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TopBuild Corp (NYSE:BLD)
Q4 2020 Earnings Call
Feb 23, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the TopBuild Fourth Quarter and Year End 2020 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to your host, Tabitha Zane. Please go ahead, ma'am.

Tabitha Zane -- Vice President, Investor Relations

Thank you and good morning. On the call today are Robert Buck, President and Chief Executive Officer and John Peterson, Chief Financial Officer. We have posted senior management's formal remarks and a PowerPoint presentation that summarizes our comments on the Investor Relations' section of our website at topbuild.com. Many of our remarks will include forward-looking statements, which are subject to known and unknown risks and uncertainties, including those set forth in this morning's press release as well as in the Company's filings with the SEC.

The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. Please note that some of the financial measures to be discussed on this call will be on a non-GAAP basis. The non-GAAP measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. We have provided a reconciliation of these financial measures to the most comparable GAAP measures in a table included in today's press release and in the presentation accompanying this call.

I will now turn the call over to Robert Buck.

Robert Buck -- President and Chief Executive Officer

Good morning and thank you for joining us today. We are pleased to report a strong fourth quarter with volume growth and margin expansion at both business segments. This caps a year of opportunities and challenges for our company and our industry, framed by a national pandemic and unprecedented demand for residential new construction.

I want to start by thanking our entire TopBuild team for their dedication, enthusiasm and hard work. Our team quickly adapted to a changing world, working from home in some cases and adhering to strict safety standards at all of our facilities and on job sites. At the same time, the team continued to provide our customers with the level of service and support they expect from our TopBuild companies. While John will discuss our financial results in detail, I want to highlight our full-year 2020 results.

Revenue increased 3.6%, adjusted operating profit grew 22.8% and adjusted EBITDA increased 21.6%. Adjusted operating and EBITDA margins expanded 200 basis points and 240 basis points, respectively, and adjusted net income increased 32.6% to $7.28 per diluted share. These solid results are a testament to the strength and resiliency of our TopBuild team during the pandemic and especially given that four states where we have significant operations deemed construction non-essential for an extended period of time.

In 2020, we completed three acquisitions, Hunter Insulation, Garland Insulating and Cooper Glass, which, combined, are expected to contribute almost $80 million of annual revenue. We likely would have welcomed additional companies to our team during the year but made the decision to pause our acquisition program in late first quarter and through the summer in response to the many uncertainties related to the pandemic.

Turning to our outlook for 2021. From a macro viewpoint, our industry hasn't been this strong since before the Great Recession. The combination of significant pent-up demand, low levels of new and resale home inventory, historically low interest rates and a COVID-enhanced consumer appetite to relocate from densely populated urban communities to suburban/rural locations are all contributing to our extremely favorable outlook for the long-term growth and health of our industry and our company.

TopBuild is in an excellent position to capitalize on this housing growth with a national footprint, supply chain focus and a flexible labor force that can be shared across multiple branch locations. However, we also recognize there will be some constraints throughout the entire housing industry, primarily from labor and material that will impact how quickly orders convert into permits, permits into starts, and ultimately into work for TopBuild. These constraints will likely lead to a longer build cycle extending the housing recovery.

Regarding material availability, all trades are experiencing constrained capacity. While fiberglass is on allocation and spray foam raw material is in short supply, we will see additional fiberglass capacity come online later this year and spray foam availability should improve by the end of the second quarter. Owens Corning is adding fiberglass capacity in Kansas City in the second quarter and Knauf and Johns Manville are each bringing on blowing wool capacity in the third and fourth quarters of this year.

As far as material pricing, we saw an increase last September as well as this January, and a number of manufacturers have announced price increases effective this April. We feel very confident in our ability to manage these cost increases as evidenced by our track record in 2018 when we saw significant material inflation. This is a testament to our strong operations leadership and local branch managers as well as the quality of our partnerships with our suppliers and customers.

Labor constraints remain top of mind within the industry as well. As it relates to labor at TopBuild, our Friends and Family recruiting program, which I discussed last quarter, is yielding great results. We have added several hundred new installers through this program and continue to receive referrals daily. We are also focusing on improving the productivity of our current labor force including getting them to job sites faster using route optimization tools.

In addition, having all of our branch locations on the same ERP system gives us a distinct advantage in servicing our customers. We move crews, equipment and material among our branches every day to ensure we meet our builder customers' project timelines. No other installer has this capability. This is yet another reason, in addition to achieving supply chain efficiencies, we quickly move acquisitions onto our operating platform.

Our commercial business, which slowed last year due to pandemic-related project delays is showing solid signs of improvement. On a same branch basis, revenue was flat compared to a year ago in the quarter, bidding activity remains very strong and our backlog is growing. Our long-term outlook for our commercial business remains bullish and we expect to see meaningful improvement as we move through this year.

Acquisitions remain an important component of our growth strategy and our continued number 1 capital allocation priority. In January, we announced the acquisition of LCR Contractors, a fireproofing and insulation company generating approximately $58 million in annual revenue and servicing the Texas markets of Dallas, Austin and Amarillo and the Tennessee markets of Knoxville and Nashville. This is a great addition to TruTeam as it significantly enhances our heavy commercial presence in these high growth regions.

