Q1 2025 TopBuild Corp Earnings Call
Ladies and gentlemen, thank you for standing by. Greetings and welcome to TopBuild's first quarter 2025 earnings conference call. At this time, all participants are in listening mode.
A question and answer session will follow to these formal presentations.
If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded.
Speaker Change: At this time, I will now turn the conference over to your host, P.I. Aquino, Vice-President of Vest Relations.
P.I. here, maybe again.
Speaker Change: Good morning, and thanks for joining us today. I have with me Robert Buck, our President and CEO , and Rob Kuhns, our CFP.
Speaker Change: Our earnings release, Senior Management's formal remarks, and a deck summarizing our comments can be found on our website at topbuild.com. Also available is our recently published 2024 Sustainability Report.
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 company's 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 the substitute for results prepared in accordance with gap.
Speaker Change: 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 our website.
Speaker Change: I'd like to now turn the call over to our president and CEO , Robert Buck [inaudible]
Robert Buck: Good morning. Thank you for joining us today for our first quarter 2025 earnings call.
Robert Buck: I'd like to start our call today with a few words on the Maklari landscape and current operating environment.
Robert Buck: View residential construction demand remains soft with chockiness continuing across various geographies.
Robert Buck: The spring-selling season was slower than anticipated as interest rates remained elevated and economic uncertainty as eroded consumer confidence, both of which negatively impacted housing demand.
Robert Buck: Despite this backdrop, the fundamentals of the underlying housing market are strong and we remain confident in the long-term prospects of our business.
Robert Buck: On the commercial and industrial front, we are encouraged by the number of projects moving into production and ongoing bid activity in the CNI and market.
Robert Buck: More specifically, there has been an acceleration and data center construction along with positive trends in healthcare and certain sub-sectors of manufacturing such as chemicals.
Robert Buck: Walteris and trade restrictions between the United States and other countries are top of mind for everyone, including investors.
Robert Buck: The potential direct impact of currently announced and effective tariffs for our TopBuild business is minimal.
Robert Buck: We're actively working with our supply base to mitigate anticipated impact of current tariffs and we will take price and action to the extent necessary.
Robert Buck: The direct and indirect impacts of tariffs on the economy, overall and on housing demands specifically remain uncertain, and we are monitoring the environment closely.
Robert Buck: Turning to our results, our first courted performance was in line with our expectations.
Robert Buck: Total TopBuild sales declined 3.6% to 1.2 billion dollars as weakness in new residential construction impacted the business and was partially offset by growth in commercial and industrial.
Robert Buck: are just an EBITDA total 234.8 million and EBITDA margin was a very solid at 19%.
Robert Buck: Our installation segment, which comprises about 62% of total top-build sales, reported amidst single-digit sales decline driven by the residential end market.
Robert Buck: Our commercial installation business sales were flat in the quarter with heavy commercial outperforming light commercial.
Robert Buck: Our special distribution segment which represents approximately 38% of our total revenue grew sales low single digits.
Robert Buck: While we saw the crimes in our service partners business as residential demand self-ind, we are pleased with our DI Mechanical Insulation Business in both US and Canada, which drove very healthy top line and bottom line growth.
Robert Buck: If you remember, we saw some project delays mid 2024 cross commercial and industrial, which are moving forward this year.
Robert Buck: The last point I'll make regarding special distribution is that recurring revenue represents about 25% of segment revenue.
Certain industrial verticals such as ore refinery?
Robert Buck: LNG production, chemical and petrochemical production lens themselves to recurring insulation revenue.
These industries require regular inspection and replacement of insulation materials.
Robert Buck: We are positioned for success and expect to continue to capitalize on opportunities given our diverse set of commercial and industrial customers, both in distribution and installation.
Robert Buck: New commercial and industrial facilities are being planned and we anticipate continued
Robert Buck: On the Operation Improvement Front, our Common Technology Platform, inclusive of our single ERP system, allows us to continually analyze data and gather insights that help provide an in-depth understanding and control of our business. Something we believe is a core strength of TopBuild.
Robert Buck: In the first quarter, our field leadership teams and special ops teams executed upon a footprint optimization project that the team had been designing for a few months.
Robert Buck: This allowed us to consolidate 33 facilities which will drive ongoing efficiencies across the TopBuild Operations footprint.
Robert Buck: We're often asked if we have more opportunities to drive improvements in our business. This operations footprint optimization project is a great example of our dreams ability to continue to drive operational excellence and meaningful improvements throughout our business.
Let me say a few words on Capitol allocation. [inaudible]
Robert Buck: Actquisitions continue to be our highest priority for capital allocation. In April , we are pleased to close the acquisition of stillright.
Robert Buck: We continue to conserve our server opportunities of various sizes as our pipeline is very healthy.
Robert Buck: As I noted in previous quarters, we continue to evaluate opportunities to increase our total addressable market under the lens of our ability to leverage our core streets, including our people and teams.
Robert Buck: Our ability to successfully operate a dispersed branch model, a common technology platform, our strong supply chain and customer relationships, and our discipline, financial and strategic approach. As always, we remain disciplined and focused on driving strong shareholder returns.
