.

For the 12-month period ended December 31, 2019, we generated $123.1 million in cash flow from operations, compared to $96.6 million in the prior year, a 27.4% increase. We will continue to use our operating cash flow to fund acquisitions and reinvest in our business. Capital expenditures at December 31, 2019 were $50.2 million while total incurred finance leases were $2.8 million. During the 2019 third quarter, we invested approximately $4 million to purchase the facilities of AFT, the cellulose manufacturer we acquired in 2018.

Additionally, we purchased $3.2 million of equipment that previously had been rented to support our large commercial construction growth. As a result, capital expenditures and finance capital leases as a percent of revenue increased 70 basis points to 3.5% at December 31, 2019, compared to the same period last year. At December 31, 2019, we had total cash and short-term investments of $215.9 million, compared to $100.5 million at December 31, 2018. We currently have approximately $60 million of remaining availability under our stock repurchase program.

Our board of directors has approved an extension of the current program which had been scheduled to expire on February 28, 2020, and now will remain in effect until March 1, 2021, unless further extended by the board of directors. The funding of acquisitions will continue to be the priority for our capital allocation and we will pursue share repurchases opportunistically. We did not make any repurchases under the program in 2019. During the 2019 fourth quarter, we successfully completed the repricing of our $200 million term loan B facility.

I am extremely pleased with the repricing and structure of our term loan B which demonstrates our strong access to capital. Total debt at December 31, 2019 was approximately $575.5 million. Taking into account cash and short-term investments at December 31, 2019, our net total debt was approximately $360 million, compared to $363 million at December 31, 2018. We anticipate net interest expense of approximately $7.2 million in the 2020 first quarter and $28.8 million for the full year.

This amount could change based on subsequent financed fleet purchases. Our capital structure remains conservative and we have considerable flexibility as we continue to deliver on our growth strategy. With that, I will now turn the call back to Jeff for closing remarks.

Jeff Edwards -- Chairman and Chief Executive Officer

Thanks, Michael. I would like to conclude our prepared remarks by once again thanking the more than 8,000 IBP employees for their hard work, dedication and commitment to our company. Our success over the years wouldn't be possible if it wasn't for you, and our thanks goes out to you for a tough job always done well. As we look to 2020, momentum in our business is strong.

Our acquisition pipeline is robust and I am truly excited for what I know we will accomplish in the future. Operator, let's open up the call for questions.

Questions & Answers:


Operator

Thank you. [Operator instructions] Your first question comes from Michael Wood with Nomura. Please go ahead.

Ryan Coyne -- Nomura Instinet -- Analyst

Hi, this is Ryan Coyne on for Mike. Are you able to break out the 6% mix just in terms of price contribution and mix contribution? And then, was there anything unusual impacting mix in the quarter, or is the mix sustainable going forward? Thank you.

Michael Miller -- Chief Financial Officer

This is Michael. As you know, we don't break out separately price and mix. I would say as we've said in previous quarterly calls this year and last year, that the headwind to the price mix calculation is our continued growth in the other products which are at a smaller dollar value, and we continue to see greater growth in those products. So they were definitely a headwind to price mix.

Despite that as you know, we had the strongest price mix of the year in the fourth quarter. So we feel very good about our ability to continue to maintain that momentum.

Operator

Our next question comes from Mike Dahl with RBC Capital Markets. Please go ahead.

Unknown speaker

Hey, this is actually Chris on for Mike. Thanks for taking my questions. So last quarter, you guys talked to achieving the organic 20%, 25% incremental target on a trailing basis, basically at 2Q of this year. And since you guys hit that target this quarter, how does that impact your thinking going forward? Should we expect it'd have to come in closer to the high end of your range now?

Michael Miller -- Chief Financial Officer

Yes. We still feel confident that on a full-year basis that the same-branch incremental EBITDA margins will be in that 20% to 25% range, and given our outsize performance in the fourth quarter we actually achieved that, as you know, for the full year, which we feel very, very good about. What I would say, and as we said in our prepared remarks, is that we do expect this year to be a typical seasonal year where the back half of the year is stronger than the first half of the year. I think as it's been very well documented though, the spring selling season was off to a very good start.

Order growth from the public builders has been, you know, in the 20%, 30% range. And everything that we're seeing from private builder surveys as well is showing an acceleration in order growth as we're going into the first quarter. So yes, all those things will sort of influence the seasonality associated with the business. But we feel very encouraged with what we're seeing and you know, we're two-thirds into the first quarter, and we feel very, very positive about the year.