Since 2016, we have acquired 15 companies, which combined are contributing almost $650 million of annual revenue. Our focus remains on acquiring installation and distribution companies in core insulation. Our scope is wide and includes companies installing many different types of insulation products beyond just fiberglass and spray foam. With a robust pipeline of prospects, we expect to stay very busy on this front in 2021. Before handing the call over to John, I want to highlight our annual leadership meeting, which we held in mid-January, virtually of course.

Everyone is extremely optimistic and excited about what they see as robust growth in our business. We took the opportunity to set forth our goals for the year with a continued focus on driving improvements throughout the business. Towards that end our team is focused on driving organic growth, successfully integrating new acquisitions into our family of companies, expanding our efforts to think differently in order to simplify processes, leverage fixed overhead, manage expenses and improve productivity developing and building the talent and diversity of our team and striving for zero safety incidents. We are looking forward to a great 2021.

I'll now turn the call over to John.

John Peterson -- Chief Financial Officer

Good morning, everyone. As Robert noted, we finished 2020 with a strong fourth quarter and enter 2021 well positioned to capitalize on the robust growth in the end markets we serve. We'll begin with a review of our 2020 results then provide our outlook for 2021.

Starting with our fourth quarter results. Net sales increased 8.9% to $721.5 million primarily driven by increased same branch sales volume, revenue from acquisitions and a more favorable mix of single-family versus multi-family homes partially offset by a slight decline in price. The price decline was driven almost entirely by lower spray foam and gutter costs and the resulting impact on selling price. Sales for full-year 2020 increased 3.6% to $2,718,000,000 principally driven by an increase in sales on a same branch basis, sales from acquisitions and higher selling prices.

Fourth quarter adjusted gross margin expanded 160 basis points to 27.5% driven by increased volume, lower spray foam and gutter material costs, lower insurance expenses and continued gains in operational efficiencies partially offset by a slight decline in selling prices. For all of 2020, gross margin expanded 150 basis points to 27.5%.

Adjusted operating profit in the quarter grew 35.7% to $104 million with a corresponding margin improvement of 280 basis points. On a full-year basis, adjusted operating profit improved 22.8% to $359.4 million with a corresponding margin improvement of 200 basis points. Fourth quarter adjusted EBITDA was $121.5 million compared to $92.5 million, a 31.2% increase, and our adjusted EBITDA margin was 16.8%, a 280 basis point improvement. Both adjusted operating and EBITDA margin improvements were driven by the previously mentioned factors impacting gross margin as well as cost reductions initiated in the second quarter and lower travel and entertainment expenses.

For full-year 2020, adjusted EBITDA grew 21.6% to $436.7 million, and our adjusted EBITDA margin improved 240 basis points to 16.1%. Our fourth quarter drop-down to adjusted EBITDA margin was 48.9% driven by higher sales volume, strong cost controls and continued leveraging of our platform partially offset by higher material costs. On a full-year basis the drop-down to adjusted EBITDA margin was 82.7%.

Adjusted income for the fourth quarter was $71.3 million or $2.15 per diluted share compared to prior year fourth quarter of $50 million or $1.48 per diluted share. Fourth quarter 2020 adjustments were nominal at just under $900,000 primarily tied to acquisition-related expenses and the COVID-19 leave plan put in place last March. This plan provides assistance to our employees directly impacted by the virus.

Adjusted net income for full-year 2020 was $242.5 million or $7.28 per diluted share compared to $188.9 million or $5.49 per diluted share for full-year 2019. Full-year 2020 adjustments totaled $4.6 million primarily related to restructuring charges taken in the second quarter, acquisition-related expenses and our COVID-19 leave plan. Interest expense in 2020 decreased from $37.8 million to $32.5 million, primarily driven by lower LIBOR rates and a lower balance due on our term loan.

Capex for full year 2020 was $40.9 million, approximately 1.5% of revenue and lower than our targeted long-term range of 2%. As we have noted on previous calls, at the start of the pandemic we pared back our planned 2020 capex spend. In 2021, however, we do expect capex to return closer to our guidance of approximately 2% of sales.

Working capital as a percent of trailing twelve-month sales was 9.3%, 100 basis points lower than prior year. This decrease is primarily due to improvements in our accounts receivable aging and a richer segment mix of our service partners business, which carries lower working capital requirements.

Our effective tax rate decreased from 24.7% in 2019 to 23.5% in 2020. The higher rate in 2019 was primarily related to a revaluation of deferred tax assets and liabilities as a result of state filing position changes. We ended the year with net leverage of 0.88 times trailing twelve months adjusted EBITDA. Total liquidity at year end was $719.6 million inclusive of the available balance on the revolver of $389.6 million and cash of $330 million. Operating cash flow was $357.9 million for 2020.

Now let's turn to our segment results. TruTeam's sales increased 6.9% in the fourth quarter and 1.9% for the year. The increase in sales in the fourth quarter was driven by same branch volume growth, revenue from acquisitions and a richer mix of single family homes partially offset by a decline in our same branch commercial business and a slight decline in price. TruTeam's same branch commercial revenue was down 4.9% on a year-over-year basis, an improvement from third quarter when same branch commercial revenue declined 10.7% from third quarter 2019. Fourth quarter adjusted operating margin for TruTeam was 16.1%, a strong 270 basis point improvement. For full year 2020, TruTeam's adjusted operating margin improved 200 basis points to 15.3%.

