Q1 2024 TopBuild Corp Earnings Call
Operator: Greetings. Welcome to TopBuild's first quarter 2024 earnings release.
Greetings and welcome to top builds first quarter 2024 earnings release at this time, all participants are in a listen only mode.
You didn't answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Operator: At this time, all participants are in a listen-only mode. A 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. I will now turn the conference over to your host, PBI El Quino. You may begin.
P. I: I will now turn the conference over to your host P. I as you.
P. I: You may begin.
Operator: Good morning, and thanks for joining us. On our call today are Robert Buck, President and Chief Executive Officer, and Rob Kuhns, Chief Financial Officer. We posted our earnings release, senior management's formal remarks, and a presentation that summarizes our comments on our website at topbuild.com. Many of our remarks today 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.
P. I: Good morning, and thanks for joining us on our call today are Robert Buck, President and Chief Executive Officer, and Watkins Chief Financial Officer.
Robert M. Buck: We posted our earnings release senior managements formal remarks, and a presentation that summarizes our comment.
P. I: On our website at Topco dotcom.
Speaker Change: Many of our remarks today will include forward looking statements, which are subject to known and.
Speaker Change: Unknown risks and uncertainties, including those set forth in this morning's press release as well as in the company's filings with the FCC.
Speaker Change: The company assumes no obligation to update any forward looking statements because of new information future events or otherwise.
Speaker Change: Please note that some of the financial measures to be discussed during 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.
Speaker Change: We have provided a reconciliation of these financial measures to the most comparable GAAP measures in a table included in today's press release.
Speaker Change: And in our presentation, both of which are available on our website.
Operator: The company assumes no obligation to update any forward-looking statements because of new information, future events, or otherwise. Please note that some of the financial measures to be discussed during 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 GAP. We have provided a reconciliation of these financial measures to the most comparable gap measures in a table included in today's press release and in our presentation, both of which are available on our website. I'll now turn the call over to President and CEO, Robert.
Speaker Change: I'll now turn the call over to President and CEO Robert.
Robert M. Buck: Good morning, and thank you for joining our call today. Our first quarter performance got the year off to a solid start for TopBuild, and it was in line with our expectations. As a result, we continue to demonstrate the strength of our business model and our team's ongoing drive to improve. As you saw in our release this morning, we are also raising our outlook and guidance for the remainder of 2024, which Rob will cover in his remarks.
Robert M. Buck: Good morning, and thank you for joining our call today.
Robert M. Buck: Our first quarter performance, Scott you're off to a solid start for top field and was in line with our expectations as our results continue to demonstrate the strength of our business model and our team's ongoing drive to improve.
Speaker Change: As you saw in our release. This morning, we are also raising our outlook and guidance for the remainder of 'twenty 'twenty, four which Rob will cover in his remarks.
Robert M. Buck: Let me start with a couple of comments on our recent announcement. Most of you saw a press release two weeks ago terminating the SPI transaction. Since last July, we worked through the HSR review process to help the DOJ better understand the entire business and transaction details. The DOJ focused on a small subsegment of metal-building insulation, laminated fiberglass, and defined the business and distribution of the product very narrowly. Laminated fiberglass is one of the several options that contractors have when insulating a metal building.
Speaker Change: Let me start with a couple of comments around our recent announcements.
Speaker Change: Most of you saw our press release, two weeks ago terminating the Spi transaction.
Speaker Change: Since last July we worked through the HSR review process to help the Doj better understand the entire business and transaction details.
Speaker Change: The Doj focus on a small sub segment of metal building installation laminated fiberglass and define the business and distribution of the product very narrowly.
Speaker Change: Eliminated fiberglass is one of several options that contractors have won escalating and that ability.
Robert M. Buck: This view from the DOJ led us to explore the possibility of renegotiating the transaction to buy SPI, excluding the MBI business. While doing so would likely have allowed us to receive regulatory approval, we were unable to agree on a price with the sellers and ultimately decided that pursuing the transaction further was not in our shareholders' best interest.
Speaker Change: This view from the D O J, let us to explore the possibility of renegotiating the transaction to buy S. P. I, excluding the MDI business.
Speaker Change: While doing so would have liked to be allowed us to receive regulatory approval. We were unable to agree on price with the sellers and ultimately decided that for showing the transaction further was not in our shareholders' best interest.
Robert M. Buck: As good stewards of your capital, we will continue to be very disciplined in our approach to acquisitions and capital allocations. Next, we announce today that our board has authorized a new share repurchase program of up to $1 billion. This is in addition to the prior authorization, which has approximately $154 million remaining.
Speaker Change: As good stewards of your capital, we will continue to be very disciplined in our approach to acquisitions and capital allocation.
Speaker Change: Next we announced today that our board authorized a new share repurchase program of up to $1 billion.
Speaker Change: This is in addition to their prior authorization, which has approximately $154 million remaining.
Speaker Change: This brings our total availability for share repurchase to 1.15 billion.
Robert M. Buck: This brings our total availability for share repurchase to $1.15 billion. This authorization shows the strength of a balance sheet and our management team and board's confidence in our business and strategic direction. Turning now to our first quarter, we're pleased with the start to the year. Total company sales grew 1.1% to $1.28 billion, and adjusted EBITDA rose 6.5% to $253.8 million.
Speaker Change: This authorization shows the strength of our balance sheet, and our management team and boards confidence in our business and strategic direction.
Speaker Change: Turning now to our first quarter, we're pleased with the start to the year.
Speaker Change: Total company sales grew one 1%, a 1.28 billion and adjusted EBITDA Rose six 5% to $253 8 million.
Robert M. Buck: Good price realization in the quarter, coupled with productivity initiatives, drove an adjusted EBITDA margin expansion of 100 basis points to 19.8%. On a same-branch basis in the first quarter, our single-family installation business improved sequentially each month. In fact, March was the first time in more than a year that single-family sales improved on a year-over-year basis, which is very encouraging.
Speaker Change: Good price realization in the quarter, coupled with productivity initiatives drove adjusted EBITDA margin expansion up 100 basis points to 19, 8%.
Speaker Change: On a same branch basis in the first quarter are single family installation business improved sequentially each month.
Speaker Change: In fact March was the first time in more than a year that single family improved on a year over year basis, which is very encouraging.
Robert M. Buck: As you have heard from the public builder sentiment and order volumes being reported, we expect a healthy single-family environment for the remainder of 2024. Our installation results also benefited from continued strength and multifamily in the quarter, which grew more than 20% versus the tough cop from last year. As we know, the last quarter starts and bidding activity for Multifamily has slowed, but we have a healthy backlog of work that we anticipate will continue throughout the balance of 2024.
Speaker Change: As you have heard from the public builder sentiment and order volumes be reported we expect a healthy single family environment for the remainder of 2024.
Speaker Change: Our installation results also benefited from continued strength in multi family in the quarter, which grew more than 20% versus a tough comp from last year.
Speaker Change: As we noted last quarter starts and bidding activity for multifamily has slowed.
Speaker Change: But we have a healthy backlog of work that we anticipate will continue throughout the balance of 2024.
Robert M. Buck: Across the commercial and industrial landscape, we're seeing solid progress in the business, and our bidding activity and win rate continue to improve. Our proprietary LeadApp tool is driving organic growth in this part of the business. We see many major projects being bid on and coming online. We have several heavy commercial mechanical insulation projects that are being worked on across multiple verticals. We've added slides 9, 10, and 11 to our earnings deck so you can visualize these verticals as well as our highly fragmented $18.25 billion TAM, or Total Addressable Markup.
Speaker Change: Across the commercial and industrial landscape, we're seeing solid progress in the buildings business and our bidding activity and win rate continues to improve our proprietary lead up to what's driving organic growth in this part of the business we.
Speaker Change: We see many major projects being bid and coming online.
Speaker Change: We have several heavy commercial mechanical installation projects.
Speaker Change: That are being worked on across multiple verticals.
Speaker Change: We've added slides 910, and 11 to our earnings deck. So you can visualize these verticals as well as our highly fragmented 18.25 billion dollar Tam or total addressable market.
Robert M. Buck: These slides will also help you understand our customer base, product breadth, and service reach. As you can see, we have a lot of white space across our core insulation business for both organic and M&A growth. Turning to M&A, acquisitions will continue to be our number one capital allocation priority as they generate great returns for increased shareholder value.
Speaker Change: These slides will also help you understand our customer base product breadth and service reach.
Speaker Change: As you can see we have a lot of white space across our core insulation business for both organic and M&A growth.
Speaker Change: Turning to M&A acquisitions will continue to be our number one capital allocation priority as they generate great returns for increased shareholder value.
Robert M. Buck: Identifying, evaluating, and integrating acquisitions is the core competency of ours, and we have an excellent track record of results in this area. We continue to have a robust pipeline of acquisition prospects. In fact, yesterday, we announced an agreement to acquire Installation Works, a $28 million Arkansas-based installation business with a national expertise in agricultural building. We're excited to have another great addition to the TopBuild family of companies and expect to close this transaction later this month. To date, in 2024, we've announced five transactions totaling approximately $68 million in annual revenue.
Speaker Change: Identifying evaluating and integrating acquisitions as a core competency of ours and we have an excellent track record of results in this area.
Speaker Change: We continue to have a robust pipeline of acquisition prospects in fact yesterday, we announced an agreement to acquire installation works, a $28 million, Arkansas base installation business with the national expertise and agricultural buildings.
Speaker Change: We're excited to have another great addition to the Taco family of companies and expect to close this transaction later this month.
Speaker Change: To date in 2024, we've announced five transactions totaling approximately $68 million in annual revenue.
Robert M. Buck: Let me make a couple of industry comments before turning to our operations team. On the material supply side, fiberglass continues to be on allocation. We anticipate Knopf's new facility in Texas will come online successfully in Q3.
Speaker Change: Let me make a couple of industry comments before turning to our operations.
Speaker Change: On the material supply side fiberglass continues to be on allocation.
Speaker Change: We anticipate Konoski facility in Texas will come online successfully Q3, however, there is quite a bit of maintenance and downtime plan at several other fiberglass facilities, which will likely offset any new production capacity this year.