Unknown speaker

Got it, thanks for that. And just as a follow-up, going back to the back half-weighted commentary for incrementals. So how do you guys think about the first half, second half, relative to like you said, a stronger residential volume outlook? But also you know, you have the manufacturer price increases coming in. So how does that impact your sequential thinking on incrementals? And then just are you guys currently expecting a midyear price increase as well from the manufacturers? Thanks.

Michael Miller -- Chief Financial Officer

So again, because of the typical seasonality in the business we do believe that incrementals will be better in the second half than they are in the first half, which is a typical seasonal pattern for us. So you know, things that can influence that though, definitely, are the strength in order growth that we're seeing and how quickly permits and starts convert into the opportunity for us to do the work. You know, we are right now very well-staffed and very well ready to service our customers. But given the order growth that we're seeing, you know, that means that the foundation guys, the framers, all the other subs that come before us, that they need to perform as well.

So it'll definitely be a question of the timing of when that happens, but not if it happens. In terms of overall material pricing, yes. I think as everybody knows, the manufacturers announced a price increase to take effect in January. I think the overall market probably did experience or did experience some material price increase associated with that.

And I think there's a general expectation that we'll get a midyear price increase announcement as well. I would say that we feel more confident than we ever have about our ability to maintain a favorable price/cost mix today than we have certainly in the past two years.

Jeff Edwards -- Chairman and Chief Executive Officer

This is Jeff. I agree 100% with what Michael said. And I know we're talking about seasonality in the business, and I guess that's an accurate way to describe it on the one hand. On the other hand it's almost hard to say because we haven't had much of a winter, really, in much of all of our footprint.

So in addition to you know, kind of all the normal things that we'd need to have line up for us to have what we think is a very good year and be confident about it, and you know, even on top of that, we haven't had to fight weather to any large degree.

Unknown speaker

Thank you. Appreciate the color.

Operator

Our next question comes from Trey Morrish with Evercore. Please go ahead.

Trey Morrish -- Evercore ISI -- Analyst

Thanks very much, guys. So the first thing I wanted to ask, on the gross margin. Typical seasonality on the gross margin usually kind of weakens in 4Q from 3Q. Granted, it didn't do that last year either, but that was due to the massive swings in pricing costs.

I was wondering, what happened this 4Q that resulted in such a good gross margin relative to normal seasonal trends?

Michael Miller -- Chief Financial Officer

It was continued improvements in our direct-labor percentages and continued improvement in price mix. We feel very confident that our continued ability to work with customers that are willing to pay us a fair and reasonable price, as well as the strides that Jeff was talking about that we've made in terms of reducing labor turnover, and as a consequence improving productivity really have benefited gross margin the most. Because those efforts are helping price and they're also improving our efficiencies.

Jeff Edwards -- Chairman and Chief Executive Officer

I mean, ultimately when we said we were working with our customers, and I know we got beat up and panned a bit on the margin side of things because we didn't, I guess, some would say get after pricing immediately. But I think as evidenced by our sales growth, working with your customers and taking care of your customers and ultimately them being able to feather in price under the timing and circumstances that both we and our customers can live with ultimately, you know, had a supersize payoff. And we think it could -- we think that attitude will continue to, you know, to produce those results.

Michael Miller -- Chief Financial Officer

Particularly with the strength of order growth. I mean, builders that want to close houses know that they can't just choose the cheapest subcontractor. They have to choose the subcontractor that'll get the job done for them.

Trey Morrish -- Evercore ISI -- Analyst

Would you expect a normal seasonality in your gross margin to be, to have that trend bucked in 2020? Or would you expect a return to normal seasonality, just at a higher level?

Michael Miller -- Chief Financial Officer

Yeah. We would expect to continue to see normal seasonal trends through 2020. I mean, obviously there are several things that are going to influence that, and one of them is clearly the order growth that we're seeing, what the spring selling season ends up looking like, and as you know we don't provide guidance. We think 2020 is going to have kind of that typical seasonal impact on both gross margin and EBITDA margin.

But that on a full-year basis, when we look back, we're excited about what 2020 is going to look like.

Trey Morrish -- Evercore ISI -- Analyst

OK. Then lastly on the resi price mix, it's clear that it accelerated in 4Q and you kind of talked about that a little bit. But I was wondering if you could flesh that out a little bit more. What about price mix picked up in 4Q relative to 3Q and really the earlier parts of the year?