Service Partners' fourth quarter sales were up a strong 12.7% to $251.5 million driven by a 13.3% increase in volume and partially offset by a slight decline in price. For the full year Service Partners' revenue grew 7.4% to $926.2 million. Fourth quarter adjusted operating margin for Service Partners was 13.4%, a 210 basis point improvement from the prior year. For full year 2020, Service Partners' adjusted operating margin increased 200 basis points to 12.5%.

Moving to 2021 annual guidance. Based on builder orders and our expectations that interest rates will remain low, we are optimistic this will be a very good year for TopBuild. However, it's important to note that our guidance assumes some level of industrywide material and labor constraints, which has already led to an extended build cycle and higher than normal backlog. We are projecting total sales to be between $3,050,000,000 and $3,150,000,000 and adjusted EBITDA to be between $505 million and $535 million. This assumes a range of residential new housing starts of between 1,425,000 and 1,475,000. It also includes revenue from LCR Contractors, which we acquired in January but does not include any additional acquisitions we expect to make this year.

We have also provided our long-range modeling targets for a number of metrics. The range for working capital is now 9.5% to 10.5% of trailing twelve-month sales compared to 10% to 11% when we last gave guidance a year ago. The range for same branch incremental EBITDA is 22% to 27% and 11% to 16% for acquisitions unchanged from prior year. We are now projecting $90 million of revenue for every 50,000 increase in residential housing starts. We are also projecting commercial sales growth to average between 7.5% and 10% annually, partially impacted by the project delays discussed earlier. Our normalized tax rate is unchanged at 26%. Finally, we project capex at 2% of sales also unchanged from previous guidance.

I will now turn the call over to Robert for closing remarks.

Robert Buck -- President and Chief Executive Officer

We are very confident 2021 will be a strong year for capital. The external environment point to solid growth in residential and commercial construction and our diversified business model enables us to capitalize on the strong demand. Our team is executing exceptionally well and we expect to close on additional M&A opportunities, which will further add long-term value for our company.

Operator, we are now ready for questions.

Questions and Answers:

Operator

[Operator Instructions] The first question is from Michael Rehaut, J.P. Morgan. Please go ahead, sir.

Michael Rehaut -- J.P. Morgan -- Analyst

Thank you. Good morning, everyone, and congrats on the results. My first question, I'd love to get a finer sense around the revenue growth outlook for 2021 and if it's possible to try and break that down by volume mix versus price and -- as well as acquisitions?

John Peterson -- Chief Financial Officer

Hi, Michael, this is John. So as you know we've reinstated guidance, haven't done it for the last couple of quarters. What we've done and what we'll continue to do is provide our best assessment of adjusted -- of sales and adjusted EBITDA with a range. I can talk about some generalities though I won't get into real specifics but I think as we think about guidance for 2021, I think it starts with the fact that well, obviously we assume very strong -- continued strong residential demand, which has obviously been increasing throughout '20, and we expect that to continue into '21.

Continued improvement in commercial, you've seen that trend line in '20 in our numbers but again, we anticipate that that's going to continue into '21. Improved selling prices in response to higher material cost is certainly in an inflationary environment right now. It does have our two most recent acquisitions Garland, which we did on October 1st and LCR we did in January, and actually includes some trends of improved single family mix, which I think we've seen in the last four, five months worth of starts. So I think on the other side of the coin though there are some costs, which we've got the benefit of in 2020, certain line items like travel and entertainment and group health, which we will start to normalize -- have started to normalize and will continue to normalize throughout '21.

And then finally, I think the biggest, I'll call it, constraint is just around material and labor constraints. Our numbers would be stronger and better for sure based on unconstrained demand but certainly where we're at right now and we think we'll continue for a period of time is constraints around labor and probably even more so around material and not just installation, obviously it's a broad range of product categories right now that are playing catch up. So that really is kind of the regulator on our numbers that's tempered it somewhat because as Robert and I sit here today, we've never seen the demand profile like we're seeing now. And so it really is going to depend on how quickly the industry can continue to de-bottleneck certain areas that are currently constrained today.

Michael Rehaut -- J.P. Morgan -- Analyst

All right. I appreciate that. I guess, the other kind of related question I might have on the outlook is the starts assumption with the midpoint of around $1.45 million. Obviously, the last two or three months of starts has been solidly above that. So to the extent that there is upward potential -- upward revision potential as the year progresses on that number, would we assume a similar type of upward revision that $90 million number, to the extent that starts coming a bit above that?

John Peterson -- Chief Financial Officer

Yeah, I think, Michael, that's a good number to use in terms of adjusting our number based on a change in the starts environment but certainly that $1.45 million midpoint is driven by our assumption there will be constraints in the industry for sure. But yes, to the extent we're being conservative and that number gets beat I think that's a good benchmark to use in terms of our growth in relation to the growth so.

Michael Rehaut -- J.P. Morgan -- Analyst

Great. One more quick one if I could squeeze in. The commercial annual same branch revenue target of 7.5% to 10%. Correct me if I'm wrong, that seems a little less than perhaps the 10% that you were targeting before. I would presume that the opportunity is still pretty large in front of you, so just curious around what drove that downward -- slight downward revision if I have that right?