Robert M. Buck: However, there is quite a bit of maintenance and downtime planned at several other fiberglass facilities, which will likely offset any new production capacity this year. We are feeling the impact of the tight supply situation in our distribution business, mainly our special distribution volumes, which Rob will touch on in his comments. On the other hand, we are seeing momentum with spray foam, given the coated option tailwinds I will discuss later.
Speaker Change: We are feeling the impact of tight supply situation in our distribution business, mainly our specialty distribution volumes, which Rob will touch on in his comments on.
Speaker Change: On the other hand, we are seeing momentum with spray foam given the code adoption tailwind I will discuss later.
Robert M. Buck: Recently, all four of the fiberglass suppliers have announced material cost increases effective in June or July. We expect to successfully work through any cost inflation that may take place, as we've consistently demonstrated. Moving to our operations, as I noted on our last call, we expanded our special ops team in 2023. This is a small team of highly seasoned operators whose mission is to focus on our branches, whose metrics fall in our bottom quarter. By leveraging this team's knowledge and experience, we were able to identify opportunities to drive improved performance.
Speaker Change: Recently, all for the fiberglass suppliers have announced material cost increases effective in June or July.
Speaker Change: We expect to successfully worked through any cost inflation that may take place as we've consistently demonstrated.
Speaker Change: Moving to our operations as I noticed as I noted on our last call we expanded our special ops team in 2023.
Speaker Change: This is a small team of highly season, operator, whose mission is to focus on our branches, whose metric style and a bottom quartile.
Speaker Change: By leveraging this team's knowledge and experience.
Speaker Change: We're able to identify opportunities to drive improved performance.
Robert M. Buck: This quarter, we saw the benefit of this special operations work in one of our larger distribution and fabrication locations on the East Coast through work that started in 2023. This business was relocated to a better geography to service our customers. The facility is right-sized to drive improvements operationally, including productivity and overhead. Better inventory management helped reduce transfers and improve service levels.
Speaker Change: This quarter, we saw the benefit of the special ops work in one of our larger distribution of fabrication locations on the east coast.
Speaker Change: Do you work that started in 2023 this.
Speaker Change: This business was relocated to a better geography the service our customers.
Speaker Change: Facility is right sized to drive improvements operationally, including productivity and overhead.
Speaker Change: Better inventory management help reduce transfers and improved service levels.
Robert M. Buck: Strategic decisions were made and actions regarding sales productivity and talent. Next, the business was reviewed, and actions taken around new verticals for the business. What was the outcome?
Speaker Change: Strategic decisions were made and actions regarding sales productivity and talent.
Speaker Change: Mix of business was reviewed and actions taken around new verticals for the business what.
Speaker Change: What is the outcome the special ops focus as improved profitability in this business from a low single digits to now mid teens profit performance.
Robert M. Buck: The special ops focus has improved profitability in this business from a low single digit to now mid-teens profit performance. The work on our bottom quartile is ongoing as we drive to improve our business, and our special ops team continues to focus on opportunities across our network. Next, for those of you who might be less familiar, I'd like to spend a couple minutes on our mechanical insulation business and the opportunity going forward.
Speaker Change: The work on our bottom quartile is ongoing as we drive to improve our business and our special ops team continues to focus on the opportunities across our network.
Speaker Change: Next for those of you who might be less familiar I like to spend a couple of minutes on our mechanical insulation business and the opportunity going forward.
Robert M. Buck: When you consider an industrial facility... They're full of pipes, ductwork, and mechanical systems. These environments may have systems that need to be maintained at a certain temperature or systems that require sound control via an acoustic barrier.
Speaker Change: When you consider an industrial facility there.
Speaker Change: There are full of pipes duct work and mechanical systems.
Speaker Change: He's environments, they have systems that need to be maintained at a certain temperature or systems that require sound control will be an acoustic barriers.
Robert M. Buck: And they also need protective insulation barriers to keep employees. We have the capability to supply any mechanical installation solution required across many diverse industries. This is accomplished through a variety of products, including custom-fit jacketing and pipe covers made from insulating materials like fiberglass, foam glass, or aerogel, just to name a few.
Speaker Change: And then also need protective installation barriers to keep employees safe, we have the capability to supply any mechanical installation solution required across many diverse industries.
Speaker Change: This is accomplished through a variety of products, including custom fit jacketed pipe covers made from insulating materials like fiberglass home glass or aerogel just to name a few.
Robert M. Buck: Our distribution business provides materials and custom fabricates coverings to contractors and mechanical installers. The standards for these industries are very prescriptive, often regulated with specific replacement schedules. We're currently working on several large industrial LNG facilities, liquefied natural gas, in the U.S. and Canada. Mechanical insulation plays a key role in LNG facilities. Many are being built along the Gulf Coast, and you're dealing with a high humidity environment and using cryogenic temperatures to compress natural gas.
Speaker Change: Our distribution business provides as materials and custom fabricates coverings to contractors and mechanical installers.
Speaker Change: The standards for these industries are very prescriptive offer regulated regulated with specific replacement schedules.
Speaker Change: We're currently working on several large industrial LNG facilities liquefied natural gas in the U S and Canada, Canada.
Speaker Change: Mechanical installation plays a key role for LNG facilities.
Speaker Change: Many are being built along the Gulf coast, and you're dealing with high humidity environment and using cryogenic temperatures to compressed natural gas.
Robert M. Buck: Let me give an example of a multi-year LNG megaproject in Louisiana, where we are a primary distributor of mechanical insulation. The facility will sit on more than 600 acres and take three to four years to complete. The facility will contain massive storage tanks, energy turbines, and multiple segments of pipeline totaling over 20 miles in length. Some pipes will be more than three feet in diameter.
Speaker Change: Let me give you an example of a multi year LNG megaproject in Louisiana, where we are a primary distributor a mechanical insulation.
Speaker Change: The facility was set up more than 600 acres and take three to four years to complete.
Speaker Change: The facility will contain massive storage tanks energy turbines in multiple segments of pipeline totaling over 20 miles throughout some pipes will be more than three feet in diameter.
Robert M. Buck: Our initial scope included supplying products and fabrication services for modules being constructed off-site. Our national footprint allowed us to supply these pre-built modules from multiple distribution international facilities across multiple states. This represents over $12 million in revenue in 2023. As the project has progressed, our scope has expanded to include more hot and cold installation applications, fire protection, and sound remediation installation for on-site construction, which will deliver an additional $20 million in revenue.
Speaker Change: Our initial scope included supplying products and fabrication services for modules being constructed offsite.
Speaker Change: Our national footprint allows us to supply these prebuilt modules for multiple distribution international facilities across multiple states.
Speaker Change: This represented over $12 million in revenue in 2023.
Speaker Change: As the project has progressed our scope was expanded to include more hot and cold installation applications.
Speaker Change: Fire protection and sound remediation installation for on site construction, which will deliver an additional $20 million of revenue.
Robert M. Buck: This is a great example of our scope on a multi-phase project that enables us to leverage our product breadth and expertise. Fabrication Capabilities, Project Management Focus, and National Footwear. As we mentioned in the past, these projects may be lumpy over time in regard to revenue, but they play to TopBuild's specialty distribution stream. In addition, the replacement cycles for these projects vary from 18 to 24 months for certain equipment to a plant-wide refurbishment every five years.
Speaker Change: This is a great example of our skills on a multi phase project that enables us to leverage our product breadth and expertise fabric.
Speaker Change: Fabrication capabilities project management focus and national footprint.
Speaker Change: As we mentioned in the past these projects may be lumpy over time in regard to revenue, but they play to tocqueville specialty distribution stream.
Speaker Change: In addition to replacement cycles for these projects vary from 18 to 24 months for certain equipment to a plant wide refurbishment every five years. So we will see recurring revenue from this project and others.
Robert M. Buck: So we will see recurring revenue from this project and others. Now, let me transition to discussing the future of our overall business. We have several dynamics across the industry that will allow our differentiated business model to continue driving profitable growth, whether it be the large mega-projects that should come online in the next few years and the recurring revenue that will follow, or our expanded commercial reach across North America. At a macro level, the United States continues to face a housing shortage, the result of the last decade of underbuilding.
Speaker Change: Let me transition to discussing the future of wherever our business there.
Speaker Change: We have several dynamics across the industry that will allow our differentiated business model to continue driving profitable growth.
Speaker Change: Whether it be the large mega projects.
Speaker Change: Come on line in the next few years and the recurring revenue that will follow or our expanded commercial reach across North America.
Speaker Change: At a macro level the United States continues to face a housing shortage. The result at the last decade of under building. So fundamentally we expect housing demand to be strong for the foreseeable future.
Robert M. Buck: Fundamentally, we expect housing demand to be strong for the foreseeable future. We also see tailwinds for TopBuild in the industry coming from energy-coded options and recent HUD announcements. Given our expertise in all things insulation-related, we expect these energy code changes to help fuel additional demand for years to come.
Speaker Change: We also see tailwind for top building the industry coming from energy coated options and recent HUD announcements.
Speaker Change: Given our expertise in all things installation related we expect these energy code changes to help fuel additional demand for years to come.
Robert M. Buck: All these dynamics, along with our relentless drive to improve and focus on talent, fuel our confidence that TopBuild will outperform in any changing business environment. Finally, I'll close my remarks today by thanking and congratulating our entire TopBuild team. TopBuild has been recognized as a great place to work for the second consecutive year.
Speaker Change: All of these dynamics, along with our relentless drive to improve and focus on talent fuels, our confidence that tocqueville, well outperform in any changing business environment.
Speaker Change: Finally, I'll close my remarks today by thanking and congratulating our entire chart Bell team.
Speaker Change: They would have been recognized as a great place to work for the second consecutive year.
Robert M. Buck: This recognition demonstrates that we're building a workplace that supports development, provides career opportunities, ensures fair treatment, and values each employee. On behalf of our entire leadership team, thank you to our employees. Your passion, drive, and commitment to success have played a significant role in earning this certification once again.
Speaker Change: This recognition demonstrates that we're building a workplace that supports development.
Speaker Change: Provides career opportunities ensures fair treatment and values each employee.
Speaker Change: On behalf of our entire leadership team. Thank you to our employees your passion drive and commitment to success have played a significant role and Ernie This certification once again.
Speaker Change: Let me now turn the call over to Ralph.