Michael Miller -- Chief Financial Officer

I think as we've stated on previous calls, and as Jeff just said, I mean, we intentionally worked with our customers to achieve the fair or reasonable and get fully on top of the price/cost mix. And that, meaning working over time to get that done, meant that it didn't happen all in the first quarter or all in the second quarter, or even all in the fourth quarter, quite frankly. I mean, we've been working on getting the right price mix with our customer bases all year, and we'll continue to do that as we go through 2020. And it's part of the reason why, as we expressed earlier, we have so much confidence around our ability to manage the price/cost as we're going into 2020.

Trey Morrish -- Evercore ISI -- Analyst

Thank you very much.

Michael Miller -- Chief Financial Officer

Sure.

Operator

Our next question comes from Justin Speer with Zelman and Associates. Please go ahead.

Justin Speer -- Zelman and Associates -- Analyst

Thanks, guys. So on the price mix discussion, just continuing the thought there, so you're anticipating I think two price increases probably being reasonably successful in terms of traction this year, which is typical. I think last year we only had like one, then I think it was successful for a time but then I think that went away. But you did 5% price mix growth in 2019 and should we read that as a -- based on everything that you're saying, is it a chance that you're at least in line with, if not maybe a little bit firmer in price mix in 2020 versus 2019?

Michael Miller -- Chief Financial Officer

Yes. I mean, as you know, we don't provide guidance. But what I would say is that again we feel very confident in terms of where we are today and from what we can see is the kind of our book of business going forward, and the order growth we're seeing, just not on the publics but on the privates as well. But as you know, it is a key part of our strategy to continue to increase the cross-sell of the other products.

Because we know from experience that that improves our overall profitability but it is a headwind against price mix. So you know, we are going to continue to perform on both strategies, meaning getting price and continuing to make sure that our price cost structure is appropriate. But also you know, pushing very hard the increase in the other products within our existing branch network, and also potentially additional acquisitions in that area although I would say the priority there is more cross-selling our existing locations versus acquisitions.

Justin Speer -- Zelman and Associates -- Analyst

Understood. And then the other question I have on the volume side, obviously you're seeing very strong front leading indicator data from the orders. Is there a change in the progression of that into your model in terms of when you start seeing that work? Is it getting elongated? Is there any change that you can see in terms of if you think about mix, toward entry level? I guess what I'm trying to get to is, how should we think about volume growth in 2020 as it pertains to the starts data that we're seeing and some of the mix dynamics that we're seeing in the marketplace today?

Michael Miller -- Chief Financial Officer

Yes, I think where that impact comes is twofold. One, as Jeff said, so far there hasn't been that much of a winner, which for our markets that are more seasonal and that you know, you can't build when the weather is poor or is too cold. You know, that certainly helps to get foundations poured. But also clearly the mix shift which has been very well documented toward the entry-level product is a shorter cycle time product, which means that it should be ready for us to install sooner than certainly a custom product would be once it's started.

So you know, we think that you know, as the year plays out, that is definitely going to have an influence on the timing of when we have our install sales. But we do expect typical seasonal pattern, and I would say that as the spring selling season is what we think it's going to shape up to be, I think that means that fall is going to be very busy as well.

Justin Speer -- Zelman and Associates -- Analyst

And then on the non-residential side, incredible growth this year, particularly the first three quarters. But even in the fourth-quarter, double-digit growth. How does the shape of growth look for that portion of your business as we look into 2020?

Michael Miller -- Chief Financial Officer

We continue to feel --

Jeff Edwards -- Chairman and Chief Executive Officer

Not dissimilar, I would say, to this year. Again, not trying to give guidance. We think there's plenty of opportunity, plenty on the organic side but not in terms of, as I said in my comments earlier, not in terms of likely opening a lot of new locations, de novo locations. But instead probably pursuing an acquisition strategy within those businesses.

But clearly also in the half a dozen or so branches that we've opened since the original Alpha acquisition, there's plenty of organic growth opportunities for us there too.

Justin Speer -- Zelman and Associates -- Analyst

OK, perfect. And the last one for me, is that cash generation in the quarter was a little softer than we were expecting, working capital a little bit more onerous drag there than we were thinking. How should we think about that going forward in terms of maybe free cash conversions as we look ahead?

Jeff Edwards -- Chairman and Chief Executive Officer

I mean, you can have it, particularly in the fourth quarter. There are things that we can do that put us in a position where working capital might be a little bit higher than your model might have run. But I don't -- there's nothing fundamentally that's changed that I would say that isn't going to continue to see improvement in cash flow conversion as we go in through 2020.

Justin Speer -- Zelman and Associates -- Analyst

Perfect. Thanks, guys.

Operator

Next question comes from Susan Maklari with Goldman Sachs. Please go ahead.