John Peterson -- Chief Financial Officer

Sure, Michael, and this is John again. So yeah, I think that shift is really driven by the fact that, call it non-resi or commercial right now, is coming off of a dip in 2020 that I think was in the 20-plus percent range. So we do anticipate that's going to continue to recover. We just think '21 will be a year of recovery, so that's what we've tempered a little bit. As you think about a three-year outlook, we are still extremely bullish on commercial. We are under indexed in terms of our share versus our residential share, and we think from TopBuild's perspective there are many opportunities to continue to grow there, but I think there will be a little bit of a slower growth rate in terms of the '21 timeframe but certainly long-term -- mid to long-term, we're extremely bullish.

Michael Rehaut -- J.P. Morgan -- Analyst

Okay. Thanks so much.

John Peterson -- Chief Financial Officer

You're welcome.

Operator

The next question is from Adam Baumgarten, Credit Suisse. Please go ahead, sir.

Adam Baumgarten -- Credit Suisse -- Analyst

Hey, good morning, everyone. Just curious, are you seeing a meaningful difference in labor and material constraints for the large builders versus smaller? The large guys are kind of talking to but not saying it's a huge headwind and some of their delivery guidance is pretty robust, I'm just curious if the other kind of two-thirds or so of the industry is seeing a bit more issue on that front?

Robert Buck -- President and Chief Executive Officer

Hey. Good morning, Adam. This is Robert. So I would say, not necessarily a difference. When we think about the big builders, I mean they are good at giving you some forward-looking projections, how many developments are coming up, how many starts they have, so you can do some pre-planning with those big builders that allows us to plan in advance from a material perspective and from a labor perspective. And then also they have density of starts in the neighborhood or in the development saying that we'll go out and can do three or four homes or five usually given the size in a day with the crew. So I wouldn't necessarily differentiate between the large -- the larger production builders and the smaller builders from the constraints perspective.

Adam Baumgarten -- Credit Suisse -- Analyst

Okay, got it. And then just to clarify on commercial, do you expect revenue growth in 2021 to be within that long-term range or should it be maybe below that and then building over the subsequent two years?

John Peterson -- Chief Financial Officer

Hey, Adam, this is John. So we don't get a break down the guidance in terms of specific percentages or dollars, but the assumption we have baked in there will be a continued improvement as we saw the back half of last year. So sequentially, I think you're going to see commercial continue to grow and certainly be a plus. We're just not providing the specifics of what that is.

Adam Baumgarten -- Credit Suisse -- Analyst

Okay, got it. And then just lastly, quick one on installation price increases we've seen two so far announced. Does your guidance contemplate additional price increases in the balance of the year from the manufacturers?

John Peterson -- Chief Financial Officer

Yeah, so in terms of -- again in terms of what we projected in the guidance, we anticipate further inflationary cost impacts of material and the resulting impact on our selling prices for sure. So that's baked into our numbers.

Adam Baumgarten -- Credit Suisse -- Analyst

Got it. Thanks a lot.

John Peterson -- Chief Financial Officer

You're welcome.

Operator

We have a question from Ken Zener, KeyBanc Capital Markets. Please go ahead, sir.

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

Good morning, everybody.

John Peterson -- Chief Financial Officer

Good morning, Ken.

Robert Buck -- President and Chief Executive Officer

Good morning.

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

So 2018 pricing skyrocketed as loose fill capacity was maxed out. How is -- and your basically incrementals went from kind of net 30% on TruTeam down to about 15% for the year. I know you guys were very -- starting at 21% leverage in 1Q kind of fell into that low to mid-teens and then it recovered probably within a two-quarter basis I mean, because prices were going up so much.

Could you just walk us through -- we've had a September increase for January 8%, April looks like it's coming up at 8%, can you talk about or refresh us on those dramatic increases that were steeper and more numerous than we have in the pipeline now? But just walk us through so we can understand how your leverage cadence will kind of unfold as you see it right now?

Robert Buck -- President and Chief Executive Officer

Hey, Ken, this is Robert. So I'll start off and then John will hit the last part on the leverage discussion. So if you remember back in '18, there was an overnight happening in a plant that really held 20% of the capacity to lead the industry overnight, if you will. So those increases came more quickly and were not announced in advance given that capacity get dropped out the industry very, very quickly i.e. overnight, if you will.

So what's happening here coming out of '20 into '21 is very different. Its capacity constraints on both glass and blowing wool back in '18 were just blowing wool and these increases have been announced in advance. If you go back to the September increase, the January increase and now, as of last week, the April increases already been announced by many of the manufacturers. So that's -- I would say that's very different from an '18 perspective. And again, we do a really good job in our field operations from a pricing perspective and getting ahead of that.

I think we've talked in the past, the control we have in place -- system controls we have in place around bidding, around approvals that type of thing. So I think very different from '18 compared to '20 and the dynamics that are happening from that perspective.

John Peterson -- Chief Financial Officer

Ken, your question was on incrementals, just make sure I follow between 2018 and 2020, just repeat what you said around that so.

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

Morning, John. Yeah, I was looking at your incrementals in '18. It kind of dropped from what had been your normalized range...