Rafe Jason Jadrosich: Thanks, Robert, and good morning, everyone. I want to thank our teams for their hard work in delivering another quarter of profitable growth for TopBuild. As we mentioned on the February call, the first quarter of last year was our highest sales growth quarter due to the carryover of a strong single-family backlog. We also had a slow start to this January due to weather across the country.
Ralph: Thanks, Robert and good morning, everyone.
Ralph: I want to thank our teams for their hard work in delivering another quarter of profitable growth for top builds.
Ralph: As we mentioned on the February call. The first quarter of last year was our highest sales growth quarter due to the carryover of a strong single family backhaul. We also had a slow start to this January due to weather across the country.
Rafe Jason Jadrosich: Our teams came back and delivered strong results in February and March, and our first quarter saw sales grow 1.1% to $1.28 billion, in line with our expectations. Across both segments, we did a great job covering the fiberglass cost increases that hit during the quarter. These fiberglass price increases were partially offset by the carryover impact of lower material prices on spray foam from last year.
Ralph: Our teams came back and delivered strong results in February and March in our first quarter saw sales grow 1.1% to 1.28 billion in line with our expectations.
Ralph: Across both segments, we did a great job covering the fiberglass cost increases that hit during the quarter. These.
Ralph: These fiberglass price increases were partially offset by the carryover impact of lower material prices on spray foam from last year.
Rafe Jason Jadrosich: Breaking our first quarter sales down by segment, our installation segment net sales grew 4.1% to $798.7 million, of which 2.6% was the net contribution from acquisitions and disposals, pricing contributed 1.2%, and volume was up slightly by 0.3%. Multi-family sales remain strong due to the strength of our backlog, and single-family sales continue to improve each month of the quarter. The current trend on single-family starts should be a tailwind to our business as we move through the remainder of the year.
Ralph: Breaking our first quarter sales down by segment, our installation segment net sales grew four 1% to $798 7 million of which two 6% was the net contribution from acquisitions and disposals pricing.
Ralph: Pricing contributed one 2% and volume was up slightly by 0.3%.
Ralph: Installations multifamily sales remained strong due to the strength of our backlog and single family sales continued to improve each month of the quarter.
Ralph: The current trend on single family starts should be a tailwind to our business as we move through the remainder of the year.
Rafe Jason Jadrosich: Net sales for Specialty Distribution declined 2.3% to $545.8 million for the first quarter. Volume declined 4.2%, partially offset by higher pricing of 1.5% and acquisitions of 0.4%. The volume decline was driven by lower residential insulation sales because of business mix and tighter material supply of fiber.
Ralph: Net sales for specialty distribution declined two 3% to $545 8 million for the first quarter volume.
Ralph: Declined four 2%, partially offset by higher pricing of one 5% and acquisitions of 0.4%.
Ralph: The volume decline was driven by lower residential insulation sales because of business mix and tighter materials supply of fiberglass.
Rafe Jason Jadrosich: Total company gross margin of 30.3% expanded by 100 basis points versus last year due to improved productivity and higher pricing in both segments. As I mentioned earlier, our teams continue to do a great job effectively managing the price-cost relationship. In addition, our ongoing focus on driving operational improvements, as Robert detailed earlier, continues to drive margin benefits. Adjusted EBITDA of $253.8 million was up 6.5%, and adjusted EBITDA margin expanded 100 basis points to 19.8% compared to the first quarter of 2023.
Ralph: Total company gross margin of 33% expanded by 100 basis points versus last year due to improved productivity and higher pricing in both segments.
Ralph: As I mentioned earlier, our teams continued to do a great job of effectively managing the price cost relationship. In addition, our ongoing focus on driving operational improvements as Robert detailed earlier continues to drive margin benefits.
Ralph: Adjusted EBITDA of $253 8 million was up six 5% and adjusted EBITDA margin expanded 100 basis points to 19, 8% compared to the first quarter of 2023 inch.
Rafe Jason Jadrosich: Installation-adjusted EBITDA margin was 22%, an improvement of 60 basis points year-over-year. Specialty Distributions adjusted EBITDA margin was 16.9%, 110 basis points better than the first quarter of 2023. Other income and expense totaled $7.5 million in the quarter, which was down from $16.1 million last year.
Ralph: Installation adjusted EBITDA margin was 22% an improvement of 60 basis points year over year.
Ralph: Especially distributions adjusted EBITDA margin of 16, 9% was 110 basis points better than the first quarter of 2023.
Ralph: Other income and expense totaled $7 5 million in the quarter, which was down from $16 1 million last year <unk>.
Rafe Jason Jadrosich: Interest income from higher cash balances was the primary driver. Adjusted earnings per diluted share grew 10.3% to $4.81 in the first quarter. Turning to our balance sheet and cash flow, we finished the quarter with total liquidity of $1.4 billion, which includes cash of $968.8 million and availability under our revolver of $436.2 million. Net debt at the end of the quarter was $453.7 million, and our leverage ratio was 0.42 times the last 12 months' adjusted EBITDA. Working capital as a percent of sales was 14% in the quarter, an improvement of 160 basis points from last year at this time, primarily driven by inventory reduction.
Ralph: Interest income from higher cash balances was the primary driver.
Ralph: Adjusted earnings per diluted share grew 10, 3% to $4.81 in the first quarter.
Ralph: Turning to our balance sheet and cash flow. We finished the fourth finished the quarter with total liquidity of $1 4 billion, which includes cash of $968 8 million and availability under our revolver of $436 2 million.
Ralph: Net debt at the end of the quarter was $453 7 million and our leverage ratio ratio was 0.42 times. The last 12 months adjusted EBITDA.
Ralph: Working capital as a percent of sales was 14% in the quarter an improvement of 160 basis points from last year at this time, primarily driven by inventory reductions.
Rafe Jason Jadrosich: Pre-cash flow for the last 12 months was $790.1 million, which compares to $502.6 million last year, an increase of 57.2%. Our uniquely advantaged business model continues to generate strong cash. Acquisitions remain our top priority for reinvesting our cash flow as our disciplined M&A process has a proven track record of driving significant shareholder value. As Robert discussed earlier, our board recently approved a new share repurchase authorization of up to $1 billion, bringing the total availability for buybacks to $1.15 billion.
Ralph: Free cash flow for the last 12 months with $790 1 million, which compares to $502 6 million last year, an increase of 57, 2%.
Ralph: Our uniquely advantaged business model continues to generate strong cash flows acquisitions remain our top priority for reinvesting our cash flow as our disciplined M&A process has a proven track record of driving significant shareholder value.
Ralph: As Robert discussed earlier, our board recently approved a new share repurchase authorization of up to 1 billion, bringing the total availability for buybacks to 1.15 billion as we have done in the past, we will continue to balance returning capital to shareholders with our M&A pipeline.
Rafe Jason Jadrosich: As we have done in the past, we will continue to balance returning capital to shareholders with our M&A pipeline. Turning now to our 2024 guidance, we are raising our sales expectations by $40 million to a range of $5.4 to $5.6 billion. We continue to expect total sales for residential and commercial properties to grow by mid-single digits. We are also raising our adjusted EBITDA guidance by $25 million to $1.065 to $1.155 billion. These increases in sales and adjusted EBITDA are driven by better than anticipated Q1 profitability and recent acquisitions.
Ralph: Turning now to our 2024 guidance, we are raising our sales expectations by $40 million to a range of 5.4 to $5 6 billion.
Ralph: We continue to expect total sales for residential and commercial to grow by mid single digits.
Ralph: We are also raising our adjusted EBITDA guidance by 25 million to 1.065 to 1.155 billion.
Ralph: These increases to sales and adjusted EBITDA are driven by better than anticipated Q1 profitability and recent acquisitions.
Rafe Jason Jadrosich: Looking to the remainder of the year, I want to remind you that last year's second and third quarter EBITDA included $10 million and $15 million, respectively, of unusual profits related to our multifamily business. I'll close today by reiterating our continued confidence in our outlook as well as the strength of the long-term fundamentals in our business. We believe that our teams will continue to execute at a high level, and TopBuild will continue to outperform in any environment. Robert?
Ralph: Looking to the remainder of the year I Wonder remind you that last year's second and third quarter EBITDA included $10 million and $15 million respectively of unusual.
Ralph: Unusual profit related to our multifamily business.
Ralph: I'll close today by reiterating our continued confidence in our outlook as well as the strength of the long term fundamentals in our business. We believe that our teams will continue to execute at a high level and topped out and will continue to outperform in any environment Robert.
Robert M. Buck: Thanks, Rob. We continue to be confident about 2024 and expect both segments to deliver another year of consistent execution and strong results. Our multiple avenues for growth stretch across a very fragmented $18.25 billion market. I hope the information and slides that we provided today are helpful in better understanding our installation end markets and our opportunities. We have a proven differentiated business model and a disciplined capital allocation strategy. Looking forward, we see great opportunities for profitable growth, both organically and through M&A. Operator, we are now ready for questions.
Ralph: Rob, but continue to be confident about 2024 and expect both segments to deliver another year of consistent execution and strong results our multiple avenues for growth stretch across a very fragmented 18.25 billion Tam.
Ralph: I hope the information of slides that you provided today are helpful in better understanding our insulation end markets and our opportunities we.
Ralph: Our proven differentiated business model and a disciplined capital allocation strategy.
Ralph: Looking forward, we see great opportunity for profitable growth, both organically and through M&A.
Speaker Change: Operator, we are now ready for questions.
Speaker Change: Thank you.
Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. And our first question comes from the line of Stephen Kim with Evercore ISI. Please proceed with your question.
Speaker Change: At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad any confirmation tone will indicate your line is in the question queue.
Speaker Change: Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before question the Starkey.
Speaker Change: And our first question comes from the line of Stephen Kim with Evercore ISI.
Stephen Kim: Please proceed with your question.
Stephen Kim: Yeah, thanks very much, guys. I appreciate all the color, as always.
Stephen Kim: Yeah. Thanks, very much guys I appreciate all the color as always a couple of questions here I guess first regarding the the M&A.
Robert M. Buck: A couple of questions here, I guess, first regarding the M&A pipeline, which continues to be, I think you said, your number one priority. Obviously, you know, thanks for the color on the metal building installation hiccup with SPI. But as we look across the landscape, I was wondering if you could give us kind of a breakdown of how you see the pipeline looking across the three segments that you laid out. And specifically within the mechanical industrial, could you help us understand what the landscape looks like? I assume that the metal building installation is not something which you expect to be an impediment going forward. But if you could just clarify that for us, that would be helpful. Thanks. Hey, good morning, Steve.
