Q4 2023 TopBuild Corp Earnings Call
Operator: Greetings and welcome to TopBuild's fourth quarter and year-end 2023 conference call. At this time, all participants are in a listen- A brief question and answer session will follow the formal If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder of this conference, it is now my pleasure to introduce your host, Tabitha Zane, Vice President, Investor Relief. Thank you, Tabitha. You may begin. Thank you, and good morning.
Greetings and welcome to the top built fourth quarter and year end 2023 conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad 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 Tabitha you may begin.
Tabitha N. Zane: Thank you and good morning on the call today are Robert Buck, President and Chief Executive Officer, and Rob <unk>, Chief Financial Officer, We have posted senior management's formal remarks, and a powerpoint presentation that summarizes our comments on our website a top bill dotcom.
Tabitha N. Zane: On the call today are Robert Buck, President and Chief Executive Officer, and Rob Koons, Chief Financial Officer. We have posted senior management's formal remarks and a PowerPoint presentation that summarizes our comments on our website at TopBuild.com. Many of our remarks will include forward-looking statements that 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.
Tabitha N. Zane: 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.
Tabitha N. Zane: The company assumes no obligation to update or supplement forward looking statements that become untrue because of subsequent events. Please.
Tabitha N. Zane: 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.
Tabitha N. Zane: 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 our fourth quarter presentation, which can also be found on our website. I will now turn the call over to Robert Buck. Good morning.
And in our fourth quarter presentation, which can also be found on our website I will now turn the call over to Robert Buck.
Robert M. Buck: We're glad you could join us today. I'd like to begin by thanking all of our TopBuild installation and special distribution teams for their hard work and unrelenting focus on working safely, serving our customers, and continuing to push for operational excellence every day. We accomplished a lot this past year for our stakeholders, and I'm proud to be part of this talented and very results-driven team. The four of you in our fourth quarter and year-end results. I want to update you on our SPI transaction. As a reminder, SPI is a specialty distributor and custom fabricator of mechanical insulation and a specialty distributor of building insulation to the three end markets we serve.
Robert M. Buck: We're glad you could join us today.
Robert M. Buck: I'd like to begin by thanking all of our top bill installation, especially distribution teams for their hard work and unrelenting focus on working safely servicing our customers and continuing to push for operational excellence every day.
Robert M. Buck: We accomplished a lot this past year for our stakeholders and I'm proud to be part of this talented and very results driven.
Robert M. Buck: Before reviewing our fourth quarter and year end results.
Robert M. Buck: I want to update you on our S. P. I transaction as a reminder, spi is especially distributor and custom fabricated mechanical insulation and a specialty distributor of building escalations to the three end markets, we serve mechanical commercial building and residential.
Robert M. Buck: Mechanical, Commercial Building, and Residential. We're in the process of responding to a second request for information from the Antitrust Division of the Department of Justice. In today's environment, these requests have become more common, resulting in a lengthier process. We are compliant with your information requests and address their questions. Now, turning to our financial results, we finished 2023 with a strong fourth quarter, completing another outstanding year for TopBuild. For the full year, gross and adjusted EBITDA margins expanded 120 basis points and 140 basis points, respectively, to 30.9% and 20.2%.
Robert M. Buck: We're in the process of responding to a second request for information from the antitrust Division of the department of Justice.
Robert M. Buck: In today's environment. These request to become more common resulting in a link to your process.
Robert M. Buck: We are complying with their information requests and addressing their questions.
Robert M. Buck: Now turning to our financial results. We finished 2023 with a strong fourth quarter completing another outstanding year for <unk>.
Robert M. Buck: For the full year gross and adjusted EBITDA margins expanded 120 basis points, and 140 basis points, respectively, $2 39, 39% and 22%.
Robert M. Buck: Our diversified business model and focus on driving operational efficiency led to the successful execution of our overall strategy; we once again delivered on our objectives of achieving profitable growth and outperforming in any operating environment. 2023 was markedly better than we had originally anticipated. When we first issued guidance 12 months ago, we were facing declining single-family starts, steady interest rate hikes, and the possibility of a slowing economy.
Robert M. Buck: Our diversified business model and focus on driving operational efficiency led the successful execution of our overall strategy.
Once again delivered on our objectives of achieving profitable growth and outperforming in any operating environment.
Robert M. Buck: 2023 was markedly better than we had originally anticipated when we first issued guidance 12 months ago, we were faced in declining single family starts.
Robert M. Buck: Eddie interest rate hikes, and the possibility of a slowing economy. Despite these headwinds tocqueville showed positive growth from the outset exceeding the high end of our initial sales and adjusted EBITDA guidance.
Robert M. Buck: Despite these headwinds, TopBuild showed positive growth from the outset, exceeding the high end of its initial sales and adjusted EBITDA guidance. There are many factors driving these outstanding results. I'm extremely proud of our installation segment leadership, who targeted multiple avenues for growth, successfully expanding our multifamily and commercial business to offset the decline in single-family construction. For the full year, and on a same branch basis, we grew our multifamily business by over 50% and our commercial business by over 11%. This strong growth more than offset the low single-digit decline in our single-family sales. At our special distribution segment, we saw commercial and industrial sales grow 6.3% in the fourth quarter and 4.6% for the year. This revenue includes maintenance and repair work on many commercial and industrial sites, driving ongoing stable revenue. Today, maintenance and repair work accounts for approximately 25% of Specialty Distributions' revenue.
Robert M. Buck: There are many factors driving these outstanding results I am extremely proud of our installation segment leadership through targeted multiple avenues for growth successfully expanding our multifamily and commercial business to offset the decline in single family construction.
Robert M. Buck: For the full year and on a same branch basis, we grew our multifamily business by over 50% and our commercial business by over 11%.
This strong growth more than offset the low single digit decline of our single family sales.
Robert M. Buck: At our specialty distribution segment, we saw commercial and industrial sales grew six 3% in the fourth quarter and four 6% for the year.
Robert M. Buck: This revenue includes maintenance repair work on many commercial and industrial sites driving ongoing stable revenue.
Robert M. Buck: Maintenance and repair work accounts for approximately 25% of specialty distributions revenue.
Robert M. Buck: In both business segments, our proprietary lead app tool is providing qualified leads to help our local businesses drive commercial and industrial organic growth. This is a great example of our innovative approach to enhancing the sales process. In 2023, we continue to spearhead initiatives to increase labor productivity. Even small improvements leveraged across our installer base of over 8,000 will deliver significant savings to our bottom line. Our common ERP system enables us to easily track productivity and identify future opportunities to drive operational efficiency. Let's continue to focus on improved labor productivity as a distinct advantage for TopBuild as labor constraints persist across the construction industry.
Robert M. Buck: And both business segments, our proprietary lead at too is providing qualified leads to help our local business is drive commercial and industrial organic growth. This.
Robert M. Buck: This is a great example of our innovative approach enhancing the sales process.
Robert M. Buck: In 2023, we continue to spearhead initiatives to increase labor productivity, even small improvements leverage across our installer base of over 8000 will deliver significant savings to our bottom line.
Robert M. Buck: Our common ERP system enables us to easily track productivity and identified future opportunities to drive operational efficiency.
Robert M. Buck: Let's continue to focus on improved labor productivity is a distinct advantage for <unk> as labor constraints persists across the construction industry.
Robert M. Buck: Another initiative contributing to our profitable growth last year was the expansion of our special operations team, comprised of seasoned leaders whose sole mission is to drive operational efficiencies and to share best practices throughout TopBuild. They're also tasked with focusing on the bottom core trial of our installation and specialty distribution branch. Their goal is to understand why these branches are underperforming and to put in place the necessary changes to improve their growth and profitability.
Robert M. Buck: Another initiative contributed to our profitable growth last year was the expansion of our special operations team comprised of seasoned leaders, whose sole mission is to drive operational efficiencies and to share best practices throughout <unk>.
Robert M. Buck: There are also tasked with focusing on the bottom quartile of our installation and specialty distribution branches.
Robert M. Buck: Their goal is to understand why these branches are underperforming and to put into place the necessary changes to improve their growth and profitability.
Robert M. Buck: This team helped drive some great and sustainable improvements last year that positively impacted our top and bottom lines. Looking ahead, they've already identified multiple opportunities that will enhance our operating performance and organic growth in 2024 and beyond. We were also successful on the capital allocation front, completing four residential installation acquisitions that are expected to contribute approximately $173 million of annual revenue. This included SRI holdings and Best Installation, which to date are our third and fourth largest residential installation acquisitions. The other two acquisitions completed last year were Rocky Mountain Installation and Panhandle Installation, the latter of which closed in October.
Robert M. Buck: This team helped drive some great and sustainable improvements last year that positively impacted our top and bottom lines. Looking ahead, they've already identified multiple opportunities that will enhance our operating performance and organic growth in 2024 and beyond.
Robert M. Buck: We were also successful in the capital allocation front completing four residential installation acquisitions that are expected to contribute approximately $173 million of annual revenue.
Robert M. Buck: This included Fri holdings, and best installation, which to date are our third and fourth largest residential installation acquisitions.
Robert M. Buck: The other two acquisitions completed last year in the Rocky Mountain installation and Panhandle legislation, the latter of which closed in October.
Robert M. Buck: These four companies complement our growth strategy and bring experienced installers, great management teams, and strong customer relationships to the top. As always, when we evaluate acquisition opportunities, we look for deals that are creative in our existing footprint and current operations, meet our strategic growth initiatives, leverage our skill advantages in a meaningful way, and are a good culture fit with our organization. Now, let's turn to 2024 and how we see the year unfolding. While Rob will provide more details and clarity on our outlook, you can see we expect another strong year of profitable growth for TopBuild, led by outstanding execution, a continuous focus on driving operational improvement, and an eye toward innovation throughout the company. As we said on previous calls, we are bullish on the long-term fundamentals of residential new construction. There remains a shortage of housing inventory and strong pent-up demand.
Robert M. Buck: These four companies complement our growth strategy and bring experienced installers, great management teams and strong customer relationships.
Robert M. Buck: As always when we evaluate acquisition opportunities we look for deals that are accretive to our existing footprint and current operations meet our strategic growth initiatives leverage our scale advantages in a meaningful way and are a good culture fit with our organization.
Robert M. Buck: Now, let's turn to 2024, and how we see the year unfolding.
Robert M. Buck: Rob will provide more detail and clarity on our outlook you can see we expect another strong year of profitable growth for Tocqueville led by outstanding execution, and our continuous focus on driving operational improvements and an eye towards innovation throughout the company.