John Peterson -- Chief Financial Officer

Right.

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

Into the low-teens, and I realized what Robert just said right, is that it was overnight pricing. You couldn't...

John Peterson -- Chief Financial Officer

Right.

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

Communicate that out. The indication being when you communicated out you're going to stay within your 22% to 27% organic range therefore, what's the cadence in 2021 if you can provide us some idea?

John Peterson -- Chief Financial Officer

Yeah, so we're not going to provide a cadence in terms of a quarterly look, but you do the math on our guidance, recognize and I think we're up about 14% at the midpoint on revenue and if you take -- breakout the M&A portion of that, it's about a little over 10% on a same branch basis. So if you do the same on EBITDA you kind of back into the midpoint of our pull through, which is just under 25% on a same branch basis.

In terms of how that's going to play out in the year if that's your question, we're not going to provide any quarterly type of look at that. But I think, sitting here today, we feel pretty good about the number in total, and certainly we'll update as we move through the year.

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

Good. I appreciate it. Had to try. Last thing, the starts lag. If you do the last two quarters it's kind of up about 20% and your guidance seems to fall below that. Is there a way to think about where the lag starts are versus what you're able to see coming through because it seems like it's...

John Peterson -- Chief Financial Officer

Yeah.

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

At least in the front half about a 10% gap. 5% to 10% gap between where starts are and actually your business is?

John Peterson -- Chief Financial Officer

Yeah, so Ken, this is John again. So the numbers we provided with the un-lag starts, certainly, I think what you're hitting that is what we'd expect. We're going to see lag starts probably performe better than un-lag starts. So -- and I think the back half of 2020 is certainly indicative of that with very, very strong starts profile in the back half of the year. Completion is not necessarily keeping up, so we pushed a lot of the starts into '21. So yeah, we do expect the un-lag picture to be better than the lag. And -- I'm sorry, the lag picture is better than the un-lag and that should play as we enter the year so.

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

Thank you.

John Peterson -- Chief Financial Officer

You're welcome.

Operator

We have a question from Phil Ng, Jefferies. Please go ahead, sir.

Philip Ng -- Jefferies -- Analyst

Hey, John, just following up on that point you made, just given some of that capacity on the batts and rolls coming online in February, should we expect some of these constraints that have kind of contained your growth the last two quarters to see a larger inflection by 1Q where you play a little more catch-up and some of the labor constraints Robert may have called out, is that more in the trade or that's -- you're seeing some of that tightness in your labor force as well?

John Peterson -- Chief Financial Officer

Can you take the labor, please?

Robert Buck -- President and Chief Executive Officer

Yeah, sure. I'll take the last part first. This is Robert. So on the labor side I'd say it's other trades ahead of us that have called in those constraints. Really, I mean -- look I'm really happy with the -- with what our field teams have done this Friends and Family recruiting and how they're building up the labor force training folks in advance and productive quickly as well. So I think definitely trades ahead of us, I think we're -- this constraint is really across the industry but I think we're in great shape from that perspective, and our field teams are really ready for the demand as it's starting to ramp. And then also, we have that ability to move things around whether it be equipment, labor, material as need be wherever we see fluctuations by service area, by market.

Philip Ng -- Jefferies -- Analyst

Great.

John Peterson -- Chief Financial Officer

Phil, this is John. So I think the challenge on the other side of the equation on material is that it's not just installation, obviously. There is a broad range of product categories that are right now constrained. And so the question is obviously what will be and how will they be de-bottlenecked and where will we see the improvements come and we're confident that's going to happen throughout 2021, but I do think we're going to be with -- left with this type of constrained environment for a period of time here that's certainly going to keep the numbers tempered.

So really difficult to predict the timing of when things are going to accelerate or our pick up here, but we're confident again the industry will be getting better as the year goes on.

Philip Ng -- Jefferies -- Analyst

Okay, that's helpful. We've seen some weather-related issues in Texas in the south, has it been disruptive for your operations and that aside, do you see 1Q -- typically it's a seasonally slower quarter but given your backlog, should we expect some counter seasonal trends and hopefully you guys play a little catch-up here?

Robert Buck -- President and Chief Executive Officer

Hey, Phil, Robert. Definitely impact if you take last week and maybe the end of the previous week if you think about the Texas area, Oklahoma, Kansas that area, definitely affected some branch operations on both sides of the business. That being said, if you think about we can work, the people can catch up and obviously we are -- March is a long month and we weren't expecting to see the seasonality here in the first quarter given the demand coming out of 2020.

So I definitely think there'll be catch up here with we can work during the month of March. And if you think about it, I mean we talked about this, obviously, but large percentage of our workforce is on peach rate, I mean people want to be out working, right? So there's that self motivation that's -- well, all of our workforce to do that so.

Philip Ng -- Jefferies -- Analyst

That's great and just one last one on the M&A side. Robert, I noticed a lot of deals have been a little more skewed toward commercial. Have you been able to negotiate better multiple just given commercial is still a little bit more challenge, and when we think about 2021, how is the pipeline on the core residential side and any movement on the valuation there as well just because of the strong backdrop we're seeing in the broader housing market?