Stephen Kim: Pipeline M&A pipeline, which continues to be I think you said your number one priority. Obviously are you you know thanks for the color here on the.
Stephen Kim: Metal building insulation, a hiccup with Spi, but as we look across the landscape I was wondering if you could give us a kind of a breakdown of how you see the pipeline looking across the three segments that you laid out.
Stephen Kim: And specifically within the mechanical industrial could you help us understand what the landscape looks like I.
Stephen Kim: I assume that the metal building installation is not something which you expect to be an impediment going forward, but if you could just clarify that for us that would be helpful. Thanks.
Robert M. Buck: Hey, good morning Stephen, this is Robert. So yeah, across the landscape of the pipeline, so I'll start residential first. So, very healthy there, both on the installation side and some good opportunities on the distribution side as well. And it can be, by the way, fiberglass, it can be spray foam, the other installation-related products that we do. That's why it provides such fragmentation and good opportunities. And then on the mechanical side, we definitely do not see the MBI as any inhibitor.
Stephen Kim: Hey, Good morning, Stephen This is Robert so yeah across the landscape of the pipeline. So I'll start residential first so very healthy there both on the installation side and some good opportunity on the distribution side as well and it can be either way. It can be fiberglass can be spray foam no. The other installation related products that we do.
Stephen Kim: That's why it provides such fragmentation and good opportunity and then the mechanical side, we definitely do not see the N V I as India inhibitor that probably really like it takes kind of one player off the table and that's a that was what transpired with Spi. So you know relative to mechanical as we said in the past there's.
Robert M. Buck: That probably really only takes kind of one player off the table, and that was what transpired with SPI. So, relative to mechanical, as we've said in the past, there are a handful of larger players on the mechanical side that we obviously consider, and you can count those kind of on one hand, if you will. But after that, it's very fragmented. So regional players, both in the U.S. and in Canada, and again, what you find in that space is that those regional players may be participating in a certain vertical.
Stephen Kim: A handful of larger players in the mechanical side that we obviously consider and you know you can count those kind of on one hand, if you will after that is very fragmented. So you know regional players both in the U S and in Canada and again, what you find in that space as those regional players may.
Stephen Kim: Be participating in a certain vertical so that may be in oil and gas they may be in food and beverage that may be in pharmaceutical as an example, that's why that space as fragmented as well and it gives us a lot of M&A opportunity in that space. So so good pipeline. That's why we stay it's still definitely remains number one capital.
Robert M. Buck: So they may be in oil and gas, they may be in food and beverage, they may be in pharmaceuticals, as an example. That's why that space is fragmented as well, and it gives us a lot of M&A opportunities in that space. So good pipeline, that's why we say it still definitely remains our number one capital allocation priority, and I think you'll absolutely continue to see us be active across the space.
Stephen Kim: <unk> priority and I think you absolutely continue to see us be active across the space.
Stephen Kim: Okay.
Stephen Kim: Yeah.
Stephen Kim: Okay, great. That's helpful. I appreciate that.
Speaker Change: Okay, Great. That's helpful. I appreciate that.
Speaker Change: Secondly, I guess with respect to the code changes that we saw you know announced that change, which I guess will be effective in the new construction residential new construction in about 18 months.
Stephen Kim: Secondly, I guess, with respect to the code changes that we saw HUD, you know, announce that change, which I guess would be effective in new construction, residential new construction, in about 18 months, moving to the 2021 code. So I was curious if you could help us dimensionalize that a little bit across a couple of vectors. First, is it right to think that this could, the code change to 2021 on a per home basis, maybe increase the amount of insulation used, you know, in dollars, call it maybe, you know, 20, 30 percent?
Speaker Change: Moving to the 2021 code. So I was curious if you could.
Speaker Change: Help us dimensionalize that a little bit.
Speaker Change: A couple of vectors first.
Speaker Change: Is it right to think that this could the code change for 2021 on a per home basis, maybe increase the amount of installation use.
Speaker Change: Call It maybe 20, 30%.
Stephen Kim: And then what would that translate into a benefit to TopBuild, you know, from a revenue perspective in your view? And then another way of, another aspect is that our understanding is that the 2024 code may be rather different and, in many cases, require less material. So I was wondering if you could help us think through that. And then lastly, regarding the code change, what do you think the likelihood is that Fannie and Freddie will adopt these changes too? Yes,
Speaker Change: And then what would that translate into to our benefit to top built.
Speaker Change: Yeah from a from a revenue perspective in your view.
Speaker Change: And then another way of another aspect is our understanding is that the 2024 code, maybe a rather different and in many cases require less material. So I was wondering if you could help us think through that and then lastly regarding the code change what do you think the likelihood is that that Fannie and Freddie adopts these changes too.
Robert M. Buck: Yeah, so let's talk about the code changes. You're right.
Speaker Change: Yeah, So let's talk about the the code changes so youre right I mean, the hot announcement is is a tailwind for sure now obviously it depends on a couple of things one is where's the builder today, if they're like in 2009 or older code. You know you could be talking somewhere in the ballpark of.
Robert M. Buck: I mean, the HUD announcement is a tailwind for sure. Now, obviously, it depends on a couple things. One is, where's the builder today?
Robert M. Buck: If they're at a 2009 or older code, you know, you could be talking somewhere in the ballpark of, you know, maybe as much of a 30% increase in maybe the pounds of fiberglass. If they're more in that range of, you know, a 2015 code, it could be more in the, you know, 15% type of range. So, you know, we do see it as a tailwind. Obviously, there are multiple options as to how you go after meeting those codes.
Speaker Change: Maybe as much of a 30% increase in maybe the pounds of fiberglass if theyre more in that range of like a 2015 code it could be more in the 15% type of range. So we do see it as a as a tailwind obviously theres multiple options as to how you can go after beating those codes that obviously you can drive some of the revenue question.
Robert M. Buck: That obviously could drive some of the revenue questions you ask, but look, we see it as all tailwinds for, you know, the future, and that means multiple years into the future as well. I think 2024 is interesting because it's kind of more of a systems approach, and there can be multiple ways that you go after that, you know, that code and meet some of those requirements. So, I think we'll see how that translates, but we know that, you know, insulation is one of the best and, you know, most comprehensive ways for builders to deliver on and meet those requirements as well.
Speaker Change: Yeah, well look we we see it as all tail wins for the future and that means multiple years into the future as well I think 2020 for US is interesting because you know it's kind of more of a systems approach.
Speaker Change: <unk> be multiple ways that you go after that you know that code and meeting some of those requirements. So I think we'll see how that that translates but we know that insulation is one of the best and.
Speaker Change: Most comprehensive ways for builders to deliver and to meet those requirements as well I think relative to adoption I mean do you see that you know the.
Robert M. Buck: I think relative to adoption, I mean, you see that, you know, energy codes, it seems like there's just been, you know, really a boost of that tailwind, if you will, even though, you know, given the Inflation Reduction Act 45L is a little more complex, but it is, you know, it takes more of a systems approach. So, I think our feeling is that you'll see more adoption, to be determined, but it does seem to be, in the past 12, 18 months, more tailwind for the industry for sure.
Speaker Change: Energy codes. It seems like they're just been really a boost of that tailwind. If you will even though you know given the inflation reduction Act 45 L is little more complex, but it is on you know it takes more of a systems approach. So I think our feeling is that youll see more adoption to be determined.
Speaker Change: But it does seem to be it seems like in the past 12 18 months.
Speaker Change: More tailwind for the industry for sure.
Speaker Change: Okay.
Stephen Kim: Okay, great. Well, it's all good news, I guess, for you guys. So, thanks very much, guys. I appreciate all the help.
Speaker Change: Okay, great well, that's all good news I guess for you guys. So thanks very much guys I appreciate all of the house.
Speaker Change: Thank you.
Susan Marie Maklari: Thank you. Our next question comes from the line of Susan Maklari with Goldman Sachs. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Susan Mcclary with Goldman Sachs. Please proceed with your question.
Susan Marie Maklari: Thank you. Good morning, everyone. Good morning. My first question is, perhaps going back to the capital allocation, given your comments on the mechanical side of things, does that imply that maybe you would consider pursuing some of those smaller niche players rather than going after the handful of larger ones? And I guess with that too, how are you thinking about buybacks, just given the increase in the authorization that you also announced this morning?
Susan Marie Maklari: Thank you good morning, everyone.
Susan Marie Maklari: Good morning. Good morning, My first question is just.
Susan Marie Maklari: Perhaps going back to the capital allocation.
Susan Marie Maklari: Given your comments on the mechanical side of things does it imply that maybe you would consider pursuing some of those smaller niche players rather than going after the handful of larger ones and I guess with that too how are you thinking about buybacks just given the increase in the authorization that you also announced this morning.
Robert M. Buck: Good morning, Susan. It's Robert.
Susan Marie Maklari: Yeah. Good morning, Susan This Robert I'll take the first part of that question, Rob will take the second part so yeah. So on the landscape of the mechanical acquisition side.
Robert M. Buck: I'll take the first part of that question. Rob, we'll take the second part. Yeah, so on the landscape of the mechanical acquisition side, we're looking at both. I mean, obviously, we have some relationships with some of the larger players and conversations that we've had. But then, absolutely, we participate across all those verticals. And so the local or more regional players that may play in one or two verticals, we're absolutely interested in that. We've had some success with that approach in the past. DI has had some success with that approach in the past as well.
Rob: We're looking across both I mean, so obviously, we have some relationships with some of the larger players in and conversations that we've had but then absolutely we participate across all those verticals and so you know the low core or more regional players that they play in one or two verticals, we're absolutely interested in that.
Susan Marie Maklari: We've had some success in that approach in the past <unk> had some success in that approach in the past as well. So so we're open to the gamut on M&A relative to mechanical and we think it's all you know open ground for it. So I think that's why we're excited about it and that's why we keep talking about the fragmentation, but also have a robust pipeline as well, yeah, Susan and I will do.
