TopBuild Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 10 speakers on the call.

Operator

Greetings, and welcome to the TopBuild's First Quarter 2023 Earnings Release. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tabitha Zane, Vice President, Investor Relations. Thank you, Ms. Zane.

Operator

You may begin.

Speaker 1

Thank you and good morning. On the call today are Robert Buck, President and Chief Executive Officer and Rob Coons, Chief Financial Officer. We have posted senior management's formal remarks and a PowerPoint presentation that summarizes our comments on our website at topbill.com. Many of our remarks will include forward looking statements, which are subject to known and unknown risks and uncertainties, will be conducting a reconciliation 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.

Speaker 1

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 the table included in today's press release And in our Q1 presentation, which can also be found on our website. I will now turn the call over to Robert Buck. Good morning,

Speaker 2

and thank you for joining us today. We are pleased to report that 2023 is off to a good start with a solid first quarter performance. Revenue increased 8.2% and our adjusted EBITDA margin expanded 150 basis points to 18.8%. Both business segments, Installation and Specialty Distribution, also expanded their adjusted operating and EBITDA margins. Our consistently strong performance quarter after quarter is a direct result of the hard work of our operations and branch support teams, The insight and command we have into all facets of our business, our focus on operational efficiency and excellence, are uniquely advantaged business model with both installation and specialty distribution our diversified end markets, are in the range of $1,000,000,000 Our strong partnerships with our suppliers and customers and Our strategic approach to acquisitions and our integration onto our advanced ERP platform.

Speaker 2

Our installation business is benefiting from the large backlog of single and multifamily homes under construction, and we are encouraged that our builder customers continue to see improvements in terms of buyer interest. This supports our steadfast conviction that the long term fundamentals of the housing industry are strong, supported by Olympus' supply of both new and existing homes and favorable demographic trends. Our installation business is also benefiting from an increase in light commercial work. We've mentioned before that light commercial and residential installation are very similar including the Salt Lake City Airport expansion, the new Microsoft and YouTube corporate centers and the new Intuit Dome, just to name a few. To support and encourage both light and heavy commercial growth initiatives, We've been providing additional resources and tools for our salespeople and branch managers to help them better identify commercial opportunities and secure this work.

Speaker 2

Have identified and aggregates commercial construction project leads, which are then pushed out to our sales force dramatically improving bid opportunities, Sales productivity and win rates. Direct labor remains tight within the construction industry, but is a continued strength for TopBuild. We remain focused on enhancing labor and sales productivity through the sharing of best practices, the use of proprietary technology tools have the ability to monitor productivity in real time and share labor among our branches. This is major differentiator and gives us a competitive advantage. Looking at our Specialty Distribution business, overall sales increased 2.7%.

Speaker 2

Residential distribution volume declined as our smaller contractor customers brought inventory levels down and as the mix of units under Our diversified business model was a solid 8.7% increase in sales from our commercial and industrial channels. Are supporting a number of major industrial manufacturing projects, including the Tesla Gigafactory in Austin And the Taiwan Semiconductor Manufacturing Center in Phoenix. Other long running projects include alternative fuel facilities for are in the range of $1,000,000,000 Looking ahead, we expect to continue to support these large industrial and commercial projects. Our customer base recognizes that we are the leading supplier of mechanical insulation in North America and our 37 participation facilities across North America enable us to customize and engineer any type of product solutions our customers require. In addition, with only 10% market share of this very fragmented $5,500,000,000 market, We see great opportunities for growth both organically and through acquisitions.

Speaker 2

We have not seen an impact on demand in either the commercial or industrial markets following the recent turmoil in the banking industry. On the commercial installation side, our backlog remains robust and we are already bidding projects into late 2024 and early 2025. For Specialty Distribution, we see a lot of major projects being planned across several diverse industries fueling the demand for mechanical insulation. Maintenance and repair work on many commercial industrial sites is also being scheduled and this recurring revenue stream should serve as a continued stabilizing a driver for our Specialty Distribution business. We remain very optimistic about the opportunities for growth in both the commercial and industrial end markets.

