Q4 2024 TopBuild Corp Earnings Call
Ladies and gentlemen, greetings and welcome to the adult built fourth quarter and year end 2024 earnings conference call.
At this time all participants are in a listen only mode.
Beef question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host B I Aquino. Please go ahead.
Speaker Change: Good morning, and thank you for joining US with me today are Robert <unk>, Our President and Chief Executive Officer, and Rob Jones, Our Chief Financial Officer, We've posted our earnings release senior management's formal remarks, and the presentation that summarizes our comments on our website.
Speaker Change: At Topco dotcom.
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 and in the Companys SEC filings.
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.
Speaker Change: These non-GAAP measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP.
We've provided a reconciliation of these financial measures to the most comparable GAAP measures in today's press release and in our presentation both of which are available on the website I'd now like to turn the call over to our president and CEO Robert Buck.
Robert Buck: Good morning, and thank you for joining us today.
Robert Buck: We had top builder proud to share that 2024 represents our ninth consecutive year of growth and profit expansion.
Robert Buck: As we celebrate our 10 year anniversary as a public company this year.
Robert Buck: Since our spin in 2015, we have demonstrated the strength of our business model and the long term opportunity for capital.
Robert Buck: Our results have truly been a team effort and I want to start by thanking our employees for their dedication and commitment to our business.
Robert Buck: Congratulations to our installation and specialty distribution as well as branch support center teams for working diligently to service our customers.
Robert Buck: Drive operational excellence and work safely every day.
Robert Buck: The new residential construction landscape.
Robert Buck: Fourth quarter was much like the prior two quarters interest rates have remained elevated for longer than anticipated and although some builders noted increased traffic external forecast for 2025 housing starts have been trend in the last few months.
Robert Buck: That being said the underlying housing market fundamentals are strong and we continue to be bullish about the mid and long term opportunity.
Robert Buck: Many uncertainties exist in today's environment, So before I move onto our results. Let me cover a few topics on tariffs, we do not anticipate a significant impact on our business products potentially impacted represent a relatively small portion of our material spend and we are taking appropriate steps to mitigate this impact.
Robert Buck: Regarding labor, we're aware deportations happening in certain markets, which have not impacted top build.
Robert Buck: This has the potential to slow the construction cycle, putting labor at a premium.
Robert Buck: We are confident in the strength of our labor force and are being cautious and strategic as we manage our labor cost structure in this environment.
Robert Buck: We will continue to watch closely and evaluate as regulatory and economic conditions impact our industry.
Robert Buck: Turning now to our results our residential business performed as expected in the quarter.
Robert Buck: Single family grew slightly while multifamily declined double digits or.
Robert Buck: Our commercial industrial business saw growth in the quarter and for the full year.
Robert Buck: We also started to see some delayed projects move forward in the fourth quarter.
Robert Buck: We have built a strong backlog and continued to be very active on the bidding brown.
Robert Buck: Fourth quarter comp build sales grew 2% to $1 3 billion fueled by specialty distribution growth.
Robert Buck: Our adjusted EBITDA grew two 5% to $258 million and adjusted EBITDA margin of 19, 7% improved 10 basis points year over year.
Robert Buck: Rob will provide more details on our results in a moment.
Speaker Change: Turning to our operations fiberglass supply has loosened as housing demand has softened.
Speaker Change: The new cannot facility in Texas has started production and the plan is still building to optimal capacity.
Speaker Change: While planned maintenance is expected to be less than last year pricing in this environment will be dependent on future demand improving.
Speaker Change: Like previous times of uncertainty relative to demand are seasoned operations team is working diligently and making strategic decisions to optimize our model across the footprint.
Speaker Change: We have great insights and control of our business that allows our field teams to be proactive and navigating changes to outperform in the current environment.
Speaker Change: Turning to capital allocation acquisitions continue to be Archrock priority last year, we completed eight acquisitions across both installation and specialty distribution.
Speaker Change: For a total of approximately $153 million in annual revenue.
Speaker Change: In 2024, we returned nearly $1 billion to shareholders through our share repurchase program.
Speaker Change: As you saw on the release today, our board of directors authorized a new share buyback program of up to $1 billion demonstrating confidence in our business and long term strategy.
Speaker Change: Our M&A pipeline continues to be very healthy the environment is an active and we're off to a solid start this year.
Speaker Change: As I noted last quarter, we continue to focus on our core of installation at the same time marni about opportunities that could expand our total addressable market.
Speaker Change: As always we will be disciplined in our approach and seek opportunities that enable us to leverage our core strengths.
Speaker Change: Let me take a minute and talk about how we define our strengths and core competencies.
