Q3 2025 TopBuild Corp Earnings Call
Greetings and welcome to top <unk> third quarter 2025 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce <unk>, Vice President Investor Relations. Please go ahead.
Good morning, and thanks for joining US with me today are Robert Buck, our president and CEO and Ron <unk>, Our CFO our earnings relief senior managements formal remarks in the deck summarizing our comments can be found on our website at tocqueville dotcom.
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. The company assumes no obligation to update any forward looking statements because of new information future.
Or otherwise.
Please note that some of the financial measures to be discussed during this call will be on a non-GAAP basis. 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 our website.
Let me now turn the call over to our President and CEO Robert Buck.
Good morning, Thank you for joining us today for our third quarter earnings call.
With more than three quarters of the year behind US we are proud of what our teams have accomplished thus far in 2025.
Let me start by giving you an update on where we are with our acquisitions.
In the third quarter, we acquired progressive roofing.
With roughly $440 million in annual sales.
We've established an exciting new platform for growth and commercial roofing, which has a large and very fragmented $75 billion Tam.
And the first 100 100 days following the acquisition, we continue to learn great things about the business and are refining our strategy to build on the platform.
We've established a great connection points across the progressive roofing organization and our teams are doing a great job coming together and executing for the future.
In October we closed the Spi transaction.
With this strategic deal, we're bringing together two leaders in the mechanical insulation and custom fabrication to better serve our commercial industrial customers across diverse vertical markets.
The transaction extended our geographic footprint and expanded our capabilities.
Our teams are already hard at work as we leverage our M&A integration expertise to get Spi onto our technology platform and drive synergies.
We expect to deliver $35 million to $40 million in annual run rate synergies over the next two years and we're excited to have the Spi team on board.
We also announced yesterday several additional acquisitions, we closed insulation fabrics diamond door products and performance installation fabricators over last few weeks and will soon close on our fourth acquisition Ellen L installation.
Together these acquisitions add just over $50 million in annual revenue.
Diamond door products is a very attractive complement to our specialty distribution business diamond door, fabricate and assembles insulate us steel door systems, which gives us the opportunity to provide metal building installation customers with a value added bundle of products that customers have requested.
Installation fabrics and performance installation fabricators expand our distribution offerings of installation accessories, and mechanical installation, while Ellen L. Installation grows our residential insulation installation business in Colorado.
Our M&A team is doing a great job. We continue to have very attractive pipeline of acquisition candidates and there is no shortage of opportunities to consider.
Let me transition to discuss our results in the quarter.
Results were in line with expectations and similar to the prior quarter.
Our performance was solid even as the macro environment remains uncertain.
We posted total sales growth in the quarter of one 4% to $1 $4 billion.
Although the residential new construction market continues to be weak it was partially offset by ongoing growth in heavy commercial and industrial.
We're also benefiting from the contribution of our commercial roofing acquisition.
Fundamentally housing in the U S is still under Bill and our long term opportunity is intact.
Near term the downward movement of interest rates is encouraging however, mixed economic signals and affordability concerns linger impacting consumer confidence and home buying decisions.
Profitability in the third quarter was again solid in we reported adjusted EBITDA margin of 19, 8% as we continue our focus on operational excellence across the business and supply chain.
Turning to capital allocation, our priorities have not changed we continue to believe we can drive the greatest shareholder return through M&A.
We're also evaluating we're always evaluating opportunities and we remain disciplined around valuation.
In the third quarter, we repurchased nearly 178000 shares returning $65 $5 million in capital to shareholders.
As you know we plan to host an Investor day in New York on December 9th So before I turn it over to Rob Let me give you a bit of a brief preview of the day. So you have an idea of what to expect.
<unk> has a differentiated business model and a clear profitable growth strategy, which drives compounded returns.
Our strong track record of value creation would not be possible without our great team of leaders media room, you'll meet including some folks from our recent acquisitions.
You've heard us talk a lot about being a people business one of our core strength is our culture and our ability to attract and retain great talent, both of which we'll cover in more detail.
This year, we've expanded our total addressable market to approximately $90 billion. So we'll spend some time discussing our strategy for continued growth in this space, both organically and through M&A.
Yeah.
We have the advantage of having a single technology platform that enables us to drive operational excellence and efficiencies.
As we look ahead, we'll share more on our digital roadmap to support continued operational excellence and solutions that improve the customer experience.
Finally, we'll share our thoughts on top builds long term financial outlook.
We encourage you to join US in person. If you don't already have the details I would like to attend please reach out to P. I.
With that let me close by thanking our teams as we continue our focus on safety driving profitable growth and operational excellence.
Also want to welcome our most recent acquisitions to our team we look forward to working together and are delighted to have you join the top node family Rob.
Rob.
