Q2 2024 TopBuild Corp Earnings Call

Operator: Greetings and welcome to the TopBuild second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, P. I. Aquino, Vice President of Investor Relations. Thank you. You may begin.

Speaker Change: Greetings, and welcome to the Top Build second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: It is now my pleasure to introduce your host, P.I. Aquino, Vice President of Investor Relations. Thank you. You may begin.

P. I. Aquino: 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 have 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.

Speaker Change: 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.

Speaker Change: We have posted our earnings release, senior management's formal remarks, and a presentation that summarizes our comments on our website at topbills.com.

Speaker Change: Many of our remarks today will include forward-looking statements which are subject to known and unknown risks and uncertainties, including those set forth in this morning's press release, as well as in the company's filings with the SEC.

P. I. Aquino: 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-gap basis. The non-GAAP measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. We have provided 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 Buck.

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.

Speaker Change: We have provided 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.

Speaker Change: I'll now turn the call over to President and CEO, Robert Buck. Good morning, and thank you for joining us today.

Robert Buck: Good morning, and thank you for joining us. TopBuild delivered a solid second quarter, with both segments drawing top-line sales and bottom-line profits. Our team should stay focused on driving profitable growth and operational improvements across all of our businesses, even considering uneven housing demand and various commercial project delays, both the result of higher interest rates for longer than originally anticipated. I'm proud of the strength of our team and the diversification of our business model, which positions us well to deliver long-term growth. Today's Underbuilt Housing Landscape Rising household formations

Robert Buck: Topville delivered a solid second quarter with both segments drawing top-line sales and bottom-line profits.

Speaker Change: Our team should stay focused on driving profitable growth and operational improvements across all of our businesses, even considering uneven housing demand and various commercial project delays, both the result of higher interest rates for longer than originally anticipated.

Speaker Change: I'm proud of the strength of our team and the diversification of our business model, which positions us well to deliver long-term growth.

Speaker Change: Today's Underbuilt Housing Landscape.

Speaker Change: rising household formations, potential for interest rate moderation, and escalating demand for energy-efficient building code support for long-term demand for top builds, products, and services.

Robert Buck: Potential for interest rate moderation and escalating demand for energy efficient building codes support the long-term demand for TopBuild's products and services. Preliminary results, sales grew 3.7% to $1.37 billion as both of our segments realized pricing, increased volumes, and benefited from acquisitions. While volumes across both segments improved, they were softer than we anticipated in the quarter. We reported adjusted EBITDA of $277.7 million and an adjusted EBITDA margin of 20.3%, excluding last year's estimated $10 million margin benefit in Q2 related to our multifamily and commercial business.

Speaker Change: Turning to our results, sales grew 3.7% to 1.37 billion dollars as both of our segments realized pricing, increased volumes, and benefited from acquisitions.

Speaker Change: While volumes across both segments improved, they were softer than we anticipated in the quarter.

Speaker Change: We reported adjusted EBITDA of $277.7 million and an adjusted EBITDA margin of 20.3%.

Speaker Change: Excluding last year's estimated $10 million margin benefit in Q2 related to our multifamily and commercial business.

Robert Buck: Our same branch incremental EBITDA margin was 41.2%, which is a result of the continued excellent work by our special operations team. When adjusting for this margin benefit last year, we delivered both the highest quarterly sales in our history and the highest adjusted EBITDA margin in our history. This demonstrates the fundamentals of our business are performing well. On the material side, fiberglass and certain commercial products are steel in type supply. Our teams are doing a great job managing through the supply situation. And while we saw volume growth in both segments this quarter, our growth was constrained by material supply.

Speaker Change: Our same branch incremental EBITDA margin was 41.2%, which is a result of the continued excellent work by our special operations team.

Speaker Change: When adjusting for this margin benefit last year, we delivered both the highest quarterly sales in our history and the highest adjusted EBITDA margin in our history.

Speaker Change: This demonstrates the fundamentals of our business are performing well.

Speaker Change: On the material side, fiberglass and certain commercial products are still in tight supply.

Speaker Change: Our teams are doing a great job managing through the supply situation, and while we saw volume growth in both segments this quarter, our growth was constrained by material supply.

Robert Buck: Turning to our end markets, our residential business grew 5.4% in the quarter. The single-family environment continues to improve, and although housing demand has been soft in certain regions, our teams continue to do a nice job balancing price and volume given current local business conditions. We continue to see year-over-year growth in multifamily work, although bidding has slowed. Our backlog remains strong, and we fully expect the backlog to carry into 2025. The commercial and industrial end markets are also feeling the impact of the higher interest rate environment as the timing of some projects has been pushed out to 2025. But the good news is that we are not seeing project cancellation.

Speaker Change: Turning to our end markets, our residential business grew 5.4% in the quarter.

Speaker Change: The single-family environment continues to improve, and although housing demand has been choppy in certain regions, our teams continue to do a nice job balancing price and volume given current local business conditions.

Speaker Change: We continue to see year-over-year growth and multifamily work, although bidding has slowed. Our backlog remains strong and we fully expect the backlog to carry into 2025.

Speaker Change: The commercial and industrial end markets are also feeling the impact of the higher interest rate environment as the timing of some projects have been pushed out to 2025. But the good news is that we are not seeing project cancellations.

Robert Buck: We see these projects as future demand, and this is more of a timing issue. As we've noted before, we participate across numerous verticals in commercial and industrial. Let me spend a minute talking about one such commercial and industrial vertical that is growing rapidly. Data centers store and manage digital data for organizations in highly regulated and controlled environments.

Speaker Change: We see these projects as future demand and this is more of a timing issue.

Speaker Change: As we've noted before, we participate across numerous verticals in commercial and industrial.

Speaker Change: Let me spend a minute talking about one such commercial and industrial vertical that is growing rapidly.

Speaker Change: Data centers store and manage digital data for organizations in highly regulated and controlled environments. Today there are over 150 active projects in various stages under construction in the United States.

Robert Buck: Today, there are over 150 active projects in various stages under construction in the United States. On the installation side, our teams participate in applications such as fireproofing and firestopping, fiberglass insulation, spray foam, acoustics, and various types of rigid board applications on the interior and exterior walls. On the specialty distribution side of the business, our services range from distributing standard mechanical insulation products to custom fabricated and engineered insulation solutions. For example, on the exterior of the building, we will distribute insulation for the piping of air chillers. We custom fabricate aluminum jacket coverings, as well as provide calcium silicate inserts to both insulate and provide structural integrity in long runs of critical pipe construction.

Speaker Change: On the installation side, our teams participate in applications such as fireproofing and fire stopping, fiberglass insulation, spray foam, acoustics, and various types of rigid board applications on the interior and exterior walls.

Speaker Change: On the specialty distribution side of the business, our services range from distributing standard mechanical insulation products to custom-fabricated and engineered insulation solutions.

Speaker Change: For example, on the exterior of the building, we will distribute insulation for the piping of air chillers. We custom fabricate aluminum jacket coverings as well as provide calcium silicate inserts to both insulate and provide structural integrity in long runs of critical piping.