Speaker Change: First we are a people business, we have nearly 14000 employees who are essential to our success. We are a core competence of recruiting and retaining direct labor, Andrew and developing talent throughout the business.
Speaker Change: We have a dispersed network with over 440 branches across U S and Canada.
Speaker Change: Our operating philosophy is rooted in local empowerment.
Speaker Change: The day to day business decisions happen at the local level. So our field leadership, we're encouraged to be the owner to drive operational excellence and strong performance.
Speaker Change: We have a great track record of driving continuous improvement and are confident operating a dispersed branch model.
Speaker Change: Technology and the use of a single ERP system across our entire footprint is a key contributor to our business success.
Speaker Change: Our technology investments gives us the ability to provide new business leads.
Speaker Change: Facilitate best practices across the network analyze real time business information measure productivity drive improvement initiatives and consolidate certain back office functions at our branch support center.
Speaker Change: Our category has unique supplier and customer dynamics and as the largest buyer of installation of the industry. We operate in partnership with our suppliers.
Speaker Change: For our customers our teams drive exceptional value and service.
Speaker Change: Finally, we are committed to being financially disciplined and thoughtful in our strategy. Our balance sheet is healthy we have a great M&A track record and a history of delivering strong shareholder returns.
Speaker Change: I'll close by giving you some broad thoughts on 2025 and turn it over to Rob to take you through the details of our results and guidance.
Persistent inflation is keeping interest rates high and ongoing economic and regulatory uncertainty is creating challenges for the construction industry.
Speaker Change: External forecast for housing starts this year have come down in the past few months with most predicting a decline and start in 2025.
Speaker Change: We expect residential demand to improve however, the timing is yet unclear.
Speaker Change: On the commercial and industrial froth at both installation and specialty distribution, we are seeing an uptick as some of last year's delayed projects or March bidding activity in this space continues to be strong.
Speaker Change: We continue to be optimistic about the underlying fundamentals of our industry and our ability to outperform the market and capitalize on growth opportunities both organic and inorganic.
Speaker Change: We see the diversification of our business model being an advantage.
Speaker Change: Finally, our guidance does not contemplate M&A and given our pipeline we are anticipating 2025 to be another active year on the acquisition front.
Speaker Change: Rob Thanks, Robert Let me start by saying, Thank you to our employees for their hard work and efforts, which enabled us to deliver another record year for <unk>.
Speaker Change: Since our spin nine years ago, we have grown sales at a compounded annual growth rate of 14% and expanded adjusted EBITDA margins from six 6% to 22%. These.
Speaker Change: These results have been driven by our teams that have a relentless focus on operational excellence and do a great job delivering exceptional value and service to our customers.
Speaker Change: Today on the call I'll review, our Q4 results and then I'll walk through our guidance for 2025.
Speaker Change: In the fourth quarter, we increased sales by 2% to $1 3 billion M&A.
Speaker Change: M&A contributed two 4% pricing added 0.9% and volume declined one 3%.
Speaker Change: Turning to our segments installation sales were relatively flat year over year at $788 6 million.
Speaker Change: Volume declined four 1% and was offset by M&A of two 3% and pricing of one 5%.
Speaker Change: The volume decline was driven by the slowdown in multifamily activity.
Speaker Change: Single family activity remained choppy and was flat to prior year on a same branch basis.
Speaker Change: Within specialty distribution sales grew six 6% to $601 8 million in the fourth quarter.
Speaker Change: Volume rose by four 4% as commercial industrial sales grew and spray foam sales rose ahead of industry cost increases.
Speaker Change: Acquisitions added two 2% while pricing was flat in the quarter.
Fourth quarter, adjusted gross profit totaled $392 million or margin of 29, 9%, which was 50 basis points lower than last year.
Speaker Change: Gross margins were lower than prior year in both specialty distribution and installation as the residential housing industry continues to tackle soft demand driven primarily by affordability challenges and economic uncertainty.
Speaker Change: The decline was driven by strategic pricing volume decisions on residential products, primarily in our distribution business as well as conscious decisions around labor and certain installation markets.
Speaker Change: Across our footprint, we are leveraging our tools and technology to strategically balance local volume and price decisions and we are working closely with our supplier partners in this changing environment.
Speaker Change: Adjusted SG&A as a percentage of sales in the fourth quarter was 13, 2% 70 basis points lower than last year.
Speaker Change: <unk> adjusted EBITDA in the quarter totaled $258 million or a margin of 19, 7%, a 10 basis point improvement versus last year.
Speaker Change: Installation segment EBITDA margin was 21, 4% in the fourth quarter flat to prior year.