Susan Maklari -- Goldman Sachs -- Analyst

Good morning, everyone. I guess to start with, just building on the questions on Alpha, can you talk a little bit to the projects that you're seeing in there? Is there anything that's changing in terms of mix and how the kind of forward visibility is looking in terms of the backlog?

Michael Miller -- Chief Financial Officer

I mean, we have fairly decent visibility of the backlog in that business, just given a long tail associated with those projects. And we feel very confident as Jeff just said relative to where we're going to see sales growth through 2020. The mix and composition of the projects has not changed significantly. I would say, and as we've talked about on previous calls, one of the things that we've done that the Alpha people have proactively done is they've focused on some smaller dollar value projects, not just sort of trophy projects, which get installed faster than some of these bigger, larger projects.

Now that being said, as we -- those of us that travel across the country know that just about every airport in this country is under construction. And we're definitely getting more than our fair share of that business as well.

Susan Maklari -- Goldman Sachs -- Analyst

OK. And then looking at the capital allocation, understanding that you might pursue some M&A in the non-residential side of things in the Alpha business, how do we think about, I guess, would those deals be potentially a little larger than what we've seen you do in the past? How does that factor into your capital allocation? And I guess with that too, any thoughts on -- you didn't buy back any stock in 2019. But how are you thinking about that for 2020?

Jeff Edwards -- Chairman and Chief Executive Officer

Well, I'll answer the kind of acquisitions side and pipeline, etc., kind of normal target. Let's say I'll handle the business question and maybe Mike will handle the others. But they, on average, the commercial installers that we have purchased in the retrospectively, I guess, and also on a prospective basis, I think are a little larger. You know, I think ultimately that market is maybe a little less I guess, developed would be a word, versus the residential.

So we honestly think that from a multiple perspective, we may be able to do even a little better on a lot of those acquisitions. We're really kind of particularly excited about trying to grow that apart of our business on an organic basis and feel pretty good about it.

Michael Miller -- Chief Financial Officer

Yeah. And I would say from a capital perspective, we are very well-positioned. We have considerable cash on the balance sheet. Our net leverage is below two times.

We have tremendous flexibility to perform and execute on that strategy plus the business itself generates quite a bit of cash. So we are not at all constrained from a capital perspective to continue to perform very well on the acquisitions side of the business. We historically on the share repurchases have been very opportunistic and we will continue to be opportunistic. As we mentioned in our comments, the board extended for another year our existing program.

And you know, we have about $60 million left on that program. And we will continue to use it opportunistically and that opportunistic use of capital will not impede in any way our ability to continue to perform on the acquisitions.

Susan Maklari -- Goldman Sachs -- Analyst

All right. Good. Thank you.

Operator

Our next question comes from Phil Ng with Jefferies. Please go ahead.

Philip Ng -- Jefferies -- Analyst

Hey, guys. Good quarter. Tough day to report results. I guess for me, can you give us a sense of how you expect the shape of the year to kind of progress from a growth standpoint? A lot of the start acceleration have come during the winter months so typically that may extend out the lag from starts to completion.

But it sounds like a mild winter has helped. And you talked about how the order book has been really strong. So any color would be really helpful.

Michael Miller -- Chief Financial Officer

Yeah. I mean, obviously, we don't know fully how things are going to play out, but I think both the shortened cycle time for entry level product and the considerable order growth that we're seeing, admittedly all offer very easy comps, right. We have to remember that. But still, we are at cycle highs in terms of permits and starts, so that's a strong positive.

I would also note that on an LTM basis, completions are only 92% of permits. So we're still building up quite a big backlog even without these orders becoming starts and getting converted. So you know, I think you could paint for the whole industry, and I'm not talking specifically for us, but I think you could paint for the whole industry given if we continue to have a mild winter, that you're going to see a pretty solid first half on a relative basis just given that growth. And if we do have the spring selling season that we think we're going to have, and it is solid or even better than most people's expectations, that could lead to strong volumes in the back half of the year as well.

Jeff Edwards -- Chairman and Chief Executive Officer

You know, the backlog that's being drug into the year is based on the sales order growth, is likely strong enough to fill out most of the rest of the year anyway based on labor constraints.

Michael Miller -- Chief Financial Officer

Yes. Not from us.

Jeff Edwards -- Chairman and Chief Executive Officer

From other trades, yes.

Philip Ng -- Jefferies -- Analyst

OK, that's really helpful color. And then, I guess, switching gears a little bit assuming the demand profile looks good, and it sounds like it's shaping up pretty nicely, the inflation market's going to tighten up a bit and we could see a little more inflation. How do you kind of view that environment for IBP? Do you view that a neutral event, negative, or potentially an opportunity, especially in a tight labor environment which you guys usually excel from a pricing standpoint.