Robert Buck: We're also committed to returning capital to shareholders, and in the first quarter, we ball back nearly 694,000 shares of our stock.
Robert Buck: Before I turn the comments over to Rob to share additional details on our results and outlook, I'd like to highlight a few points.
Robert Buck: This year we are excited to be celebrating our 10-year anniversary as a public company.
Our success over this time is driven by our people.
Robert Buck: Our employees continue to focus their efforts on leading and growing their business, driving improvements, and working safely every day.
Robert Buck: We're pleased to have earned the designation as a great place to work for the third year in a row, a reflection of our own going commitment to our culture and our teams.
Robert Buck: We also recently published our 2024 Sustainability Report, which is available on our website. Our business inherently drives sustainability as our work and the services we provide enables enhanced energy efficiency.
Robert Buck: We have a unique improvement, diversified business model, so even with the near-term macro uncertainty, we are bullish about our medium and long-term opportunities.
Robert Buck: Our teams are strong and we're working together to turn challenges into opportunities.
Robert Buck: We know how to adjust and outperform in a change in environment and remain committed to driving shareholder value.
Speaker Change: Rob? Thanks, Robert. I want to start by thanking our teams for delivering a solid first quarter in a challenging macro environment.
Robert Buck: While the choppiness and the residential markets continued, our teams did a great job driving growth in our commercial and industrial end markets.
Robert Buck: Volume Decline 7.4%, which was partially offset by MNA of 2.6% and pricing of 1.2%.
Robert Buck: As our reminder, the first quarter had one less business day, which negatively impacted volumes by 1.6%.
Robert Buck: Our installation segment sales were down 6.7% to 745.5 million in the first quarter.
Robert Buck: Installation Volume Decline 9.6% due to weakness in single-family, multi-family, and light commercial, which was partially offset by strong growth and heavy commercial, M&A of 1.8% and pricing of 1.1%.
Robert Buck: The installation segments pricing was primarily driven by the carry-over impact of price increases in the middle of last year.
Robert Buck: especially distribution sales grew 2.6% to 559.8 million in the quarter.
Robert Buck: Volume declined 2.2% as slower residential sales were partially offset by commercial and industrial sales growth.
Acquisitions that at 3.4% and pricing contributed 1.4%
Robert Buck: The incremental pricing was primarily driven by Q1 price increases on certain commercial and industrial products.
Robert Buck: As Robert mentioned earlier, as part of our ongoing work to optimize our branch footprint, we can consolidate a total of 33 facilities across both installation and specially distribution.
Robert Buck: As a result of these consolidations, we incurred one-time costs of 13.9 million, which are primarily related to non-cash lease impairment charges.
Robert Buck: Separately, in the first quarter, we also made headcount reductions to align our cost structure with current demand levels.
These reductions resulted in one-time severance costs of 1.5 million.
Robert Buck: Excluding these one-time costs, our first quarter's adjusted gross profit of 29.6% was 70 basis points lower than last year.
Robert Buck: The margin decline was driven by lower sales volume and pressure on distribution pricing for residential products, primarily spray foam.
Robert Buck: Adjusted SGNA as a percentage of sales in the first quarter was 13.9% versus 13.5% last year.
Robert Buck: The increase in SG&A percentage was primarily due to lower sales volume in the quarter.
First quarter, adjusted EBITDA for TopBuild was 234.8 million.
Robert Buck: Adjusted EBITDA margin of 19% represents an 80 basis point decline when compared to last year
Robert Buck: installation segment, adjusted EBITDA margin was 21.1%, 90 basis points below last year, and specially distribution, adjusted EBITDA margin of 16.3%, declined 60 basis points year over year.
Robert Buck: Other income and expense for the quarter was $11.5 million, an increase of $4 million due to lower interest income related to lower cash balances.
Robert Buck: First quarter adjusted earnings per deluded share was $4.63, 18 cents lower than last year.
Robert Buck: Turning to the balance sheet, total liquidity was 746.4 million at the end of the quarter. We finished the first quarter with 308.8 million in cash and 437.6 million in availability under the revolver.
Robert Buck: Net debt totaled 1.07 billion and our net debt leverage ratio was one times trailing 12 months adjusted EBITDA.
Robert Buck: Working capital as a percentage of sales totaled 13.7%, which compares the 14% last year.
Robert Buck: From a capital allocation perspective, we closed on the acquisition of seal-right and Omaha-based residential installation business with about 15 million annual revenue.
Robert Buck: Acquisitions remain our top capital allocation priority and our pipeline is very active.
Robert Buck: Before we turn to guidance, let me say just a few words on tariffs.
Robert Buck: Our exposure to tariffs that have been announced is minimal. Our products that could face tariff impacts include a chemical input for spray foam, gutters, and certain mechanical insulation items.
Robert Buck: We estimate the potential impact of tariffs, as announced, that less than 5% of our cost of sales. As Robert noted, we are working to mitigate any impact to TopBuild.
Robert Buck: Moving on to guidance, as you saw in the release, we are confirming our full-year outlook for sales of 5.05 billion to 5.35 billion.