Speaker Change: Adjusted EBITDA margin for specialty distribution improved 20 basis points to 17, 7%.
Speaker Change: Fourth quarter other income and expense of $14 7 million was $4 3 million higher than last year due to reduced interest income on lower cash balances.
Speaker Change: Fourth quarter adjusted earnings per diluted share of $5 13 improved nine 4% versus last year.
Speaker Change: Moving to our balance sheet and cash flow total liquidity was $836 5 million at the end of the quarter cash.
Cash was $403 million and we have $436 2 million of availability under our revolver.
Speaker Change: We ended the quarter with net debt of $987 2 million and our net debt leverage ratio was 0.91 times trailing 12 months adjusted EBITDA.
Speaker Change: Working capital as a percentage of sales was 13% an improvement of 20 basis points compared to 2023.
Speaker Change: In 2024, we generated $706 7 million in free cash flow.
Speaker Change: Our capital allocation priorities remain unchanged with acquisitions remains our top priority.
Speaker Change: We spent $136 8 million on acquisitions in 2024, and we also returned $966 $4 million in capital to shareholders last year buying back about $2 5 million shares.
Speaker Change: As you saw in our release our board of Directors has authorized a new $1 billion share repurchase program, which brings the total available under authorization to $1 2 billion.
Speaker Change: Turning to our outlook I want to remind you that our guidance includes M&A that we have closed but does not include any potential future M&A.
Speaker Change: Our guidance for 2025 days sales of 5.05 billion to $5, three 5 billion and adjusted EBITDA of 925 million to 1.075 billion.
Speaker Change: As we head into 2025, there continues to be significant uncertainty in residential markets. While we remain bullish around the long term fundamentals for residential housing we anticipate the current environment of uncertainty will lead to continued choppiness.
Speaker Change: We do anticipate an inflection point in residential demand, but given the uncertainty around timing, we are not baking that into our guidance.
Speaker Change: The midpoint of our revenue guidance at $5 2 billion assumes the following.
Speaker Change: 2025 volume will be down low single digits.
Speaker Change: Multifamily, which makes up 10% of our sales will be down approximately 30%.
Speaker Change: As a reminder, multifamily benefited in 2024 from the carryover of a significant backlog, which delayed the impact of the slowdown in multifamily starts.
Single family, which makes up 55% of our sales will be flat to prior year.
Speaker Change: Commercial and industrial which makes up 35% of our sales will be up low single digits.
Speaker Change: Price mix will be down slightly as we expect the pressures we saw in the fourth quarter to continue into 2025.
Speaker Change: Our revenue guidance assumes revenue will be down low single digits across all four quarters of the year with Q1 being down the most.
Speaker Change: The midpoint of our EBITDA guidance is $1 billion or 19, 2% of sales down 100 basis points to prior year.
Speaker Change: To give you a little more color on the main drivers of the 100 basis point decline in EBITDA margin first roughly half of that decline is driven by lower sales volume, which will have an EBITDA decremental margin in the mid <unk> slightly higher than our long term target. This.
Speaker Change: This will be driven by efforts to strategically manage labor and back office support given the uncertain timing of housing recovery the potential competition for late for labor moving forward and our strong appetite for continued M&A.
Speaker Change: Second we anticipate the other half of the decline will be due to gross margin pressure similar to Q4, as we continue to balance volume and price decisions in certain choppy residential markets.
Speaker Change: We expect productivity to offset both the impact of M&A carryover, which comes with fixed costs in year, one and incremental investments in digital initiatives, such as E Commerce and data analytics.
Speaker Change: As you consider the quarterly cadence of profitability throughout the year, we expect each quarter's EBITDA margin to fall within our full year guidance range of 18, 3% to 21% Q.
Speaker Change: Q1 is expected to be the weakest and near the bottom end of the range.
Speaker Change: Finally, a few other data points from a modeling perspective on our guidance.
Speaker Change: Interest expense will be between $49 million and $55 million.
Speaker Change: Our income tax rate will be between 25% and 27%.
Speaker Change: Capex will be one 5% to 2% of sales and.
Speaker Change: And we expect working capital to be in the range of 12% to 14% of sales.
Speaker Change: Before I turn it back over let me close by expressing my confidence in the health of our business and our opportunities for future growth.
Speaker Change: We are currently facing some macro uncertainty I'm extremely confident that <unk> will continue to outperform in any environment Robert.
Speaker Change: Let me close our call today by saying that we continue to be bullish about our industry in top builds future.
Speaker Change: Not only do we operate in a great category with strong fundamentals. We also have a unique and proven business model the underlying fundamentals for new construction is strong and our <unk>.
Products and services play a critical role.