Speaker 2

Turning to fiberglass, most of you know there was an industry cost increase in December for both Bass and Moose Fill, which did have some traction. Supply is expected to remain tight as we expect a number of production lines to be bought down for maintenance during the year. Are in the range of $1,000,000,000 Looking ahead, acquisitions remain our number one capital allocation priority and will continue to be a key component of our growth strategy are in the range of $1,000,000 in the range of $1,000,000 of annual revenue. SRI is a great addition to our installation are in the same position in Georgia, Florida, Ohio and Michigan. As we do with all acquisitions upon close, our integration team immediately works to share best practices to streamline processes and procedures, incorporate the newly acquired company onto our supply chain, Leverage technology and best practices to improve labor and sales productivity, eliminate back office and operational redundancies, Our growth targets are high quality installation focused are participating in the company's both installers and specialty distributors that will enhance our scale, expand our customer base and generate strong returns We have a robust pipeline of prospects and expect to close some of these deals this year.

Speaker 2

In recent meetings, a number of you have asked if we have a target in terms of the mix of our business over the long term. The answer quite simply is no. We see opportunities to expand our presence both organically and through acquisitions in all three end markets we serve, residential, commercial and industrial. Combined, they represent a total addressable market for installation of over $17,500,000,000 Before turning the call over to Rob, I want to emphasize that driving operational excellence and great execution throughout our organization has been and remains are one of our most important areas of focus and is a key component of our 9 40 basis points of adjusted EBITDA margin expansion since in the Q1 2018. We locally empower our 400 plus business leaders to run their branches as distinct operations with full P are in the range of our business.

Speaker 2

Branch leaders build their teams to include local management, sales and our at our installation branches, direct labor. At the corporate level, operational efficiencies are achieved across our entire network by leveraging supply chain efficiencies, sharing best practices And streamlining back office processes and procedures. Our drive to improve culture is inherent in everything we do at TopBuild. Rob?

Speaker 3

Thanks, Robert, and good morning, everyone. As Robert noted, our team continues to execute at a high level, generating strong results. The strength of our strategically advantaged model was evident as we grew sales and expanded adjusted EBITDA margins at both installation and specialty distribution. In addition, we saw sales growth across all of our diversified end markets. Moving to the financials, I'll start with an overview of our Q1 results, update you on our balance sheet and review our 2023 outlook.

Speaker 3

1st quarter net sales increased 8.2% to $1,300,000,000 With sales from our Installation segment increasing 13.4 percent to $767,100,000 and sales from specialty distribution increasing 2.7 percent to 558,400,000 installation sales were driven by strong volume growth and higher selling prices. Specialty distribution sales were driven by higher selling prices offset by a decline in residential volume, which Robert discussed earlier. Our adjusted gross margin for the Q1 was 29.3%, are in the range of $100,000,000 This was driven by operational efficiencies, fixed cost leverage and our continued success in managing inflation. 1st quarter adjusted EBITDA increased 18.1 percent to $238,300,000 and our adjusted EBITDA margin was 18.8%, are in a 150 basis point improvement compared to Q1 2022. 1st quarter incremental EBITDA margin was 38% and 43% on a same branch basis.

Speaker 3

1st quarter adjusted EBITDA margin for our Installation segment was 21.4% and 15.8 percent for our Specialty Distribution segment, an improvement of 230 basis points and 20 basis points respectively. Interest expense increased from $12,000,000 to $18,000,000 in the Q1, primarily as a result of higher variable interest rates. Our current average cost of debt is approximately 4.67 percent with approximately 60% fixed and 40% variable rates With no upcoming maturities until 2026. 1st quarter adjustments to net income were 3 point are related to acquisition and integration costs. 1st quarter adjusted earnings per share were $4.36 are in a 20 5% increase from prior year.

Speaker 3

Moving to our balance sheet and cash flows. 1st quarter operating cash flow was 169,800,000 compared to $89,500,000 in the prior year. This was driven by an 18.4% increase in net income and improvements in working capital. Working capital was 15.6% in the quarter and as I've mentioned on previous calls, we are targeting a range of 12% to 14% of sales by the end of this year. CapEx in the quarter was $15,600,000 1.2 percent of revenue and slightly below our long term guidance.