Robert Buck: We also provide installation for interior ductwork and other mechanical systems. Just to give you an idea of some of the work we're doing, in the Pacific Northwest, we're working on a 27-acre data center project that has six data halls planned. We started work about a month ago, although we originally planned to be on site earlier in Q2.

Speaker Change: We also provide insulation for interior ductwork and other mechanical systems.

Speaker Change: Just to give you an idea of some of the work we were doing. In the Pacific Northwest we were working on a 27 acre data center project that has six data halls planned.

Speaker Change: We started work about a month ago, although we originally planned to be on site earlier in Q2. Given the delay, we now anticipate our work on this project will continue into early 2025.

Robert Buck: Given the delay, we now anticipate our work on this project will continue into early 2025. In the southwest, we have been awarded six buildings within a large data center business park. For just one of these buildings, we'll be providing over 55,000 linear feet of insulation.

Speaker Change: In the southwest, we have been awarded six buildings within a large data center business park. For just one of these buildings, we'll be providing over 55,000 linear feet of insulation.

Robert Buck: In short, our total TopBuild revenue for our data center project can be as much as $7 to $8 million. Our backlog of work related to data centers continues to grow, with projects secured well into 2026. Moving to capital allocation, acquisitions continue to be our number one priority. In the last 18 months, we've made acquisitions totaling approximately $280 million in annual revenue. M&A is a core competency at TopBuild, and we have a strong track record of execution and generating great returns for shareholders. One recent acquisition that closed at the end of May was Texas Installation, with $39 million in annual sales.

Speaker Change: In short, our total top-bill revenue for our data center project can be as much as $7 to $8 million.

Speaker Change: Our backlog of work related to data centers continues to grow with projects secured well into 2026.

Speaker Change: Moving to capital allocations, acquisitions continue to be our number one priority.

Speaker Change: In the last 18 months, we've made acquisitions totaling approximately $280 million in annual revenue.

Speaker Change: M&A is a core competency at Topfield, and we have a strong track record of execution and generating great returns for shareholders.

Speaker Change: One recent acquisition that closed at the end of May was Texas Installation, with $39 million in annual sales.

Robert Buck: With three locations, Texas Insulation's talented team expands our spray foam capabilities into an important and rapidly growing geography, demonstrating our ability to make acquisitions in our underinsulated business. Today, our M&A pipeline is as strong as ever, and our team is busy evaluating numerous potential acquisition candidates across all three end markets we serve. While we remain focused on our core of insulation, we're always evaluating opportunities to leverage our core competencies and have the potential to expand our total addressable market.

Speaker Change: With three locations, Texas Installation's talented team expands our spray foam capabilities into an important and rapidly growing geography, demonstrating our ability to make acquisitions in our core installation business.

Speaker Change: Today, our M&A pipeline is as strong as ever, and our team is busy evaluating numerous potential acquisition candidates across all three end markets we serve.

Speaker Change: While we remain focused on our core of insulation, we're always evaluating opportunities to leverage our core competencies and have the potential to expand our total addressable market.

Robert Buck: As we announced last quarter, our board approved a new $1 billion share repurchase program. In the second quarter, we returned approximately $505 million to shareholders, which demonstrates management's and our board's confidence in the business outlook. As you saw in our press release this morning, we are revising our outlook for 2024. Rob will speak to the guidance in more detail, but the revision is, in large part, a reflection on the timing of demand rather than any underlying changes in the business.

Speaker Change: As we announced last quarter, our board approved a new $1 billion share repurchase program. In the second quarter, we returned approximately $505 million to shareholders, which demonstrates management's and our board's confidence in the business outlook.

Speaker Change: As you saw in our press release this morning, we are revising our outlook for 2024. Rob will speak to the guidance in more detail, but the revision is, in large part, a reflection on timing of demand rather than any underlying changes in the business.

Robert Buck: In summary, we posted another quarter of solid growth, and our business performed very well as we navigated uneven demand, project delays, and supply constraints. We are confident we will deliver another year of strong, profitable growth and increased shareholder value. Rob?

Rob Kuhns: In summary, we posted another quarter of solid growth and our business performed very well as we navigated uneven demand, project delays, and supply tightness.

Rob Kuhns: We are confident we will deliver another year of strong profitable growth and increased shareholder value.

Rob Kuhns: Thanks, Robert, and thank you to our teams for their effort as we delivered another solid quarter. Total sales of $1.37 billion, the highest quarter in our history, grew 3.7% as both segments grew sales sequentially and on a year-over-year basis. M&A, net of a disposition, drove a 2.3% increase while price was up 1.3%. Price was primarily driven by the first quarter fiberglass price increase, partially offset by 1% due to lower prices on spray film and gutters that carried over from last year.

Rob Kuhns: Thanks, Robert, and thank you to our teams for their effort as we delivered another solid quarter.

Speaker Change: Total sales of $1.37 billion, the highest quarter in our history, grew 3.7% as both segments grew sales sequentially and on a year-over-year basis.

Speaker Change: M&A, net of a disposition, drove a 2.3% increase, while price was up 1.3%.

Speaker Change: Price was primarily driven by the first quarter fiberglass price increase, partially offset by 1% due to lower prices on spray film and gutters that carried over from last year.

Rob Kuhns: On a segment basis, installation grew net sales by 5.2% to $851 million. Net M&A added 2.9%, pricing added 1.3%, and volume was up 1%. Residential sales grew 6.7% for the installation segment as sales for single-family homes continue to improve both sequentially and on a year-over-year basis, and multi-family sales continue to be strong due to our backlog. The installation segment's commercial sales were down 1.9% due to shifts in project timing and material availability.

Rob Kuhns: On a segment basis, installation grew net sales by 5.2% to $851 million.

Speaker Change: Net M&A added 2.9%, pricing added 1.3%, and volume was up 1%.

Speaker Change: Residential sales grew 6.7% for the installation segment as sales for single family homes continue to improve both sequentially and on a year-over-year basis and multi-family sales continue to be strong due to our backlog.

Speaker Change: The installation segment's commercial sales were down 1.9% due to shifts in project timing and material availability.

Rob Kuhns: Net sales for specialty distribution grew 3.2% to $593 million in the second quarter. Volume improved 0.6%, while pricing and acquisitions each contributed 1.3%. Specialty distribution residential sales grew by 4.6% as demand for single-family homes continued to improve.

Speaker Change: Net sales for specialty distribution grew 3.2% to $593 million in the second quarter.

Speaker Change: Volume improved 0.6% while pricing and acquisitions each contributed 1.3%.

Rob Kuhns: Specialty distribution residential sales grew by 4.6% as demand for single family homes continued to improve.

Rob Kuhns: Commercial and industrial sales for the distribution segment also grew by 2.3%. In the second quarter, we delivered gross profit of $423.9 million, or a 31% margin, which was 100 basis points lower than last year. As we've discussed over the last several quarters, our second quarter 2023 margins had a one-time benefit of approximately $10 million from higher-than-normal margins on multi-family and commercial projects. Excluding this, gross margin declined 30 basis points versus last year, primarily due to the impact of acquisitions.