Speaker Change: We are confident at the top of that we will navigate fluctuations in near term demand and outperform the market even as the broader environment changes.
Speaker Change: Our business is inherently well positioned to capitalize on these opportunities for growth, both organic organically and through acquisitions.
Speaker Change: Our acquisition pipeline is healthy we remain committed to building our track record of delivering increased shareholder value.
Speaker Change: With that operator, let's open up the line for questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session.
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Speaker Change: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Speaker Change: Yeah.
Speaker Change: The first question comes from Phil <unk> with Jefferies. Please go ahead.
Speaker Change: Hey, guys.
Speaker Change: Strong quarter and Rob I appreciate all the color on some of the margin directly.
Yes on the pricing side of things are you seeing things dialogue from here just given the builders are under some pressure, it's kind of more of the same and how are you kind of balancing that certainly pricing for certain pockets I think theres, a little inflation spray foam Academy mentioned, maybe in mechanical insulation, but just kind of help us think through what youre seeing on the pricing environment.
Speaker Change: And if we do see input cost inflation your ability to kind of pass that through and not getting squeezed on that.
Speaker Change: Hey, good morning feels Robert So I'll start with that from a builders' perspective, I mean, obviously affordability is top of mind right now right. So you do see in some of the slower markets more pressure from the builders I mean, we're definitely not chasing share, but we're definitely working with the builders and the slower markets.
Speaker Change: It would be kind of look at that it's as Rob said kind of a heavier on the distribution side relative to some of the pressures.
Speaker Change: No commercial industrials is doing very well from that perspective, and if you get into byproduct.
Speaker Change: We would say there has been definitely pressures on the spray foam side of the business and in some of the markets definitely see on the fiberglass side, but our teams are doing a great job I mean, where we are.
Speaker Change: We're being cautious in our outlook here on appropriately given if you looked at 2024 and how that developed.
Speaker Change: So we've not baked any of our optimism and because we want to make sure. We have a realistic look as to what we see today.
Speaker Change: And Robert I'm, a little surprised on the spray foam comment because I think there are some dumping duties and you guys mentioned you saw an uptick net distribution business with customers buying ahead of it are you starting to see that move higher or getting squeezed on that backdrop on the spray foam side of things.
Speaker Change: Yes, so there is definitely a lot of material.
Speaker Change: Material out there available.
Speaker Change: So theres been some pressure around in first.
Speaker Change: Ending the year as that was announced right around Thanksgiving and passing some of that along but there's definitely that continues to get worked here in the first quarter.
Speaker Change: So we expect as that as that comes around here, you're obviously seeing it relative to some of the demand not as much demand there is.
Speaker Change: Some of the housing market has slowed so that could be fueling some of it as well.
Speaker Change: Okay, and then from an M&A standpoint, I think you hinted that the pipeline is pretty robust.
Certainly a new administration here.
Speaker Change: It gives a little more color on what youre seeing out there, especially on the C&I side.
Speaker Change: And Robert this isn't the first time, you kind of hinted at looking at adjacent market.
Speaker Change: Is this going to be a bigger by like the C&I opportunity. We've seen in recent years or kind of more bolt ons can you give us a little more perspective.
Speaker Change: Which you kind of envision in terms of adjacent markets.
Speaker Change: Yes, so as we think about the current pipeline I would say is we've got some great prospects across all three.
Speaker Change: And segments therapy, low residential distribution and then commercial industrial.
Speaker Change: As well as we think about.
Speaker Change: C&I, specifically, which I think you mentioned, Phil if you looked at some of our big acquisitions that we did in 2024. It was definitely in that space with Metro supply and Shannon Global which we closed the back half. So there's a lot of activity in that space and as we think about Adjacencies I think the part that we're communicating here is.
Speaker Change: C&I right down the fairway, we've done a great job with that there is more opportunity in our core installation areas residential residential commercial industrial C&I being part of that but we're also saying look we have a set of core competency the strengths of the company that we think as we look at how we can expand checks those boxes.
So that gives us a high level of confidence as to the VAT.
Speaker Change: Value for shareholders, we can drive and some of those adjacent spaces I'd say more.
Speaker Change: To come on that but I think you can probably hear in our tone here, we see some good opportunity for top building given the cash that we generate and good use of capital allocation that we've had as a company I think.
Speaker Change: We're thinking about that and thinking about the growth for the company here going forward.
Speaker Change: And Robert would that would those are adjacent opportunity to be larger or they're going to be potentially more in the tuck in side.
Speaker Change: I think there is some potential larger opportunity out there for <unk>.
Speaker Change: Okay excellent I appreciate the color guys. Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Stephen Kim with Evercore ISI. Please go ahead.