Speaker 3

We did not repurchase any shares in the quarter. As Robert mentioned, acquisitions remain our number one capital allocation priority We are working a robust pipeline of prospects. There were no significant changes to our debt structure and our Outstanding short term and long term debt balances remained at just under $1,500,000,000 We ended the Q1 with net debt leverage of 1.15 times have trailing 12 months adjusted EBITDA. Total liquidity on March 31, 2023 was $766,100,000 Including cash of $333,800,000 and an accessible revolver of $432,300,000 Moving to annual guidance, we are reaffirming our outlook for 2023 provided on our Q4 call on February 23. As a reminder, total sales are expected to be between $4,700,000,000 $4,900,000,000 and adjusted EBITDA to be in the range of 8 are in the range of $20,000,000 to $910,000,000 We continue to expect that our residential sales will decline mid to upper single digits are in the back half of the year.

Speaker 3

Our expectation for our commercial and industrial end markets is for will be able to expand by low to mid single digits. This outlook does not include any potential acquisitions or share repurchases. We believe the long term fundamentals of the housing industry are solid, and we are pleased to have heard the recent optimism expressed by many of the public builders. We are also bullish on the long term opportunities in the commercial and industrial end markets. Our leadership team, technology tools and flexible cost participants will ensure that TopBuild will continue to outperform in any environment.

Speaker 3

Robert?

Speaker 2

We see many opportunities in the year ahead to demonstrate unique participants take advantage of our multiple avenues for growth. Our focus on continuous improvement in all areas of our company enables us to maximize opportunities at every point in the cycle. Both installation and specialty distribution are performing well Our advanced ERP system gives us great control and real time insight into the day to day performance of each of our 400 plus branches. Finally, in our continued drive to be the employer of choice in our industry, TopBuild participated in the National Great Places to Work survey and evaluation, the gold standard of company rankings. We are proud and excited to report that based on direct employee feedback, The entire TopBuild organization is recognized as a great places to work organization.

Speaker 2

The direct feedback and ratings from our TopBuild employees speaks to our commitment to fostering a diverse and inclusive workforce where everyone has the opportunity to realize Being recognized as a great places to work, company is a positive endorsement of the TopBuild culture, which we strive to strengthen every day. I thank all of my TopBuild teammates for their hard work and dedication. Your continued focus on working safely to deliver value, Operator, we are now ready for questions.

Operator

Thank you. We will now be conducting a question and answer session.

Speaker 3

Will be

Operator

ready for questions. Our first question comes from Joe Azshmeir with Deutsche Bank. Please proceed with your question. Hi.

Speaker 4

This is Joe Ellersmeyer from Deutsche Bank. Good morning and congrats on the good results in the quarter.

Speaker 3

Thanks, Joe. Thank you.

Speaker 4

Maybe if you could start just by talking about your decision not to raise the guidance here given the strong quarter and with broader industry data and commentary sort of supportive of a stabilization and maybe specifically could you offer some Context to the expectation for slower single family in the back half, whether that be a specific single family back half revenue outlook or Single family starts or completions expectation.

Speaker 3

Yes, Joe, this is Rob. So I'd tell you, Q1 came in right about So we didn't feel a need to really adjust the guide there. But we're cautiously optimistic given what we're hearing from the builders, a lot of optimism out there. But we're realistic too knowing that if you look at starts for single family over the last two quarters, It's significantly below where completions have been running. So that's going to work its way through the system.

Speaker 3

But any meaningful uptick in starts from here will be upside to the forecast we have out there. And I'll just remind you that historically as a management team, we lean to the conservative So like I said, we're cautiously optimistic about the future.

Speaker 2

And Joe, this is Robert. Just to add on to that, I mean, I think the team in the field is doing a really nice job relative to the other opportunities as well like the light commercial business, what's happening on the commercial and industrial side. And to Rob's point, what we're seeing and hearing from builders, we're seeing more specs coming out of the ground as well. So we think there's a lot of positive signs out there. And to Rob's point, that's only going to be upside to our guidance.