Speaker Change: Commercial and industrial sales for the distribution segment also grew by 2.3 percent.

Speaker Change: In the second quarter, we delivered gross profit of $423.9 million, or a 31% margin, which was 100 basis points lower than last year.

Speaker Change: As we've discussed over the last several quarters, our second quarter 2023 margins had a one-time benefit of approximately $10 million from higher-than-normal margins on multi-family and commercial projects.

Speaker Change: Excluding this, gross margin declined 30 basis points versus last year, primarily due to the impact of acquisitions.

Rob Kuhns: Our second quarter adjusted SG&A expense was 13.6% of sales, a 30 basis point improvement over prior years. TopBuild adjusted EBITDA in the second quarter totaled $277.7 million, or a margin of 20.3%. Excluding a $10 million margin benefit from last year, our adjusted EBITDA margin expanded 10 basis points, and our same branch incremental EBITDA margin was 41.2%, driven by productivity gains and improved pricing in both segments. The installation segment had an adjusted EBITDA margin of 22.3%, a 10 basis point expansion after excluding the $10 million benefit last year, and Specialty Distributions' adjusted EBITDA margin rose 10 basis points year over year Other income and expense of $7.2 million in the quarter was down from $14 million last year due to interest income from a higher cash balance.

Speaker Change: Our second quarter adjusted SG&A expense was 13.6% of sales, a 30 basis point improvement over prior year.

Speaker Change: Top-billed adjusted EBITDA in the second quarter totaled $277.7 million, or a margin of 20.3%.

Speaker Change: Excluding a 10 million margin benefit from last year, our adjusted EBITDA margin expanded 10 basis points and our same branch incremental EBITDA margin was 41.2% driven by productivity gains and improved pricing in both segments.

Speaker Change: The installation segment had an adjusted EBITDA margin of 22.3%, a 10 basis point expansion after excluding the $10 million benefit last year.

Speaker Change: Specialty Distributions adjusted EBITDA margin rose 10 basis points year-over-year to 17.7%.

Speaker Change: Other income and expense of $7.2 million in the quarter was down from $14 million last year due to interest income from higher cash balances.

Rob Kuhns: Adjusted earnings per diluted share totaled $5.42 in the quarter, 3.2% higher than last year. Turning now to our balance sheet and cash flow, we had total liquidity of $899.5 million at quarter end, which included cash of $463.2 million and availability under our revolver of $436.2 million. Net debt at the end of the quarter was $947.4 million, and our leverage ratio was 0.88 times the last 12 months' adjusted EBIT. Working capital as a percent of sales was 14.8% in the quarter, down 10 basis points compared to last year.

Speaker Change: Adjusted earnings per diluted share totaled $5.42 in the quarter, 3.2% higher than last year.

Speaker Change: Turning now to our balance sheet and cash flow, we had total liquidity of $899.5 million at quarter end, which includes cash of $463.2 million and availability under our revolver of $436.2 million.

Speaker Change: Net debt at the end of the quarter was $947.4 million and our leverage ratio was 0.88 times the last 12 months adjusted EBITDA.

Speaker Change: Working capital as a percent of sales was 14.8% in the quarter, down 10 basis points compared to last year at this time.

Rob Kuhns: While working capital is lower than it was a year ago at this time, it has risen since year end due to material availability as we work to ensure that we have inventory on hand. Free cash flow for the trailing 12 months totaled $663.4 million, an increase of 11.9% versus $592.9 million last year. Our capital allocation priorities remain clear.

Speaker Change: While working capital is lower than it was a year ago at this time, it has risen since year end due to material availability as we work to ensure that we have inventory on hand.

Speaker Change: Free cash flow for the trailing 12 months totaled $663.4 million, an increase of 11.9% versus $592.9 million last year.

Rob Kuhns: M&A continues to be our number one priority for reinvestment. To date, in 2024, we've completed six acquisitions totaling more than $100 million in annual revenue. And, as Robert noted earlier, acquisitions have totaled $280 million of revenue on an annual basis for the last 18 months. Our second capital allocation priority is returning capital to shareholders, and in the quarter, we repurchased 1.25 million shares at an average price of approximately $405 per share, totaling $505.2 million. At the end of June, we had $649.2 million remaining under the authorization.

Speaker Change: Our capital allocation priorities remain clear. M&A continues to be our number one priority for reinvestment.

Speaker Change: To date, in 2024, we've completed six acquisitions totaling more than $100 million in annual revenue. And as Robert noted earlier, acquisitions have totaled $280 million of revenue on an annual basis for the last 18 months.

Speaker Change: Our second capital allocation priority is returning capital to shareholders, and in the quarter we repurchased 1.25 million shares at an average price of approximately $405 per share, totaling $505.2 million.

Speaker Change: At the end of June, we had $649.2 million remaining under the authorization.

Rob Kuhns: You can expect us to continue to prioritize our M&A pipeline and to be opportunistic with our share repurchase. Finally, turning to our outlook, we are revising our full year sales guidance to $5.3 to $5.5 billion. This reduction of $100 million at the midpoint reflects the choppiness in demand, primarily in our commercial market, partially offset by recent M&A and higher prices from the second fiberglass price. While demand is still strong, some of the growth we had anticipated the second half of this year will likely be pushed into 2025.

Robert Buck: You can expect us to continue to prioritize our M&A pipeline and to be opportunistic with our share repurchases.

Speaker Change: Finally, turning to our outlook, we are revising our full year sales guidance to $5.3 to $5.5 billion.

Speaker Change: This reduction of $100 million at the midpoint reflects the choppiness in demand primarily in our commercial markets.

Speaker Change: Partially offset by recent M&A and higher prices from the second fiberglass price increase.

Speaker Change: While demand is still strong, some of the growth we had anticipated the second...

Rob Kuhns: We continue to expect 2024 residential sales to grow mid-single digits, and we now expect low single-digit growth in commercial and industrial. We have also tightened and lowered our EBITDA guidance to a range of $1.055 to $1.125 billion, which is a reduction of $20 million at the midpoint and reflects our solid year-to-date profit performance, as well as confidence in our team's ability to continue to drive profitable I also want to remind you that the $10 million one-time multifamily commercial margin benefit we discussed this quarter had a $25 million impact for the full year.

Speaker Change: Half of this year will likely be pushed into 2025. We continue to expect 2024 residential sales to grow mid-single digits and we now expect low single digit growth in commercial and industrial.

Speaker Change: We have also tightened and lowered our EBITDA guidance to a range of $1.055 to $1.125 billion.

Speaker Change: which is a reduction of $20 million at the midpoint and reflects our solid year-to-date profit performance as well as confidence in our team's ability to continue to drive profitable growth and productivity improvements.

Speaker Change: I also want to remind you that the $10 million one-time multifamily commercial margin benefit we discussed this quarter had a $25 million impact for the full year.

Rob Kuhns: The remaining $15 million impacted the third quarter of 2023 and should be considered in year-over-year profit and margin comparisons as we move forward. Our teams have done a great job to date, and we're confident about our outlook for the balance of the year. We're excited about our future as MacroFundamentals continues to support long-term growth and opportunities for our business.