Jeff Edwards -- Chairman and Chief Executive Officer

We like a rising price environment.

Michael Miller -- Chief Financial Officer

We definitely see it, yes. We definitely see it as an opportunity.

Operator

Next question comes from Ken Zener with KeyBanc Capital Markets. Please go ahead.

Ken Zener -- KeyBanc Capital Markets -- Analyst

Hello, everybody. I think I got so supersized with growth, I like that, Jeff. Looking at your slides you guys have housing market case study. This I find a very interesting slide.

I assume you're familiar with it. But in this you're talking about your established markets having less single family versus developing market as a percent of sales at a far higher dollar take, which I suspect is supporting your profitability as you get your fixed costs absorbed. What is kind of -- I mean, it's real interesting in the sense that you're at $700 a permit on developing markets and you bring that up to $3,100. This gets to the whole idea of what your market share is, how you look to grow ancillary businesses.

How long does it take, or is it a unit volume? What is kind of the translation between a developing market characteristic and an established market? Do you think it's someplace where you have market share, or you're doing X number of units? Because you do need some type of volume. Could you go into your thought process a little there, what you've learned?

Jeff Edwards -- Chairman and Chief Executive Officer

Sure. And just for reference for others on the call, what Ken is referencing is the investor presentation that's been posted to our website. And in there, we just compare a sample size of markets that have very high penetration of the cross-sale of other products compared to markets that have little to no penetration from the other products. And the strategy there is, and I mean, you sort of hit the nail on the head there, Ken.

In the sense that in those markets, when we have greater penetration of all of the products that we install on the residential side, we tend to have much larger market share and we have much stickier, if you will, customers because we're adding even more considerable value to those customers. So from our perspective, I mean, obviously we see it at a very granular level, that we know that the greater the penetration that we have and the more service we provide our customers, the better our market share and the better our take per permit.

Ken Zener -- KeyBanc Capital Markets -- Analyst

Would you want to comment on perhaps then EBIT/EBITDA spread between the established and developing markets as that are useful?

Jeff Edwards -- Chairman and Chief Executive Officer

Yeah, you said it correctly. Without providing definition necessarily around it, but clearly when you have greater scale in a market, you covered your semi-variable costs at a higher level. And therefore you do get higher levels of profitability.

Ken Zener -- KeyBanc Capital Markets -- Analyst

OK. And then the choice to do -- well, I guess you guys opened up this Phoenix and Alpha in the commercial area where it's now 18% of your sales, so you're still getting good growth there organically. Could you talk about the choice to -- it sounded like on commercial you would be open to do more M&A as opposed to opening up a new branch. Can you talk about how that's evolved over two years? I know when you guys open up the branches, you've already got the sales, that drive down your EBITDA contribution.

Can you kind of talk about how you all on the board have looked at that M&A risk as being more or less than doing de novo, or how you develop that? Thank you.

Jeff Edwards -- Chairman and Chief Executive Officer

Sure. So I mean, in general I would say that you know, I think we would categorize the fact that we kind of have a M&A and more importantly maybe an integration kind of machine here at IBP. I mean, that's what we've done for the last more than 20 years. So it's certainly in our wheelhouse.

We have opened de novo residential locations. We can say after 20 years of experience in doing that too that we favor M&A only because for the most parts, yes, you can follow a customer let's say to a market or be asked to come into a market. But usually when you enter a market de novo, you gain sales kind of through sharp elbows, at least from a pricing perspective. And that really doesn't bode well a lot of times even for the market or for the new business that we're garnering.

And clearly on the commercial side it takes even longer to make that branch profitable than it even does on the residential side. On the commercial side we would say that it's close to two years. I think we've mentioned that before. So because of the fact that our balance sheet looks great, because of the fact that it's a strength of ours to do M&A and because it's less disruptive to the market and we can buy businesses that already have high, even accretive EBITDA margins for the overall company, that just seems a better way for us to go about it.

And I suspect that our investors would probably agree with us on that.

Michael Miller -- Chief Financial Officer

Yes. I would say too that the Alpha team, now that they've fully digested the new locations, and as Jeff referenced earlier you know, we're looking to get good sales growth from those locations that have been opened up over the past 48 months -- or yeah, 24 months, 36 months, that gives them a much more stable platform to help with that integration and bring those commercial acquisitions on board for us. So we feel as if things have lined up perfectly in terms of our ability now to perform on that commercial acquisitions strategy.