Robert M. Buck: As we said on previous calls we are bullish on the long term fundamentals of residential new construction. There remains a shortage of housing inventory and strong pent up demand.
Robert M. Buck: In the near term, we are encouraged by the improvement over the past few months in single-family starts and the outlook for interest rates. As a result, we are optimistic single-family residential new construction could have more upside as the year progresses, and we believe this will be an important source of organic growth. There is also a strong backlog of multifamily work that should keep us busy throughout the year.
Robert M. Buck: In the near term we are encouraged by the improvement over the past few months of single family starts and the outlook for interest rates.
Robert M. Buck: As a result, we are optimistic single family residential new construction could have more upside as the year progresses, and we believe this will be an important source of organic growth.
There is also a strong backlog of multifamily work that should keep us busy throughout the year.
Robert M. Buck: On the commercial and industrial front, at both installation and specialty distribution, we expect another year of growth based on our bidding activity and strong backlog. Our two team branches have worked hard to build relationships with general contractors in their respective markets, and they are fostering these relationships to ensure we continue to win more than our fair share of light and heavy commercial work. We also expect solid performance this year for mechanical installations, including new projects and maintenance and repair work.
Robert M. Buck: On the commercial industrial front at both installation, especially distribution, we expect another year of growth based on our bidding activity and strong backlog, our Turkey branches have worked hard to build relationships with general contractors in their respective markets and they are fostering these relationships to ensure we continue to win more than our fair share of.
Robert M. Buck: In heavy commercial work.
Robert M. Buck: We also expect solid performance this year for mechanical insulation, including new projects and maintenance and repair work.
Robert M. Buck: As I mentioned last quarter, we're in the second phase of our growth strategy and operational improvement initiatives related to our specialty distribution model. We've identified many cross-selling opportunities and see this as another important driver of organic growth. Looking at the material, and assuming single family starts maintain their current trajectory, fiberglass will be tight.
Robert M. Buck: As I mentioned last quarter, we are in the second phase of our growth strategy and operational improvement initiatives related to our specialty distribution model.
Robert M. Buck: We have identified many cross selling opportunities and see this as another important driver of organic growth.
Robert M. Buck: Looking at material and assuming single family starts maintain their current trajectory fiberglass will be tight.
Robert M. Buck: We are seeing good price realization from the December-January material cost increase. However, with upcoming maintenance on a number of production lines, we don't see any significant material capacity improvement this year, even with the addition of the Knopf plant, which is expected to be operational sometime in mid-2024. Moving to Capital Allocation, two months into the quarter, we've already inked three deals: Pest Control and Insulation, a special distributor generating approximately $24 million of annual revenue, and two residential installers, Bravo Insulation and Morris Black & Sons, which together are expected to generate approximately $9 million of annual revenue.
Robert M. Buck: We are seeing good price realization from the December January material cost increase with upcoming maintenance on a number of production lines. We don't see any significant material capacity improvement. This year, even with the addition of the <unk> plant, which is expected to be operational sometime mid 2024.
Robert M. Buck: Moving to capital allocation two months into the quarter, we've already each three deals pest control installation, especially distributor generated approximately $24 million of annual revenue and two residential installers.
Robert M. Buck: <unk> installation and Morris Black concerns, which combined are expected to generate approximately $9 million of annual revenue.
Robert M. Buck: Looking ahead, our prospect pipeline is robust, and we intend to stay active on the acquisition front. As always, we'll remain focused on acquiring high-quality residential and commercial installation and specialty distribution companies. All three of our markets are highly fragmented and present great opportunities to reinvest our strong free cash flow to drive shareholder value. Operationally, our team is focused on driving organic growth and exceeding customer expectations. We will also continue to implement initiatives and maintain an innovative approach to drive operational efficiencies and improve labor and sales productivity. Energy codes should continue to strengthen, serving as a tailwind for all areas of our business. Rob?
Robert M. Buck: Looking ahead, our prospect pipeline is robust and we intend to stay active on the acquisition front and as always we'll remain focused on acquiring high quality residential and commercial installation and specialty distribution companies.
Robert M. Buck: All three of our end markets are highly fragmented and present, great opportunities to reinvest our strong free cash flow to drive shareholder value.
Robert M. Buck: Operationally our team is focused on driving organic growth and exceeding customer expectations.
Robert M. Buck: We will also continue to implement initiatives and maintain an innovative approach to drive operational efficiencies and improved labor and sales productivity energy coach should continue to strengthen serving as a tailwind for all areas of our business.
Robert M. Buck: Thanks. Thanks, Robert. And good morning, everyone.
Robert M. Buck: Rob.
Speaker Change: Thanks, Thanks, Robert and good morning, everyone. We are pleased with our strong 2023 performance and I want to congratulate and thank the entire top build team for a job well done.
Robert M. Buck: We are pleased with our strong 2023 performance, and I want to congratulate and thank the entire TopBuild team for a job well done. Your hard work to serve our customers and drive operational efficiencies led to another strong year of financial results. Since becoming a public company in 2015, we have grown sales and adjusted EBITDA for eight consecutive years at compounded annual rates of 16% and 33%, respectively. This consistent track record of growth is something we can all be proud of and build upon in 2024 and beyond. Looking at 2023 compared to 2022, we delivered $5.2 billion in revenue, representing growth of 3.7%. We improved gross margin by 120 basis points to 30.9%, and our adjusted EBITDA margin was 20.2%, a 140 basis point improvement.
Speaker Change: Your hard work to serve our customers and drive operational efficiencies led to another strong year of financial results.
Speaker Change: Since becoming a public company in 2015, we have grown sales and adjusted EBITDA for eight consecutive years at compounded annual rate of 16% and 33% respectively.
Speaker Change: This consistent track record of growth is something we can all be proud of and build upon in 2024 and beyond.
Speaker Change: Looking at 2023 compared to 2022, we delivered $5 2 billion in revenue representing growth of three 7%, we improved gross margin by 120 basis points to 39% and our adjusted EBITDA margin was 22% a 140 basis point improvement.
Robert M. Buck: And for the first time in our history, we delivered more than $1 billion in adjusted EBITDA. Turning to the fourth quarter, net sales grew 1.7% to $1.3 billion. On a segment basis, installations net sales grew 3.8% to $790.4 million as lower single family volume was more than offset by acquisitions, stronger multifamily and commercial volume, and slightly higher prices. Specialty Distributions net sales totaled $564.5 million in the fourth quarter, up 0.2%. Lower residential volumes were more than offset by stronger commercial and industrial volumes and prices.
Speaker Change: And for the first time in our history, we delivered more than $1 billion in adjusted EBITDA.
Speaker Change: Turning to the fourth quarter net sales grew one 7% to $1 3 billion.
Speaker Change: On a segment basis installations net sales grew three 8% to $790 4 million as lower single family volume was more than offset by acquisitions stronger multifamily and commercial volume and slightly higher price.
Speaker Change: Especially distributions net sales totaled $564 5 million in the fourth quarter of 0.2%.
Speaker Change: Lower residential volumes were more than offset by stronger commercial and industrial volumes and pricing.
Robert M. Buck: Gross margin for the fourth quarter was 30.4%, representing a 70 basis point improvement compared to prior years. Fourth quarter adjusted EBITDA totaled $251.6 million, and adjusted EBITDA margin was 19.6 percent, an 80 basis point improvement versus the fourth quarter of 2022. Fourth quarter adjusted EBITDA margin for our installation segment was 21.4%, an improvement of 60 basis points year over year. Specialty Distributions adjusted EBITDA margin in the fourth quarter was 17.5%, an improvement of 80 basis points versus last year. Other income and expense totaled $10.5 million in the fourth quarter, a decrease of $4.7 million compared with the prior year.
Speaker Change: Gross margin for the fourth quarter was 34%, representing a 70 basis point improvement compared to prior year.
Speaker Change: Fourth quarter, adjusted EBITDA totaled $251 6 million and adjusted EBITDA margin was 19, 6%, an 80 basis point improvement versus the fourth quarter of 2022.
Speaker Change: Fourth quarter adjusted EBITDA margin for our installation segment was 21, 4% an improvement of 60 basis points year over year.
Speaker Change: Especially distributions adjusted EBITA margin in the fourth quarter was 17, 5% an improvement of 88.
Speaker Change: 80 basis points versus last year.
Speaker Change: Other income and expense totaled $10 5 million in the fourth quarter, a decrease of $4 7 million versus the prior year.
Robert M. Buck: For the full year, other income and expense was $53.3 million, down from $55 million in 2022. Higher interest income on deposits more than offset higher interest expense on our variable rate term loan in both the fourth quarter and full year. In the fourth quarter, adjustments to net income totaled $7.4 million, and for the full year, they were $21.6 million, largely acquisition related. Fourth quarter adjusted earnings per diluted share of $4.69 represents growth of 6.6% versus the prior year. For the full year, adjusted earnings per diluted share were $19.73, or growth of 15.3% versus 2022. Moving to our balance sheet and cash flows, we are pleased with our 2023 operating cash flow, which increased 71% to $849.4 million, compared to $495.8 million in 2022. Higher profitability and significant progress in working capital drove our cash flow improvement versus last year. Working capital was 13.2% of sales versus 15.7% last year.
Speaker Change: For the full year other income and expense was $53 3 million down from $55 million in 2022.
Speaker Change: Higher interest income on deposits more than offset higher interest expense on our variable rate term loan in both the fourth quarter and full year.
Speaker Change: In the fourth quarter adjustments to net income totaled $7 4 million and for the full year. They were $21 6 million, which were largely acquisition related.
Speaker Change: Fourth quarter adjusted earnings per diluted share of $4 69 represents growth of six 6% versus the prior year.
Speaker Change: For the full year adjusted earnings per diluted share were $19 73.
Speaker Change: Or growth of 15, 3% versus 2022.
Speaker Change: Moving to our balance sheet and cash flows. We are pleased with our 2023 operating cash flow, which increased 71% to $849 4 million compared to $495 8 million in 2022.
Speaker Change: Higher profitability and significant progress in working capital drove our cash flow improvement versus last year.
Speaker Change: Working capital was 13, 2% of sales versus 15, 7% last year.
Robert M. Buck: Our teams in the field did a great job reducing our inventory days on hand by eight days from last year. 2023 CapEx totaled $64 million, or about 1.2% of revenue, slightly below our long-term guidance of 1.5% to 2%. Total outstanding debt at year end was approximately $1.4 billion, and we finished the year with leverage of 0.56 times our trailing 12 months adjusted EBITDA, which compares to 1.31 times at the end of 2022. Total liquidity was $1.28 billion, including cash of $848.6 million and availability under our revolver of $436.2 million.