Speaker 4

All right, understood. Very encouraging. And maybe could you just talk about Any considerations with multifamily the rest of the year? I think there had been some discussion about the product mix requiring more loose fill. So could you maybe just discuss the supply demand and pricing specifically for loose fill maybe relative to the bats Or any other multifamily considerations we should be aware of?

Speaker 2

Yes. I think this is Robert again. I think given the multifamily We definitely expect that to carry through 2023, definitely into 2024 as well. We're in great shape from a product perspective relative to what's required for loose fill for multifamily construction, which does require more loose fill installation. So We're in great shape from that perspective.

Speaker 2

The teams one thing that we have great insight into is the bidding and the backlogs as well as the bidding rates Of what the teams in the field are doing, so we feel really good about the multifamily work in the back half and what we participants Got it, as well as we think some good share gain that we captured in that piece of the business.

Speaker 4

All right. Thanks. Appreciate it.

Speaker 5

Taking my questions. First, I just wanted to hit, I guess, driving down a little bit more on the residential side and My second question will be more on the industrial mechanical side. But on the residential, is there a way to think about What your guidance reflects in terms of an outlook for starts for the year as you Rob, as you referred, So far, Q1, single family starts around 8.40, which is well below a year ago. So is there some type of implicit expectation for starts as the year progresses? And if For argument's sake, starts, let's say, really accelerate in the second quarter.

Speaker 5

Would that be more of a 3rd or a 4th quarter event for you guys in terms of upside.

Speaker 3

Yes. And Mike, this is Rob. I mean, I think it's really important as we look at the We had a great quarter for multifamily. We've been outbidding multifamily, getting ready for the slowdown we've seen coming on the single And then on the single family side, like I mentioned earlier, I mean, the starts data, it's obvious here the last couple of quarters starts are running about 24% below were, but we're, like I said, cautiously optimistic given what we're hearing from the builders, more spec homes, Potentially more starts and an increase in starts from where we are today would be upside to what we have in our forecast right now.

Speaker 5

So just to be clear before I hit my second question, what does your forecast reflect? Does it reflect Starts remaining at current levels for the rest of the year or some type of modest improvement, any color there?

Speaker 3

Yes, I'd say it's flattish from where we are today. I mean, it could be modestly up or down given the range we have out there. But Like I said, any meaningful movement in either direction is going to be upside or downside to what we have out there.

Speaker 5

Okay, great. And then secondly, on the commercial side or commercial mechanical, you referenced good Bidding activity and involvement in various projects into 2024, How does that translate in terms of thinking about 2024 versus 2023? Would you expect Given the current trends, would you expect any level of growth or any color there would be helpful as well?

Speaker 2

Mike, Robert. So what I would say and you can translate this as to how the future looks, there's just a lot of Puts up work out there on the industrial mechanical side. If you think about as we talked about 2021, 2022 that was a little slower to recover And now we're seeing those projects come both new projects, if I think about industrial, on shoring, some things in the Food and beverage space, we talked about some big projects on the chemical side earlier. But then also on the MRO side, which is that recurring revenue, What we love about this business, there's a lot of MRO work that's out there scheduled. We see that coming here in 'twenty three going into 'twenty four.

Speaker 2

Given why we're such a big player there and while we benefit so much there is that our fabrication capabilities, how we engineer those products really for refineries Or any other unique situation really allows us to capitalize on the MRO and that recurring revenue. So yes, we have a you can tell from my comments, a very positive outlook are in that industrial mechanical side of the business for those reasons.

Speaker 5

Okay. Thank you.

Operator

Thank you. Thank you. Our next question comes from Adam Baumgarten with Zelman. Please proceed with your question.

Speaker 3

Hey, good morning guys. Just curious what you're seeing from a pricing perspective in the residential business. Has there been any kind of competition sprouting up that's kind of outside of the norm?