Speaker Change: The remaining $15 million impacted the third quarter of 2023 and should be considered in year-over-year profit and margin comparisons as we move forward.

Speaker Change: Our teams have done a great job to date and we're confident about our outlook for the balance of the year. We're excited about our future as MacroFundamentals continues to support long-term growth and opportunities for our business.

Rob Kuhns: Before we open the call up to questions, let me make a couple of final comments. The macro fundamentals of our business are strong and supportive of growing demand for the foreseeable future. We have a proven differentiated business model, a disciplined capital allocation approach, and a continuous focus on driving improvements in the business and executing well. We have a strong track record of delivering increased shareholder value, and we're confident we will deliver another strong year of profitable growth.

Speaker Change: Robert

Speaker Change: Before we open the call up to questions, let me make a couple of final comments.

Speaker Change: The macro fundamentals of our business are strong and supportive of growing demand for the foreseeable future.

Speaker Change: We have a proven, differentiated business model, a disciplined capital allocation approach, and a continuous focus on driving improvements in the business and executing well.

Speaker Change: We have a strong track record of delivering increased shareholder value, and we're confident we will deliver another strong year of profitable growth.

Rob Kuhns: Let me close by expressing my gratitude to our team for their hard work, dedication, focus on servicing our customers and keeping each other safe. Thank you for your efforts to consistently execute and drive improvements across our business. With that, Operator, we're ready for questions.

Speaker Change: Let me close by expressing my gratitude to our team for their hard work, dedication, focus on servicing our customers and keeping each other safe.

Speaker Change: Thank you for your efforts to consistently execute and drive improvements across our business.

Speaker Change: With that, Operator, we are ready for questions.

Operator: Thank you. We will now 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 star keys.

Speaker Change: Thank you. We will now 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.

Operator: One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Stephen Kim with Evercore. Please proceed with your question.

Stephen Kim: Thanks very much, guys. I appreciate all the color.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.

Speaker Change: Thank you. Our first question comes from the line of Stephen Kim with Evercore. Please proceed with your question.

Stephen Kim: When we looked at your results this quarter, we were a little bit surprised by the overall price realization in the quarter. We thought that might be a bit stronger. I was curious, were there any mix-in issues at all to call out?

Stephen Kim: Yeah, thanks very much guys. Appreciate all the color.

Stephen Kim: When we look at your results this quarter, we were a little bit surprised by the overall price realization in the quarter. We thought that might be a bit stronger. I was curious, were there any mix-in issues?

Stephen Kim: And then also, if you look at your guidance, I think you said that really the reason for the reduction in the guidance is this commercial industrial segment. And I think you indicated that you thought that that might be up low single digits for the full year. I just wanted to clarify, does that project a positive year-over-year trend in commercial and industrial in the back half, or does that trend towards something more like flat to down?

Stephen Kim: at all to call out. And then also, if you look at your guidance, I think you said that, you know, really the reason for the reduction in the guidance is this commercial industrial segment. And I think you indicated that you thought that that might be up low single digits for the full year. I just wanted to clarify, does that envision a positive year-over-year trend?

Speaker Change: commercial and industrial in the back half or does that trend towards something more like flat to down?

Rob Kuhns: Hey, Steven, this is Rob. So the first question is around price... The important part to remember there is that we are overlapping some price decreases we had in the second quarter of last year on both gutters and spray foam. That accounted for probably about a headwind of about 1% on our overall price for the company. I think overall, we feel good about the realization of the price increase that happened in the first quarter.

Speaker Change: Hey Stephen, this is Rob. So on the first question there around price,

Stephen Kim: The important part to remember there is we are overlapping some price decreases we had in the second quarter of last year on both.

Speaker Change: Gutters and spray foam that accounted for probably about a headwind of about 1% on our overall price

Speaker Change: for the company. I mean, I think overall we feel good about the realization of the price increase that happened in the first quarter.

Rob Kuhns: Coming into the second quarter, I think that's ultimately reflected in our gross profit at 31%. While down 100 basis points every year, you've got to remember the $10 million that we called out last year around the multifamily. When you adjust for that, the 31 is compared to a 31.3 last year, so pretty much in line with where we were a year ago. But if you look, 31.3 is the highest in our history of the company.

Speaker Change: coming into the second quarter. I think that's ultimately reflected in our gross profit at 31%, while down 100 basis points year over year, you've got to remember the 10 million that we've called out.

Speaker Change: last year around the multifamily. So, when you adjust for that, you know, the 31 is comparing to a 31.3 last year, so pretty much in line with where we were a year ago.

Rob Kuhns: I think this is the third time we've ever gotten over 31, so we feel pretty good about the price realization there. On your question about guidance and the guidance for low single digits on commercial, that is probably the biggest change in our guidance is really around some of the choppiness we've seen from a project volume perspective on both the install and the distribution side of things. We've seen some project delays. We've had some supply chain issues with products like aerogel and mineral wool and some fiberglass products as well, so definitely some choppiness there, so we're trying to address that.

Speaker Change: If you look, 31.3 is the highest in our history of the company. I think this is like the third time we've ever gotten over 31. So we feel pretty good about the price realization there.

Speaker Change: On your question around guidance and the guidance for low single digits on commercial, that is probably the biggest change in our guidance.

Speaker Change: It's really around some of the choppiness we've seen from a project volume perspective on both the install and the distribution side of things.

Speaker Change: We've seen some project delays, we've had some supply chain issues with products like aerogel and mineral wool.

Speaker Change: and some fiberglass products as well. So, you know, definitely some choppiness there. So we're lowering that. So, you know, we're not breaking down the second half per se, but, you know, it does.

Rob Kuhns: We're not breaking down the second half per se, but it does... If you take that low single-digit and kind of back into a second half number, it does imply low single-digit growth for commercial year over year in the second half, and it implies some growth from the first half. So I think that's really an important point, too, that we see the second half improving year over year in both residential and commercial. We see it improving from the prior year as well as from the first half. We just don't see it improving as much as we had in our original guidance.

Speaker Change: If you take that low single digit and kind of back into a second half number, it does imply low single digit growth for commercial year over year in the second half, and it implies, you know, some some growth from the first half. So I think that's.

Speaker Change: That's really an important point, too, is that we see the second half improving year over year in both resi and commercial. We see it improving the prior year as well as to the first half. We just don't see it improving as much as we had in our original guidance.

Stephen Kim: Yeah, that is very helpful. I appreciate that.

Speaker Change: Yeah, that that is very helpful. Appreciate that

Speaker Change: Second question related to the margins you did talk about how strong your margins were and we definitely recognize that and that was a very very encouraging to see

Stephen Kim: Second question related to the margins. You did talk about how strong your margins were, and we definitely recognize that, and that was very encouraging to see. I was curious if you could, just elaborate, I think you mentioned in your opening remarks that your outlook reflects ongoing productivity from your teams. You have, in the past, called out a, I guess you'd call it, a special operations team, which also has been very... You have not included those results from the special operations team in your guidance. Are you now including it in your guidance for 2024?