Speaker Change: Our teams in the field did a great job, reducing our inventory days on hand by eight days from last year.
Speaker Change: 2023 capex totaled $64 million or about one 2% of revenue slightly below our long term guidance of one 5% to 2%.
Speaker Change: Total outstanding debt at year end was approximately $1 4 billion and we finished the year with leverage of 0.56 times, our trailing 12 months adjusted EBITDA, which compares to 1.31 times at the end of 2022.
Speaker Change: Total liquidity was $1, two 8 billion, including cash of $848 6 million in availability under our revolver of $436 2 million.
Speaker Change: Turning to our outlook for 2024, which does not include acquisitions that have not yet closed revenue is expected to be between 536 to $5 $5 6 billion and we anticipate adjusted EBITDA of 1.04 to $1, one 3 billion.
Robert M. Buck: Turning to our outlook for 2024, which does not include acquisitions that have not yet closed, revenue is expected to be between $5.36 billion and $5.56 billion, and we anticipate adjusted EBITDA of $1.04 billion to $1.13 billion. Breaking down our revenue outlook, total residential sales are expected to grow mid-single digits. The midpoint of our outlook assumes that single-family starts remain near current levels for the year. Our multifamily backlog is strong, and we anticipate it will support our sales throughout 2024. On the commercial-industrial side, we continue to see healthy bidding activity and have a strong backlog. We also anticipate strong sales from recurring revenue on repair and replacement projects. As a result, we are projecting sales for commercial and industrial to grow mid-single digits.
Speaker Change: Breaking down our revenue outlook total residential.
Speaker Change: <unk> sales are expected to grow mid single digits. The midpoint of our outlook assumes that single family starts remain near current levels for the year.
Speaker Change: Our multifamily backlog is strong and we anticipate it will support our sales throughout 2024.
Speaker Change: On the commercial industrial side, we continue to see healthy bidding activity and have a strong backlog. We also anticipate strong sales from recurring revenue on repair and replacement projects.
Speaker Change: As a result, we are projecting sales for commercial and industrial to grow mid single digits.
Speaker Change: Keep in mind that the project nature of this business can cause lumpiness from quarter to quarter.
Speaker Change: While we did start the year off a bit slow in January due to weather.
Robert M. Buck: Keep in mind that the project nature of this business can cause lumpiness from quarter to quarter. While we did start the year off a bit slow in January due to weather, we've seen a solid rebound in February. With that, I'll close by expressing my optimism and confidence in our outlook. I'll now turn the call back over to Robert for closing remarks.
Speaker Change: A solid rebound in February.
Speaker Change: With that I'll close by expressing my optimism and confidence in our outlook I'll now turn the call back over to Robert for closing remarks.
Robert M. Buck: I Echo Rob's confidence in 2024.
Robert M. Buck: So I did about the year ahead, and expect both segments installation and specialty distribution to perform well our diversified model and multiple avenues for growth enable us to adapt to any operating environment and our team manages the business as a constant mindset of driving improvements and achieving operational excellence.
Robert M. Buck: We are excited about the year ahead and expect both segments, installation, and specialty distribution, to perform well. Our diversified model and multiple avenues for growth enable us to adapt to any operating environment, and our team manages the business with a constant mindset of driving improvements and achieving operational excellence. Before I open it up for questions, I want to let you know this is Tabitha's last call as she retires at the end of March. While Tabitha will be missed, we are very excited to introduce P.I.
Speaker Change: Before I open it up for questions I want to let you know this is tabitha his last call as she retires at the end of March while tablet will be missed we are very excited to introduce Pi Aquino, our new Vice president of Investor Relations.
Speaker Change: <unk> has over 20 years of IR experience and she is looking forward to getting to know all of you.
Speaker Change: Operator, we are now ready for questions.
Operator: Thank you.
Operator: Aquino, our new Vice President of Investor Relations. PI has over 20 years of IR experience, and she's looking forward to getting to know all of you. Operator, we are now ready for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question. You may press star 2 if you would like to remove your question from. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button.
Operator: We will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Operator: Information tool will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment in baby necessary to pick up your handset before pressing the star keys.
Operator: One moment, please while we poll for questions.
Filming: Thank you. Our first question comes from the line of filming with Jefferies. Please proceed with your question.
Operator: One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Phil Ning with Jeff... Please proceed with your question. Thank you for taking my question, and Tabitha. You'll definitely be missed.
Filming: Thank you for taking my question and Tabitha, you'll definitely be missed I was looking at the press releases. This.
Robert M. Buck: I was looking at the press release this morning. I thought I wish more management teams had it structured so clean and concise, so you'll definitely be missed. Well, team, congrats on another strong quarter, a strong finish to the year, and you're obviously guiding to another strong 2024, but when I think about a more upbeat environment for single-family and continued growth in CNI, I'm a little surprised that your EBITDA guidance assumes EBITDA growth decelerates from, call it, the 2023 level where you're, you know, dealing with an air pocket So any nuance that you want to call out that's a drag that maybe we may not be appreciating out of the gate? Hey Phil, Yeah, this is Rob.
Filming: This morning, I was thinking I wish more management teams had structured so clean and concise so you'll definitely be missed.
Speaker Change: While the team congrats on another strong quarter strong finish to the year and you're obviously guiding to.
Speaker Change: Another strong 2024, but when I think about a more upbeat environment for single family and continued growth in C&I I'm, a little surprised that your EBITDA guidance assumes EBITDA.
Speaker Change: EBITDA growth Decelerates from call it the 2023 level.
Speaker Change: Where you were.
Speaker Change: Dealing with an air pocket in the single family. So any nuance that you want to call out that May drive that maybe we may not be appreciating out of the gates.
Speaker Change: Hey, Phil Yeah. This is Rob you know the the main thing to point out there right is just that you know 2023 was an exceptional year for our team despite.
Robert M. Buck: You know, the main thing to point out there, right? 2023 was an exceptional year for our team, despite the headwinds we faced, right? If you look at our same branch results for the year, sales were up $88 million, EBITDA was up $95 million, so we had a same branch flow-through of 108%, right? So, as we talked about back in Q2 and Q3, we definitely had some overperformance in margins around multifamily and commercial work we had done. We talked about, you know, around $10 million in Q2 that we called out as kind of a one-time overperformance, and then similarly, in Q3, we talked about another $15 million. So, I think if you look at our guide on EBITDA, and you adjust 2023 for that $25 million, you'll see kind of the midpoint of our guidance. We're at around a 23% flow-through, so, you know, right within the range we guide to, 22 to 27, and at the high end, you know, we're at a 29% flow-through. So, I think that's probably the key nuance to point out to folks. Okay, that's helpful.
Rob: The headwinds we face right. If you look at our same branch results for the year sales were up 88 million EBITDA was up 95 million. So we had the same branch flow through of 108% right. So as we talked about back in Q2 and Q3, we definitely had some over performance in margins are around <unk>.
Rob: <unk> family and commercial work we had done.
Rob: We talked about you know around $10 million in Q2 that we called out as kind of one time over performance and then some similarly in Q3, we talked about another 15 million. So I think if you look at our guide on EBITDA, you adjust 2023 for that $25 million, you'll see kind of the midpoint of our Av.
Speaker Change: Our guidance, we're at around 23% flow through so right within the range, we guided to 22 to 27 and at the high end, we're at 29% flowed through so I think thats, probably the key nuance to point out to folks.
Speaker Change: Okay. That's helpful and you guys talked about Robert you talked about how.
Speaker Change: Fiberglass insulation still are quite tight right now and I believe will perhaps might be on allocation as well can you give us a little perspective on how that stacks up versus let's say the COVID-19 years, whereas materials Super tight is this an environment that.
Robert M. Buck: And you guys talked about how, Robert, you talked about how fiberglass insulation is still quite tight right now, and I believe mineral wool perhaps might be on allocation as well. Can you give us a little perspective on, you know, how that stacks up versus, let's say, the COVID years when material was super tight? Is this an environment that, you know, will allow you to perhaps support some of the upside and growth in the back half? And for a big guy like yourself with the distribution arm, is that an opportunity for you to take share when perhaps your smaller competitors might be a little more challenged getting access to material? Yeah, Phil. This is Robert.
Speaker Change: Will allow you to perhaps supports on the upside and growth in the back half and for a big Guy like yourself with the distribution arm is that an opportunity for you take share and perhaps your smaller competitors might be little more challenge getting access to materials.
Speaker Change: Yeah. Phil This is Robert So I would say maybe compared to the COVID-19 years, maybe not quite as tight as that because there was a lot of erratic. If you will demand and supply back then this is really.
Speaker Change: Maintenance is driving a lot of this as well as the trajectory here of what we're seeing in a single family start so.
Speaker Change: As always if you go back through the years, we'll definitely do our job, making sure we get.
Robert M. Buck: So, you know, I would say maybe, compared to the COVID years, maybe not quite as tight as that, because there was a lot of, you know, erratic, if you will, demand and supply back then. This is really, you know, maintenance is driving a lot of this, as well as the trajectory here of what we're seeing in single family starts. So, you know, as always, getting back through the years, we'll definitely do our job making sure we get more than our part of that material. And we obviously have constant discussions with our supplier partners around that. You know, as we think about what's happened with the single family starts and especially what's happened the past few months with that trajectory, I think Rob and I would both say, look, there's price upside here.
Speaker Change: More than are part of that material.
Robert M. Buck: Obviously, you have constant discussions with our supplier partners around that.
Robert M. Buck: We think about what's happening with the single family starts and especially what's happened in the past few months with with that trajectory I think Robyn I would both say look there's there's price upside here.
Speaker Change: And you even see some new price announcements even on the spray foam side of the business has come out recently as well. So we do expect it to be tight given all of that maintenance given the single family trajectory, which we think theres upside even.
Speaker Change: On the single family side, and some good organic growth there. So I think it will stack up well for top build into your point about our team's gaining.
Speaker Change: New customers like we did last year around multifamily and commercial, especially if you think about mineral wall and some of the other products that you mentioned there we think it's going to be a really good environment for top build here in 2024.
Robert M. Buck: And you even see some new price announcements, even on the spray foam side of the business, have come out recently, as well. So we do expect it to be tight, given all that maintenance, given the single family trajectory, which we think there's upside even on the single family side and some good organic growth there. So I think it will stack up well for top build.