Speaker 2

Adam, this is Robert. So look, given the tightness of continued tightness of material and labor from that perspective, I think things have been pretty steady relative to that. I think also given where we are in the chain there from a construction cycle, I think the builders realize that value as well. So, I'd say nothing out of the ordinary from that perspective. And I think, if you look at our results, you can tell our field teams have done a great job of walking that balance of volume and working to get price

Speaker 3

I guess just also just on the prospect of additional price increases on the fiberglass side, how are you guys thinking about that for the balance of the year? Yes.

Speaker 2

As we said previously, we expected the inflation to moderate this year. I think there's still some inflation there. I think You also saw some of the previous results from the other public fiberglass manufacturers. They talked about price in the Q1. So we expect that it has to be stabilized, but I think it all depends on the demand curve, what starts look like the back half of the year.

Speaker 2

I think that could drive any future action from the cost increase perspective.

Speaker 3

Okay, got it. Thanks.

Speaker 2

Thank you. Thank

Operator

you. Our next question comes from Keith Hughes with Truist Securities. Please proceed with your question.

Speaker 6

Thank you. You had talked in the prepared comments about commercial industrial being up low to mid single digits. I believe you're talking about the year here. Is there any differentiation between those 2 in growth rates? And is that the same as the business you talked about being up 8 in the Q1.

Speaker 3

Yes. So Keith, this is Rob. So yes, you're correct that when we talk about it being up low to mid single digits, that's what's baked into our guidance. We obviously exceeded that a little bit in the Q1, up 8.2% overall for the company on the commercial industrial front, which was strong on both the installed business and on the specialty distribution business. So I think it really A testament to what we've been talking about the strength of our diversified model and diversified end markets, this is going to be a year where we can really show that with all the commercial and industrial side of the business growing.

Speaker 3

So we're optimistic for the back half, but we're still sticking with have low to mid single digit growth for the year, but obviously had a really great Q1. As far as segregating Between the 2, commercial and industrial, I'd say there wasn't a meaningful difference between the 2 in the quarter or in our outlook.

Speaker 6

Okay. One other question on that. The numbers you were referring to, does that include pricing? And if so, roughly how much?

Speaker 3

Yes, it includes price, but we don't break price down between residential and commercial. Definitely, there's more price flowing through on the residential side given the Higher fiberglass content on that side of things, but we don't have the split of that.

Speaker 6

Okay. Thank you.

Operator

Thank you. Our next question comes from Phil Ng with Jefferies. Please proceed with your

Speaker 7

Hey, guys. Congrats on another strong quarter. Robert, really appreciate some of the color Around to these bigger projects that you highlighted earlier on shoring petchem, all that good stuff. Certainly, there's have concerns about tighter lending conditions. I wouldn't imagine you would have much impact this year.

Speaker 7

But looking out to 2024 and beyond, curious what you're seeing on the bidding activity. Can you kind of help size up big versus small? I would imagine some of your bigger projects bigger customers wouldn't have much problem getting capital, but maybe the smaller guys and your ability to kind of move Stuff around in terms of labor, if one part of the segment was a little stronger versus the other. Sorry, a lot to unpack there.

Speaker 2

Thanks, Phil. So you're right relative to our ability to move things around if we do see those fluctuations in certain parts of the country. But if you think about the projects, you think about some of the large projects that I spoke to, I mean, first, let me go on the MRO side, the recurring piece. A lot of that is things that are planned well in the future, funded well in the future and some of those are actually required type of MRO that has to happen, if you think about refineries and even food and beverage. So that's part of the positive of that MRO business.

Speaker 2

And then relative to new projects, participants and if you think about where our work comes in those projects, most of those projects are already out of the ground. Those are funded and those that's one reason we use that term long running projects because they'll go well into 'twenty four, into 'twenty five even Relative to the run rate of this project. So we haven't seen the impact. I think given the mix of business that we have there in the multiple avenues, I think overall, we feel good. And really, even if you think about segments within commercial, industrial, We're not really oversaturated in one area.