Thanks, Robert let me start by thanking our teams for continuing to drive solid results. Despite some challenging macro headwinds our business continues to generate healthy margins and strong free cash flows proving the strength and resiliency of our model.
Turning to the third quarter results our performance was in line with our expectations.
Total sales grew one 4% to $1 4 billion driven by M&A of seven 9% and pricing of 0.3%, which were partially offset by a six 7% decline in volume.
Sales in our installation services segment totaled $858 3 million up 0.2% as M&A added, 11%, which was offset by a decline of 10, 4% in volume and a 0.5% pricing decrease.
As a reminder, our installation services segment includes progressive roofing and they drove the majority of the $95 million of M&A revenue for the segment in the quarter.
During the third quarter the demand for our legacy insulation installation services remained challenged in both residential and light commercial markets, but was in line with our expectations.
Especially distribution sales grew one 4% to $608 9 million in the third quarter or.
Our sixth consecutive quarter of year over year sales growth in specialty distribution was driven by acquisitions of two 3% and pricing of one 2%, which were partially offset by a two 1% volume decline.
During the third quarter, especially distributions volumes and pricing remained challenged in residential products, but continued to be strong for commercial products, especially mechanical installation.
Adjusted goes gross profit in the third quarter was 31%, which compares to 37% last year.
Adjusted SG&A as a percentage of sales in the third quarter was 13, 6% versus 12, 8% last year.
The increase in SG&A percentage was primarily driven by incremental amortization from acquisitions on a same branch basis, excluding acquisitions SG&A was 13, 1% in the third quarter.
Third quarter adjusted EBITDA for top billed totaled $275 6 million and adjusted EBITDA margin was 19, 8% down 100 basis points versus the third quarter of last year.
Our margins continued to be very resilient, primarily due to actions. We took earlier this year and supply chain improvements.
These cost savings are helping to offset price pressure on residential insulation products.
Installation services adjusted EBITDA margin was 22, 5% an improvement of 20 basis points versus the third quarter of last year.
Especially distribution adjusted margin of 16, 9% was down 150 basis points versus the third quarter of 2024.
Other expense for the quarter was $24 5 million compared to $16 1 million last year. The increase is due to higher interest expense, resulting from the increased borrowing on our upsized credit facility that occurred in may of this year.
Third quarter adjusted earnings per diluted share was $5.36 and compares to $5.68 last year.
Turning to the balance sheet and cash flows we ended the third quarter with total liquidity of $2 1 billion of which $1 1 billion was cash and $933 4 million was available under our revolver.
Total debt at the end of the quarter was $2 9 billion $1 5 billion higher than last year due to the refinancing and expansion of our credit facility and $750 million in senior notes issued in September.
Third quarter net debt was $1 7 billion and our net debt leverage ratio was one six times trailing 12 months pro forma adjusted EBITDA.
Our TTM free cash flow as of Q3 was $791 2 million up 13, 4% versus last year, primarily due to working capital.
Working capital as a percentage of sales totaled 14, 2%, which compares to 14, 1% last year.
We've been talking about our active M&A pipeline and we are very excited to announce some results on that front as we closed the Spi transaction in October and as you saw in our press release yesterday, we have signed <unk> closed four additional deals across our businesses.
M&A remains our top capital allocation priority is.
Assuming we owned Spi in the four most recent acquisitions for the last 12 months, our pro forma net debt leverage would have been two four times.
In the third quarter, we also repurchased shares totaling $65 5 million, which brings our year to date total to $417 1 million or more than one 3 million shares.
$770 9 million remains under the current authorization.
As you saw in our release, we are updating our guidance today to incorporate the impact of our recent acquisitions.
In the release and presentation, we formatted our guidance table to make your modeling more straightforward.
We expect full year sales to be between 535 to 5.45 billion with the following assumptions at the midpoint.
On a same branch basis, including price, we continue to expect residential sales will be down low double digits for the year driven by continued weakness in both single family and multifamily.
Commercial and industrial same branch sales are expected to be flattish, we expect heavy commercial projects remains strong while light commercial will continue to be challenged.
The full year impact of M&A on sales is expected to be approximately $450 million.
We are raising our adjusted EBITDA guidance for the year to be between 1.01 billion to 1.06 billion, which represents adjusted EBITDA margin of 19, 2% at the midpoint.
Depreciation and amortization are expected to be in the range of 166 to 171 million and interest expense and other will be between $88 million to $91 million for the year.
We continue to expect our tax rate to be approximately 26%.
In closing I would like to welcome the employees from our recent acquisitions to the top dose family.
These recent acquisitions have strengthened our legacy installation and distribution businesses, they've made our revenue streams less cyclical and they have broadened our opportunities for growth.
We're looking forward to sharing our excitement about the future at our Investor Day in New York next month.
Let me now turn it back over to Robert.