Ken Zener -- KeyBanc Capital Markets -- Analyst

Thank you very much.

Operator

Next question comes from Seldon Clarke with Deutsche Bank. Please go ahead.

Seldon Clarke -- Deutsche Bank -- Analyst

Thanks for the question. A lot have been answered, but the delta between your volume and revenue growth in terms of completion -- I'm sorry, the delta between your volumes and growth in completions is the widest it's been in a while and accelerated pretty meaningfully in the fourth quarter. Can you just talk about some of the dynamics that's driving that and give us a sense of how you think volumes should trend relative to completions in 2020?

Jeff Edwards -- Chairman and Chief Executive Officer

Yeah. I mean, as you know, both lagged starts data that some people use, or completions data, particularly on a quarterly basis, is a little rough comparison just because it's not perfectly correlated with the timing of when we do our install. And also the type of installs that we're doing. So while we think it's relative or important for investors to have some level of kind of market comparison to kind of our overall performance, which is why we disclosed the completions growth, we don't think that there's necessarily a direct correlation particularly when you're looking at it on a quarterly basis.

But if you look at, say for the 12 months this year, our residential same-brand sales growth of 6% was the same as completions growth for the year. So you know, it's going to ebb and flow and those numbers, particularly on a quarterly basis, you know, tend to get revised substantially. So we feel very good about our current market position, our ability to make sure that we're working with the right customers in the market, and I think as we've said maybe on every conference call, quarterly conference call that we've done since we've been public, we do not go after volume. What we go after are the best customers in a market, the best market share in a market which may not mean the most market share.

But the best market share in a market. And as a consequence what we think that does is it generates good, solid gross margins which we've demonstrated good growth in gross margins over the course of this year. And you know, sometimes it means also being very patient. As we think we were in late 2018 and going through 2019, and as Jeff mentioned earlier, we think that our customers respect and appreciate the fact that we've worked so closely with them to get the price/cost mix more in a reasonable place.

Seldon Clarke -- Deutsche Bank -- Analyst

OK, that's helpful and then just continuing on the price/cost mix. Might be tough to quantify but when you talk about working with your customers on this. Like, can you help frame up or quantify how much room there is kind of remaining, or how big the opportunity is remaining, and would you expect the price mix to continue outpacing the industry pricing in 2020?

Michael Miller -- Chief Financial Officer

Well, I mean, I think there's definitely one of the things as I mentioned earlier, that impacts the way we report price mix, is the cross-sell of the other products which is definitely a headwind to the price mix. But we're continuing to work, again, with our customers to make sure that we're getting paid a fair price, that not only recognizes the inflation in material costs that's out there but also the tightness of the labor market and the fact that we can offer a higher quality service where our guys are showing up on time and they're passing inspection the first time. And we think that in a high order growth environment, especially at the entry level, that is a very high cycle time compared to other products, that that quality of service is something that customers should be willing to pay for. And if they're not willing to pay for it, then we don't really want to do business with them.

Jeff Edwards -- Chairman and Chief Executive Officer

I would just summarize and just say as we've mentioned earlier, overall market conditions are very supportive of us continuing to grow the profitability of the business.

Seldon Clarke -- Deutsche Bank -- Analyst

I understand. Thank you.

Operator

Next question comes from Keith Hughes with SunTrust. Please go ahead.

Josh Large -- SunTrust Robinson Humphrey -- Analyst

Hi. This is Josh Large on for Keith. I just want to go back to the price/cost or price mix kind of question. Understanding complementary is kind of a negative mix and you probably have some negative mix from just the entry level, what was kind of insulation pricing, maybe sequentially, just to get kind of a feel of whether pricing's still moving up quite a bit on that end?

Michael Miller -- Chief Financial Officer

As you know, we don't disclose price separately. But obviously given the growth that we've had in the other products you know, it certainly implies continued increase in just job pricing if you will, in the fourth quarter. And as we've said all year long, we've been working with our customers to make sure that we get on top of the price/cost but that we do it in a reasonable way that helps them manage that price/cost as well.

Josh Large -- SunTrust Robinson Humphrey -- Analyst

OK, great. And then kind of remind us when you kind of felt pretty good about the price/cost being back in balance, what quarter kind of in 2019?

Michael Miller -- Chief Financial Officer

It was really the third quarter that -- well, we saw certainly benefit, good benefit, throughout the course of the year. We really started getting -- you know, we started feeling doing quarter --

Jeff Edwards -- Chairman and Chief Executive Officer

It started in third quarter. Felt more fully baked in the fourth.

Michael Miller -- Chief Financial Officer

Yes.