Speaker 2

I mean, we're everything from the onshoring to food and beverage to the industrial, and you could think Semiconductor, Space, EV, Liquid, Natural Gas, we're kind of across the gamut there. So and a lot of those are really required infrastructure that's coming. So We feel good about it. We'll watch it constantly, obviously, like everyone else is, but no signs of it here thus far and also no signs in talking with

Speaker 7

That's great color, Robert. And then from a IRA Act standpoint, I believe there's some tax credit for the average Whether it's this year or going to 2024?

Speaker 2

Yes. I mean, I think there if you think about the homeowners, so definitely from energy efficiency and some of the potentially rebates there, participants Definitely, people look to maybe re insulate, if you will, to drive some energy efficiency or some rebates. We'll get after that business on our specialty distribution side. And if you think about that smaller contractor that may be doing our work, that's our definitely our primary customer on the specialty distribution participants are especially residential. If you think about some of the other infrastructure piece, definitely I mentioned the Salt Lake City Airport as an example, those types of infrastructure projects that will definitely benefit us some on the industrial commercial side, hard to kind of quantify that.

Speaker 2

But given again, we play across that entire space, We'd expect to see some nice tailwind from that as those bills come into play, both again, commercial and industrial.

Speaker 7

Okay, super. And great job in retooling the portfolio to kind of tap into some of these growth avenues. Thanks a lot.

Speaker 8

Participants.

Operator

Thank you. Our next question comes from Stephen Kim with Evercore ISI. Please proceed with your question.

Speaker 9

Thanks very much, guys. Appreciate all the help and the guidance. Congrats on the quarter. You made an interesting comment near the beginning. I think you said that 1Q when you were talking about the residential well, your overall market Or your overall sales, I think you said 1Q came in roughly in line with what you expected.

Speaker 9

And but clearly in the residential side of the business, The 1Q sales environment and therefore planning for 2Q by homebuilders and so forth has pretty greatly exceeded the industry's So I just want to confirm that you saw that too, you see that and you hear that as well. And

Speaker 8

in fact, kind of

Speaker 9

as a follow on to that, One of the things that we're anticipating is that you might see a little bit more market share shifting to the larger builders because they may have the balance sheets and the open lines of credit to be able to do more of the spec building, which I think you mentioned, versus small privates that may have a little bit of difficult are in the same time increasing their spec activity given the regional bank stress. So I guess I'm Wondering, is it reasonable to assume that if you see this market share shift that might lead to a slightly lower incremental margin in the residential install

Speaker 2

Yes. So I'll start off, Stephen, this is Robert on that and try to hit and I'm sure Rob will add on some comments as well. So I think On your large production border coming, I think you're exactly right. I mean, what we're seeing and obviously what the builders are saying around the spec home piece and participants Having the balance sheet to support that, seeing those come out of the ground, yes, I think you're absolutely right about that. They'll get ahead of the curve here, things stabilize and that will allow for some share I think given the material situation, the labor situation, our relationships with those production builders, We're not too concerned from the margin perspective if that shift happens or that share shift happens with the production builders.

Speaker 2

So no concern from that perspective. Back to your Q1 comment, And then I'll hand over to Rob if he's got any add ons. I think whenever we say in line, we saw what happened to single family. It was pretty flat. Multifamily was up are really, really healthy given what our teams in the field have done exactly what we expected.

Speaker 2

We talked about distribution volumes, commercial industrial strong, what we expected, a little bit down on the residential distribution side given some lowering of inventories by the smaller contractors as well as that shift in multifamily. I know we talked about came in As we thought, those were some of the dynamics we thought would play out in

Speaker 3

the quarter and they did. Yes. Yes, Stephen, I'd just add. I mean, I think when we made that comment, we're talking in total, right? I'd say on the install side a little better from a volume perspective.

Speaker 3

The team did a great job getting out there, getting a lot of multifamily work. And like we mentioned in the prepared remarks, residential volume on the specialty distribution side down slightly. All participants we saw people taking inventory out, anticipating the slowdown as well as with the shift in multifamily mix, some of those smaller contractors participants that go for residential products to specialty distribution had a little bit less share in the quarter. So Those are the 2 things, but overall, like I said, right in line with our expectations for the quarter.