Robert Buck -- President and Chief Executive Officer

Sure. So relative to if you think about our acquisitions recently, I think it's been pretty even. LCR was once two-thirds commercial but a third residential, Garland really all residential. So definitely still skewed toward the residential side. I think relative to commercial still in that range of the multiples that we talked about, I mean the important thing with a commercial company is the mix of business they have and the mix of business that they're bidding and we're very focused on that.

There are certain parts of that commercial sector if you think about distribution centers and warehousing, it was a positive in '19, a positive in '20 and they are with the '21, '22 is a positive as well. So I think still in that same range and multiples that we've talked about, 5 to 6. And as we think about, there could be some -- if you think about some larger companies, there could be some higher multiples paid there.

If I think about the pipeline. Pipeline is, I'd say very robust but my time frame here still the most activity from an M&A perspective less residential, less commercial and distribution as well. So it really covers the gamut. And folks are -- if you think about maybe coming out of the pandemic, folks are definitely very interested in talking and interested in talking to us about selling the business and then, there is the potential tax impact that's getting people's attention with our business as well, so we think that's driving to motivated conversations as well.

Philip Ng -- Jefferies -- Analyst

Super helpful, guys. Congrats on a strong quarter.

Robert Buck -- President and Chief Executive Officer

Thank you.

Operator

We have a question from Justin Speer, Zelman & Associates. Mr. Speer, go ahead.

Justin Speer -- Zelman & Associates -- Analyst

Good morning, guys. Thank you. I'd like to just start by looking at that non-residential or the commercial channel piece for you just thinking -- I think I heard on the call that you saw growth in backlog. Was that on an organic basis or that include acquisitions?

Robert Buck -- President and Chief Executive Officer

Hey, good morning. This is Robert. So definitely on an organic basis. We communicated all throughout the pandemic. If you think about Q3, Q4 of last year, the number of contracts, the bidding activity that we had was -- continue to remain strong and so that growth in the backlog is definitely organic and we continue to make more investments here, more estimators, more folks out bidding job and we're seeing the benefit of that for sure.

Justin Speer -- Zelman & Associates -- Analyst

And if you were to -- if we could -- I don't know if you can or not but roughly what percentage of your backlog is industrial warehouses and distribution centers?

Robert Buck -- President and Chief Executive Officer

Yeah, I mean, we'd take a look at our backlog but not something that we would communicate on the call here.

Justin Speer -- Zelman & Associates -- Analyst

Okay, OK, and then the other element on this, I think you mentioned at least for the fourth quarter you had some lower insurance and operational efficiency contribution to the margin profile in the quarter. How -- is that something that you can quantify, particularly as we look for the full year, how should we think about maybe some of the temporary cost tailwinds from 2020 as we look to 2021, and maybe some of the things you're doing to combat maybe some of those costs returning?

John Peterson -- Chief Financial Officer

Yes. So if we think about the fourth quarter we gave some -- by the way we gave some data on the second and third quarter. I think we were roughly $5 million benefit in the second quarter on these type of -- COVID-type of enhanced expenses, if you will and then third quarter about $4 million. Fourth quarter will be about a $5 million number. So T&E continues to become -- kind of drop off a little bit as it normalize. We had a little bit bigger number on group health though, again tied to less doctor visits, less elective surgeries, those type of things.

So as we enter '21, we would expect both of those numbers to continue to normalize. From a T&E standpoint, Robert and I and the team are going to do everything we can, obviously, to minimize those number normalizing back to historical levels. Group health is probably not a heck of a lot we can do, but-- because that will come back, but yeah that's baked into our guidance. By the way, while -- just while I bring up the guidance, real quick, I did want to note, we're going to post a slight correction to the 2021 adjusted EBITDA recon, that's the last slide of our earnings release. There's some impact interest expense and taxes, which will be modified and we'll have that out today so.

Justin Speer -- Zelman & Associates -- Analyst

Thank you. Thank you. And I guess -- just kind of further thinking about this, I guess the big question mark that we have is tied to the I guess the cadence or the sequencing of these manufacturer price increases. You've done a really good job over-- in particular in recent years particularly since the U.S. ideal advantaging through those, I think you brought up 2018 but how -- I may have missed it but how many manufacturer price increases are you expecting or planning for in your guidance?

John Peterson -- Chief Financial Officer

Yes. So this is John. We haven't provided that but certainly we anticipate obviously with the April increase announced from the manufacturers that they can't. But we anticipate a year where we're going to see inflationary pressure because demand we expect to be extremely strong. And I think both labor and material are going to be extremely tight. So that's an environment where I think we're going to see inflationary impacts and on the other side of that improved selling prices in the business, and that's baked into the guidance.

Justin Speer -- Zelman & Associates -- Analyst

Excellent. Thank you, guys. Really appreciate it.

Operator

The next question is from Noah Merkousko, Stephens, Incorporation. Please go ahead.

Noah Merkousko -- Stephens, Inc. -- Analyst

Hi. Good morning, and thanks for taking my questions. So first, I wanted to talk about the -- your longer-term working capital target. It's proved -- improved since the last guide. Can you walk us through the moving pieces there and what's driving that range, it's pretty impressive with the increases in material prices we are seeing?