Speaker Change: Okay, and just sort of follow on to that Rob is that pricing that.
Speaker Change: Robert just mentioned that could be sources of upside is that in the guide or is that something that we could.
Speaker Change: Potentially think about if pricing momentum builds.
Robert M. Buck: And to your point about our teams gaining, you know, new customers, like we did last year around multifamily and commercial, especially if you think about mineral wool and some of the other products that you mentioned there, we think it's going to be a really good environment for top builders here in 2024. And just to follow on that, Rob, is that pricing that Robert just mentioned, that could be sources of upside, is that in the guide, or is that something that we could potentially think about if pricing momentum builds? Yeah, I mean, we've got an assumption about pricing in there. As you know, we don't break it out, but we would say we think, you know, with what we see today, like Robert was seeing, there's potentially an upside to the assumption we have in there. Okay, thank you. I really appreciate the call, guys.
Speaker Change: And then we've got we've got an assumption for pricing in there as you know we don't we don't break it out but we would say we think you know what with what we see today like Robert was seeing there's potentially upside to the assumption we have in there.
Speaker Change: Okay. Thank you will appreciate the color guys.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Mike Rehaut with Jpmorgan.
Michael Jason Rehaut: Please proceed with your question.
Michael Jason Rehaut: Alright, Thanks, good morning, everyone and congrats on the results so far.
Michael Jason Rehaut: Thanks, Mike.
Speaker Change: Just wanted to circle back to the.
Michael Jason Rehaut: EBITDA guidance and you know Rob I appreciate your highlighting the 25 million of.
Speaker Change: Unusual profit you know, we we kind of back that out and back to a growth rate plus or minus you know similar to the underlying.
Robert M. Buck: Thank you. Thank you. Our next question comes from the line of Mike Rehaut with JPL, see their questions. Hi, thanks. Good morning, everyone, and congratulations on the results so far.
Michael Jason Rehaut: Sales growth in and you've kind of pointed out the incremental margins in that 23% to 29% range you'll obviously.
Michael Jason Rehaut: <unk> been able to consistently exceed your incremental margin guidance or long term targets over the last several years.
Operator: Um, it's like, You know, just wanted to circle back to the EBITDA guidance. And, you know, Rob, I appreciate your highlighting the $25 million of unusual profit. You know, we kind of backed that out and got to a growth rate, plus or minus, you know, similar to the underlying sales growth, and you kind of pointed out the incremental margins in that 23 to 29% range. You've been able to consistently exceed your incremental margin guidance or long-term targets over the last several years. You know, is there any reason, or is there no difference?
Michael Jason Rehaut: Is there any reason or is there any difference.
Michael Jason Rehaut: M D.
Michael Jason Rehaut: Market backdrop as you look out into 2024.
Michael Jason Rehaut: That might make you a let's say a little more conservative relative to prior years, where you've been able to.
Michael Jason Rehaut: Exceed that incremental margin guidance certainly.
Michael Jason Rehaut: Talked about the fact that it's going to be a positive year housing starts supply remaining pretty tight.
Michael Jason Rehaut: In various respects.
Michael Jason Rehaut: Just trying to parse out whether you know the guidance here.
Michael Jason Rehaut: That incremental margin guidance kind of in line with your long term.
Robert M. Buck: and the market backdrop as you look out into 2024, that might make you, let's say, a little more conservative relative to prior years where you've been able to exceed that incremental margin guidance. Certainly, you know, we talked about the fact that it's gonna be a positive year for housing starts, supply remaining pretty tight in various respects. So just trying to parse out whether the guidance here, that incremental margin guidance kind of in line with your long-term, is it simply a function of conservatism, or is there anything that you see on top of that that might push the incremental margins not to exceed, you know, those targets like you've done in the past. Right, Mike. Yeah, I'd say, you know, the 22 to 27, folks have asked that question a lot, right?
Michael Jason Rehaut: Is it simply a function of conservatism.
Michael Jason Rehaut: Or is there anything that you know you see on top of that that my.
Michael Jason Rehaut: Push the incremental margins not to exceed.
Michael Jason Rehaut: You know your your those targets like you've done in the past.
Speaker Change: That's right, Mike Yeah, I would say the 'twenty two to 'twenty seven you know folks have asked that question a lot right you guys tend to.
Michael Jason Rehaut: Beat that number and that's always our goal right. We're always shooting to do that when we look at the cost structure of our business and what happens with volume that's about what we expect to get but every year, we're working hard with our with our teams to drive for better than that right and we've been very successful and that we'd.
Michael Jason Rehaut: Rather have that as upside in our guidance have upside for the things, we're going to do to outperform.
Robert M. Buck: You guys tend to, you know, beat that number. And that's always our goal, right? We're always shooting to do that. When we look at the cost structure of our business and what happens with volume, that's about what we expect to get. But every year, you know, we work hard with our teams to drive for better than that, right? And we've been very successful at that. We'd rather have that as upside in our guidance, have upside for the things we're going to do to outperform, rather than put it in there. So we're going to be shooting to do better than that here in 2024, just like we did in 2023.
Michael Jason Rehaut: Other than put it in there. So so we're gonna be shooting to do better than that here in 2024, just like we did in 2023, but like I was saying earlier I think you know last year, we really did a great job with it right with the 108% same branch EBITDA pull throughs and I think you know, we gotta be a little realistic.
Michael Jason Rehaut: About those numbers moving forward Yeah. Mike. This is Robert I think you know as Rob mentioned on the high end you know were at that 29% and that I think the hallmark of our company has been known for.
Robert M. Buck: The execution piece to Rob's point is and how we continually performed in changing environments and I think we're pretty well known for that and pretty well known for pushing pushing the achievement level of the company and our teams.
Robert M. Buck: But like I was saying earlier, I think, you know, last year, we really did a great job with it, right, with the 108% same branch EBITDA pull-throughs. And I think, you know, we've got to be a little realistic about those numbers moving forward. Yeah, Mike, this is Robert.
Speaker Change: Okay No no I appreciate that so basically though no real difference in the backdrop that.
Michael Jason Rehaut: It's causing it other than you know.
Michael Jason Rehaut: Again, you shoot for better but these are still your long term targets is that fair.
Robert M. Buck: I think, you know, as Rob mentioned on the high end, you know, we're at that 29%. And I think the hallmark of our company has been known for, you know, the execution piece to Rob's point, and how we continually perform in changing environments. And I think, you know, we're pretty well known for that and pretty well known for, you know, pushing the achievement level of the company and our team. Okay, no, no, I appreciate that. So basically, though, no real difference in the backdrop that, you know, is causing it other than, you know, again, you shoot for better, but you know, these are still your long-term targets. Is that fair?
Speaker Change: Correct, I would say I mean actually going into this year, there's probably more.
Speaker Change: Upside than than in most years right I mean, I think there's there's certainly a lot more optimism around there around where things are going with starts we've talked a little bit about you know the material being tight and the pricing environment. So I'd say you know.
Speaker Change: Compared to most years when we were sitting here at this time, there is theres, probably more upside than usual.
Speaker Change: Great I appreciate that and I guess secondly, you know.
Michael Jason Rehaut: The update on S. P I.
Speaker Change: You know you kind of mentioned that.
Speaker Change: You you were asked for some additional information.
Michael Jason Rehaut:
Michael Jason Rehaut: Certainly a lot of it a lot of this is out of your hands, but any kind of.
Robert M. Buck: Correct. I'd say, I mean, actually going into this year, there's probably more, you know, upside than in most years, right? I mean, I think there's certainly a lot more optimism around where things are going with starts. We've talked a little bit about, you know, the material being tight and the pricing environment. So I'd say, you know, compared to most years when we were sitting here at this time, there's probably more upside than usual. Great.
Michael Jason Rehaut: Additional take on that additional request.
Michael Jason Rehaut: You know in terms of if it looks anything outside the ordinary or if it kind of changes your view at all in terms of you know the.
Michael Jason Rehaut: Timing.
Michael Jason Rehaut: Potential close or.
Michael Jason Rehaut:
Michael Jason Rehaut: No.
Michael Jason Rehaut: If it changes your view on.
Michael Jason Rehaut: What you would expect that you know that this is a deal that should close then.
Michael Jason Rehaut: Just taking a little longer from a from an informational process standpoint.
Robert M. Buck: I appreciate that. And I guess, secondly, you know, I appreciate the update on SPI. You kind of mentioned that, you know, you were asked for some additional information. You know, certainly a lot of this is out of your hands, but any kind of additional take on that additional request, you know, in terms of if it looks anything outside of the ordinary or if it kind of changes your view at all in terms of the timing of a potential close or, you know, if it changes your view on what you would expect that this is a deal that should close and you know, just taking a little longer from an information Hey Mike, This is Robert.
Michael Jason Rehaut: Hey, Mike. This is Robert I think you said it well there and it's just taken longer if you take the environment today with the Doj I mean, this is part of the normal process today.
Robert M. Buck: When the process taking longer one asking for more information and they can take the Spi business, you know theres kind of three distinct businesses there the mechanical business the spray foam business and the metal building business. So they're trying to do their part to understand that and just given the environment. It's just a longer process.
Robert M. Buck: We responded very timely to what they've asked for the process is progressing.
Michael Jason Rehaut: And the path here, so probably best we can say is things are still under review, but.
Michael Jason Rehaut: To get a flavor given the environment.
Robert M. Buck: I think you said it well there at the end. It's just taking longer. If you take the environment today with the DOJ, I mean, this is part of the normal process today.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Ken Zinger with Seaport Research Partners. Please proceed with your question.
Robert M. Buck: One, the process is taking longer. One, they're asking for more information. And if you take the SPIA business, there are kind of three distinct businesses there: the mechanical business, the spray foam business, and the metal building business. So they're trying to do their part to understand that. And just given the environment, it's just a longer process.
Kenneth Zener: Good morning, everybody.
Kenneth Zener: Florida again.
Kenneth Zener: Oh <unk>.
Kenneth Zener: Upside than usual.
Kenneth Zener: I think that says a lot. So here's my question for you guys October rates were high.
Kenneth Zener: Hi.
Kenneth Zener: Mortgage rates they fell into December they've rallied a bit.
Kenneth Zener: Can you discuss like the bidding cadence that youre seeing.
Kenneth Zener: Some of your customers in terms of right.
Robert M. Buck: We responded very timely to what they asked for. The process is progressing down the path here. So probably the best we can say is things are still under review, but you can kind of get a flavor given the environment. Great. Thanks so much.
Kenneth Zener: Aspects like.