Stephen Kim: Yes, thanks, very much guys I appreciate all the color on the guidance here.
Stephen Kim: I wanted to see if I could delve into a little bit of something that you said you put it in your opening remarks, I think you talked about strategic price and volume decisions and residential products are.
Stephen Kim: Primarily distribution and conscious decisions around labor and certain install markets. I was wondering if you could elaborate a little bit on what you meant by that and what we should be expecting as you're looking into 2025 on those on those points.
Stephen Kim: Yes, Steve. So this is Rob so just walking you through that a little bit.
Speaker Change: In terms of what we're seeing there as Robert talked on the pricing side, and we talked a little bit about this in Q3.
Speaker Change: We're seeing it a little bit of extra supply on the spray foam side of things that's created some price pressure. So we're.
Speaker Change: Where we need to where we're making the decisions we need to to continue to drive some volume with that product. So that created some some pressure in the quarter for sure and then on the distribution side I'd say, we're still you know price cost or on the I'm sorry on the installation side, we're still definitely price cost positive there.
Speaker Change: We're seeing some pressure in certain markets for sure, but we're working through that and obviously working with our supplier partners on those things, but you know as volumes have slowed on the install side like we saw in the quarter. The pressure we get there is more from the labor side of things right.
Speaker Change: That's where we're being strategic in our thinking.
Speaker Change: Beyond that we're optimistic about the long term or the midterm even.
Speaker Change: Residential markets will bounce back here at some point.
Speaker Change: We're being careful not to cut good labor that we have out there being that we want to continue to be active on the M&A front, we're being careful with our back office labor as well. So that's that's really the driver of the deleveraging we're seeing there on the volume side.
Speaker Change: I understand yeah. That's that's helpful.
Speaker Change: Okay, Great and then.
Speaker Change: And similarly, I think I just want to make sure that I heard you correctly.
Speaker Change: Robert when you talked about a fiberglass price increases I think what you indicated was that you thought that it would depend upon builder market conditions improving.
Speaker Change: If things stay the way they are.
Speaker Change: I'm sort of paraphrasing here, but if things stay as they are and they don't improve.
We're seeing it or they just sort of stay where they are would it be your expectation that you would not see pricing increase.
Speaker Change: In fiberglass history.
Speaker Change: Yes, I would say.
Speaker Change: Stephen So they're definitely material available right now given the slower demand environment and I would say there is as you know there was increases announced for earlier.
Speaker Change: On January <unk>.
Speaker Change: And see traction really and so I think it is going to have to be driven by an increased demand environment to drive cost price there in 2025.
Speaker Change: Yeah, Okay, and then lastly, you had mentioned something in your prepared remarks about technology and using technology more significantly I mean, you had asked to aid I think with your with your pricing.
Speaker Change: And I think volume decisions as well can you just elaborate a little bit on that like what does that mean.
Speaker Change: From a practical perspective, what are you actually doing in your operations and is it one side of your business more than any other.
Speaker Change: Yes, I'll start with that Stephen I'm sure, Rob will chime in as well so.
Speaker Change: I wouldn't say any more than usual weather that say in our ERP tool is extremely valuable in these times, where we're able to see fluctuations of demand by market by business install versus distributions that allows us to make appropriate decisions one from a pricing perspective, we're able to put guardrails around that to empower them.
Speaker Change: Meant that we're able to give locally and then even from as we think about <unk>.
Speaker Change: Labour pushed back their productivity perspective sales productivity perspective, it gives us insight to that which is really gives us great control to our field teams to drive decisions or management of resources.
Speaker Change: Stephen the only thing I'd add to that is just we talked about volume pressure on the other side. Likewise, the common ERP gives us great visibility into where things are slowing from an orders perspective allows us to get out ahead start planning some of those labor reduction. So we're using that are common ERP that way as well.
Speaker Change: Okay I appreciate it thanks very much guys.
Speaker Change: Thank you.
Speaker Change: Thank you.
The next question comes from Susan Mcclary with Goldman Sachs. Please go ahead.
Susan Mcclary: Thank you good morning, everyone.
Brian: Good morning, Good morning, Brian.
Susan Mcclary: Good morning.
Speaker Change: I want to talk a bit about the commercial side you mentioned in your remarks that you are still seeing healthy levels of bidding activity. Despite the macro that is out there can you talk a bit more about where that bidding activity is coming from and how youre thinking about that relative to perhaps some of that actual work starting to flow through and what we need to see to get that.
Susan Mcclary: Activity a bit higher.