Rob Kuhns: Yeah, I would say it's included in the back half guidance we have here. But what we've said in the past is it's not included in that long-term EBITDA guide of 22 to 27 because that 22 to 27, if you have 10 million of productivity, it's really going to change that percentage depending on how much your incremental same-branch sales are, right? It could be 1% on a big sales number, a much higher..., https://www.topbuild.com Okay, that's perfect.

Speaker Change: That can really, if you have 10 million of productivity, it's really gonna change that percentage depending on how much your incremental same branch sales are, right? It could be 1% on a big sales number, a much.

Stephen Kim: Okay, that's perfect. Thanks so much, guys.

Operator: Our next question comes from the line of Susan Maklari with Goldman Sachs. Please proceed with your question. Thank you. Good morning, everyone.

Susan Maklari: My first question is, you know, you mentioned that there were some regional shifts in terms of the single family. It's been a bit uneven, maybe across the different markets. Can you talk about where you're seeing more strength or more weakness and how that could perhaps come through as you think about the back half?

Speaker Change: Good morning. My first question is, you know, you mentioned that there's been some regional shifts in terms of the single family. It's been a bit uneven maybe across the different markets. Can you talk about where you're seeing more strength or more weakness and how that could perhaps come through as you think about the back half?

Robert Buck: Yeah, good morning Susan, it's Robert. So I'll give you I'll give you both sides. So strength, definitely still southeast Carolinas, Florida, Texas, California, even very strong for us right now. You know, I'd say some weaker spots we've seen uneven, or to use the term that we use choppiness. Pacific Northwest would be a good example of that, which if you look at starts and some of the numbers support that, and even if you hear what some of the other publics have said, support that, and that's as well as the northeast. And then I'd say if you take an area like Arizona that's been pretty good, it's kind of a city by city in Arizona.

Robert Buck: So definitely seeing some strength. I think you've seen some of the start numbers. We think it will continue to improve as long as we see those starts come out of the ground and some of those slower regions here in the back half.

Susan Maklari: Okay, that's helpful. And then maybe turning to capital allocation, you know, it's nice to see the $500 million or so of buybacks this quarter. Can you just talk about your appetite to continue to use up the $649 or so that's remaining on the authorization? And any comments on that about the M&A pipeline and how you're thinking about that also as a use of cash?

Rob Kuhns: Yeah, I mean, Susan, this is Rob. So, you know, from a capital allocation standpoint, our priorities are unchanged. I mean, M&A remains our number one capital allocation priority. We've had a great 18 months, as Robert talked about on the call a little bit, in terms of the number of deals and the amount of revenue we've added. Our pipeline right now is very healthy, I'd say, as healthy as we've had it in a while.

Rob Kuhns: So, we feel really good about that moving forward. As far as buybacks go, we're going to continue to do what we've done in the past, prioritize that with our M&A pipeline, and be opportunistic moving forward. Okay, thank you.

Susan Maklari: Okay. Thank you both for the color. Good luck with everything. Thank you.

Speaker Change: Okay. Thank you both for the color and good luck with everything. Thank you.

Operator: Our next question comes from the line of Ken Zener with Seaport. Please proceed with your question.

Speaker Change: Good morning, everybody.

Ken Zener: I wonder if you could comment on what appears not to be normal, which is the lack of material. You said I think that might have contributed to some of your..., you know, some constraints. I assume you're talking about insulation material as opposed to, let's say, spray foam. And then how that seems to, you know, with low volume, realizing you have a gutter, you know, that there's some one-offs, but if, Materials constrained, you're really not growing that much. How unique is that in your perspective? And why aren't we seeing that in greater prices if the supply is so tight?

Speaker Change: what appears

Speaker Change: not normal, which is the lack of material.

Speaker Change: You said, I think, that might have contributed to some of your, you know, some constraints.

Speaker Change: I assume you're talking about insulation material as opposed to let's say spray foam and then how that seems to you know with low volume realizing you have a gutter you know that there's some one-offs but if

Speaker Change: Materials constrained, you're really not growing that much. How unique is that in your perspective and why aren't we seeing that in greater pricing if the supply is so tight?

Robert Buck: Yeah, good morning, Ken Roberts.

Speaker Change: Yeah, good morning, Ken Roberts. I'll take the first part of material side of it. So.

Robert Buck: I'll take the first part on the material side of it. So, you know, relative to the availability of material, definitely, you know, fiberglass is still in tight supply, no doubt about that. I would say Q2 was, you know, a tighter quarter given maintenance and some unscheduled downtime from some of the suppliers as well. So, I'd say a little more abnormal in the second quarter, probably affecting distribution a little more than install because install, you know, can buy from a third party if need be to complete work.

Ken Roberts: You know, relative to availability of material, definitely fiberglass is still in tight supply, no doubt about it. I would say Q2 was.

Speaker Change: [inaudible]

Robert Buck: So, probably a little more on the distribution side. You know, if you think about going forward, we expect that to be better in the back half of the year, as well as some of the alternative materials, given what's happening with some of the builders and codes. So, you know, foam and even some of the loose fill applications that'll be used, we think that does help some in the back half of the year.

Speaker Change: So probably a little more on the distribution side.

Speaker Change: If you think about going forward, we expect that to be better in the back half of the year, as well as some of the alternative materials, given what's happening with some of the builders and codes, so foam and even some of the loose fill applications that will be used. We think that does help some in the back half of the year. You've heard us talk about capacities coming home, but that's really going to be more of a 2025.

Robert Buck: You know, you've heard us talk about capacities coming home, but that's really going to be more of a 2025 type of event. And then to Rob's point, I think earlier, but he may add on here about the price, I think we feel good about the price, covering the price. You know, we let some of the slower regions make some price volume decisions where we talked about, you know, there was some choppiness, but we feel like the teams did a nice job of covering price and covering any additional expenses from, you know, third-party buys, that type of thing.

Speaker Change: type of an event. And then to Rob's point, I think earlier, but he may add on here on the price, I think we feel good about the price.

Rob Kuhns: covering the price. You know, we let some of the slower regions make some price volume decisions where we talked about, you know, there was some choppiness, but we feel like we did a, the teams did a nice job of covering price and covering any additional expense from, you know, third party buys, that type of thing.

Rob Kuhns: Yeah, no, I think, Ken, this is Rob, so I think Robert hit it on the head there. We feel pretty good about the, you know, the pricing environment, that first price increase we've pushed along well, and it's reflected in our margins as a result. We're working through the second fiberglass price increase right now, so, you know, more to come on that in the back half of this year.

Speaker Change: I think Robert hit it on the head there. We feel pretty good about the pricing environment, that first price increase we've pushed along well. It reflected in our margins.

Speaker Change: As a result, we're working through the second fiberglass price increase right now, so more to come on that in the back half of this year.

Ken Zener: Great, and I wonder if you guys could put the word choppiness out there. You know, given your perspective in the industry, Robert, what choppiness means within the context of, you know, new home inventory, whether on units or month supply, is higher than normal. Um, I assume that's most evident in your choppy market. Can you kind of talk about how that's playing out when you have all these homes under construction, nine months' supply as of the last, you know, month from the census data? Can you just put that in context to how you think that's going to kind of play out?