Robert M. Buck: So we're open to the gamut of M&A relative to mechanical, and we think it's all open ground for us. So I think that's why we're excited about it. That's why we keep talking about the fragmentation, but also the robust pipeline as well.
Robert M. Kuhns: Yeah, Susan, and I'll just add on the buyback front. I mean, obviously, we're excited about announcing that today. It shows the confidence our board has in our strategy. It shows the health of our balance sheet right now. So, as Robert said, M&A is going to remain our top priority. But obviously, given the cash we have on hand today, we're going to balance our pipeline with returning capital to shareholders as we have in the past. So, like I said, we're really excited about that, and we're going to continue to manage it
Susan Marie Maklari: Is that on the on the buyback front I mean, obviously.
Susan Marie Maklari: You know, we're we're excited about announcing that today shows the confidence our board has in our in our strategy. It shows the health of our balance sheet right. Now. So you know as Robert said, you know M&A is going to remain our top priority, but obviously given the you know the cash we have on hand today, we're gonna Bal.
Susan Marie Maklari: And that balance of our pipeline with returning capital to shareholders as we have in the past so and like I said, we're really excited about that and we're going to continue to manage that as we have in the past.
Susan Marie Maklari: Okay. All right. Thank you for that. And then, you know, maybe thinking a bit about price and price costs. You mentioned the announcements, the price increases that have come out from the suppliers. Any thoughts on how that can roll through the business and your ability to continue to offset those incremental increases?
Speaker Change: Okay, Alright, thank you for that and then maybe thinking a bit about pricing and price cost you mentioned the.
Speaker Change: Announcements the price increases that have come out from the suppliers just any thoughts on how that can roll through the business and your ability to continue to offset those incremental increases.
Robert M. Buck: Yeah, this is Robert. So, you know, obviously confident. We've talked in the past about, number one, how we manage those given our ERP system and that touch with each branch at the local level. Two, I think we've demonstrated, you know, our teams in the field have demonstrated a great track record with that. I think relative to, you know, how that plays out, we'll see how the single family starts. We think it's going to be a positive back half of the year, which will keep material type and probably bodes well for the traction relative to what happens with price and the price increase.
Speaker Change: Yeah. This is Robert so.
Robert M. Buck: We are confident we've talked in the past about number one how we manage those given our ERP system and that touch with each branch at the local level. Two I think we've demonstrated our teams in the field have demonstrated great track record with that I think relative to how that plays out we'll see how the single family starts play out we think it's going to be.
Speaker Change: A positive back half of the year, which will keep material type and probably bodes well for the traction relative to what happens with price and the price increase so more to come but yeah definitely confident in our ability to manage that appropriately.
Susan Marie Maklari: So, more to come, but yeah, definitely confident in our ability to manage that appropriately. Okay. All right. Thank you for the color. Good luck with everything.
Susan Marie Maklari: Okay. All right. Thank you for the color. Good luck with everything. Thank you.
Speaker Change: Okay Alright, thank you for the color good luck with everything.
Speaker Change: Yeah.
Speaker Change: Yeah.
Kenneth Robinson Zener: Thank you. Our next question comes from the line of Ken Zener with Seaport Research Partners. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Ken Zenner with Seaport Research Partners. Please proceed with your question.
Kenneth Robinson Zener: Good morning, everybody.
Kenneth Robinson Zener: Good morning Ann.
Kenneth Robinson Zener: So it's an interesting combination here where, you know, price is positive, you talked about on the distribution side, supply actually impacting your volume, if I understood your language correctly, is that correct? That's correct. So, could you give a little context?
Kenneth Robinson Zener: So it's interesting.
Kenneth Robinson Zener: Combination here, where you know pricing positive you're talking about on the distribution side supply actually impacting your volumes if I understood. Your language correct is that correct.
Speaker Change: That's correct.
Kenneth Robinson Zener: I know, like, north of 1.4 million starts, things are pretty tight. That's supporting the price amid what had been slowing activity. It's obviously accelerating again. But, you know... Did you guys know when nobody's going home?
Speaker Change: So could you give a little context I know like you know north of 1.4 million starts things are pretty tight.
Kenneth Robinson Zener: Supporting the price a bid what had been slowing activity, obviously accelerating again.
Kenneth Robinson Zener: Yep.
Robert M. Buck: I don't hear allocation like people going to Home Depot per se, but can you talk about how it was so tight and perhaps why we didn't see a greater price. Dynamics, you know, more favorable price of supply was so tight, I guess, is one of the things I'm trying to understand as that goes to the perhaps tension that we might see in price in the second half. Yeah, Ken, so I'll take the first part of the material, and Rob will handle the price detail piece of it.
Kenneth Robinson Zener: Did you guys nobody's going to home I don't hear allocation like people going to home depot per se or can you talk to how it was so tight and perhaps why we didn't see greater.
Kenneth Robinson Zener: Price.
Kenneth Robinson Zener:
Kenneth Robinson Zener: Dynamics, you know more favorable prices supply was so tight I guess with one of the things I'm trying to understand as that goes to the perhaps tension that we might see in price in the second half.
Speaker Change: Yeah, Ken So I'll take the first part of material, Rob will handle the price detailed piece of it. So yes, so material definitely still tight I mean, I would say you can say that we've had to buy some material through third party. If you will given the tightness now as we mentioned back in February some of that is planned maintenance, but theres also been some downtime in the industry.
Robert M. Buck: So, yeah, so material, you know, definitely still tight. I mean, I would even say that, you know, we've had to buy some material through third parties, if you will, given the tightness. Now, as we mentioned back in February, some of that is planned maintenance, but there's also been some downtime in the industry as well, unplanned downtime in the industry that caused material to be tight. You know, I think what we've seen is, given some of the code adoption, you're seeing some momentum with other products. We mentioned in our prior remarks around spray foam, so I think you see that relieving some of it relative to the installation side of the business.
Speaker Change: <unk> as well unplanned downtime in the industry that cause material, whether it be tight I think what we've seen as you see given some of the code adoption, you're seeing some momentum with other products, we mentioned on our prepared remarks around spray foam.
Speaker Change: So I think you see that relieving some of it relative to the installation side of the business and then we talked about fiberglass. There was also some commercial products that were very tight in the first quarter as well I mean, you're around mineral wool and some of the manufacturers issues are of that product as well, but that that's definitely improving so.
Robert M. Buck: And then we talked about fiberglass. There were also some commercial products that were very tight in the first quarter as well, mainly around mineral wool and some of the manufacturer's issues with that product as well. But that's definitely improving.
Robert M. Kuhns: So we think material stays tight, but we think we'll be in a good position here, given some of the other products. Rob will talk about the price piece. Yeah, so around price, Ken, I mean, the way to think about the first quarter, a couple things impacting that and probably making it a little less than if you just look at fiberglass in a vacuum. You know, one is the timing of the fiberglass increase; I'd say it was more of a mid-quarter implementation.
Speaker Change: We think materials stays tight, but we think we'll be in a good position here given some of the other other products Rob will talk about the price piece, yeah. So around price can I mean, the way to think about the first quarter. A couple a couple of things impacting that and probably making it a little less than if you just look at you know fiberglass in a vacuum.
Speaker Change: One is you know the timing of the fiberglass increase I'd say it was more of a mid quarter implementation.
Robert M. Kuhns: So we should see that, you know, improve as we go into the second quarter. And then the other thing you have is the carryover impact of some price decreases we saw last year, primarily around spray foam. And that's going to continue on through the second quarter, offsetting some of the price increases we see on fiberglass.
Speaker Change: Patient so we should see that improve as we go into the second quarter and then the other thing you have is the the carryover impact of some price decreases we saw last year, primarily around spray foam.
Speaker Change: And that's going to continue on in through the second quarter are offsetting some of the price increase we see on on fiberglass.
Robert M. Kuhns: on Fiberglass. Okay.
Kenneth Robinson Zener: Okay, and then can we talk about, obviously, the deals didn't go through, but, you know, mechanical is a huge area, right, where you can keep doing acquisitions given your mid-team share for quite a while. But perhaps, is there something different that, you know, as you do these mechanical, you know, acquisitions that will change the incremental margins of specialty distribution? Or is it still expected to largely be, let's say, 75% material, 25% perhaps value add, so the incrementals of that business over time will still be in that low to mid-teen range that I think you guys have described before?
Speaker Change: Okay.
Speaker Change: And then can we talk to obviously this.
Speaker Change: The deal didn't go through but mechanical is a huge area right, where you can keep doing acquisitions given your mid teen share.
Speaker Change: Quite a while.
Speaker Change: But perhaps is there something different that you know as you do these mechanical.
Speaker Change: Acquisitions that will change the incremental margins.
Speaker Change: Margins of specialty distribution or is it still expected to largely be lets say, 75% material 25%.
Speaker Change: Perhaps value add.
Speaker Change: Incrementals in that business over time will still be in that you know.
Speaker Change: Low to mid teen range I think you guys have described before.
Kenneth Robinson Zener: Yeah, I mean, from what we've seen, I think we'll expect most of the distributors in that space to probably see EBITDA margins when we acquire them, kind of in that mid-teens type, or low, I'd say more low, 10%, 11% type range, maybe low teens. But then, it's just like with DI and the synergies we'll be able to drive, we'd expect to be able to get that up into the mid-teens and the incrementals over time, once you get that first year fixed cost behind you, and you're leveraging that fixed cost base, we'd expect the incrementals to be in that 22 to 27 that we target over the long term. We talk about distribution being more towards the low end of that, and obviously installation being more towards the high end.
Speaker Change: Yeah, I mean, I think from from what we've seen I think we'll expect you know most of the distributors in that space. We will probably see you know EBITDA margins, when we acquire them and kind of in that mid teens type or low I'd say more load low you know, 10%, 11% type range, maybe low teens, but.
Speaker Change: Then it just like with D. I you know in the synergies, we'll be able to drive we'd expect to be able to get that up into the mid teens and in the Incrementals you know over time once once you get that first year of fixed cost you know behind you there in your in your leveraging that fixed cost base, we'd expect the incrementals to be in that 'twenty two to 'twenty.
Speaker Change: Seven that we target you know over the long term, we talk about distribution being more towards the low end of that and obviously installed more towards the high end.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Michael Jason Rehaut: Thank you. Our next question comes from the line of Michael Rehaut with J.P. Morgan. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Michael Rehaut with Jpmorgan. Please proceed with your question.