Robert Buck: While our expectations for single-family volumes have come down since the start of the year, that decrease is being offset by slightly stronger commercial and industrial sales in the addition of seal-right to our M&A assumption.
Robert Buck: At the midpoint of guidance, our key assumptions are as follows
Robert Buck: We expect residential sales will be down high single digits for the full year.
Commercial Industrial Sales will be up low single digits.
Robert Buck: Both of those measures are on a same branch basis, including price.
Robert Buck: As we think about the sales cadence and comparisons to prior year, the remaining three quarters will all be lower than the comparable quarter of the prior year.
Robert Buck: The second quarter will likely have the largest year-over-year decine of the remaining quarters.
Robert Buck: We are also maintaining our adjusted EBITDA guidance of 925 million to 1.075 billion.
Robert Buck: The savings from our branch footprint optimization project and the headcount reductions we made in the first quarter are included in this range as those projects have been ongoing for several months and were contemplated in our initial guidance.
Robert Buck: With that, let me close by expressing my great confidence that our teams will continue to tackle the challenges ahead of us to ensure TopBuild will continue to outperform in any environment. Robert?
Robert Buck: Now close our call today by saying that we're confident our unique and proven business model and the underlying fundamentals for our business.
Robert Buck: We have a psychotested team with deep understanding and control of our business and a diversified business model.
Robert Buck: We will continue to work diligently to outperform in this changing environment while driving proper growth and continue to shareholder value.
With that, operator, let's open up the line for questions.
Robert Buck: Thank you. We'll now be conducting a question and answer session.
Operator: If you'd like to ask a question today, please press star 1 from your telephone keypad, and a confirmation tone indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue.
Operator: For participants using speaker equipment, maybe necessary to pick up your handset before pressing the star keys.
One moment, please, we pull for questions. Thank you.
Operator: Thank you. Our first question will be coming from the line of Stephen Kim with ISI. Please
Speaker Change: Hi, this is a tea shop for Steve. Thanks for taking the question. I saw him touch on the commercial and industrial side. I think at the end of last year, as mentioned that a lot of these projects were delayed mainly due to financing issues and now you're seeing these projects moving forward.
Speaker Change: Hey, Casey, good morning, Robert. So, yeah, I think some of the delays we saw projects move forward. I think folks have just you come to accept the current financing environment and some of the bigger projects and those projects were justified. So,
Speaker Change: Oil and gas, food and beverage, pharmaceutical manufacturing, so I think they're sharing in there as to how the team is executing that shown up in the numbers as well. So that's a combo project coming online and great execution, the vertical market strategy by our field teams.
Great, let's see my question.
Steve Kim: Hey guys, it's Steve Kim. Thanks for that. The second question I guess we have relates to the pricing environment. You know, at the high level I think
Steve Kim: Generally, there's two ways that TopBuild can benefit from pricing dynamics. You know, the first one is that you can participate.
Steve Kim: in manufacturers' pricing power when capacity utilization for the manufacturers is very high.
Steve Kim: But you can also, I think, bring your relative size to your advantage, allowing you to get preferred pricing versus your smaller competitors.
Steve Kim: You know, maybe when capacity utilization for the manufacturers is a little lower. And so I think that over the last, you know, a few years you've really benefited from the former as capacity utilization has been really tight.
Speaker Change: I think you just sort of comment on that dynamic is that the way you think about it and what kind of outlook for pricing you think that we can look forward to as a result of that.
Speaker Change: Yeah, good morning, Steven, Robert. So yeah, I think I think you hit on some good points there. Obviously, you know, material and the and the current environment is a fluid situation, but as you very well know from our our history and conversations that we've had.
You know, we're constantly partnering and talking with the manufacturers.
Speaker Change: and you're right. You know, we've had three or the four announced additional capacity expansions here, some maybe a little bit hitting in 26.
Speaker Change: and some more coming in 27. So I think that's favorable for TopBuild. I think if you look even at current results, I mean the teams have done a nice job. We wouldn't expect necessarily any new pricing.
Robert Buck, Robert Kuhns
Speaker Change: Thanks, so I just want to clarify Robert, you said you don't expect new pricing in 2025. I guess you mean industry manufacturer pricing, is that what you meant by that? Yeah, that would be our look sitting here, you know, call it sitting here in Q2 of the year, that's why we would view it.
Speaker Change: Yes, okay, just wanted to clarify. Thanks very much. Appreciate it.
Thank you.
Speaker Change: The next questions are from the line of Michael Rehaut with J.P. Morgan. Please excuse me with your questions.
Speaker Change: the top line in EBITDA, but I believe slightly lowered your resi outlook to down high single digits from down mid single digits previously reiterated. [inaudible]
Speaker Change: Commercial Industrial, Upload Single, so just want to understand what kind of was the offset to the slightly lower,
Speaker Change: and you know, if it's just kind of playing with the ranges here, maybe before you're at the high end of the down mid single, but just any sense of what some of the puts and takes are, if you know you had an incremental slightly more conservative outlook for Rezzi.