Speaker Change: Great, and I wonder if you guys could put the word choppiness

Speaker Change: you know, given your perspective in the industry. Robert, what choppiness means within the context of, you know, new home inventory, whether on units or month supply, is higher than normal?

Robert Buck: Yeah, Ken, so let me start with kind of the definition, and I'm sure Rob will add on here as well, talking about some of the units and the numbers. So relative to that, I gave a couple examples in an earlier question, so let me just pick on the Pacific Northwest as an example. So you see the starts, you see the completions, you just don't see the work coming out of the ground yet. So builders are generally positive, especially production builders, generally positive for the back half. It's just not coming to fruition.

Speaker Change: Yeah, Ken, so let me start with kind of the definition, and I'm sure Rob will add on here as well, talking about some of the units and the numbers.

Robert Buck: Now you go to another example, maybe like Southern California or Florida; folks are continuing to build, even though they may have seen some slower sales in like May or June or potentially in July; they're still building in some of those areas. So that's choppiness, that's why we refer to it by region because it's a little different as things play out region to region, and you're right, we have that footprint where we get that perspective that a lot of folks maybe don't get. So that's kind of the definition of how we see it. Rob, do you want to add anything? Yeah, I mean, I think Robert said it well there. I think...

Rob Kuhns: Yeah, I mean, Robert said it well there. I think, you know, when we talk about choppiness, it's really about we're seeing strong demand in certain markets and weaker in others. And as he mentioned, you know, some of the starch data you can see supports that in parts of the country where things aren't moving quite as quickly right now.

Rob Kuhns: And as he mentioned, you know, some of the STARTS data you can see supports that in parts of the country where things aren't moving quite as quickly right now. And we're seeing the same, you know, the same phenomenon on the commercial side as well. So while overall...

Rob Kuhns: And we're seeing the same, you know, the same phenomenon on the commercial side as well. So overall, you know, we're still seeing growth, you know, from a volume perspective. This quarter, the first quarter or the second quarter here of this year was the first quarter that we've seen our same branch residential sales grow since the first quarter of last year. So things are trending upward, but just not as quickly as we had originally anticipated in our guidance to start the year.

Speaker Change: Thank you very much.

Operator: Our next question comes from the line of Phil Ng with Jeffreys. Please proceed with your question.

Speaker Change: Thank you.

Speaker Change: Good.

Speaker Change: Our next question comes from the line of Phil Eng with Jefferies. Please proceed with your question.

Maggie: Hey, good morning. This is Maggie on for Phil.

Speaker Change: Hey, good morning. This is Maggie on for Phil.

Maggie: Um, going off of that last question, you know, we've seen such a strong improvement in single-family starts year-to-date, so... I guess, where's the disconnect between that and your volumes, and when do you anticipate that improvement starting to flow through, and are there any considerations? I know the supply constraints have been tempering volumes, but, you know, anything else, extended cycle times that we should be mindful of that would, you know, extend that lag between charts and your volumes.

Maggie: I guess going off of that last question, you know, we've seen such a strong improvement in single-family starts year-to-date so

Maggie: I guess where's the disconnect between that and your volumes and when do you anticipate you know that improvement starting to flow through and are there any you know considerations I know the supply constraints

Speaker Change: have been tempering volumes, but, you know, anything else extended cycle times that we should be mindful of that would, you know, extend that lag between starts and your volumes.

Rob Kuhns: Yeah, Maggie, this is Rob. So I'd say, you know, if you look at the first half of this year, starts are up, and particularly on the single family, single family starts are up, right? Obviously, multi-families not, but single families are up, I think, about 16% year to date. Completions are up 1% because you have to remember that in the first half of last year, we had a heavy backlog, you know, helping support our work.

Speaker Change: Yeah, Maggie, this is Rob. So I'd say, you know, if you look at the first half of this year, you know, starts are up.

Speaker Change: And particularly on the single family starts are up, right? Obviously multi-families not, but single families up, I think, about 16% year-to-date.

Speaker Change: Completions are up 1% because you got to remember the, you know, the first half of last year we had the heavy backlog, you know, helping support our work. So, you know, the comp, the first half was tougher. Our same branch sales were up in that, you know, we were kind of flattish up 1%.

Rob Kuhns: So, you know, the comp, the first half was tougher. Our same branch sales were up in that, you know, we were kind of flattished up 1% on the True Team side the first half of this year, so we're pretty much in line with completions. Now, to your point, that improvement in starts should make its way into the third quarter here, the third and fourth quarters, and we should see some improvement in completions, assuming that comes through, but like Robert said, it's really a different story across the country in terms of how quickly that's flowing through.

Speaker Change: on the True Team side, the first half of this year. So we're pretty much in line with completion. Now to your point, that improvement in starts.

Speaker Change: should make its way into the third quarter here, third and fourth quarter, and we should see some improvement in completions, assuming that comes through, but like Robert said, it's really various stories across the country in terms of...

Rob Kuhns: So we've got that baked into our guidance. We do have volumes improving in the second half of the year, but, you know, we have tampered that down a little bit based on what we've seen here late in the second quarter and even early in the third quarter. Maggie. Thank you.

Speaker Change: How quickly that's flowing through. So we've got that baked into our guidance. We do have volumes improving the second half of the year, but we have tampered that down a little bit based on what we've seen here late in the second quarter and even here early third quarter.

Rob Kuhns: And Maggie, I think you can, if you look at some of the public builders' comments the past few weeks, and what I think they're using the exact same word probably is choppy in different parts of the country, whether it be, you know, the higher interest rates may have spooked some people in the second quarter or something like that. So it's just in certain regions that we're seeing them come out of the ground. Although to Rob's point, you'd expect that momentum of what we saw to carry into the back half of the year.

Speaker Change: And Maggie, I think you can, if you look at some of the public builders comments the past few weeks and what I think they're using the exact same word probably is choppy.

Maggie: In different parts of the country, you know, whether it be, you know, the higher interest rates may have, you know, spooked some people in the second quarter or something like that. So it's just in certain regions that slow we're seeing them come out of the ground. Although to Rob's point, you'd expect that momentum of what we saw carrying into the back half of the year.

Maggie: Okay, okay, that's super helpful. And then, on rates, you know, it's a more recent development, but potential rate cuts coming later this year. Curious if you've had conversations both with your residential customers and on the commercial side about how they're anticipating the impact of that potentially flowing through later this year or in 2025. Yeah, definitely conversations, Maggie.

Speaker Change: Okay, okay, that's super helpful.

Speaker Change: And then on rates, you know, it's a more recent development, but potential rate cuts coming later this year. I'm curious if you, you know, had conversations both with your residential customers and on the commercial side, you know, how they're anticipating.

Speaker Change: the impact of that potentially flowing through later this year or in 2025.

Robert Buck: Yeah, definitely conversations, for sure, Maggie. I think if you think about that and, you know, we'll see what happens in September, if it's more of an October, November, it's probably, I would say on the rate side, my perspective, great momentum for 2025, right? So if you think about that cut happens now, you know, consumer sentiment starts getting impacted in a positive way. And you think about lag times, it should, you know, you would think get 2025 off to a great start and a great trend.