Susan Mcclary: Yes, good morning, Susan it's Robert So the commercial industrial side was definitely nice job by our teams in the field and we saw that for full year results. We saw it in the quarter as well and bidding activity is very active there. So.
Susan Mcclary: As you heard Rob talk about it in the guidance, we're definitely looking for growth in that commercial industrial side of the business here in 2025. If you look I think that the main thing as you look across the verticals of that business commercial industrial business I'd say, we're pretty optimistic across most verticals. If you think about manufacturing obviously data centers.
Susan Mcclary: Oil and gas food and beverage pharmaceutical those types of areas, where we like what we see there the bidding verifies that we liked the diversification there and sometimes people ask where do you see any weakness.
Susan Mcclary: Battery plants EVP facilities theres been some in those areas, but we're pretty diversified across those verticals and stuff. So.
Susan Mcclary: We like what we see looking back but then most importantly, looking forward bidding and we mentioned we're seeing projects get last year that were delayed on the 2024 as well.
Speaker Change: Okay. That's helpful color and then maybe turning to the margins appreciating the commentary around the labor and some of those actions there, but as you think about some of the other efforts that you have coming through you know perhaps on the on the distribution side and consolidating some of those locations and some of those other company specific.
Speaker Change: Actions in there can you talk a bit about how you can leverage those and anything that youre looking for this year to come through given the environment that we're in and how that could help the margin as we go through the next several quarters.
Susan Mcclary: Yes, Susan.
Susan Mcclary: This is Rob so that's obviously something that's out there definitely an opportunity for us so as we look.
Susan Mcclary: Across our footprint and as we're looking at some of the challenges ahead. We are definitely looking at some consolidation opportunities like I talked about what we're looking at labor opportunities.
Susan Mcclary: And like I mentioned on the call, we've got a productivity number baked in into the midpoint of that guidance.
Susan Mcclary: That's offsetting some of the investments we're making.
Susan Mcclary: On the digital side of things with some e-commerce initiatives and some things around data analytics as well as you have the you know the decremental impact of carryover M&A on your EBITDA margins as well, but while we do have that productivity baked in.
Susan Mcclary: And it's something that we're on top of in terms of the environment. We're in right now.
Speaker Change: Okay. Thank you for the color good luck with everything.
Susan Mcclary: Thank you. Thank you.
Susan Mcclary: Thank you.
Speaker Change: Next question comes from the line of Keith Hughes with <unk> Securities. Please go ahead.
Speaker Change: Thank you your outlook on commercial industrial flattish would that mean that within this guidance framework, we would see the distribution business.
Speaker Change: Less less crusher.
Speaker Change: And what would be coming in installation.
Speaker Change: Yes, Keith this is Rob so so actually we're guiding to low single digit growth on the on the commercial side. So so we do expect to be up on that side of things obviously to your point that makes up a much bigger piece of our distribution business.
Speaker Change: More like 60% of the business on that side versus 15% on the on the installation side. So youre correct as we look at the year.
Speaker Change: From a segment perspective, the sales growth you know year over year will be a tough.
Speaker Change: Tougher for install and then it will be for distribution.
Speaker Change: And you've talked about some.
Speaker Change: Yes.
Speaker Change: I guess, the lack of price increases.
Speaker Change: We've all heard about and some of the spreads on deflation that's going on what's kind of your near term for pricing of jobs with the latter primarily fiberglass.
Speaker Change: Yes, so fiberglass perspective, as we mentioned earlier there wasn't a lot of traction given the excess material right now so obviously, we're able to give our teams.
Speaker Change: In your guidance right now Theres no theres, no new increases announced out there and so we're just making sure our teams did a good job of.
Speaker Change: Maintaining we're not chasing any share from that perspective so.
Speaker Change: So we're giving some guidance here to make sure. They are bidding consistently for the next call. It 90 days on the residential side.
Speaker Change: Do you think there'll be compression and job prices in this environment is that it's a bad enough for that.
In certain markets there.
Speaker Change: We do see that right and like Robert mentioned on the spray foam side of things. There are certainly some more pressure there than on the fiberglass side of things but.
Speaker Change: And the slower markets there is pressure, but that's why we talked about it being choppy, we still have markets that are performing well.
Speaker Change: Lot of them kind of kind of average so it's certainly not a widespread thing at this point and I think I think when you don't need from us Keith you've watched us for a while is our teams do a good I would say a great job of optimizing.
Speaker Change: Net margin volume perspective in some of these markets or Rob just spoke to that are that are chop your around certain theyre, making some of those decisions as we do a good job of that and I think you see overall the margins are holding up very nicely. If you look at the.
Speaker Change: The guide that we're giving for the full year.
Speaker Change: Okay, great. Thank you.