Speaker Change: Sure Mike, this is Rob, I'll take that one. So yeah, as you noted, you know, we've lowered our range on unresidential from saying we were going to be down.
mid-single digits, the high-single digits.
Speaker Change: and that's really driven by what we're anticipating on the single family side of things where things are expected to be a little slower, so as we came into the year
Speaker Change: We were kind of expecting, you know, things to be a little bit flatish on the single family side we're now expecting that to be down slightly for the year, down low single digits.
So when you roll that in...
Speaker Change: But I'd say we're more towards the higher end of that now between volume and some pretty good pricing we're seeing on that side.
Speaker Change: as a result of that. So net net we're getting back to the same midpoint, just a little bit of play between the pieces there.
Now great, that's helpful, I appreciate that walk through.
Speaker Change: I guess secondly, you know, it's interesting to hear about the footprint optimization, the consolidation of 33 facilities, you know, that seems a little bigger perhaps.
Speaker Change: then some of the more, I don't want to say generic, but sort of the ongoing efforts that
Speaker Change: that you have from a productivity standpoint from your special ops teams.
Speaker Change: original guidance when you gave it a couple months ago, or if it's incremental and sort of continuing to help out, you know, your ability to realize, you know, the EBITDA guidance.
Speaker Change: You know, this is something that we've been working for, you know, a few months. It's part of our technology. We have an optimization tool called agility that Rayba look at.
Speaker Change: You know, customer delivery points, we'll look, you know, able to look at some logistics.
Speaker Change: You know, calculated way, if you will. So I think it's just the power of the of the model here in the confidence that we have to look at that across and make some very
Speaker Change: that tool and that technology has taken time. It's something, you know, we're very careful.
Speaker Change: and we want to do it in a way that we don't damage the top line at all and so we're confident we're not going to do that.
Speaker Change: But as a result of this, obviously we've got the one-time charge, so about 13.9 million related to the consolidations that's primarily non-cash.
Speaker Change: You know, the right sizing of some of our head count around current volumes.
Speaker Change: should be about 30 million or more of additional annual savings.
Speaker Change: but as we talked about in the prepared remarks that is baked into our guidance, this is something we've been working on for a while and something we implemented to help offset some of the volume and price cost pressures we're seeing in the market.
Great, thanks so much.
Speaker Change: Our next questions are in the line of Adam Baumgarten with Selman and Associates. Please
Speaker Change: Hey guys, good morning. Just on the price side, just given the commentary that you're talking about, carry over pricing from mid last year, you know, impacting the early part of this year. Do we expect the year-over-year price contribution to moderate as we move through the year given that dynamic?
Speaker Change: The fiberglass increases from the middle of last year should go down as the year moves on.
Speaker Change: Got it. And then just on the material side, have you started to see prices for the materials you're buying on the insulation side come down or if they've been kind of flatish for a while?
Speaker Change: Yeah, Morgan Adams, Robert, I'd say flatish, there's still some fluctuations across the industry, including still some maintenance and stuff that's going on, so I'd call it flatish.
Great. Thanks, guys.
Speaker Change: Our next questions are from the line of Susan Maklari with Goldman Sachs. Please
Good morning, everyone.
Morning.
Speaker Change: Good morning. My first question is on the labor side, you've talked about in in last quarter, taking some of the labor on the install side especially out just to adjust to the market. I guess with your revised expectations on the Rezzy side, are there any further changes that you're making there and any thoughts on how you're balancing the near term relative to the longer term outlook for housing? [inaudible]
Speaker Change: Yeah, so Susan, I'd say, this is Robert, say, you know, it's an equation we're constantly balancing, market by market, looking at what's going on with volumes, looking what's going on with bidding.
Speaker Change: and adjusting our head count accordingly. So it's something that continues to go on. You know, we're hopeful that the adjustments we made in Q1, we won't have to do anything that significant moving forward. It'll be more kind of tweaking as we go.
Speaker Change: A good time to do some M&A and so we're hopeful to be able to add some volume to the business through M&A and as a result we don't want to cut too deep too quickly here.
Steve Kim: Okay, that's helpful. And then maybe building on that, Rob. Can you talk a bit about the M&A pipeline, any changes that you're seeing there, and what you're seeing perhaps on sort of the more traditional install side of the business relative to some of the deals on the CNI side?
Steve Kim: All the end segments are residential, C&I for sure, and across the businesses. So, really healthy, you know, pipe line and busy time for a tremendous perspective, but as always, you can expect us to stay disciplined and do what's right for shareholders here. So, but we're pretty excited things that are going on there.
Okay, thanks for the color, guys. Good luck with everything.
Thank you. Thanks.
Speaker Change: Our next question is from the line of Filming, which referees. Please receive your questions.
Speaker Change: The Branch Consolidation Headcount, you know, a contributor and kind of give us a little color on how that kind of progresses.
Speaker Change: If I look at your full-year guidance, you know, the midpoint's calling it 19% evidot margins, which is a great outcome given the current backdrop, but it's effectively flat from one key and typically you see that it's easily picked up in 2Q3 key kind of help us contextualize how that margin progression will kind of shape up this year.