Speaker Change: Yeah, definitely conversations for sure Maggie. I think if you think about that and you know, we'll see what happens in September It's more of an October November

Speaker Change: It's probably, I would say, on the rate side, my perspective, a great momentum for 2025, right? So if you think about that cut happens, now, you know, the consumer sentiment starts getting impacted in a positive way, and you think about lag times, it should, you know, you would think get 2025 off to a great start and a great trend.

Operator: Our next question comes from the line of Michael Rehaut with J.P. Morgan. Please proceed with your question.

Speaker Change: Our next question comes from the line of Michael Orholt with J.P. Morgan. Please proceed with your question.

Andrew Ozzie: Hi everyone, this is Andrew Ozzie. I'm from Lake. I appreciate you taking the questions. I just wanted to dive into maybe how productivity and other initiatives contributed to your profitability year-to-date versus maybe last year and and how can we think about these going forward?

Speaker Change: Hi everyone, this is Andrew Ozzie. I'm from Mike. I appreciate you taking my questions.

Andrew Ozzie: I just wanted to dive into maybe what if productivity and other like initiatives contributed to your profitability year-to-date versus maybe last year and how can we think about these going forward?

Rob Kuhns: Yeah, this is Rob. So I'd say, I mean, it's not a number we break out. But it's a huge part of our story. You know, Robert talked about it in the past on the call about what our special ops teams do in terms of working with our bottom performing branches. You know, with 400 branches across our network of installation and distribution, 400 plus branches, we, you know, there's always a bottom quartile to work on and lots of opportunities.

Andrew Ozzie: This is Rob. It's not a number we break out, but it's a huge part of our story. Robert talked about it in the past on the call about what our special ops teams do in terms of working with our bottom performing branches.

Speaker Change: with 400 branches across our network of install and distribution, 400 plus branches. There's always a bottom quartile to work on and lots of opportunities.

Rob Kuhns: So as we talk about, you know, margins moving forward and our margins in the past, right, we typically outshoot our targeted incrementals of 22 to 27, and a lot of that is because of the work of that team. And we're always striving to do that, but it's not a number we break out on a quarterly basis.

Andrew Ozzie: As we talk about margins moving forward, in our margins in the past, we typically outshoot our targeted incrementals of 22 to 27, and a lot of that is because of the work of that team.

Andrew Ozzie: And we're always striving to do that, but it's not a number we break out on a quarterly basis.

Rob Kuhns: But if you're looking for a little bit of color around the initiative, so if you look at the distribution margins, which we would say are doing really well, you know, definitely the special ops team has definitely been focused on some of our mechanical businesses where we can optimize, you know, logistics, some of our footprint and stuff, and also relative to just, you know, distribution productivity and sales productivity. So we've definitely seen it, and we see it, you know, showing the depth of our distribution margins, and that's been an area that we continue to work on both sides of the business, but I know specific things that we saw benefit from in our distribution business here in the first half of 2024.

Andrew Ozzie: But if you're looking for a little bit of color around the initiative, so if you look at the distribution margins, which we would say are doing really well, you know, definitely the special ops team has definitely been focused in some of our.

Andrew Ozzie: mechanical businesses where we can optimize, you know, logistics, some of our footprint.

Andrew Ozzie: and stuff, and also relative to just, you know, distribution productivity, sales productivity. So we've definitely seen it and we see it, you know, showing the depth of our distribution margins. And that's been an area that we continue to work both sides of the business, but I know specific things that we saw benefit from in our distribution business here in the first half of 2024.

Andrew Ozzie: You've got it. Makes sense. I appreciate that. And then maybe how do you view kind of the opportunity on margins over the next one or two years? You know, maybe hypothetically, if the market were to slow alongside a weaker macro, could we expect decrementals to look similar to incrementals, or are there kind of offsetting factors considered?

Speaker Change: Got it. Makes sense. I appreciate that. And then maybe how do you view kind of the opportunity on margins over the next once two years, you know, maybe hypothetically if the market were to slow alongside a weaker macro, could we expect decrementals to look similar to incrementals or are there kind of offsetting factors considered?

Rob Kuhns: Yeah, I mean, it's one of the great things about our model, right? We're a high-variable cost model where, you know, in a slowdown situation, for us to take out costs, we have to slow down material purchases, that's for sure. And then, you know, labor is by far the biggest chunk of our cost. So when it comes to a slowdown scenario, it's about looking at our labor structure.

Speaker Change: Yeah, I mean, it's one of the great things about our model, right? We're a high variable cost model.

Speaker Change: where, you know, in a slowdown situation, you know, for us taking out costs, you know, we've got to slow down the material purchases, that's for sure, and then, you know, labor is by far the biggest chunk of our costs. So we...

Rob Kuhns: And it all comes down to how long we think the slowdown is going to last, right? Because, you know, we've talked about this in the past when there was fear of slowdowns that, hey, we're going to hold on to labor in a situation like that where we think it's going to be short lived because we want to have the labor when things come back. Obviously, if we see it as a more long-term downturn, there'll have to be more cuts we make to the business.

Speaker Change: When it comes to a slowdown scenario, it's about looking at our labor structure, and it all comes down to how long do we think the slowdown's going to last, right? Because we've talked about this in the past when there's been fear of slowdowns that

Speaker Change: Hey, we're going to hold on to labor in a situation like that where we think it's going to be short-lived because we want to have the labor when things come back. Obviously, if we see it as a more long-term downturn, there'll have to be more reductions we make to...

Rob Kuhns: But, you know, it's something we've been through before back when COVID hit, it was something we, you know, worked through. Luckily, for us, our markets came back pretty strong pretty quickly after that. But initially, it was something we thought we were going to have to work through. But over the long term, to answer your question, we would be targeting something in that similar 22 to 27 type range for a decremental, it's just, it's going to be a little choppier to reuse that word, I guess, but it's going to be a little bumpy as you go, just because, you know, there are fixed costs that come along the way, they're going to come out in chunks, rather than variably over time.

Speaker Change: to the business, but it's something we've been through before, back when COVID hit, it was something we worked through, luckily for us, our markets came back pretty strong pretty quickly after that.

Speaker Change: Initially, it was something we thought we were going to have to work through, but over the long term, to answer your question, we would be targeting something in that similar 22 to 27 type range for a decremental.

Speaker Change: It's going to be a little choppier to reuse that word, I guess, but it's going to be a little bumpy as you go just because, you know, there are fixed costs that come along the way. They're going to come out in chunks rather than variably over time.

Andrew Ozzie: Got it. That's very helpful. I'll pass it on. Thank you so much.

Speaker Change: Got it. That's very helpful. I'll pass it on. Thank you so much.

Operator: Our next question comes from the line of Jeffrey Stevenson with Loop Capital. Please proceed with your question.

Speaker Change: Our next question comes from the line of Jeffrey Stevenson with Loop Capital. Please proceed with your question.

Jeffrey Stevenson: Hey, thanks for taking my questions today. So at a high level, can you talk about the variance between large production and independent builder growth in your second quarter installation volumes and whether you expect that trend to widen as we move throughout the back half as first half housing starts to show up more meaningfully in the results moving forward?