Speaker Change: Oh.
Speaker Change: Okay.
Thank you.
Speaker Change: The next question comes from the line of rave.
Rosa: Rosa with Bank of America. Please go ahead.
Rosa: Hi, good morning, Thanks for taking my questions.
Speaker Change: First and I appreciate that it's a choppy environment.
Speaker Change: But it's a pretty wide range that you have on the guidance just can you help us understand.
Speaker Change: Some of the assumptions that get you to the high end versus the low end of the guidance range, particularly on the single family starts outlook.
Rob: Yes, Ray this is Rob so I'd say.
Rob: Like we are we focus on our midpoint as we do this and then you know given the uncertainty we put up.
Rob: A little wider range than normal as you point out on it I mean from a single family perspective.
Rob: When we think about the low end is probably closer to minus 2% on a year over year basis and on the high end more of a plus two right and our midpoint is kind of flattish there so thats.
Rob: Kind of a range there and then similarly, we've got a similar range on multifamily around the 30% down we're talking about and then on commercial industrial Similarly, we got the low single digits at the midpoint, a little better than that on the high end a little below that at the low.
Rob: Okay, and then on the first quarter.
Speaker Change: I know, it's relatively balanced through the year, but it sounds like you expect the first quarter to be weaker can you just talk about what's impacting the first quarter are you assuming that the macro gets better after the first quarter or are there specific headwinds that you're facing there that are going to subside.
Speaker Change: Yes, no I'd say I mean, the first quarter, we do have the benefit of you know, we've got a month and a half in the books here that we've seen so we know what we're seeing right now.
Speaker Change: And so we've obviously got that baked in and as we think about the balance of the year like we've said, we're optimistic that demand for residential is going to come back stronger, but we haven't baked an upturn in that into our guidance. So when you think about what we're seeing right now we basically baked in.
Speaker Change: Any kind of normal seasonality through the rest of the year and when you do that right. If you do that from where we are today and you look at the year over year comps Youll see were going to be kind of low single digits down most of the year with Q1 down. The most we did have some weather in January thats definitely a factor as well.
Speaker Change: But yeah, we have weather every year as well so we tend to not not call that out.
Speaker Change: So it's a consistent macro view, but the comp is just different on a year over year basis, Yeah. It's important to point out too we do have one less day in Q1, so for the year.
Speaker Change: One less day and it is in Q1, the rest of the year. The date will be the same.
Speaker Change: Yeah, Hey, Greg This is Robert just to add on there I mean I think we.
Speaker Change: <unk> 2024, I think everybody was sitting here at the beginning of the year with a outlook for what was going to happen in the back half of the year and so that's a <unk> point, we have optimism, but we're being cautious as to the as to the.
Speaker Change: As to the outlook based on what we see today.
Speaker Change: And youre not wanting to get the situation that it was a 24, where the back half didn't develop as everybody know early in 'twenty four.
Great. Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Ken <unk> with Seaport Research partners. Please go ahead.
Speaker Change: Good morning, everybody.
Speaker Change: Robert I would like to ask you a high level question and ask Rob just more like.
Speaker Change: On the operating leverage question Robert.
Speaker Change: The narrative is that housing has been under belt.
Speaker Change: And builders new home inventory census data, it's quite high today as you know.
Speaker Change: And then the idea is that they are leaning into more presale units in order to.
Speaker Change: Leverage mortgage finance.
Speaker Change: Long Beach I mean.
Speaker Change: Because you have probably have some of the best data out there.
Speaker Change: This slowdown.
Speaker Change: You mentioned the word affordability, but how long do you think it takes to actually work off this high level of under construction complete units that the inventory.
Speaker Change: That the industry is it I mean does that kind of a headwind do you see here.
Speaker Change: Is it in your assumptions there building down inventory or are they just can they keep it up I'm trying to understand the demand versus this excess.
Speaker Change: Yes.
Speaker Change: Bidding.
Ken: Yes, good morning, Ken So I think thats, where to your point about.
Speaker Change: The inventory and I think thats, where some folks are leaning into the back half of the year.
Ken: So we'll see how that develops I think.
Ken: If things pick up that could definitely be realistic, we'll see what happens I think the builders that it kind of depends on the builder population you are talking about right. So the big builders continue to the buy downs and they're in a situation for that I think the longer that goes on the more reprice had this in 2024 and work and impact from the smaller regional smaller.
Ken: Smaller builders here, so, but youre right, where you got the extra inventory sitting on the ground.
Ken: The bigger guys are able to continue to build but they're also there. The builders are smart business people. So they are obviously adjusting the product theyre going to market with.