Not too different there, I'd say, you know, pracing...
on the on the ready side held up.
Speaker Change: A little better, as we talked about on our previous calls, we've talked about in markets where volumes have slowed.
Speaker Change: You know, making some price concessions where we need to to hold on to volume that you know that didn't surface as much as as we had anticipated so that was that was something good in the quarter.
Speaker Change: and Price Realization on CNI products that had price increases in the first quarter was good as well so...
Speaker Change: It was really price-driven in terms of the better profitability I'd say in Q1, like we've talked about the actions we took in Q1 were anticipated, so that's not driving a significant amount of the upside.
Speaker Change: And so as we move forward, right, I mean, we obviously don't, we don't give Corley guidance, but to your point.
Robert Buck, Robert Kuhns
Speaker Change: You know, as a result of basically having a little bit softer of a comp in Q4s as things were starting to slow down at that time and so as we think about...
Speaker Change: You know, the EBITDA that goes with that, I'd expect, you know, like in most years Q2 and Q3 to be a little better, probably a little ahead of our midpoint of our guide in 192 and Q4 will be a little bit worse than that 192.
Speaker Change: You know, a lot of time to go here. That's why we've kept the range kind of wide because there is, you know, significant uncertainty out there, but at the midpoint, that's kind of how we're thinking about it.
Yeah, it's a great color, Rob.
Speaker Change: With pricing coming in a little better, do you still feel pretty good? Pricing, particularly on the install side kind of hanging in there just given some of the choppiness on the demand side?
Robert, I think you're expecting, I believe, fiberglass material prices.
Robert Buck, Robert Kuhns
Speaker Change: Yeah, I would say from a pricing perspective, you know, you're asking about the...
Speaker Change: I would say that the teams in the field who have a great command and control of the business, they're doing a really nice job of...
Speaker Change: Offset any challenges from a price perspective and I think you see that in the results feel so I think we feel pretty comfortable with how pricing plays out here obviously a volatile environment but we have confidence in what our teams are doing and see what they're doing every day in the field level. [inaudible]
Speaker Change: Indy Nunn, some of the material cost, spray foam, and see an eyesight, there's some price increases out there.
Okay, thank you.
Speaker Change: Our next questions are in the line of trade rooms with Steven's. Please receive their questions.
Hey, good morning everyone. Just a point of clarity.
Speaker Change: Robert, thank you, mention to you, seeing the largest decline, and I think you were referring to the top line on that comment, but it seems like the comp is similar in the 3Q to the 2Q, so Zerr,
Speaker Change: Is the new guy to assume any, you know, you know, demand pickup anywhere in the business in the back half or is there, you know, some other kind of timing aspect that we need to be mindful of? Yeah.
Speaker Change: Yeah, no, Travis is Robby. I'd say, you know, we're not anticipating the environment to get significantly better during the year like we've talked about, you know, we're very confident in the long term fundamentals and we do believe
Things are going to get better but trying to predict.
that inflection point is difficult. We've called so.
Speaker Change: Can you flex up if needed or what would you need to.
Speaker Change: What position are you in from that from a footprint standpoint, as we look out a little further.
Speaker Change: In an environment, where maybe demand a little better.
Robert Buck: Yeah. Good morning. This is Robert so given the thought that went into that work over a time period I would say that that work got completed.
Steve Kim: Really in the first quarter doesn't mean, we're always constantly looking right even on that about us for costs, you're looking at anywhere to optimize the business and if there needs needs to be more we'll do that where appropriate and then relative to ramping up I mean again some of the as Rob mentioned the head count that was just kind of pruning if you will in the appropriate areas.
Steve Kim: And we actually have the ability with with I'd say very little issue to flex back up in some of those areas as we see demand come back or demand fluctuate.
Steve Kim: Okay. Thanks, Robert Thanks, Rob take care.
Speaker Change: Our next question is from the line of Keith Hughes with <unk> Securities. Please proceed with your questions.
Keith Hughes: Thank you.
Keith Hughes: Can you just talk about in the quarter, the relevant performance and distribution between service partners.
Keith Hughes: This organic.
Organic number you reported.
Keith Hughes: Yes, Keith this is Rob so yeah, obviously, the we don't breakout the two but we definitely saw weaker resi sales and stronger commercial sales in the quarter for specialty distribution and we do we do break that out in total.
Keith Hughes: So on the specialty distribution side.
Keith Hughes: Yes.
Keith Hughes: And the number here to make sure I give you the right number, but especially distribution.
Keith Hughes: On the resi side from a same branch basis perspective was down about 5% and on the commercial side, which is primarily mechanical but a little bit of service partners in there as well.
Keith Hughes: It was up around 2% so.
Speaker Change: Definitely a stronger performance than I can say within within that commercial our mechanical products definitely performed the best of the group in there as well so it's a nice offset.
Keith Hughes: To the slower single family environment, we're seeing.
Speaker Change: I'm, sorry, but those numbers, whether it's revenue or units or what.
Keith Hughes: What specific that's revenue on a same branch basis.
Speaker Change: On Sunglass hut.