Speaker 2

If I could sort

Speaker 9

of follow-up on that, your comments there on the residential side within Spect Distro, I think you said that, Well, first of all, would it be right to guess that the residential side of the business within spec distribution was down maybe about 4%? If that's wrong, if you could correct me, that would be great. But then you, I think, attributed Resi being weaker than the commercial industrial due to I think small your smaller customers all participants are other small installers and whatnot reducing inventory. I'm wondering are those inventories in your estimation right sized from a

Speaker 3

level that was too high

Speaker 9

or maybe given what we've seen here in 1Q sales for homes, could we be maybe too low now? And then you said also multifamily mix impacted it. Could you talk a little bit about why and how multifamily, the mix is impacted negatively. What is it about the multi fan versus the single fan that particularly affects the sales?

Speaker 2

Participants. Yes. Stephen, this is Robert. So I'll try to get all those answers here. Relative to the talking about the special distribution residential, yes, low Which by the way, given if you look around the industry and stuff, we think execution in the field on that side of this was fabulous.

Speaker 2

The team did a great job in the other areas, other products, accessory products, some of that. So we think fabulous results from how the team handled that shift. All participants. On the multifamily side, so yes, the smaller contractors, which we get after on that residential specialty distribution side, they're probably participating less In that multifamily work, they're more maybe the custom builder, the smaller regional builder, the repair remodel type work. So that's what that specific kind of smaller contractor we're going after.

Speaker 2

If you think about the multifamily rights, so you've got and also kind of speak as where we picked up share there on the install side, but if you think about that multifamily side, major fluctuations in the amount of material needed, The amount of labor needed in a week's timeframe or something like that. So that's it's harder to obviously react to that and that's why we're able to move. When we talk about moving equipment, material, labor round that plays well for us on the multifamily. And then I'm sure as you've seen, there's a lot of that multifamily work today Coming up, but it also has a lot of it has this light commercial work with it where the first floor is can be Retail and then you got the multifamily above it. And so with the fact of how we're playing that like commercial and multifamily, it's allowed us Pick up some nice projects due to that ability we have across multiple projects, if you will.

Speaker 9

Got it. Thank you so much. That's very helpful.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from Carl Reichardt with BTIG. Please proceed with your question.

Speaker 8

Thanks for taking my question. Robert, you talked about the TAM for the business overall being $17,500,000,000 What percentage of that do you think is the MRO recurring revenue side?

Speaker 2

Yes. So as we think about it, you probably see what we published around that commercial industrial space. We call that opportunity, I'd say, call it, 5.5, call it, dollars 6,000,000,000 type of total addressable market. I'd say if you look at our business and stuff, the MRO is about 50% on the industrial side. And so and we've probably done a really good job giving our fabrication capabilities of getting after that work.

Speaker 2

So I'd say is that maybe a little less than 50% of the total, Tim. I think it probably is. I can't give you the exact number. I just know how we're kind of are oriented towards that and how we've given our capabilities to fabrication, we've tried to make sure and get after that opportunity to gain share in that space.

Speaker 8

Okay. Thanks for that. And then Rob, you talked about the working capital as a percentage sales target are going down to 12% to 14%. What are the key drivers to get that number down? I recognize there's probably some seasonality in there.

Speaker 8

And then as you look beyond 2023,

Speaker 3

Yes. I would say our long term target is still in that 12% to 14% range. I think The opportunity right now lies a little bit on the AR side, but also on the inventory side. With things potentially slowing down here in the back half of the year, definitely an opportunity to squeeze some of that working capital out and generate are on free cash flow. One of the great stories of our Q1 was our free cash flow.

Speaker 3

We generated $154,000,000 of free cash flow, up 117% for the year and for the full year with the numbers we have out there, we should be north of $600,000,000 of free cash flow. So we feel really good about that and we think of the 14% will probably be closer to the high end of that as we close out this year, but long term towards the middle of that.

Operator

There are no further questions at this time. I would like to turn the floor back over to President and COO, Robert Buck for closing comments.

Speaker 2

Thank you for joining us this morning. We look forward to reporting Q2 results in early August.

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