Kenneth Zener: The labor rights such as material that's limited labor, how they were thinking about cycle times.
Kenneth Zener: As you guys were having those communications with each other.
Kenneth Zener: And then any commentary around the larger builders versus smaller builders, giving perhaps financing constraints that was my first question.
Kenneth Zener: Thank you. Our next question comes from the line of Ken Zener, Research Parts. Please proceed with your question. Good morning, everybody.
Kenneth Zener: Yes, Ken this Robert So I would say that the builders are especially if you think about the big builders. The production builders definitely optimistic a matter of fact, it's kind of a good week. The builder show is going on in Vegas. So we've had a lot of meeting right.
Robert M. Buck: Morning again. More upside than usual. I think that says a lot. So here's my question for you guys. October rates were high. But they fell into December.
Kenneth Zener: With builders that they are definitely optimistic.
Robert M. Buck: They've rallied a bit since. Can you discuss the bidding cadence that you're seeing? from your customers in terms of the right aspects, like the labor, right, such as material that's limited, labor, how they were thinking about cycle times as you guys were having those communications with each other, you know, and then any commentary around the larger builders versus the smaller builders giving perhaps financing constraints. That was my first question. Yeah, Ken, this is Robert.
Kenneth Zener: And I think given the fluctuation in rates. They still are given what's happening I think you've got some of the smaller custom builders that.
Kenneth Zener: There are kind of waiting for that in our rates to drop some I think that happens there you hear that optimism in their voice as well so either relative to Betty.
Kenneth Zener: Good bidding activity to start out the spring selling season, which as you know starts at the end of January.
Robert M. Buck: So, you know, I'd say the builders are, especially if you think about the big builders, the production builders, definitely optimistic. As a matter of fact, it's kind of a good week, the builder show's going on in Vegas, so we've had a lot of meetings with builders, so I'd say they're definitely optimistic. And I think, you know, given a little bit of the fluctuation of rates, they still are, given what's happening. I think you've got some of the smaller custom builders that are kind of waiting for rates to drop some. I think that happens; you hear that optimism in their voice as well.
Kenneth Zener: And I'd say very productive conversations with the with the big builders and what they are planning for this year and what it means from a from a capital perspective.
Kenneth Zener: Okay.
Kenneth Zener: And then the second.
Kenneth Zener: Line of questioning is a bit more about your future.
Kenneth Zener: Structure.
Kenneth Zener: Structure or how it might be changing I think you said that maintenance repairs about 25% today of SDI and obviously I think that's poised to increase can you talk to how MRO is contributing to this stability.
Kenneth Zener: Of your business the margins the Incrementals that you are delivering I mean, how is that just kind of refresh US ahead of perhaps as this acquisition you know how that's affected your business versus just having a more cyclical residential piece. Please thank you.
Robert M. Buck: So, you know, relative to bidding, you know, good bidding activity to start off the spring selling season, which, as you know, starts the end of January, and I'd say very productive conversations with the big builders and what they're planning for this year and what it means from a TopBuild perspective. Okay, and then the second line of questioning. It's a bit more about your future. Structure, how it might be changing.
Kenneth Zener: Sure. So this is rodger again, so you have the 25% as our current distribution business and so I'll give you a few examples if you think about.
Rodger: The MRO side from the commercial industrial those are kind of like annuities. If you will there are certain regulations or certain environmental type of things that happen given the extreme conditions of some of those environments and installation where that theres constant repair and replacement.
Robert M. Buck: I think you said that maintenance repairs are about 25% today at SDI, and obviously I think that's poised to increase. Can you talk about how MRO is contributing to the stability? of your business, the margins, the incrementals that you are delivering. I mean, how is that, just kind of refresh us ahead of perhaps this acquisition, you know, how that's affected your business versus just having a more cyclical residential business? Thank you. Sure. So, this is Robert again.
Rodger: Of those parts, whether it be installation or even some of that kind of jacking of materials that go on those very extreme conditions or extreme temperature type of environments and stuff, where you can also think about food and beverage. If you will there's can be some codes and regulations that require that had changed so it is a regular cycle areas.
Rodger: Some kind of repair type of things that happened on the spur of the moment and Theres also some contracts that are kind of longer term that go for that repair.
Robert M. Buck: So, yeah, the 25% is our current distribution business, and I'll give you a few examples. If you think about the MRO side from the commercial industrial side, you know, those are kind of like annuities, if you will. There are certain regulations. There are certain environmental things that happen, given the extreme conditions of some of those environments and insulation, where there's constant repair and replacement of those parts, whether it be, you know, insulation or even some of that kind of jacketing of materials that go into those very extreme conditions or extreme temperature type of environments and stuff, or you can also think about food and beverage, if you will.
Rodger: Repair and maintenance work that happens there and then if you just think about our standard distribution business think of all the installation related products that we supply safety products that we supply gloves glasses. Those types of things that are constantly reoccurring as well so it's a real stabilizing environment for that 25% of our business as well.
Rodger: Keep up the Great service, which we are known for.
Rodger: And we're able to service on the spur of the moment, which where our teams do a great job in the field. So that's why we focus on that recurring piece of the business. We think it's important we continue to be able to grow that and.
Rodger: It's something that we always talk about.
Robert M. Buck: There can be some codes and regulations that require that to change, so it is a regular cycle. There is, you know, some kind of repair type of things that happen on the spur of the moment, and there are also some contracts that are kind of longer term that go for that repair and maintenance work that happens there. And then, if you just think about our standard distribution business, think about all the insulation-related products that we supply, safety products that we supply, gloves, glasses, those types of things that are constantly reoccurring as well. So it's a real stabilizing environment for that 25% of our business, as long as we keep up the great service which we're known for, you know, and we're able to service, you know, on the spur of the moment, which we act on to do a great job in the field. So that's why, you know, we focus on that recurring piece of the business. We think it's important.
Rodger: Yeah.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Trey Grooms with Stephens. Please proceed with your question.
No Murkowski: Good morning. This is no murkowski go on for Trey Thanks for taking my question.
Speaker Change: Good morning morning, so.
Lisa Murkowski: So first.
No Murkowski: You you noted in the prepared remarks, you know January weather was tough no surprise and I think you said February is looking a little bit better. So just any more color you can give us on how the <unk> shaping up and you know we still got some time here with March and I guess, if you think margins could be normal from from a weather perspective.
No Murkowski: You know do you.
No Murkowski: But basically you know do you still see volumes down in <unk> or just how are you thinking about that.
Speaker Change: Yeah. No. This is Rob So you know as you look at kind of the seasonality of our of our guidance there right I'd say Q1, when you typically look at our quarters right. The strongest quarters are going to be Q3, Q2, Q4, and then Q1 in that order. So Q1 is is the lightest and then I think as you look.
Robert M. Buck: We continue to be able to grow that, and it's something that we always talk about. Thank you. Our next question comes from the line of Trey, who said, Please proceed with your question. Good morning, this is Noah Murkowski on for Trey.
Speaker Change: No year over year, just because of how 2023 played out we came into the year with a strong backlog on the single family side.
Speaker Change: That that softened up as the year went on we had a really strong commercial quarter in the first quarter of last year. So I would I would say our first quarter from a comp perspective is probably our toughest it was our largest.
Operator: Thanks for taking my question. Good morning. Good morning.
Robert M. Buck: So first, you noted in your prepared remarks, January weather was tough, no surprise, and I think you said February's looking a little bit better. So any more color you can give us on how the OneCue's shaping up. And we've still got some time here with March. And I guess if you think March is going to be normal from a weather perspective, basically, do you still see volumes down in OneCue? Or just how are you thinking about that? Yeah, no, this is Rob.
Speaker Change: Quarter of growth in 2023 with that I think we will still be in that flattish to low single digit type growth for Q1.
Speaker Change: But we like that like we said January put us put us behind that a little bit.
Speaker Change: But what we're seeing in February we're making up a good part of that and if things stay stay good here through March we should get back to where we expect it to be.
Speaker Change: Got it that's really helpful detail I'm shifting gears to maybe more.
Robert M. Buck: So, you know, as you look at kind of the seasonality of our guidance there, right? I'd say Q1. When you typically look at our quarters, right, the strongest quarters are going to be Q3, Q2, Q4, and then Q1 in that order. So Q1 is the lightest. And then I think, year over year, just because of how, you know, 2023 played out, we came into the year with a strong backlog on the single-family side, but that softened up as the year went on. We had a really strong commercial quarter in the first quarter of last year, so I would say our first quarter from a comp perspective is probably our toughest. It was our largest quarter of growth in 2023.
Speaker Change: More longer term question.
Speaker Change: You'd mentioned you know the multifamily continuing to hold in strong I think.
Speaker Change: You noted it'll it'll hold up through the balance of the year, but I guess with the starts that have kind of come in and that the sentiment deteriorating there at some point if you'd think about.
Speaker Change: So maybe later this year or 2025 win when you do see.
Speaker Change: Less multifamily construction do you think that could free up capacity in the industry. So that single family completions could go north of that.
Speaker Change: 1.1 million that was the prior peak.
Speaker Change: Yeah. Good morning. This is Robert so yeah, I think obviously.
Robert M. Buck: When you think about labor are you thinking about material if that does happen in 'twenty five to your to your assumptions there obviously the focus will shift.
Robert M. Buck: With that, you know, I think we'll still be in that flattish to low single-digit type growth for Q1, but like we said, January put us behind that a little bit, but what we're seeing in February is we're making up a good part of that, and if things stay good here through March, we should get back to where we expected to be.
Robert M. Buck: Towards the single family side, and you know as you.
Robert M. Buck: You think about you know even from a revenue perspective, the take per unit on a single family is more than a multifamily. So thats a positive for the business as well. So I think you'll see the industry respond accordingly, and that mix shift will be will be a positive obviously.
Robert M. Buck: That's a really helpful detail. Shifting gears to maybe a more longer-term question, you mentioned, you know, the multifamily continuing to hold strong. I think, you noted, it'll hold up through the balance of the year. But I guess with, you know, the starts that have kind of come in and the sentiment deteriorating there, at some point, if you think about, maybe later this year or 2025, when you do see, you know, less multifamily construction, do you think that could free up capacity in the industry so that single-family completions could go north of that, you know, Yeah, good morning, this is Robert.
Speaker Change: Yeah, and I'd, just add I mean to get to that one one on the single family side Theres a lot of other variables right a lot of products a lot a lot of labor well. We're excited about as you know the long term right. The demand is there we know there's short supply so with a tight labor market.