Speaker Change: Okay.
Speaker Change: Fair enough.
Speaker Change: Yep. Thank you.
Speaker Change: The next questions are from the line of Ken Zenner with Seaport Research. Please proceed with your questions.
Ken Zenner: Good morning, everybody.
Speaker Change: Good morning, Ken.
Ken Zenner: So.
Ken Zenner: I think people were surprised at your <unk> guidance.
Ken Zenner: Despite the.
Ken Zenner: I guess decline in.
Ken Zenner: Housing fundamentals, obviously referred to M&A cost cuts, but I wonder if you could help frame the single family market for us a little bit more detail.
Ken Zenner: How does it make cutting the public private com and if you could.
Ken Zenner: Because public right. They report their inventory to start data, they're down about 10% in one queue.
Ken Zenner: The guidance kind of implies flat for the year.
Ken Zenner: It seems like the privates are doing worse than the public builders.
Ken Zenner: Or maybe they are doing better for what you could tell us regionally.
Ken Zenner: But could you kind of frame that out if let's say the <unk>.
Ken Zenner: <unk>, which did take down guidance and they have visibility of about six months.
Ken Zenner: Rob.
Ken Zenner: If if we were to see another 5% decline.
Ken Zenner: Tied to that who knows terrorists or this or that and I realize you are giving data that's very consistent with what the publics.
Ken Zenner: In private ship kind of show.
Ken Zenner: Show you what would a 5% decline in volume for some reason falls off what type of Incrementals.
Ken Zenner: On margins would.
Ken Zenner: Scott.
Ken Zenner: Unfolds in that scenario just to kind of frame out.
Ken Zenner: How you think about volatility of your guidance.
Ken Zenner: We were to see another 5% decline in single family.
Ken Zenner: Yeah, So Ken inside of there what I, what I'd say is you know.
Ken Zenner: Well, we're always targeting for the long term from a from a decremental margin.
Ken Zenner: We've talked about in the past as kind of that 27% that we have on the incrementals, but what we know.
Ken Zenner: <unk> is if we if we don't take out any labor or any any cost with that it's going to be much higher than that right and so.
Ken Zenner: As we look at this year and what we have baked into our guidance, where we're getting pretty pretty close to that number when you adjust for price cost and some of the.
Ken Zenner: Potential impacts we have there baked in but.
Ken Zenner: If we see an additional drop of 5% we're going to be we're going to be targeting to get there. It all depends on what our what our outlook looks like going forward right. If we think that that 5% dip is going to going to stick for a while.
Ken Zenner: We're going to be a little more aggressive in our in our head count reductions and get to that 27% quicker if it's.
Ken Zenner: If we believe it's not going to last as long and the market could come back quicker, we're definitely going to take a more more cautious approach and.
Ken Zenner: That's been our been our approach here and that's going to continue to be our approach going forward.
Ken Zenner: Okay.
Ken Zenner:
Speaker Change: And then Robert can you, maybe if you would given your guys' visibility into single family.
Ken Zenner: Bidding can.
Ken Zenner: Can you maybe give us a little feel theres lots of news.
Ken Zenner: Talking about.
Ken Zenner: Negative news led by Florida, Texas, but often I think people are missing right strike in the Midwest.
Ken Zenner: Southeast if you well north of Florida can you give us a little feel for how those.
Ken Zenner: Regions are operating differently.
Speaker Change: I assume all your markets are down because you have good markets and bad markets. Thank you.
Ken Zenner: Yes.
Speaker Change: To take the question, Ken So I'll just try to give a little overview of the country.
Ken Zenner: And try to give you some some flavor around that so if you think about years past, where you talk about areas like <unk>.
Ken Zenner: Florida, and Texas and those were growth areas. Obviously those are big markets in the southeast as well those are from a percentage basis. Some of the slower markets right now and usually if you looked around Florida, you would say, it's a mixed bag, but Florida is fairly soft maybe definitely probably orlando better than in April's, If you will.
Ken Zenner: But north and South Florida.
Ken Zenner: Slow, Texas I would say.
Ken Zenner: The hotel up north versus South So Dallas still continues to hold up very strong and we see backlogs building in Dallas and I would include even include multifamily in that but if you look at Houston, San Antonio Austin at say slow on the opposite side. Some markets that are that are building and seem to be building momentum northeast and Midwest.
Ken Zenner: We're seeing out there and I, even say southern Cal.
Ken Zenner: Even looking at southern California, most areas seem to be showing some positive trend there Pacific northwest would be right there close to southern California about Northern California.
Ken Zenner: Behind <unk> and southwest I would include Vegas and Phoenix.
Ken Zenner: And that gives you a little view around the country that perspective, and it is no different by market by Dallas versus the rest of.
Ken Zenner: The rest of Texas is a pretty good example of that but that's what we're seeing from a region perspective, and you've seen what the public builders have said and then some of those markets.
Ken Zenner: Mentioned, where things you build momentum it is like to take the northeast as an example.
Ken Zenner: It is some of the custom builder that seems to be having some momentum there, but maybe not that custom built or maybe not as much in the.