Jeffrey Stevenson: Hey, thanks for taking my questions today.

Jeffrey Stevenson: So at a high level, can you talk about the variance between large production and independent builder growth in your second quarter installation volumes and whether you expect that trend to widen as we move throughout the back half as first half housing starts to show up more meaningfully in the results moving forward?

Rob Kuhns: Yeah, Jeff, I'd say similar to what a lot of the industry data shows, we see growth with the big builders as they've continued to take share, obviously, with their ability to do rate buy-downs. That's been a huge advantage to them in the market, and we've grown with them along the way.

Speaker Change: Yeah, Jeff, I'd say similar to what a lot of the industry data shows, we see growth with the big builders as they've continued to take share, obviously, with their ability to do rate-buy downs.

Speaker Change: That's been a huge advantage to them in the market and we've grown with them along the way.

Jeffrey Stevenson: Okay, great. And then, you know, you talked about kind of your heavy commercial work and some of the projects going on where you've seen delays, but on the light commercial side, can you give any more color on, you know, how demand trended in the second quarter and whether you experienced any slowdown in bidding activity during the quarter?

Jeff: Okay, great. And then...

Speaker Change: You know, you talked about a...

Speaker Change: kind of your heavy commercial work and some of the projects going on where you've seen delays. But on the light commercial side, can you give any more color on, you know, how the man trended in the second quarter and whether you've experienced any slowdown in bidding activity during the quarter?

Robert Buck: Yeah. Morning, Jeff. This is Robert.

Speaker Change: Yeah.

Speaker Change: Morning Jeff, this is Robert. So look, you know, we definitely saw some project delays, light and heavy commercial both.

Robert Buck: So, look, you know, we definitely saw some project delays, light and heavy commercial both. Overall, we'd say light commercial did a little better than heavy commercial. And then, you know, it does follow residential trends.

Robert Buck: Overall, we'd say light commercial did a little better than heavy commercial.

Speaker Change: And then, you know, it does follow...

Robert Buck: So, I think we saw some, you know, nicer performance on the light commercial side. And I think, you know, given some of the share positions that we've taken there. And as we look forward, we'd say bidding activity is strong, both light and heavy commercial. I think it's just lost some momentum because of these project delays. And I think, as you heard us say in the prepared remarks, no cancellations, which is the critical thing to look at and to categorize as well. So, this is, as we said, timing more than anything else. Okay. Great.

Speaker Change: residential trends. So I think we saw some, you know, nicer performance on the light commercial side.

Speaker Change: And I think, you know, given some of the share position that we've taken there. And as we look forward, we'd say bidding activity is strong, both light and heavy commercial. I think it's just taken some momentum on these project delays. And I think as you heard us say in the prepared remarks, no cancellations, which is the critical thing to look at and to categorize as well. So this is, as we said, this is timing more than anything else.

Jeffrey Stevenson: Okay, great, thank you.

Speaker Change: Okay, great. Thank you.

Operator: As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line Trey Grooms with Stevens. Please proceed with your question.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Trey Grooms with Stevens. Please proceed with your question.

Trey Grooms: Good morning, this is Noah Merkousko on for Trey. Thanks for taking my questions. Good morning, Noah.

Speaker Change: Good morning, this is Noah Murkowski on Portrait. Thanks for taking my questions.

Noah Merkousko: So first, I wanted to touch on multifamily. I think if I heard correctly, you said the current backlog will carry you into 25. I think that's been pretty consistent with what you've said, your expectations for 24. So is that to mean, as we look at the back half of the year, that volumes for multifamily won't be down year over year? I guess just any kind of directional sort of thoughts on how multifamily looks in the back half.

Speaker Change: [inaudible]

Noah Murkowski: So first, I wanted to touch on multifamily. I think if I heard correctly, you said the current backlog will carry you into 25. I think that's been

Speaker Change: you know pretty consistent about what you've said you know your expectations for for 24. So is that to mean as we look at the back half of the year that that volumes for multifamily won't won't be down year over year? I guess just any kind of clear directional sort of thoughts on how multifamily looks in the back half. And then the second part of the question is

Noah Merkousko: And then the second part of the question is, if it is the case that we're not really seeing the volume declines yet, despite starts for multifamily being down quite significantly, does that push the headwind to 2025? And just any kind of thoughts on what that headwind could look like.

Rob Kuhns: Yeah, Noah. So this is Rob.

Rob Kuhns: Yeah, no, this is Rob.

Speaker Change: Yeah, no, this is Rob. So, you know, I'd say, you know, the multifamily, it's going to play out, you know, region by region, so we could see some volume slowness.

Rob Kuhns: So, you know, I'd say, you know, the multifamily is going to play out, you know, region by region. So we could see some volume slowness in the back half of the year in certain parts of the country. But overall, we feel pretty good about it. I mean, when we look at our backlog on multifamily right now, we've certainly eaten into it this year, but it's, you know, about 18% lower than it was a year ago at this time, right? And with more than a half year's worth of sales in there.

Rob Kuhns: So if, you know, that stuff all comes through, we should be looking pretty good in the back half of this year. Again, you deal with project delays and, you know, timing in different markets. So we'll have to see how that plays out. But we haven't baked a significant decline in multifamily into our guide.

Rob Kuhns: To the second part of your question, I mean, the answer is yes, it does push into 2025, ultimately, right? We will eventually, you know, experience a slowdown we've seen on the start side. I think starts are down 35% year-to-date, so that will eventually come. It's just important to remember that for us, you know, it's a smaller piece of what we deal with, a smaller take per unit. It's about 15% of our installation sales, so, you know, hopefully with a healthy single.

Rob Kuhns: experience a slowdown. We've seen on the start side, I think starts are down 35% year-to-date, so that will eventually come. It's just important to remember that for us, you know, it's a smaller piece of what we deal with.

Rob Kuhns: Yeah, that take per unit is so much more on the single family unit, so as that shifts, it's less, to Rob's point, less of an impact.

Noah Merkousko: Got it. That makes sense.

Noah Merkousko: And then for my follow-up question, you know, you called out spray foam and gutter pricing as a headwind in the quarter. Similar question, just how should we be thinking about that in the back half of the year? Will that continue to be a headwind to pricing?

Speaker Change: Got it, that makes sense. And then for my follow-up, you know, you called out spray foam and gutter pricing as a headwind in the quarter. Similar question, just how should we be thinking about that in the back half of the year? Will that continue to be a headwind to pricing?

Rob Kuhns: No, those occurred in the second quarter of last year, so those should roll off in the back half, and as a result, we should see about a 1% uplift in pricing from where we are today.

Noah Merkousko: All right, great. That's helpful. Good luck with the rest of the year.

Robert Buck: We have no further questions at this time. I'd now like to turn the floor back over to management for closing comments.

Speaker Change: Thank you.

Speaker Change: We have no further questions at this time. I'd now like to turn the floor back over to management for closing comments.

Robert Buck: Thanks for joining us this morning. We look forward to talking with you on our Q3 call.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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