John Peterson -- Chief Financial Officer

Yeah, I think there is a couple of things to note in our numbers and we talked about these in our prepared remarks. So I think the biggest one is, we have obviously been focused on our collection processes. And so certainly from a past few standpoints we've lowered that balance and have improved collections. The other has a little bit more to do with mix though. Service partners has grown substantially. That's helped to impact the number downward as a percentage of LTM sales because our distribution model has much better working capital metrics than our install model.

So on a go-forward basis, I think we've gotten to a good place. I think in terms of the performance, we're going to continue to work on that collections activity, which is where we can get the biggest bang for the buck. And I think we do expect to be in that roughly 10% range on a go-forward basis.

Noah Merkousko -- Stephens, Inc. -- Analyst

All right, thanks. That's helpful and then just a quick follow up here. Also, you're increasing your longer-term guide on the revenues per starts again, can you parse out the drivers there is that market share gains, M&A pricing? What's really driving that increase?

John Peterson -- Chief Financial Officer

Yeah, so this is John. So from a year ago where I think we are at a $80 million number that's really driven by a couple of things. One is some acquisitions also bake in some price and yeah, that's the biggest -- and of course, that's the biggest driver in terms of driving that. A little bit of mix to improvement in terms of single versus multifamily.

Noah Merkousko -- Stephens, Inc. -- Analyst

All right. Thank you. I'll leave it there.

John Peterson -- Chief Financial Officer

Thank you.

Operator

We have a question from Reuben Garner, The Benchmark Company. Please go ahead, sir.

Reuben Garner -- The Benchmark Company -- Analyst

Thank you. Good morning, everybody.

John Peterson -- Chief Financial Officer

Good morning, Reuben.

Reuben Garner -- The Benchmark Company -- Analyst

Maybe a question about the capacity coming online later this year. I understand it's an inflationary environment today and you expect it to continue to be so. How does that capacity coming online impact maybe what it looks like later into the year and into next year? Does the elevated backlog and kind of the -- maybe the inability for the industry to grow as fast as the starts have been growing, does that help offset some of the capacity coming online and make it likely that we continue to see an inflationary environment into '22 and I know that's a ways out but what are your thoughts?

Robert Buck -- President and Chief Executive Officer

Yeah. Good morning, Reuben. It's Robert. So yeah, I mean I think it's really our supply and demand, right. So as we look at the robust orders that the builders are experiencing and how we think that filters throughout the year, we definitely think it will be an inflationary environment. To John's points that he made earlier is that capacity coming back here and call it late Q1, Q2 with Owens Corning, and then some back half year capacity with Johns Manville and Knauf, which is more on the blowing wool side of the equation. I mean that's going to be needed just to help keep up with the demand. So I think there is a -- as long as that demand keeps coming then I think we'll see inflationary environment and I think we'll see the suppliers continue to look at their capacity but then also from a material cost increased perspective.

Reuben Garner -- The Benchmark Company -- Analyst

Perfect. Thank you and transportation costs. If it's already been discussed, apologies I don't think I heard it but can you just talk about what you're seeing there, and remind us how that works in the industry, how does the pass get -- the cost get pass through to your customers, is it a part of your overall price increases or do you surcharges, just an update on how that might impact you throughout the year?

Robert Buck -- President and Chief Executive Officer

Yeah. This is Robert again. So you're right, if you think about the inbound and the outbound mainly handled through surcharges. If you think about a lot of folks from a manufacturing standpoint, supply base standpoint in the industry they're handling obviously, surcharges and we're taking the same approach as well. And that we have surcharges in place with our customers on the outbound side of the equation.

So the team has done a good job of getting ahead of the curve there as obviously logistics is a bottleneck across the country, no matter what region we're talking about. So I think we have done a good job in managing that and making sure our teams in the field are ahead of the curve on that.

Reuben Garner -- The Benchmark Company -- Analyst

Great. Thank you. Congrats on the end of the year, and good luck moving forward.

Robert Buck -- President and Chief Executive Officer

Thank you.

John Peterson -- Chief Financial Officer

Thank you.

Operator

The next question is from Ryan Gilbert, BTIG. Please go ahead.

Ryan Gilbert -- BTIG Research -- Analyst

Hi. Thanks, good morning, everybody. First question just on the revenue growth from volume differential between the installation and the distribution business. I mean, pretty wide over the last few quarters. Can you talk generally around how you see that trending in 2021. I guess, do you still expect distribution to significantly outgrow on a volume perspective?

John Peterson -- Chief Financial Officer

Yeah. So this is John. So distribution obviously had a great year as we ended the last -- especially the last two quarters with low double-digit volume growth. So let's talk about that for a second. That was really driven by, I think a couple of things. One is the comps were probably a little bit easier for Service Partners versus TruTeam year-over-year. And quite frankly the team went after it and did a great job of picking up additional share from new customers and continuing to focus on getting more share from our current customers' pocketbook.

So we will start to lap some of those good numbers here as we exit the first quarter and the second. So I think in terms of the growth you're going to see both segments perform really well in 2021. You probably won't see the disparity that we had in the back half of 2020 between the segments, because as I said, we will start to lap equity performance on the Service Partners side early in the year.