Ken Zenner: In Florida, if you will so hope that gives you a little bit of flavor Youre looking for based on what we see.
Ken Zenner: It does and I wonder.
Ken Zenner: People say consumer confidence uncertainty could get into the politics of it but like what are the factors you see that are causing those markets like in Dallas is just.
Ken Zenner: Job growth.
Ken Zenner: <unk>.
Ken Zenner: Confidence is better or in Florida, It's just there's too much supply if you could give us a little more granularity on why those markets are different that'd be great. Thank you.
Speaker Change: Yes, I think probably you hit on it right oversupply, if you look at our Florida, and probably even like from our Houston perspective.
Speaker Change: Other areas that maybe didn't go as far or it could be some of the drivers you talked about job growth.
Speaker Change: Dallas area to your point I didn't include the Carolinas and that if I think about Raleigh, and Charlotte were seeing some some good momentum there actually going to be in Raleigh here. The next couple of days meeting with some customers in that area. So we're seeing some momentum I think in the areas that just work properly.
Speaker Change: Probably as much inventory sitting on the ground as well as maybe some positive dynamics happening in those markets.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next questions are from the line of Jeff Stevenson with loop capital markets. Please proceed with your questions.
Speaker Change: Alright, thanks for taking my questions.
Jeff Stevenson: Wondering if you could provide more color on the variance between light and heavy commercial demand in your installation segment during the quarter and I'm wondering whether light commercial bidding activity remains soft.
Speaker Change: Or you've seen any signs of stabilization since the start of the year.
Speaker Change: Yeah, Jeff This is Rob so yeah, we definitely saw a big difference between the performance of those two on the install side in the quarter.
Speaker Change: With light commercial down double digits in the quarter in heavy commercial up up double digits in the quarter. So.
Speaker Change: Kind of a tale of two markets there I'll, let Robert talk about bidding activity on unlike commercial I think we have seen some improvement in certain markets there.
Speaker Change: And then if you think about that light commercial let me Rob tried it follows the residential trend, but we have so much opportunity there that we continue to see bidding opportunities there opportunity for share growth.
Speaker Change: Our teams.
Speaker Change: Fluctuate some of their.
Speaker Change: Resources, if you will so.
Speaker Change: But heavy commercial there was some nice performance there in the first quarter.
Speaker Change: And as we think about that on the distribution side, especially on the mechanical side, we would expect that to continue.
Speaker Change: Okay great.
Speaker Change: And then I wanted to shift to your M&A pipeline, what sounds like it remains active but I wanted to focus on the residential side of our business.
Speaker Change: The high level level, whether you believe there could be you know more opportunities now given reduced seller expectations or potential sellers now focus on navigating this period of market uncertainty.
Ron: Yes, Jeff it's Ron I'd say, it's a mixed bag.
Ron: I would say you haven't seen multiples decline.
Ron: In any meaningful way.
Ron: I think folks are look similar to what we say right looking at the mid term long term and saying we're still under built in the U S and so they see that as an opportunity at the same time, whether it be succession planning whether it would be.
Ron: Some folks are.
Ron: Getting tired in the current environment, we have a lot of conversations going on with potential sellers right now so I'd say a little bit of mix back to your question.
Ron: What we're seeing but it is a very active time.
Ron: Great. Thank you.
Speaker Change: The next question is from the line of Reuben Garner with Benchmark Company. Please proceed with your question.
Reuben Garner: Thank you good morning, everybody.
Ron: Good morning.
Ron: If I heard you correctly it seems the distribution the resi portion of the distribution business outperformed.
Ron: Installed installation side is that.
Ron: In part that's sort of hedged dynamic that you have.
Ron: In that business or if not I guess, how far does that business out of our or does the industry have to fall from a volume perspective, where you start to get a return from some customers that can't buy direct.
Ron: Yes, I'd say Reuben this is Rob so yeah, youre hitting on part of it for sure as markets get slower Youll see people come into distribution to buy less than truckload.
Ron: Orders.
Ron: But the other the other big factor there is really that on the distribution side, we're less exposed of multifamily.
Ron: And so.
Ron: The multifamily side, which was down in the neighborhood of 30% for the quarter, which is what we are.
Ron: Anticipated for this year, that's not impacting us as much on the on the distribution side as it is on the install side.
Ron: Okay, Great that's really helpful and then.
Speaker Change: What are you guys assuming in terms of the size of homes. In your outlook are you assuming that continues to shrink and how meaningful of an impact does that have on the on the volume of installation that.
Ron: You worked through.
Ron: Yes, Reuben this is Rob I mean, it's definitely been a trend, but I would say that's been a trend for the last five years, plus and we really haven't seen a meaningful <unk>.
Ron: <unk> down in and our take per unit or volume per unit and I think really.
Ron: What benefits us and benefits our industry is the key.
Ron: <unk> changes over time that that that have added installation.
Ron: Per square foot to the house and so from a net net perspective, we haven't seen a meaningful impact there.
Speaker Change: Great. Thanks, guys and good luck.
Our next question is from the line of Colin Vernon with Deutsche Bank. Please proceed with your question.