Robert M. Buck: Environment right, we should see growth for years to come here.
Speaker Change: Got it that's all really helpful detail. Thanks for taking the taking my questions and good luck with the rest of the year.
Speaker Change: Thank you.
Speaker Change: Yeah.
Robert M. Buck: Thank you. Our next question comes from the line of Susan Macquarie with Goldman Sachs. Please proceed with your question.
Susan Macquarie: Thank you good morning, everyone.
Susan Macquarie: Good morning, gentlemen, good morning, My first question is focusing perhaps a bit more on the gross margins specifically, yeah. You've continued to see some nice expansion. There as you think about the coming year and your comments around pricing on materials and those kinds of elements can you talk a bit about how you think about this.
Robert M. Buck: So yeah, I think, you know, obviously, you know, we think about labor, or we think about material. If that does happen in 25, to your, to your assumptions there, obviously, folks will shift towards the single family side. And, you know, as you think about, you know, even from a revenue perspective, the take per unit on a single family is more than a multifamily. So that's a positive for business as well. So yeah, I think you'll see the industry respond accordingly, and that next shift will be positive. Yeah, and I just add, you know, I think, to get to that one on the single family side, there's a lot of other variables, right, a lot of products, a lot of a lot of labor. What we're excited about is, you know, the long term. Right, the demand is there, we know there's short supply. So with a tight labor environment, right, we should see growth for years to come I got it.
Robert M. Buck: Sustainability of the gross margin the path, there and anything on price cost for the year.
Robert M. Buck: Yeah. Susan this is Rob so from a from a gross margin perspective as you said it was a it was a great year for us in 2023 I'm now you know the 25 million I've talked about kind of one time Q2 Q3 benefits that we saw that that obviously hit in the gross margin line and you know if you look at the year.
Rob: You can see Q2 Q3 are our gross margins jumped up to 32 so.
Speaker Change: So as we think about 2024, I think will be more in that 30 to 31 type range.
Speaker Change: But like we've said, we're always doing what we can on the productivity side to drive improvements there.
Rob: And on the price cost side, we're always managing that as aggressively as we can to maximize the benefit on that side too.
Speaker Change: Okay. That's helpful.
Rob: Yeah.
Robert M. Buck: That's all really helpful detail. Thanks for taking my questions and good luck with the rest of the year. Thank you. Thank you. Our next question comes from Susan McClary with Goldman Sachs. Please proceed with your question. Thank you. Good morning, everyone.
Rob: And then shifting to the commercial and industrial side of the business I think you've commented that you expect mid single digit growth. There. This year how much is that.
Rob: That is coming from the market versus your own ability to continue to gain share there and outperform on a relative basis.
Operator: Good morning. My first question is focusing perhaps a bit more on the gross margin specifically. You continue to see some nice expansion there. As you think about the coming year and your comments around pricing on materials and those kinds of elements, can you talk a bit about how you think about the sustainability of the gross margin, the path there, and any price-cost issues for the year? Yeah, Susan. This is Rob.
Rob: Yeah. Good morning, it's Robert So I think if you looked at some of the industry type of numbers you would see we're above that as you look at our numbers for commercial industrial so yeah. I'd say, we continue to build teams continued to do a nice job of growing that business.
Rob: <unk> continued to gain traction and penetration with customers across both commercial industrial I think that's been a great story, where our special ops team is focused as well we talked in the prepared remarks about growing the business topline and bottomline. So our teams have done some really nice work around that commercial industrial and you see it in our performance.
Robert M. Buck: So, you know, from a gross margin perspective, as you said, it was a great year for us in 2023. Now, you know, the $25 million I talked about kind of one time, the Q2, Q3 benefits that we saw, that obviously hit the gross margin line. And, you know, if you look at the year, you can see Q2, Q3, our gross margins jumped up to $32. You know, so as we think about 2024, I think we'll be more in that 30 to 31 type range.
Rob: And so that's why we're very.
Rob: Optimistic and our performance around commercial industrial here.
Rob: Here in 'twenty, four and beyond 'twenty four.
Speaker Change: Okay, alright, thanks for the color and good luck with everything.
Speaker Change: Thank you.
Rob: Yeah.
Rob: Thank you. Our next question comes from the line of Stephen Kim with Evercore ISI. Please proceed with your question.
Stephen Kim: Yeah, Thanks, very much guys and good luck with everything that's been a real pleasure. Thank you I, yes.
Robert M. Buck: But like we've said, we're always doing what we can on the productivity side to drive improvements there. And on the price cost side, we're always managing that as aggressively as we can to maximize the benefit on that side, too. Okay, that's helpful.
Rob: Yeah.
Stephen Kim: Wanted to my first one question was around productivity and any impact that that could be having on the incremental guide.
Robert M. Buck: And then perhaps shifting to the commercial and industrial side of the business, I think you commented that you expect big single-digit growth there this year. How much of that is coming from the market versus your own ability to continue to gain share there and outperform on a relative basis? Yeah, Susan. It's Robert.
Stephen Kim: You talked about overall labor productivity efforts and you also brought up the work done by your special ops team.
Speaker Change: A couple of questions here, how much was generated in 2023 from the.
Stephen Kim: The special ops team and you've had this team for a while can you describe what the expansion is you're talking about and why you know the expansion is necessary or now versus you know in the past and lastly, just to confirm my understanding is that you typically don't include expectations for the results from this special ops team.
Robert M. Buck: So I think if you looked at some of the industry's type of numbers, you would see we're above that. As you look at our numbers for commercial industrial. So, yeah, I think we continue to see the field teams continue to do a nice job of growing that business, you know, continue to gain traction and penetration with customers across both commercial and industrial. I think that's been a great story of where our special ops team is focused as well.
Stephen Kim: In your guidance I, just want to make sure if that's changing or not.
Stephen Kim: Yeah. So I'll take that this is Rob Stephen I'll take the piece around the numbers and Robert will add some more details around special ops, but obviously, that's a key strategy to our business. It's been a key part of our success for years.
Robert M. Buck: You know, we talked in the prepared remarks about growing the business top line and bottom line. So our teams have done some really nice work around that commercial industrial, and you see it in our performance. And so that's why we're very, you know, optimistic about our performance around commercial industrial here at 24 and beyond 24. Okay, alright. Thanks for the color and good luck with everything.
Robert M. Buck: To your point, where you know, we're not including upside to that in our guidance that we would say that that should be upside because you know what.
Robert M. Buck: It's a constant iterative process for US right in 2023 was a great year. Yeah. We don't we don't break out exactly what was tied back to that but we know you know when we talk about that same branch performance. We had you know.
Operator: Our next question comes from the line of Stephen Kim with Evercore ISI. Please proceed with your question. Thanks very much, guys, and Tabitha, good luck with everything. It's been a real pleasure.
Robert M. Buck: Even when I pull out the $25 million that we're calling one time, our same branch flow through was 80% for the year right. So it was a really strong performance in a lot of that upside is coming from this special ops teams doing Robert can give you a little more details around what the team's doing.
Robert M. Buck: Thank you. Yeah, my first line of questioning was around productivity and the impact that that could be having on the incremental guide. You talked about overall labor productivity efforts, and you also brought up the work done by your special ops team. So a couple of questions here, you know. How much revenue was generated in 2023 from the special ops team? And you've had this team for a while; can you describe what the expansion is you're talking about and why, you know, the expansion is necessary or good now versus in the past? And lastly, just to confirm, my understanding is that you typically don't include expectations for the results from this special ops team in your guidance. I just want to make sure if that's changing.
Robert M. Buck: It's Steven so it has been something that we've had we continued to invest in it. So if you think about our footprint. If you think about opportunities relative to cause me to think from labor productivity sales productivity logistics.
Robert M. Buck: Yields on material those types of things, we just continue to see debilitated to <unk> point about the the pull through of the same branch I mean that that comes from all that work, we're always doing them and you hear us talk about maybe we keep using these terms operational efficiency driving operational improvement, but whenever you say that that's the action that's happening behind the scene.
Robert M. Buck: This is Rob, Steve, and I'll take the piece around the numbers, and Robert will add some more details around special ops, but obviously, that's a key strategy to our business. It's been a key part of our success for years. To your point, we're not including upside to that in our guidance, so we would say that that should be upside because it's a constant iterative process for us, right? 2023 was a great year.
Robert M. Buck: To continue to drive that and we see more opportunity.
Robert M. Buck: One thing about sitting in our business is that we continue to see more opportunity there and you always it doesn't matter. What you are looking at in our business. As you know you always got a bottom quartile, that's where our mindset is youre always uplifting that bottom quartile, whether it be products branches.
Robert M. Buck: Customers that type of thing so it's just a constant cadence of how we run the business.
Robert M. Buck: We don't break out exactly what was tied back to that, but we know when we talk about that same branch performance we had, even when I pull out the $25 million that we're calling one time, our same branch flow through was 80% for the year, right? So it was a really strong performance, and a lot of that upside is coming from what this special ops team is doing. Robert can give you a little more details on what the team is doing. Yes, Stephen.
Robert M. Buck: Sure.
Speaker Change: Yeah, that's encouraging I appreciate that color.
Speaker Change: The second question I had related to the Spi acquisition.
Speaker Change: We had heard that maybe the metal building installation.
Speaker Change: Segment might be part of the part of the hold up here.
Speaker Change: Was wondering if you know when you look at the three businesses come with Spi would you be willing to split that business off and if so will that have any meaningful impact on your anticipated synergies.
Robert M. Buck: So it has been something that we've had to invest in. So if you think about our footprint, if you think about opportunities relative to anything from labor productivity, sales productivity, logistics, yields on material, those types of things, we just continue to see the ability. And to Rob's point about the pull-through of the same branch, I mean, that comes from all that work we're always doing. I mean, you hear us talk about maybe we should keep using these terms operational efficiency and driving operational improvement.
Speaker Change: Yes, so you know.
Speaker Change: As you think about the business Youre right. There are three parts to the mechanical spray foam and the <unk> you got the Doj has been trying to understand all three I mean, they are good businesses and the Spi model. So all.
Speaker Change: All the information and what we worked with them with their own has been really across the business here of SP I really haven't had to consider that part about the about the splitting off and stuff.
Speaker Change: And you've known us and the big acquisitions in the past, we're good at driving synergies and the different models and stuff. So I wouldn't be the synergy piece here with the whole business or it's really not a concern of ours. So it's too early to speculate anything but something we've really not consider given how the processes going forward.