Michael Jason Rehaut: Thanks. Good morning, everyone.
Michael Jason Rehaut: Thanks, Good morning, everyone. Thanks.
Michael Jason Rehaut: Thanks for taking my questions. I just wanted to circle back for a moment.
Michael Jason Rehaut: Thanks for taking my questions.
Michael Jason Rehaut: Hum.
Michael Jason Rehaut: I just wanted to circle back for a moment don't mean to beat a dead horse here, but obviously a lot of focus around the mechanical vertical and you know I was wondering if you could give a little more color around what the metal building installation represented as a percent of sales.
Michael Jason Rehaut: I don't mean to beat a dead horse here, but...
Michael Jason Rehaut: Obviously, a lot of focus on the mechanical, vertical, and, you know,
Michael Jason Rehaut: And, you know, I was wondering if you could give a little more color around what metal building insulation represented as a percent of sales for SPI. What it also represents is a percent of the $5.75 billion mechanical vertical that you posted on the slides, and I noticed that you didn't change the overall PAM of that vertical relative to your prior presentation, so I'm just kind of wondering around this subsector if you still see it as a viable part of the industry, and again, just trying to get a sense of the size of SPI in the broader sector, and if it Yeah, Michael. This is Rob.
Speaker Change: Our best P I.
Speaker Change: It also represents as a percent of the.
Speaker Change: 5.75 billion.
Speaker Change: Mechanical vertical that that you posted it on the slides and I noticed that you didn't change the overall Tam.
Speaker Change: Of that vertical relative to your prior presentation. So I'm just kind of wondering around this subset.
Speaker Change: Sub sector.
Speaker Change: If you still see it as a viable part of the industry and again, just trying to get a size of S. P I and the broader sector and if it changes your view around.
Speaker Change: This subcategory is it still being an area.
Speaker Change: As part of your your acquisition strategy within the broader space.
Robert M. Kuhns: I'll start on that one. I mean, when you look at NBI for us today, it's roughly about 6% of our revenue. It's important to also clarify for people that it falls into that middle vertical or that middle market on our slide for the commercial building envelope. It's not the mechanical space.
Speaker Change: Yeah. Michael This is Rob I'll start on that one I mean, when you look at N V. I for US today, it's roughly about 6% of our revenue. It's important to also clarify for people that falls into that that medical middle vertical or that middle market on our side for the commercial building envelope, it's not the the mechanical space, it's a commercial build.
Speaker Change: <unk> envelope and from our view you know when you go to insulate a metal building theres multiple options you can do right. You know laminated fiberglass is one option and that's what we do and and that's what S. P. I did as well for them it was about 15%.
Robert M. Kuhns: It's the commercial building envelope. And from our point of view, when you go to insulate a metal building, there are multiple options you can do, right? Laminated fiberglass is one option, and that's what we do, and that's what SPI did as well. For them, it was about 15% of their total revenue.
Speaker Change: Their total revenue so relatively small pieces for both of US that's where I said that it's a small niche within that commercial building envelope. You know when you go to insulate a commercial building you could use laminated fiberglass you can use spray foam you can use insulated metal panels and that's how we thought about the market more broadly but.
Robert M. Kuhns: So relatively small pieces for both of us. That's where it's a small niche within that commercial building envelope. And when you go to insulate a commercial building, you can use laminated fiberglass. You can use spray foam. You can use insulated metal panels.
Robert M. Kuhns: And that's how we thought about the market more broadly, but the DOJ narrowed in on that laminated fiberglass, which is a much smaller piece of the overall market there. So in terms of our M&A strategy going forward, it doesn't really concern us. We're already obviously a large player in that very small niche, and we're not as big a player in the rest of the commercial building space or in the mechanical space, and that's where we'll continue to do M&A going forward.
Speaker Change: The Doj narrowed in on that that laminated fiberglass, which is a much smaller piece of the overall market there. So.
Speaker Change: In terms of our M&A strategy going forward. It doesn't really concern us we're already obviously, a large player in that that very small niche.
Speaker Change: And where we're not as big a player in the rest of the commercial building space or in the mechanical space.
Speaker Change: And that's where we'll continue to do M&A going forward.
Robert M. Kuhns: And obviously, Mike, that's where the focus was, really around that small niche of the MBI side. So there's no concern across the rest of the business, and there's really not much to take off the table relative to MBI other than the decision we just made.
Speaker Change: And obviously my if that's where the focus was to really round out smaller niche of the MDI side.
Speaker Change: No no no concern across the rest of the business and there's really not much it takes off the table relative to MBIA other than the decision we just made.
Michael Jason Rehaut: Right, so I guess just
Speaker Change: Right.
Speaker Change: I guess just kind of.
Michael Jason Rehaut: Following on that, and appreciating the additional color there, as you look at the landscape of potential targets across, you know, the commercial industrial space, the building envelope, and the mechanical, you know, in the past, you've kind of
Speaker Change: Following on that and I appreciate the additional color there.
Speaker Change: Hum.
Speaker Change: As you look at the landscape of potential targets across.
Speaker Change: You know the commercial industrial space, the building envelope and the mechanical.
Michael Jason Rehaut: You kind of said that, you know, there were, you know, maybe.
Speaker Change: In the past you've kind of said that they.
Speaker Change: They were you know maybe.
Michael Jason Rehaut: You know, half a dozen or less, kind of larger potential acquisitions, medium to larger. And you kind of walk through the different, you know, relative sizes. With SPI off the table, you know, to the extent that some of these other medium to larger sized potential targets also have NBI, I'm just kind of curious if that kind of changes the calculus or the likelihood of some of those other larger players or... or was this kind of a...
Speaker Change: You know half a dozen or less kind of larger potential acquisitions medium or larger.
Speaker Change: And you kind of walk through the different you know relative sizes.
Speaker Change: With S. P. I off the table you know to the extent that some of these other medium to larger size potential targets also have M. B I I was just kind of curious if that kind of changes the.
Speaker Change:
Speaker Change: Calculus or the likelihood of some of those other larger players or.
Speaker Change: Or was this kind of a one off.
Robert M. Buck: Where, you know, the other kind of larger, medium to larger targets wouldn't necessarily have this niche issue that the DOJ kind of zeroed in on. Great question, Mike. So this is Robert.
Speaker Change: Where you know the other kind of larger medium to larger targets wouldn't necessarily have a niche issue that the Doj are kind of zeroed in on.
Robert M. Buck: So you hit on it there. The other players really don't have the NBI niche piece of the business. That's why we keep saying it's really zero concern for us from an M&A strategy. So it doesn't really exist in any of the other targets that we've talked about in the past or any of the ones that we're focused on, so it's really not an issue. Great. And then one last quick one, if I could, when you talk about, you know,
Speaker Change: Great question, Mike. This is Robert So you you hit on it there. The other players really don't have the NB Iot niche piece of the business. That's why we keep saying, it's really zero concern for us from an M&A strategy perspective, so it doesn't really exist in any of the other they need the other targets that we've talked about in the past or you know any of the ones that were that were focused on so really not a.
Speaker Change: Issue.
Speaker Change: Great and then one last quick one if I could when you talk about you're raising the guidance and you kind of said that it was driven off of the better first quarter profitability and the <unk> acquisitions.
Michael Jason Rehaut: www.topbuild.com I just wanted to clarify that whether or not it included the most recent acquisition of the Arkansas installer, and also if it reflects any level of success with the June-July price increase. Hey, Michael, this is Rob. So it doesn't include either one of those. We don't include any acquisitions that we haven't yet closed. So the Arkansas acquisition that we announced will be.
Speaker Change: I wanted to clarify that whether or not it included the most recent acquisition of <unk> AR.
Speaker Change: Of the Arkansas, our installer and also if it reflects any level of success.
Speaker Change: With the June July price increases.
Speaker Change: Hey, Michael This is Rob so it does not include either one of those so it doesn't mean, we don't include any acquisitions that we haven't yet closed.
Rob: So the Arkansas acquisition that we announced will be incremental.
Robert M. Kuhns: And then, likewise, we haven't baked in any incremental pricing at this point. We've put in, you know, obviously what we know.
Rob: And then likewise, we haven't baked in any incremental pricing at this point, we've put in you know obviously, what we know from the from the Q1 price increase but we haven't baked in that additional price increase that potential price increase later this year.
Robert M. Kuhns: We haven't put in any incremental pricing at this point. We've put in, you know, obviously what we know from the Q1 price increase, but we haven't baked in that additional price increase, that potential price increase later this year.
Speaker Change: Okay. Thanks, so much.
Speaker Change: Thank you.
Rafe Jason Jadrosich: Thank you. Our next question comes from the line of Rafe Jadrosich with Bank of America. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Ralph a general with Bank of America. Please go.
Ralph: Proceed with your question.
Sean Cowman: Hi guys, this is Sean Cowman. I'm on behalf of Rafe. So spray foam has come up a couple of times on this call. Can you talk about your current exposure to spray foam, either in terms of volume or revenue, and then are you seeing demand pick up for that as the price begins to narrow between that and some of the more traditional insulation products?
Speaker Change: Hi, guys. This is actually Shaun calnan on for Ralph.
Shaun Calnan: Spray foam has come up a couple of times on this call can you talk about your current exposure to spray foam either in terms of volume or revenue and then are you seeing the demand pick up for that as the price begins to narrow between that and some are more of the traditional insulation products.
Robert M. Kuhns: So I'll give you a couple of quick numbers and then Robert can expand on what's going on in the industry a little bit with spray foam. But from a unit basis, in terms of the houses we insulate, it's probably roughly 10% on the unit basis. From a dollar's perspective, though, it's going to be north of 20% because the cost of spray foam is roughly 2x, maybe a little more than that, closer to 2 12 in some places in terms of the cost per unit.
Speaker Change: Yeah, So and I'll give you a couple of quick numbers and then Robert can can you expand on what's going on in the industry, a little bit with spray foam, but from a from a unit basis in terms of that the houses. We insulate. It's probably you know roughly 10% on the units basis from a dollars perspective that was going to be you know north of 20%.
Robert M. Buck: Because you know the cost on spray foams you know.