Josh Large -- SunTrust Robinson Humphrey -- Analyst

OK. And then last one, can you kind of help us frame the mix side for 2020 because on the unit side you're going to have benefit from more entry and more complementary products. And then on the price mix those are going to kind of be headwinds. So could you help us frame how to think about those two in 2020?

Michael Miller -- Chief Financial Officer

Well, I think you'll continue to see a combination both of price and the headwinds on the mix. But you know, for the full year, price mix was about 5.4% and that's been fairly consistent over the past couple years. And even though we will have headwinds from entry level and have had headwinds from our continued strategy around the cross-sell of the other products. We feel reasonably confident that staying in that kind of 5% price mix territory makes sense.

Josh Large -- SunTrust Robinson Humphrey -- Analyst

Thank you.

Operator

Next question comes from Reuben Garner, The Benchmark Company. Please go ahead.

Reuben Garner -- The Benchmark Company -- Analyst

Thank you. Good morning, everybody. So I had some technical difficulties, so if I repeat anything, apologies. But I know that there was one question asked about the case study that you guys provided.

I thought that was interesting also. Can you tell us -- and if you did already again, sorry, can you tell us what your mix is, roughly, of established markets versus those developing ones just so we can get a sense of how it might progress over the next few years?

Michael Miller -- Chief Financial Officer

Each market is a little bit different in terms of its level of penetration, but I would say less than -- just on average, less than 50% of our locations have a very high level of penetration in the cross-sell of the other products. You'll see, if you're looking at that investor presentation, you'll see a slide where we talk about our market share in some of the other products and you'll see that it's all basically low single digits versus our market share on insulation of about 28%. So we have tremendous opportunity as it relates to our market share growth organically in those other products. And I would say that we're excited about the team's ability to perform on the other product strategy.

Reuben Garner -- The Benchmark Company -- Analyst

OK, great. And then lastly with the ramp in starts to close last year, and I know you've kind of touched around this but I just want to clarify. Is there any risk to maybe the incremental margins at any point in the year, just tied to the -- you know, in the past you've talked about the stage of construction impacting your margins. I guess the part of the job you do that's earlier in the construction cycle, is a little lower margin than the parts you do later.

Is that something we should be thinking about or are the completions dynamic such that it won't -- you don't anticipate it being an issue this year?

Michael Miller -- Chief Financial Officer

Well, again, and I think this is very important. We've always talked about the incremental margins being in the 20% to 25% range on a full-year basis. And that it gets back half-weighted as was clearly evident in the third and fourth quarter this year where the same-branch incremental margins were at 29%, much higher than they were in the first half of the year. Now, obviously that was the improving price mix that we've been talking about but we fully expect that on a full-year basis that for 2020 we would be in that 20% to 25% range.

But we do, as we've said several times, we do expect that we are going to see normal seasonal trends which would mean that incremental margins would be lower in the first half of the year than in the back half of the year.

Reuben Garner -- The Benchmark Company -- Analyst

OK, great. So that's what you meant by normal, part of what you meant by normal seasonal trend, all right. Thank you guys. Congrats on 2019, and good luck this year.

Thank you.

Operator

Next question comes from Cliff Greenberg with Baron Capital. Please go ahead.

Cliff Greenberg -- Baron Capital -- Analyst

Yeah, hi guys. Congratulations on terrific results and also really proving that you can get your arms around the commercial build business and tap big opportunity there, and can enhance our insulation business by adding all these complementary products. Jeff, as you look into the future of the commercial business, when we're going to try to grow, are we growing geographically? Are we trying to add new services? Can that business be $1 billion or more platform over time? And then similarly in the complementary products, where would you -- is there opportunity across the board in all these markets, all these products that you have lower market share in, or are there additional products also that you can add to the mix?

Michael Miller -- Chief Financial Officer

Good question. So I think the strategy for growth of the commercial business would not be dissimilar from that which we've played really on the residential business in that we would look to expand the market share, expand the markets that we're doing business in and then obviously share within those markets. Some of that share would come with products that we clearly are already in, in those commercial businesses. Some will more than likely come from new products that we do enter.

And yes, on the commercial side, just like on the residential side, we're always looking for products that kind of line up with our strengths and are similar, at least in a lot of ways in which we would go to market with them to the other commercial, you know, products that we're installing. So all of the same tenets of what we see in the residential business and what we look for in terms of growth and how we make our acquisitions and plan out our future, are very similar in a lot of ways in the commercial business.