Robert M. Buck: Whenever we say that, that's the action that's happening behind the scenes to continue to drive that. And we see more opportunity. That's the one thing about sitting in our business is that we continue to see more opportunity there. And it doesn't matter what you're looking at in a business; as you know, you always have a bottom quartile.
Speaker Change: Okay. So that's great. So that's encouraging I appreciate the I appreciate all the information and best of luck guys.
Robert M. Buck: And so our mindset is you're always uplifting that bottom quartile, whether it be products, branches, customers, that type of thing. So it's just a constant cycle of how we run the business. Yeah, that's encouraging. Appreciate that color.
Speaker Change: Thanks.
Speaker Change: Thank you. Our next question comes from the line of Keith Hughes with Truest Securities. Please proceed with your question.
Keith Hughes: Thank you two questions I guess first on the discussion you had on residential and commercial growth in the press release for 'twenty four is that a unit comment or is that a unit and pricing.
Robert M. Buck: The second question I had related to the SPI acquisition. We had heard that maybe the metal building installation segment might be part of the holdup here. I was wondering if, you know, when you look at the three businesses that come with SPI, would you be willing to split that business off? And if so, would that have any meaningful impact on your anticipated synergy?
Speaker Change: Yes, Keith this is Rob that would include price so it's volume and price in terms of the mid single digit growth.
Speaker Change: Okay and second on the yesterday ideal.
Speaker Change: This might be kind of hard to answer and one that number because I have a couple of different businesses, but.
Robert M. Buck: Yeah, so, as you think about the business, you're right, there are three parts to it, you know, the mechanical, spray foam, and the MBI. The DOJ has been trying to understand all three. I mean, they're good businesses in the SPI model. So, you know, all the information and what we're working with them on has been really across the business here at SPI. We really haven't had to consider that part about the splitting off and stuff.
Speaker Change: What would this take your mortgage here from it to if you're able to success.
Speaker Change: Successfully completed now in that market.
Keith Hughes: Yeah, I think as we think about the core business of Spi in the mechanical space, which is the core business of it is still keeps us in the in the double digits in that low teens, if you will like the double digits relative to that.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Joe Altmeyer with Deutsche Bank. Please proceed with your question.
Robert M. Buck: And, you know, you've known us from the big acquisitions in the past. We're good at driving synergies in the different models and stuff. So, it wouldn't be, you know, the synergy piece here with the whole business, or it's really not a concern of ours. So, it's too early to speculate anything, but something we've really not considered given how the process is going forward. Okay, so that's great, so that's encouraging. I appreciate all the information, and best of luck, guys. Thanks.
Joe Altmeyer: Hey, everybody good morning, and congrats on the strong finish to the year.
Joe Altmeyer: Thanks, Joe.
Joe Altmeyer: And Tavis also congratulations to you and you you'll be missed.
Speaker Change:
Joe Altmeyer: Yeah, if I could just dig in a little more on a not exactly S. P I, but what it could look like if you don't close it obviously.
Speaker Change: Obviously that is allocable capital, even if it's not.
Robert M. Buck: Thank you. Our next question comes from the line with Truist Security. Proceed with your question. Thank you. And two questions, I guess, first on the discussion you had on residential and commercial growth in the press release for 24. Is that a unit comment, or is that a unit... Yeah, Keith, this is Rob.
Speaker Change: Cash on the balance sheet today, so and you're also going to generate a lot of cash in the year ahead and beyond that so if you could maybe just talk about your thoughts around increasing.
Robert M. Buck: That would include price. So it's volume and price in terms of the mid single-digit growth. Okay, and second on the SBI deal. This might be kind of hard to answer in one number because I have a couple different businesses, but what would this take your market share from and to? Trust.
Speaker Change: The buybacks over time, especially as your your pipeline of targets will probably shrink throughout time right. So is there a way to think about how capital might shift more to buybacks versus the acquisition deployment.
Robert M. Buck: Yeah, I think as we think about the core business of SPI, you know, in the mechanical space, which is the core business of it, it still keeps us in the double digits, in the low teens, if you will, like the double digits, relative to that. Okay, great. Thank you very much. Thank you. Our next question comes from the line of Joe Alsmeyer with Deutsche Bank. Please proceed with your questions. Hey everybody, good morning, and congratulations on the strong finish to the year. Thanks, Joe. And Tabitha, also, congratulations to you, and you will be missed.
Speaker Change: Yeah. Joe This is Rob so from a from a capital allocation standpoint, I'd say, you know nothings changed with our strategy. There M&A is priority one in terms of where we see the best returns. So we're going to continue to deploy capital there.
Robert M. Buck: But just like we've said in the past, where you know that's going to be lumpy and we're going to stay disciplined in our process. There. So we always do look at you know buyback opportunities I'm trying to be opportunistic there and weighing it with the pipeline and you know the deals we have coming so so I think you'll see us doing buys.
Robert M. Buck: Thank you. Yeah, if I could just dig in a little more on, not exactly SPI, but what it could look like if you don't close it. Obviously, that is allocable capital, even if it's not cash on the balance sheet today. So, and you're also gonna generate a lot of cash in the year ahead and beyond that. So if you could maybe just talk about your thoughts around increasing buybacks over time, especially as your pipeline of targets will probably shrink throughout time, right? So is there a way to think about how capital might shift more to buybacks versus acquisition deployment? Yeah, Joe. This is Rob.
Speaker Change: Back again at some point as well, but you know we're also gonna stay aggressive on the M&A front.
Speaker Change: Yeah, let's say, adding to that Joe just say definitely healthy pipeline.
Joe Altmeyer: Acquisitions, you saw we did in in 'twenty three and then you know we've already got three deals that are signed up for for 2024 here early on so a lot of a lot of good activity still very fragmented a lot of a lot of players out there.
Speaker Change: Okay.
Speaker Change: I think oftentimes investors think about this business in terms of the large production builders, but maybe if you could talk to the smaller portion of your business.
Robert M. Buck: So from a capital allocation standpoint, I'd say, you know, nothing's changed with our strategy there. M&A is priority one in terms of where we see the best returns. So we're going to continue to deploy capital there, but just like we've said in the past, we're, you know, that's going to be lumpy, and we're going to stay disciplined in our process there. So we always do look at buyback opportunities, trying to be opportunistic there and weighing them with the pipeline and, you know, the deals we have coming. So I think you'll see us doing buybacks again at some point as well.
Speaker Change: You know it goes into R&R or even tear down construction.
Speaker Change: With some of the more custom builders just anything youre seeing on that front you know as we think about.
Speaker Change: That being part of the solution to solving the under build.
Speaker Change: Construct that we've got.
Speaker Change: Yes, so relative to the R&R the Ah <unk>.
Speaker Change: Rebuild I mean, I definitely there's a lot of tear downs in the in the U S, which constitutes a new start but relative to the repair model. That's something our service partners business is a great job of getting after that that's probably the smaller contractor that's doing that work. So that's really the target customer and we do see upside in that whether it would be.
Robert M. Buck: But, you know, we're also going to stay aggressive on the M&A. Yeah, let's say, you know, adding to that, just say definitely a healthy pipeline, you know, acquisitions, you saw we did in, in 23. And then, you know, we've already got three deals that are signed up for for 2024 early on. So a lot of a lot of good activities, still very fragmented, a lot of a lot of players out there.
Speaker Change: Relative to.
Speaker Change: What youre talking about but then also just relative to some normal repair and maintenance that happens that we see with our smaller contract customers on our service partner sites. So we do see that and that that team does a nice job of servicing those customers.
Robert M. Buck: Okay, I think oftentimes investors think about this business in terms of the large production builders, but maybe if you could talk to the smaller portion of your business that goes into R&R or even teardown construction with some of the more custom builders, just anything you're seeing on that front as we think about that being part of the solution to solving the underbuilt constructions, you got it. Yes, so relative to the R&R, the rebuild, I mean, definitely, there's a lot of teardowns in the U.S., which constitutes a new start, but relative to the repair model, that's something our service partner's business does a great job of getting after that. That's probably the smaller contractor that's doing that work, so that's really the targeted customer.
Speaker Change: Alright, thanks for the time.
Speaker Change: Thank you. Our next question comes from the line of Greece.
Speaker Change: Joe Smith with Bank of America. Please proceed with your question.
Joe Smith: Hi, good morning, Thanks for taking my questions and that type of hooks and congratulations you'll definitely be missed.
Joe Smith: Thank you.
Speaker Change: So the first thing I want to add.
Joe Smith: This is just you mentioned that insulation is still it's still tight for material right now.
Joe Smith: But you do have kind of all coming on later this year.
Joe Smith: In that environment in a year, where you have new capacity coming on.
Joe Smith: How does that like how historically, how has that impacted your business and your allocation relative to two of your competitors is there an opportunity to take market share with new capacity coming on.
Robert M. Buck: And, you know, we do see upside in that, whether it be relative to what you're talking about, but also just relative to some normal repair and maintenance that happens that we see with our smaller contractor customers on the service partner's side. So we do see that, and that team does a nice job of servicing those customers. All right. Thanks for the time.
Joe Smith: Yes.
Joe Smith: Margaret because Robert So a couple of things there so yeah, you're right new capacity coming on mid year now it will take some time to get the lines up and going there. So although that starts up mid year, you're probably thinking more about later in the third quarter.
Operator: Thank you. Our next question comes from the line of Rafe Jadrosich with Bank of America. Please proceed with your question. Hi, good morning. Thanks for taking my questions. And Tabitha, congratulations.
Joe Smith: We're running capacity there and then as we mentioned there's a lot of maintenance happening in the industry. This year. So it doesn't really have a capacity impact here in 2024.
Operator: You'll definitely be. Thank you. So, the first thing I want to ask is just, you mentioned that insulation is still tight for material right now, but you do have Kanoff coming on later this year. In that environment, in a year where you have new capacity coming on, how does that, like how has that historically impacted your business and your allocation relative to your competitors? Is there an opportunity to take market share with new capacity coming on? So, I'm going to break this to you, Robert.
Joe Smith: And then to your point about.
Joe Smith: From a top build perspective, if you think about when that plant was announced which I'm going to stay with probably back in 'twenty.
Joe Smith: 2022 <unk>.
Joe Smith: We stated there that we worked with the management team with kind of off about how they were planning capacity.
Joe Smith: And planning that operation and stuff. So there definitely are in a.
Joe Smith: Good good partner with us and we're definitely partnering with them relative to bringing up their new plant their Mcgregor, Texas.