Ryan Gilbert -- BTIG Research -- Analyst

Okay, got it. Thanks. Then second question I guess, at the field level labor remains very tight and you would like to add. I'm just thinking about from like a corporate platform perspective, if we see starts outperform $1.425 million to $1.475 million range that you've outlined, do you feel like you've got the team in place from a corporate G&A or platform level or would you need to expand there?

Robert Buck -- President and Chief Executive Officer

Hey, Ryan. This is Robert. So I think from a corporate perspective, we're in a good place to continue to leverage as we see that ramp up happen and I do just want to call out too from a field perspective when we hear a lot about labor constraints. I think our field team has done a great job from the programs that we put in place from a corporate perspective, support center perspective and the benefits that we're seeing of that in the field, I think we're very well prepared and very well equipped for that ramp up happening.

Ryan Gilbert -- BTIG Research -- Analyst

Okay, great. Thank you.

Operator

We have a question from Keith Hughes, Truist. Please go ahead, sir.

Judy Merrick -- Truist Securities -- Analyst

Thank you. This is Judy on for Keith Hughes. If I could just do like one more follow up on your 2021 guidance. On EBITDA you gave better than last year by the quarters, but kind of aside from that, are you looking for more margin growth in the first half or the second half and when you think like pricing would be positive?

John Peterson -- Chief Financial Officer

Yeah, Judy. This is John. Again, we're not going to give any type of quarterly or guidance around the timing of the performance. Again, we think in terms of the revenue and growth in the industries we serve, we're going to continue to see improvements throughout the year. I think the nuances around the earnings side is tied to some of those things we talked about earlier, tied to COVID-related expenses, which have benefited, which will normalize. But yeah we're not going to provide any type of quarterly or mid-year or half-year guidance other than what we get on a full year basis.

Judy Merrick -- Truist Securities -- Analyst

Okay, all right. Thank you.

Operator

We have a follow-on question from Michael Rehaut, J.P. Morgan. Please go ahead, sir.

Michael Rehaut -- J.P. Morgan -- Analyst

All right. Thanks very much. Yeah, just -- I'm not sure -- given your answer of the last question you might answer this, but just trying to get a sense of the impact of the price increases on the business. Obviously, in the fourth quarter pricing was down slightly due to product mix, but would have expected at the same time the September price increase from the manufacturers to maybe have a little bit of a greater impact, and now we're looking in January with another price increase as well as April.

So just trying to get a sense if you do expect pricing to turn positive for your own business in the first quarter and then perhaps gain some more momentum into the second quarter if that's a reasonable way to think about it.

John Peterson -- Chief Financial Officer

Yeah. So Michael, this is John. I think that's a very reasonable way to think about it. We do anticipate in '21 starting with the first quarter, you're going to see positive pricing both on TruTeam and Service Partners and obviously, TopBuild in total. So what tempered it in the fourth quarter were the two commodities we talked about. It was primarily spray foam and gutter, which tempered our selling prices because we did see some commodity decreases on those products.

But certainly as we entered -- and even throughout the fourth quarter, we started to see those numbers increase sequentially by month. So as we entered the '21 timeframe, both on the material side, the inflationary cost increases are starting to kick in. And on the selling price side, we're confident we're going to be able to drive with selling price to offset that. So you will see that impact in the first quarter and through the 2021 calendar year.

Michael Rehaut -- J.P. Morgan -- Analyst

No, that's great, John. And then just in terms of the mechanism in terms of how it flows through, would there be any type of lag in terms of you having to absorb any of that -- of those price increases be -- before being able to pass it through to the customer base or should this be more of a seamless type of event?

John Peterson -- Chief Financial Officer

Yeah, this is John again, Michael. So I think the way to answer that is, I think this is a good environment right now in terms of driving selling price increases. We have really significant constraints on material and labor. We've had plenty of time to bake into our bid rates and our processes, so we're confident that we're going to be able to manage the inflationary increases through selling price without any degradation to the margins.

Robert Buck -- President and Chief Executive Officer

Yeah, Michael, this is Robert.

Michael Rehaut -- J.P. Morgan -- Analyst

Okay.

Robert Buck -- President and Chief Executive Officer

And you probably heard us say before, we've got great systems and controls in place as to how to get ahead in the bidding process and margin controls and the thresholds and stuff in the field and bands and stuff. So the team does a really good -- we have great tools in place and the team does a good job of managing that.

Michael Rehaut -- J.P. Morgan -- Analyst

Great. Thanks very much.

John Peterson -- Chief Financial Officer

Thank you.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I'd like to return the call back over to Mr. Robert Buck for closing remarks. Please go ahead, sir.

Robert Buck -- President and Chief Executive Officer

Thank you again for joining us this morning and we look forward to reporting our first quarter results in early May.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Tabitha Zane -- Vice President, Investor Relations

Robert Buck -- President and Chief Executive Officer

John Peterson -- Chief Financial Officer

Michael Rehaut -- J.P. Morgan -- Analyst

Adam Baumgarten -- Credit Suisse -- Analyst

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

Philip Ng -- Jefferies -- Analyst

Justin Speer -- Zelman & Associates -- Analyst

Noah Merkousko -- Stephens, Inc. -- Analyst

Reuben Garner -- The Benchmark Company -- Analyst

Ryan Gilbert -- BTIG Research -- Analyst

Judy Merrick -- Truist Securities -- Analyst

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