Colin Vernon: Hi, Good morning, Thank you for taking my questions here.
Colin Vernon: I guess I wanted to start with C&I is pretty resilient in the quarter and you called out the backlog in orders seen solid still can you just talk about how much visibility into revenues that you have in the C&I business.
Colin Vernon: Are you booked out through the end of the year here and do you see any risk of an air pocket impacting lead 25% 26, just as you work through the current backlogs are just as bidding activity has been strong enough to really replace that backlog.
Colin Vernon: Yes. Good morning, just Robert So we have pretty good visibility definitely in the.
Colin Vernon: In the backlog from a C&I perspective.
Colin Vernon: Six months on average probably good way to think about it.
Colin Vernon: Barring some major fluctuation in the economic environment.
Colin Vernon: As we said, we feel comfortable with that business.
Colin Vernon: The remainder of the year and whats in the guidance that Rob talked about earlier and again Thats combination of projects that we have secured projects that have come online that were delayed in 2024, but I would also say great execution in that field.
Colin Vernon: Relative to some share gain in that vertical market strategy.
Colin Vernon: Where our field teams are going after different type of job basically battery agnostic to any particular vertical if you will so I think it's a combination of visibility as well as confidence is the execution in the field.
Speaker Change: Great. That's really helpful color and then I guess just wanted to ask one more on the single family.
Colin Vernon: Side of the business just given the macro backdrop.
Colin Vernon: I guess does your guidance assume any change in the starts pace of the builders here as we get later into 2025.
Colin Vernon: Or do you see it being pretty steady from current levels.
Colin Vernon: Yes.
Colin Vernon: We're anticipating kind of a normal seasonal changes you would see there.
Colin Vernon: And like I said earlier kind of at the mid point of our guidance, we'd expect kind of our single family sales to be down in the low single digits for the year net net.
Colin Vernon: That's helpful. Thank you for taking my questions.
Speaker Change: Our next question is from the line of Reef sure the Jewish with Bank of America. Please proceed with your questions.
Colin Vernon: Okay.
Speaker Change: Hi, good morning, Thanks for taking my questions.
Speaker Change: I wanted to follow up on just the price mix I think last quarter you were last quarter. It was down this.
Speaker Change: This quarter was up in.
Speaker Change: You were.
Speaker Change: Sort of expecting at the time that that those pressures would continue and now the outlook a little bit better what's the upside versus your initial expectation.
Speaker Change: How much of the change was price versus mix and then can you just talk about like the competitive environment relative to what you were expecting.
Speaker Change: Yes, Craig this is Rob so I'll give you a little bit more more color there on price so yeah from a.
Speaker Change: Install side of things I'd say not a not a huge surprise we went from one 5% in Q4 to one 1% this quarter as we talked about coming into the year. We did expect in certain markets to see some pressure as we adjust to volumes in.
Speaker Change: Adjust as necessary out there so I wouldn't say any any big surprises there on the <unk> side as you noted on the specialty distribution side, we were flat in the fourth quarter up in Q1.
Speaker Change: The Big driver there is really price increases on commercial and industrial products, we were able to push through in the in the first quarter as well as some improvement in spray foam, while spray foam I'd say net net on a year over year basis is still negative sequentially.
Speaker Change: With some of the anti dumping tariffs et cetera, we did see some some incremental price come through on that side of things.
Speaker Change: So that's really the difference between what we expected coming into Q1, and where we landed.
Speaker Change: That's helpful. And then just on the rationalization it sounds like that's more related to long term optimization not really adjusting for that.
Speaker Change: Current environment.
Speaker Change: If single family starts stay under pressure through the end of 'twenty five and into 2026.
Speaker Change: When would you anticipate that you would start to adjust expenses to move towards that that 27% long term decremental.
Speaker Change: How long would you anticipate that the decremental stay stay elevated.
Yeah, Ralph this is Rob so so I'd say I mean, we.
Speaker Change: We've already started adjusting cost I mean, the head count reductions we've made in the quarter like we said, we don't we don't feel like we've cut muscle, but we've certainly started cutting into not just the variable installer piece, but also into our back office support.
Speaker Change: <unk> side of things. So we are adjusting to get to that I think if you.
Speaker Change: If you're just looking at the Decrementals.
Speaker Change: On a standalone basis, I mean first you got a back out the impact of M&A. When you do that you're still going to see a slightly elevated number but we do have baked in as we talked going into the year.
Speaker Change: Some margin pressure related to price cost as we as we navigate this softer environment.
Speaker Change: And navigate that price volume equation, we've got some some headwinds baked in there.
Speaker Change: But net when you when you back that out from a volume perspective, we do expect our decrementals to be in that.
Speaker Change: Call It high <unk> low <unk> type type range for the year.
Speaker Change: Yeah.
Speaker Change: Thank you.
Robert Buck: At this time, we have concludes our question and answer session I would like to turn the floor back over to Robert for closing comments.
Robert Buck: Thank you for joining us today, we look forward to speaking with you in early August to discuss our Q2 results.
Robert Buck: Thank you. This concludes today's call you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.