Robert M. Buck: Roughly to ask maybe a little more than that closer to two and a half and some places in terms of the cost per unit, but Robert can talk a little bit about some of the dynamics. There was freight for them right now yeah. So you're definitely seeing the momentum in the AR and the product shown one is definitely a big tailwind coming from the codes that we've talked about so you see even some of the production.
Robert M. Buck: But Robert can talk a little bit about some of the dynamics there with spray foam. Yeah, so you're definitely seeing momentum in the product shown. One is, you know, definitely a big tailwind coming from the codes that we've talked about. So, you see even from the production home builders are becoming very interested in that product to reach the 45L, you know, rebate piece and make sure they deliver on that. So, yeah, definitely momentum with the product, both, you know, smaller builders, custom builders, but then also even with production builders. And then, you know, the last part I would just say is around commercial. We see more spray foam inspection in commercial projects as well. So, it's got some momentum really across.
Robert M. Buck: Homebuilders are becoming very interested in that product to reach to 45 L.
Robert M. Buck: Rebate piece and make sure that deliver upon that so yeah definitely momentum with the product both smaller builders custom builders, but then also even with production builders and then the last part I would just say is around commercial we see more a spray foam inspect and commercial on <unk>.
Robert M. Buck: <unk> as well so it's got some momentum really across the board.
Sean Cowman: Got it. And then in yesterday's Installation Works announcement, you guys specifically called out the agricultural market. Can you give us a rough estimate of how much that segment currently contributes to sales and then what you think the market opportunity is there? Yeah, for us today, it's a pretty small piece.
Speaker Change: Got it and then and yesterday's installation works announcement, you guys specifically called out the agricultural market can you give us a rough estimate of how much that segment. Currently contributes itself and then what you think the market opportunity is there.
Robert M. Buck: Yeah, for us today, it's a pretty small piece. We do that across the country in different parts. I think about the Northeast as an example, and the Southeast.
Speaker Change: Yeah for US today, it's a pretty small piece of ourselves, we do that across the country and different starts I think about the northeast as an example.
Speaker Change: Southeast, we do it but what we love about installation works and the ownership group. There is they really are a national player in that great relationships great expertise.
Robert M. Buck: We do it, but what we love about Installation Works and the ownership group there is that they really are a national player in that. Great relationships, great expertise, even with some of the large poultry producers across the country. So, they're bringing a whole new level, which will really be something we can build upon across the country for TopBuild.
Speaker Change: Even with some of the large poultry producers across the country. So they're bringing a whole new level would you really be something we can build upon across the country for <unk>.
Speaker Change: Yeah.
Speaker Change: Thank you.
Philip H. Ng: Our next question comes from the line of Phil Ng with Jeffries. Please proceed with your question.
Speaker Change: Our next question comes from the line Hum.
Speaker Change: No.
Speaker Change: And G with Jefferies. Please proceed with your question.
Robert M. Buck: Hey guys, I guess my question is, do you have any chunkier deals in the pipeline, especially on the CNI side, and just given how strong your balance sheet is and free cash flow, perhaps, Rob, how are you thinking about pacing this buyback? Because, like, at least on my math, a billion dollar buyback. I'm not saying you would. By the whole thing this year, it would still get you to a balance sheet like So, one, you know, color on chunkier deals, and two, how are you thinking about pacing this billion-dollar buyback optimization program you just announced?
G: Hey, guys.
G: I guess my question is do you have any chunkier deals in the pipeline, especially on the C&I side and just given how strong your balance sheet is in free cash flow, perhaps Rob how are you thinking about pacing is buyback is like at least on my math, that's been their buyback not saying you would.
G: By the whole thing this year it would still get you to a balance sheet like one times or less from a leverage standpoint. So one color on chunkier deals into how youre thinking about pacing is billing to our buyback authorization program your stance.
Robert M. Buck: Hey Phil, Robert, I'll take the first part. So yeah, we definitely, you know, the pipeline looks good from that perspective. Obviously, we were waiting to see if we could get SPI across the finish line. And now that we've moved forward from that and made our decision to remain disciplined on the M&A front, then we'll be, you know, moving forward with some of our other opportunities that we have. So yeah, so feel good about the pipeline, really across all three end segments, including the CNI side as well. Yeah, Phil, and this is Rob. In terms of buybacks, you know, like I said earlier, we're not going to be able to give any guidance exactly on how that's going to work.
Speaker Change: Robert I'll take the first part so yeah, we've definitely the pipeline looks good from that perspective, obviously, we're waiting to see if we got Spi cross the finish line and so now that we've moved forward from that made our decision to remain disciplined on the on the M&A front than when we you know moving forward with some of our other opportunities that we have.
Speaker Change: So yes, so feel good about the pipeline really across all three.
Speaker Change: And segments, including the C&I side as well, yes. Helen this is Rob in terms of buybacks you know like I said earlier, we're not we're not gonna be able to give any guidance exactly how that's going to play out we're going to obviously see how the how the M&A pipeline flows prioritize that but you know as you point out or we're sitting in a in a very healthy.
Robert M. Kuhns: That's going to play out. We're going to obviously see how the M&A pipeline plays out.
Robert M. Kuhns: We're sitting in a very healthy balance sheet position today, so we'll see how many of these M&A deals we get to the finish line, and we'll certainly balance that with the buybacks moving forward. Like we've talked about in the past, we think net debt leverage somewhere in the one to two is probably the right number, and we're obviously at.42 at the end of this quarter.
Speaker Change: Alex sheet positioned today, so yes, we will see how many of these M&A deals we get to the finish line and we will certainly balance that with a you know with the buybacks moving forward like we've talked about in the past. We think you know net debt leverage somewhere in the one to two is probably the right type number and we're obviously it.
Speaker Change: 0.42 at the end of this quarter you know we were anticipating using.
Speaker Change: A significant portion of that cash on the S. T ideal, so obviously, where we're pivoting from that and hence the announcement of the $1 billion authorization.
Robert M. Kuhns: And that concludes the announcement of the billion dollar authorization.
Philip H. Ng: But Rob, I guess, if there's no deal, the game plan wouldn't be to build excess cash, right? The plan would probably still stay within that leverage ratio or maybe closer to the low end. Am I thinking about it right?
Speaker Change: Rob I guess, if theres no deals.
Speaker Change: Game plan, when we meet to build excess cash right.
Rob: That would probably still stay within that leverage ratio or maybe closer to the low end.
Speaker Change: And I think about it right.
Robert M. Kuhns: Yeah, I mean, I think if we spent the majority of that, we'd probably still end up on the low end of that one to two right now.
Rob: Yeah, I mean, I think if if we spent the majority of that will probably still end up on the low end of our of that one to two right now.
Philip H. Ng: And then from a material availability standpoint, I'm a little surprised how tight it is. I know it's tight on allocation, but I'm a little surprised at some limitations on getting material. Did I hear you correctly, Robert, that the Kanawha plant is coming on sometime in 3Q? I thought it was supposed to come on in July, so that might create an even tighter environment. Certainly, there are price increases out there for fiberglass and mineral wool, but rates have been higher for longer now. So how are you thinking about your ability to kind of push this through, and what do you think about supply-demand overall?
Speaker Change: Okay. That's helpful and then from a material availability standpoint, I'll I'll surprise.
Speaker Change: It is I know, it's tight on allocation I'm most surprised you.
Rob: Sure.
Rob: Some limitations on getting material.
Speaker Change: Did I hear you correctly that they can off plan is coming out sometime in <unk> I thought it was supposed to come on July so that might create a <unk>.
Speaker Change: <unk> been tighter environment.
Speaker Change: Certainly there is price increases out there for our fiberglass and mineral wall, but rates are higher for longer now. So how are you thinking about your your ability kind of pushing us through and how do you think about supply demand overall.
Robert M. Buck: Yes, I think, Phil, good question, so, you know, the plan is coming up in college, you know, June, July, as far as when it starts up, but by the time they get running, you know, if you will, at maybe a steady pace, you're probably talking definitely into Q3, and as you think about, you know, material, as we talked about, there's still maintenance to be done in the industry, and we've seen some unplanned downtime, which, you know, gives you a little bit of pause for concern, so that's why we think material stays tight the remainder of this year, and then if you take, you know, the single family starts, which we think, even if you just take the order information from the builders, we think single family will be strong the back half of the year, so we think there's good possibility for traction there in material, and then we'll see how 2025 plays out here, those lines should be up, you know, full production by then, and then we'll see what's happening from a starts perspective as well, and, you know, some of this code piece of it that we talk about, you'll see some potential pounds coming into play, their relative capacity needs, so should line up well here for the back half of the year, but let's keep playing the allocation piece as well.
Speaker Change: Yes, I think so good question. So you know the plan is coming up and call. It June July as far as winter starts that provides time they get running you know if you will maybe a steady pace, you're probably talking definitely into Q3.
Speaker Change: And as you think about materials, we've talked about there's still maintenance to be done in the industry.
Speaker Change: And we've seen some unplanned downtime, which gives you a little bit of pause for concern. So that's why we think materials stays tight the remainder of this year and then if you take that.
Speaker Change: The single family starts, which we think even if you just take the order information from the builders I think as we think single family will be strong in the back half of the year. So we think theres. Good possibility protraction. There are material and then we'll see how 2025 plays out here there that line should those lines should be up full production by then and there.
Speaker Change: We will see what's happening from a starts perspective as well and you know some of this codes piece of it that we talked about you'll see some central pounds coming into play there relative to the capacity need so should lineup well here for the back half of the year, but we'll keep playing the allocation piece as well.
Philip H. Ng: Sorry to sneak this one in, Robert. I mean, you were talking about how code changes would be a good solution for demand. Materials are clearly tight, and a single family should pick up in the back half. Are you hearing anything from your suppliers in terms of potentially adding more capacity that could potentially be a relief next year? I know Owens Corning is taking a harder look at any long-term plans on the capacity front. Any incremental uplifts that you see perhaps next year outside of Knopf ramping up more fully and perhaps from a maintenance standpoint things being a little better? Yeah, I think maybe two things I'll say, Phil.
Speaker Change: Sorry to sneak this one in Robert I mean, you were talking about how code changes would be a good guy for demand.
Speaker Change: Curious clearly tied to single family should pick up in the back half.