Robert M. Buck: So, there are a couple of things there. So, yeah, you're right; new capacity is coming in mid-year. Now, it will take some time to get the lines up and going there. So, although that starts up mid-year, you're probably thinking more about, you know, later in the third quarter, you know, running capacity there. And then, as we mentioned, there's a lot of maintenance happening in the industry this year. So, it doesn't really have a capacity impact here in 2024. And to your point about, you know, from a TopBuild perspective, if you think about when that plant was announced, which I'm going to say was probably back in 2022, you know, we stated there that we worked with the management team at Knopf about how they were planning capacity and planning that operation and stuff. So, they're definitely, you know, a good partner with us, and we're definitely partnering with them relative to bringing their new plant there, McGregor Tech.
Speaker Change: Got it.
Speaker Change: Follow up on that do you have.
Speaker Change: Either like commitments or contracts or anything specific around that when there's new capacity coming on that the manufacturer will arrange with you are out of time.
Speaker Change: We will definitely do some advanced planning with them, that's probably the best way to say it.
Speaker Change: Okay and then.
Speaker Change: The second question is just on your can you remind us on your multifamily exposure relative to single family and I know you commented that the backlog sort of stretches through the end of this year, what does that actually mean for in terms of like what what are you, implying or baking into your guidance.
Speaker Change: In terms of a multifamily besides like flat for the year or is that down small like like what's the quantification.
Speaker Change: Yeah. Ralph this is Rob so I'd say from a multifamily perspective, I mean in terms of the market. We're gonna be index Similarly to the single family and multifamily as as.
Robert M. Buck: Just to follow up on that, do you have either commitments or contracts or anything specific around when there's new capacity coming on that the manufacturer will arrange with you ahead of time? We'll definitely do some advanced planning with them, that's probably the best way to. Okay, and then the second question is just on your, can you remind us of your multifamily exposure relative to single family? And I know your comment that the backlog sort of stretches through the end of this year. But what does that actually mean in terms of, like, what are you implying or baking into your guidance in terms of multifamily? Is that like flat for the year? Is that down small? What's the question? Yeah, Rafe, this is Rob.
Robert M. Buck: As the market goes so we're somewhat indifferent to the either as far as what's in our assumptions are for guidance. We've got multifamily essentially from a units perspective, basically flat right. So we know starts or are declining but with the backlog we have we feel like we.
Robert M. Buck: You know from a what we insulate perspective had pretty much a flattish year from a multifamily side of things.
Speaker Change: Okay. Thank you.
Speaker Change: Yes.
Speaker Change: Thank you our.
Speaker Change: Our next question comes from the line of Adam Gardening with Zelman and Associates. Please proceed with your question.
Robert M. Buck: So I'd say from a multifamily perspective, I mean, in terms of, you know, the market, we're going to be indexed similarly to single-family and multifamily as the market goes. So, you know, we're somewhat indifferent to either. As far as what's in our assumptions, you know, for guidance, we've got multifamily essentially from a units perspective, basically flat, right? So we know starts are declining. But with the backlog we have, we feel like we can, you know, from a what we insulate perspective, have pretty much a flat ish year from a multifamily perspective. Thank you. Our next question comes from the line of Adam Baumgarten with Zellman & Associates. Please proceed with your question. Hi, this is Mario Skor for Adam.
Adam Michael Baumgarten: This morning's call.
Robert M. Buck: Yeah.
Adam Michael Baumgarten: Good morning, a quick question on <unk>.
Adam Michael Baumgarten: Charles.
Adam Michael Baumgarten: Given the attention.
Adam Michael Baumgarten: Do.
Rob Koons: Do you have any thoughts on what it could mean for your ability to do large.
Mario Skor: Large deals in this space.
Charles: Yeah. So as we mentioned you know the process is pretty normal today, what's happening with.
Rob Koons: With the Doj So it's too early to speculate anything there as we mentioned on a previous question that came up but at the same time, we know we operate in a very very fragmented.
Charles: Environment here across all three really residential commercial and industrial so we still see as a healthy M&A environment and healthy pipeline out there for.
Operator: Good question on antitrust. Given the tension on the HBI bill, do you have any thoughts on what this could mean for your ability to do other large deals in this space? Yeah, so as we mentioned, you know, the process is pretty normal today as to what's happening with the DOJ, so it's too early to speculate anything there, as we mentioned on a previous question that came up, but, you know, at the same time, we, you know, we operate in a very, very fragmented environment here across all three, really residential, commercial, and industrial, so we still see it as a, you know, healthy M&A environment, healthy pipeline out there, you know, for the future, and, you know, M&A is always our first choice, but as Rob mentioned earlier, you know, we think about buybacks and, you know, the best use of capital here, so, you know, we're not speculating on anything here, we're just going with the normal process for the DOJ right now and the progress, and the process is progressing. That's helpful. Thank you. And just another one.
Mario Skor: For the future and M&A.
Charles: M&A is always our first choice, but as Rob mentioned earlier, we think about buybacks and the best use of capital here. So.
Operator: So you know we're not speculating on anything here were just going what's the normal process with the Doj right now and in the progress and the process is progressing.
Speaker Change: That's helpful.
Operator: One can you provide.
Speaker Change: Any further detail.
Charles: Or or bonds.
Charles: The split between industrial and the commercial light commercial.
Operator: We expect all of them to be mid single digit growth.
Operator: Or do you expect variation between.
Speaker Change: Thank you.
Speaker Change: Yeah Mark. Thanks. This is Rob so I'd say not not too different between the end market. So as you know on the on the install side.
Robert M. Buck: About 15% of our business is commercial it's roughly 50, 50 light and heavy commercial and I'd say, we're expecting both sides of that to grow in that that mid single digit type range. This year and then on the.
Speaker Change: Distribution side of the business the commercial industrial pieces, 60% of our business over there are you.
Operator: You got you know service partners servicing the.
Robert M. Buck: Can you provide any further details or thoughts on, you know, the split between industrial, heavy commercial, and light commercial? Do you expect all of them to sort of be in that single digit growth rate, or do you expect some variation between the two industries? Thank you.
Speaker Change: The commercial building side of things and then you've got with D. I, we're doing the mechanical insulation side of things that I'd say across both of those end markets, we're expecting kind of that mid single digit growth as well.
Speaker Change: Thank you.
Speaker Change: Yep.
Robert M. Buck: Thank you. Our next question comes from the line of Ken Center with Seaport Research Partners. Please proceed with your question.
Robert M. Buck: So, I'd say not too different between the end market. So, as you know, on the install side, about 15% of our business is commercial. It's roughly 50-50 light and heavy commercial.
Kenneth Zener: Thank you so much guys, Rob I, just wanted you to clarify and expand upon the mid single digit both the unit and price and how that is consistent with the trends we are seeing today.
Robert M. Buck: And I'd say we're expecting both sides of that to grow in that mid-single-digit range this year. And then on the distribution side of the business, the commercial industrial piece is, you know, 60% of our business over there. You have, you know, service partners servicing, you know, the commercial building side of things. And then you've got, you know, with DI, we're doing the mechanical installation side of things.
Kenneth Zener: With price up price still tight it seems like youre looking for actually even more conservative.
Kenneth Zener: <unk> gains in residential is that correct assumption. Thank you very much sorry.
Robert M. Buck: Yes, so like we said I mean, the the guidance we've given as you know, it's it's price and volume in that in that residential and the commercial industrial number from a volume perspective right. We're expecting on the residential side you know single family starts to remain kind of at the level, they're at today kind of around a million.
Robert M. Buck: And I'd say across both of those end markets, we're expecting kind of that mid-single-digit growth as well. Thank you. Thank you. Our next question comes from the line of Ken Zener with Seaport Research Partners.
Robert Buck: <unk> starts.
Speaker Change: Right, so any upside to that will be certainly upside to our guide multi.
Operator: Please proceed with your question. Thank you so much, guys. Rob, I just wanted you to clarify and expand upon the mid-single digit, both unit and price, and how that is consistent with the Trems we are seeing today with price up, and price still tight. Seems like you're looking for actually even more conservative volume gains in residential. Is that a correct assumption? Thank you very much.
Rob: Multifamily like I said, we're expecting to be flattish given the backlog.
Speaker Change: And so then we've got some you know some so that leads to a to a little bit of volume growth I'd say, probably low single digit volume growth when you compare that year over year.
Rob: So then we've got some price layered on top of that.
Robert M. Buck: Yeah, so like we said, the guidance we've given is, you know, price and volume in that residential and commercial industrial number. From a volume perspective, right, we're expecting, on the residential side, single family starts to remain kind of at the level they're at today, kind of around a million starts-ish, right? So, you know, any upside to that will certainly be an upside to our guide. Multi-family, like I said, we're expecting to be flat-ish given the backlog. And so then we've got some, you know, some, so that leads to a little bit of volume growth. I'd say, you know, probably low single-digit volume growth when you compare that year over year. So then we've got some price layered on top of that.
Speaker Change: And then similarly on the commercial industrial side. It's you know some of those products I'd say, a little less inflationary on that side. So.
Robert Buck: You know, we've got our assumption for price and volume baked into that mid single digit as well and like we've said with with the environment like we see it right now could there be more price increases and more inflation than we're anticipating that's certainly seems.
Robert M. Buck: The more likely scenario, so again that would be upside to the to the guidance we've got.
Speaker Change: Thank you for your clarification.
Speaker Change: No problem.
Speaker Change: Thank you there are no further questions at this time.
Speaker Change: Thank you for joining us today, we look forward to talking with you in early May when we will share our Q1 results.
Robert M. Buck: <unk>.
Speaker Change: Yeah.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time.
Robert M. Buck: And then, you know, similarly on the commercial industrial side, some of those products I'd say are a little less inflationary on that side. So, you know, we've got our assumption for price and volume baked into that mid-single digit as well. And like we've said, with the environment like we see it right now, could there be more price increases and more inflation than we're anticipating? You know, that certainly seems the more likely scenario.
Speaker Change: Thank you for your participation.
Robert M. Buck: Okay.
Robert M. Buck: [music].
Robert M. Buck: Yes.
Robert M. Buck: [music].
Robert M. Buck: Yeah.
Robert M. Buck: So, again, that would be upside to the guidance. Thank you for your clarification. No problem. Thank you. There are no further questions at this time. Thank you for joining us today. We look forward to talking with you in early May when we'll share our Q1 results. Thank you. This concludes today's telecom. You may disconnect your lines at. Thank you for your participation.
Robert M. Buck: [music].
Robert M. Buck: Yeah.
Robert M. Buck: [music].
Robert M. Buck: Yeah.
Robert M. Buck: [music].
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