Jeff Edwards -- Chairman and Chief Executive Officer

And on the other products, just saying that I mean, in terms of it becoming $1 billion business, I mean, between both acquisitions and organics growth we think certainly over time the market opportunity is absolutely there. I mean, the addressable market on the commercial side is much larger than the addressable market on the residential side, we believe so -- and as I mentioned also, the acquisition, I guess the competition around acquisitions is maybe a little less defined and mature as it is on the residential side. I mean, on the residential side especially in the insulation business there's been a number of suitors on and off for the last, in terms of acquirers, for the last close to three decades. So that -- it's been -- there has been less of that situation really as it relates to commercial, at least that's what our experience would say thus far.

So on the residential side of things and the other product sales there, I mean, I guess I would just maybe first remind everyone that this is something that we've had a lot of experience with. The very first acquisition that we made, and even then I'm a little hesitant because we technically did cold-install building products then. But the very first acquisition besides the one branch that we started with here in Columbus, Ohio that was insulation and at that point even fireplaces -- the very first acquisition we made in 1994 was a shower, shelving and mirror business because we believed in the strategy, in this concept. And quite frankly we were actually in the homebuilding business at that point in time and we recognized the strength of the idea of dealing with one contractor on a lot of these small install products that quite frankly you just want someone to take care of, and you know, bill you accurately and show up when you're supposed to show up, and all the things that we say why we think these products are important for us from a sales strategy and how they bring stickiness to it.

That was all true even from our perspective as a single-family homebuilder. So this is something that we've been after since 1994, and our second acquisition, even when it was a shower, shelving and mirror business in 1995. And we very much believe in the concept. We think there's tremendous opportunity.

And it even -- it becomes better and there's more of an opportunity as we do stabilize or even in a cycle, that's when we really have the opportunity to make headway. Because you have really more capacity and more kind of time on your hands in terms of not chasing, you know, outsize growth when things do stabilize in those other products you can really go after that with your customers. And we continually look at adding other products.

Michael Miller -- Chief Financial Officer

Yeah. And when you think about it in terms of opportunity, right now those other products are roughly $200 million business, slightly under $200 million business for us. And we're at kind of mid-to-low-single-digit market share. Now, we're not going to get perfect 100% penetration and get all of those products up to the 28%, 29% market share that we have in insulation.

But you know, it clearly demonstrates the organic opportunity that's there given how low the market share in those products are.

Jeff Edwards -- Chairman and Chief Executive Officer

The 28% to 29% goal is -- I mean, that is the goal, right, to have all of your products lined up with the same share that we currently have in insulation. Now, that might be an unrealistically high goal but that's in theory what you'd be shooting for.

Cliff Greenberg -- Baron Capital -- Analyst

And one just follow-up. When you try to add these or as we add these complementary products in our existing market, do you do that only through acquisition? Or are we doing some green field stuff? If we get into the blinds business without buying a local blind guy?

Jeff Edwards -- Chairman and Chief Executive Officer

That's accurate.

Michael Miller -- Chief Financial Officer

Yes. It's both.

Cliff Greenberg -- Baron Capital -- Analyst

And you've had success both ways, you know, we can grow green field or without acquisitions to add these complementary products as well.

Jeff Edwards -- Chairman and Chief Executive Officer

Absolutely.

Michael Miller -- Chief Financial Officer

Absolutely. And as our customer base especially at the national builder level, is that -- you know, as that grows and then they're all clearly aware of many if not all of the things we're capable of doing, we even get inbound phone calls to take a look at the product that we might not be installing in that particular market that they're calling about in those markets because we're doing it for those same customers elsewhere.

Operator

Thank you. I would like to turn the call over to Jeff Edwards for closing comments.

Jeff Edwards -- Chairman and Chief Executive Officer

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

Operator

[Operator signoff]

Duration: 67 minutes

Call participants:

Jason Niswonger -- Senior Vice President, Finance, and Investor Relations

Jeff Edwards -- Chairman and Chief Executive Officer

Michael Miller -- Chief Financial Officer

Ryan Coyne -- Nomura Instinet -- Analyst

Unknown speaker

Trey Morrish -- Evercore ISI -- Analyst

Justin Speer -- Zelman and Associates -- Analyst

Susan Maklari -- Goldman Sachs -- Analyst

Philip Ng -- Jefferies -- Analyst

Ken Zener -- KeyBanc Capital Markets -- Analyst

Seldon Clarke -- Deutsche Bank -- Analyst

Josh Large -- SunTrust Robinson Humphrey -- Analyst

Reuben Garner -- The Benchmark Company -- Analyst

Cliff Greenberg -- Baron Capital -- Analyst

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