Speaker Change: Are you hearing anything from your suppliers in terms of potentially adding more capacity that could potentially be a relief next year I know Owens Corning is taking that are hard to look at any long term plans on the capacity front, but any incremental uplift that you see perhaps next year outside of ramping up more fully and perhaps.
Speaker Change: A maintenance standpoint things being a little better spot.
Robert M. Buck: Yeah, I think maybe two things I'll say, Phil. I think one is that people are evaluating, that's for sure, but I think people are evaluating multiple insulating products whenever they're doing the evaluation.
Speaker Change: I think maybe two things I'll say feel I think one people are evaluating that's that's for sure but I think people are evaluating a multi.
Speaker Change: Multiple insulating products wherever they're doing the evaluation if that makes sense.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Robert M. Buck: Thank you. Our next question comes from the line of Trey Grooms with Stevens Inc. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Trey Grooms with Stephens Inc. Please proceed with your question.
Sid Ramesh: Hey guys, this is Sid Ramesh on behalf of Trey Grooms. Thanks for taking my question. Could you maybe talk about the trends you saw in April and into May on the different end markets? Anything noticeable with maybe rates taking a little higher? Sounds like single family is improving, but any changes on the commercial or multifamily side?
Speaker Change: Hey, guys. This is sidra mesh on for Trey grooms. Thanks for taking my question could you maybe talk about the trends you saw in April and into May on the different end markets anything noticeable.
Sidra Mesh: Maybe rates ticking, a little higher it sounds like single families improving but any changes it changes on the commercial or multifamily side.
Robert M. Kuhns: Yeah, I'd say, Sid, for us, no major changes. I mean, April came in about as we expected. And just like I think Robert mentioned in his opening comments, you know, March was the first month. We saw single-family homes, you know, with year-over-year sales growth. First time we'd seen that in a year. April, we saw that again. So we are seeing, you know, some of the improvement from the improved starts on the single-family side, which is definitely...
Speaker Change: Yeah, I'd say FID for US no major changes I mean April came in about as we expected.
Speaker Change: And just like I think Robert mentioned in his opening comments.
Speaker Change: We saw March was the first month, we saw single family with year over year sales growth first time, we've seen that in a year April we saw that again. So we are seeing you know some of the improvement from the improved starts on the single family side, which is definitely a positive sign as we move forward here.
Robert M. Kuhns: and the Single Family side, which is definitely a positive sign as we move forward here.
Speaker Change: Yeah.
Sid Ramesh: Got it. And then... Quickly on the mid-single digit commercial growth number, how should we think about R&D and new, kind of assumed in that number? You know, we've been hearing some, maybe some weakness on the new construction side, so any color would be helpful.
Speaker Change: Got it.
Speaker Change: And then.
Speaker Change: Quickly on the mid single digit commercial growth number how should we think about R&R and new kind of assumed in that number you know we've been hearing some maybe some weakness on the new construction side, so any any color would be helpful.
Robert M. Kuhns: Yeah, I think, like we've said in the past, the R&R within our specialty distribution business, which is, you know, 60% commercial, it's about a quarter of that revenue. You know, Robert's, hopefully, the comments Robert made in his script today talking about that L&G facility in Louisiana help, you know, kind of drive home the scale of what we're talking about with some of those types of jobs.
Speaker Change: Yeah, I think I mean, like we've said in the past and in the R&R within our especially.
Speaker Change: <unk> business, which you know as you know, 60% commercial it's about a quarter of that revenue.
Speaker Change: Roberts hopefully you know the comments Robert made in his script today talking about that LNG facility in Louisiana helps kind of drive home the scale of what we're talking about with some of those types of jobs I mean, that's a job where you know our total revenue over over a couple of years is going to be over $30 million and then you think about it you got.
Robert M. Kuhns: I mean, that's a job where, you know, our total revenue over a couple years is going to be over $30 million, and then you think about it, you got that recurring revenue coming after that. You know, you're going to have ongoing maintenance and repair that happens, you know, throughout the life, and then you're going to have, you know, every five years or so, a complete tear down and replacement of that. So while we're watching the, you know, the commercial industrial side of things closely to, I think, you know, we haven't seen any slowdown in our bid rates, you know, a lot of the work that's going on with some of these mega projects, whether it be L&G, whether it be, you know, chip manufacturing, you know, they're heavy insulation needs for those projects that are going on, which should be a tailwind for our business as we move forward.
Speaker Change: That recurring revenue coming after that you know youre going to have ongoing maintenance and repair that happens you know throughout the life and then youre going to have every five years or so of complete tear down and replacement of that so while we're watching the you know the commercial industrial side of things closely too I think.
Speaker Change: We haven't seen any slowdown in our bid rates you know a lot of the work that's going on with some of these mega projects, whether it be LNG, whether it be chip manufacturing you know, they're heavy insulation needs for those for those projects that are going on which it should be a tailwind for our business as we move forward.
Sid Ramesh: Great. Appreciate the call, guys. Thanks.
Speaker Change: Great I appreciate the color guys. Thanks.
Speaker Change: Okay.
Jeffrey Patrick Stevenson: Thank you. And our next question comes from Jeffrey Stevenson with Group Capital Markets. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Jeffrey Stevenson with loop capital markets. Please proceed with your question.
Jeffrey Patrick Stevenson: Hey, thanks for taking my questions today and congrats on the nice quarter. Thanks, Jess. The improved monthly sequential single-family installation volumes throughout the quarter were encouraging, but with rates expected to remain higher longer, are you expecting public builders to represent a greater concentration of your mid-single-digit residential demand expectations than you did in February, since regional and independent builders are more sensitive to future interest rate cuts?
Jeffrey Patrick Stevenson: Hey, Thanks for taking my questions today, and congrats on a nice quarter.
Jeffrey Patrick Stevenson: Thanks Jess.
Jeffrey Patrick Stevenson: Monthly sequential a single family installation volumes throughout the quarter was encouraging.
Jeffrey Patrick Stevenson: But with rates expected to remain higher longer are you expecting public builders to represent a greater concentration of your mid single digit residential demand expectations than you did in February since the regional and independent builders are more sensitive to future interest rate cuts.
Robert M. Buck: I'll take the first part and Rob may add on. As you talk to our wide variety of customers, whether it be production, big builders, regional builders, small custom builders, definitely the production builders, the regional builders are bullish for sure. And then I think even the small custom builders, I think they feel positive. They're actually watching the rates a little bit closer.
Speaker Change: Yeah, I think I'll take the first part Rob May add ons. So yeah, I mean I think.
Speaker Change: As you talk to our wide variety of customers for the B.
Speaker Change: Production make builders regional builders small custom builders, yeah definitely the production builders regional builders are bullish for sure.
Speaker Change: And then I think even the small.
Speaker Change: <unk> custom builders I think they feel positive they're actually watching the rates a little bit closer. So yeah. I think we feel good about that we definitely feel good about our work with the with our production homebuilders.
Robert M. Kuhns: So I think we feel good about that. We definitely feel good about our work with our production home builders and kind of some of the things that we talked about relative to codes and what they're pushing to make sure they get the 45L advantage, if you will. So that kind of plays to multiple insulating options in those homes, and it has quite a bit of impact on the production home builders. So we think there are a lot of things going on with the different builders here that are positive, but definitely, the production builders are well suited to what's happening. Yeah, and Jeff, definitely not any major shift from what we had in our initial guidance or anything that would, you know, adjust our guidance in any way.
Speaker Change: And kind of some of the things that we talked about relative to codes and what they're pushing to make sure. They get the 45 day. All advantage. If you will so that kind of place to multiple insulating options and those homes and you know, it's quite a bit quite a bit of impact.
Speaker Change: The production homebuilders, So we think theres a lot of things going on with the different builders here that are positive, but it's definitely the production builders are well suited for what's happening.
Speaker Change: Yeah, and Jeff not definitely not any major shift from what we what we had in our initial guidance or anything that would adjust our guidance in any way as.
Jeffrey Patrick Stevenson: As a result of what's going on right now with interest rates.
Speaker Change: As a result of what's going on right now with rates.
Robert M. Buck: Okay. I've got it, Rob. Thanks. And then I just wanted to follow up on the last question. It sounds like both light and heavy commercial bidding activity remains healthy, and you obviously continue to benefit from your new lead app as well. That said, are there any verticals that you have any concern about some slowdown moving forward, just given the choppiness we continue to see in leading commercial demand indicators? Yeah, Jeff, Robert, not really.
Speaker Change: Okay got it thanks, and then I just wanted to follow up on the last question. It sounds like both light and heavy commercial bidding activity remains healthy and you obviously continue to benefit from your new lead up as well that said is there any verticals you have any concern about some <unk>.
Speaker Change: Slowdown I'm moving forward just given the Choppiness, we continue to see him leading commercial demand indicators.
Robert M. Buck: Yeah Jeff, Robert, not really. So whenever we're looking at our backlogs and our bidding we're looking at the verticals and I think so you know the the one that kind of comes front and center for folks is around office buildings that type of thing but that was something we probably work you know started talking to our teams about make sure we're looking at our bidding activity probably two years ago so no real concern around the verticals and what we're seeing and then obviously making sure you know we're well represented across the many verticals there.
Speaker Change: Yeah, Jeff Robert.
Jeff: Not really so whenever we're looking at our backlogs and our Betty we're looking at the verticals and if they say you know the the one that kind of comes front and center for folks is around office buildings that type of thing, but that was something we probably started talking to our teams about make sure. We're looking at our bidding activity probably two years ago. So no real concern around the vertical.
Jeff: And what we're seeing in and obviously, making sure.
Jeff: We're well represented across the many verticals there.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Operator: Thank you. We have reached the end of the question and answer session. I'll now turn the call back over to President and CEO Robert Buck for a close. Thank you for joining us.
Speaker Change: Thank you we have reached the end of the question and answer session I'll now turn the call back over to President and CEO, Robert Buck for closing remarks.
Robert M. Buck: Thank you for joining us today. We look forward to talking with you again in August when we'll be presenting our 2-2 results.
Robert M. Buck: Thank you for joining us today, we look forward to talking with you in August when we will be.
Robert M. Buck: Presenting our Q2 results. Thank you.
Robert M. Buck: Yeah.
Operator: And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Speaker Change: And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: Oh.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: Hum.
Speaker Change: Yeah.
Speaker Change: Yeah.