Ken: Based on those affordability issues, and maybe where they see more of the inventory as well so they're there they're adjusting their approach as well.
Speaker Change: Right and I guess Rob.
Ken: Mid 30% incremental decline that you talked about.
Ken: Not widespread market weakness, but in Submarkets you did highlight this price concessions.
Ken: Some other factors to those markets that are weaker not widespread pretty much overlap with.
Ken:
Ken: What we're seeing hearing meaning pressure in southwest Florida.
Ken: These particular areas where.
Ken: Inventory and margins are going down broadly.
Ken: Is that to be interpreted the same where your margin pressures.
Ken: With new had some margin pressure.
Ken: I'd say in general Yeah, that's right I think there's definitely some correlation there, but what we're seeing is definitely.
Ken: It's very different market by market, even within states. So it's hard to even generalize the state of Florida or the state of Texas, but that's certainly where there's where there was more inventory there.
Ken: That creates more pressure for the builders.
Ken: And you know that can have a trickle down effect on us as well.
Ken: Thank you very much.
Yes.
Ken: Thank you.
Speaker Change: Next question comes from the line of Kurt Yinger with D. A Davidson. Please go ahead.
Kurt Yinger: Great. Thanks, and good morning, everyone.
Kurt Yinger: Just one question on the commentary around deportation activity and not putting a premium on labor I mean, it's pretty intuitive in terms of.
The benefit that could serve to the service.
Kind of oriented offering that you guys have I'm curious if there is.
Kurt Yinger: Maybe a little bit more nuance as you guys see it in regards to <unk>.
<unk> advantages or how that might impact the competitive landscape kind of specifically for top belt as we look out over 2025.
Speaker Change: Yes, as we think about that good morning, Curt as Robert had I'd say, a few things number one as you know its probably more impactful.
Speaker Change: Things up in the construction cycle earlier, and maybe some things youre right aircrafts in the cycle. So we talked about there could be a cycle time impact I think we think about it from that perspective, I think obviously, we're very confident.
Speaker Change: In our workforce.
Speaker Change: Inc that.
Speaker Change: That puts the value on our workforce obviously.
Speaker Change: As we think about what we can offer the builders the service levels that we can offer whether it be the builders the contractors commercial side.
Speaker Change: Side of our installed business as well.
Speaker Change: So we think its advantage for us for sure we can't control the cycle time, but would have to be able to control the service and and how we'll be able to make sure that we're there for the builders from a labor perspective, so definitely advantage for Cabo.
Speaker Change: Okay that makes sense and just one follow up I mean, it's.
Speaker Change: Kind of an impossible question to answer without knowing all the variables, but as you think about kind of holding on to.
Speaker Change: Some of the labor and.
Speaker Change: With the view that perhaps some of these demand pressures are more temporary what would.
Speaker Change: I Wonder a couple of things you might need to see change.
Speaker Change: That might impact your decision to maybe.
Speaker Change: Be a little bit more aggressive looking at the cost side.
Speaker Change: Kind of readjusting the size.
Speaker Change: Yes, yes. So this is rob so like we talked about I mean, we're monitoring with our with our systems, our bidding activity across across the footprint right and we're we're obviously talking with the field, who is talking directly with the customers. So as we understand.
Speaker Change: Now, what's what's going on in each market kind of get a feel for where we think it's going.
Speaker Change: We will get more aggressive with the cost actions, we're taking I mean, we're always we've been through this before our team has been through it before we went through it you know during COVID-19 when we sell our sales drop off 20% immediately after COVID-19 and for us given our cost structure right. It's about <unk>.
Speaker Change: <unk> right. It is about knowing your a player's Ub players and you see players and we do we do our best to hold onto those as MB players as long as we can.
And you know this is a similar situation in those in those slower markets right now.
Speaker Change: Yes, it does.
Speaker Change: I think Ralph said, it well, we'd have to see prolonged weakness, but our productive labor. We went out we want to keep in the Covid is a good example, but if you look back also even backer.
Speaker Change: There was choppy.
Speaker Change: Choppiness in residential 17, and 18, we took appropriate actions and came out stronger and we see the same here.
Speaker Change: Right makes sense, Okay I appreciate the color. Thank you.
Speaker Change: Thank you thank.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: A reminder to all the participants you May press star one to ask a question.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: There are no further questions I would now like to hand, the conference over to Robert Buck for closing comments.
Robert Buck: Thank you for joining us today, we look forward to talking with you in early May whenever we report our Q1 earnings. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you. This concludes today's teleconference. You may disconnect your lines at this time.
Speaker Change: You for your participation.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Right.
Speaker Change: Okay.
Thanks.
Speaker Change: Yes.