Thanks, Rob the underlying fundamentals for our business are solid and we have a uniquely positioned diversified business model across the residential commercial and industrial construction end markets.
Our leadership is a great control over our business as demonstrated by our ability to navigate successfully in a challenging environment and as always we're focused on driving profitable growth and increased shareholder value.
We look forward to seeing you at our Investor day on these on Tuesday December nine.
With that operator, let's open up the line for questions.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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Please while we poll for questions.
Yeah.
Our first question is from Stephen Kim with Evercore ISI, you start off all of them.
Hi, This is a teashop receive thanks for taking the question.
I just wanted to touch on.
Progressive can you talk about the sales contribution for a progressive in the quarter and are you still on track for the I think the incremental 250 million $215 million for the full year I can touch on that that'd be helpful.
Yes, Keith this is Rob so so their total contribution in the quarter was about $92 million of sales.
For the quarter, they're probably closer to about a 205 number now than the $2 15, we had previously there's.
Been a handful of projects pushed out a big data center in Iowa, Some some schools.
School funding in Arizona that was a little bit slower than anticipated, we anticipated I'd say despite that we're still looking at the back half of the year up low single digits for them. So you know nothing that we're concerned about at this point.
Great. Thanks for that Yeah, It's Steve Kim.
I appreciate that you know you also you know announce.
[noise] announced these four acquisitions you yesterday.
And one of them was a manufacturer and it seemed like that was sort of an interesting move on your part. So I was curious well and frankly also the fabric.
Distributor was also interesting can you just provide a little bit more color on on those and why those were something that was particularly intriguing for U S. For example, like the fabric the distributions you know.
Why not just add the bags, netting and suits you know to your existing facilities I assume theres something they value add they bring in and that would be helpful to understand and then the doors. The insulated doors. You know is is this is your intent to move deeper into manufacturing of specialty products like that you know those are the sort of the questions I had around those acquisitions.
Hey, Stephen Good morning, Robert So, let's start with diamond doors, not a manufacturer. They just do assembly and some fabrication I E.
Assembly in those doors, so I would definitely not call it manufacturing and it's really just a bundle that goes with the metal building industry and the metal building products and where our customers have been asking for it is doors with typically didn't get delivered at the beginning of the project you'd have damage to doors that type of stuff that they were sitting on job sites and so given our relationships now right.
A bundle it.
With the installation that both get installed at the same time. These door system. So it's a great adjacency then put our sales force on top of it. Thanks, Congrats drive some.
Great Cross selling opportunity so we call it right down the fairway from that perspective.
Insulation friedberg.
From that perspective, as some of the products that we sold some new products, but it's all really installation accessories are they have a great reputation in the industry as well as some great customer relationships as well. So it was really a good add on there given some of the talent relationships and it just adds to the installation accessories. So we.
We would consider that write down.
Right down the fairway from a distribution perspective.
Ah Okay, So where are you already selling those those netting and suits and your existing you've got some of those products like the suits and the netting those were already in some of those products as well, yes, absolutely. Okay gotcha. Okay. Thanks, a lot guys I appreciate the color absolutely.
Our next question is from Michael Rehaut with Jpmorgan.
Great.
Good morning, Thanks, everyone.
First question wanted to zero in and I apologize I may have missed this in your prepared remarks, but you know a quarter ago, you kind of baked in some price cost headwind into the back half of the year are based on the potential for maybe pricing on the margin to the weekend.
Insulation pricing that is wanted to know you know in your current guidance if that headwind is still baked in I believe it was a $30 million headwind.
And more broadly how insulation pricing has trended during <unk>.
Yeah. Michael This is Rob so that is still baked into our guidance about $30 million for the for the full year, we got impacted by roughly 12 million I'd say in the third quarter.
You know more heavily on the on the distribution side of the business than on the installation side of the business how you do see.
<unk> installation, we did have negative price there so we're kind of seeing.
The product mix play out between the two segments. So when you look at.
The installation segment.
We're we're having price pressure is on residential products fiberglass and spray foam. It's a much larger percentage of our revenue on the installation side of the business now where we're doing a good job of maintaining margins, there and working back with our supply chain partners.
And taking cost out where we can on the distribution side I'd say those those pressures in residential products are even stronger and having having more margin impact, but it's a much smaller percentage of the product mix on that side of the business because of the all the commercial products.
And then the other thing you've got going on Thats driving pricing actually positive on the on the distribution side is that we've got you know gutters and mechanical insulation, which make up a larger percentage of the product mix on that side that have positive pricing.
Going on this year and and that's helping to drive that number up to the one 2% you saw in the quarter.
No great. That's that's very helpful. Rob I appreciate all the detail there.
Maybe secondly, you reiterated I believe.
Your end market assumption.
For the year for residential to be down low double digits.
Our commercial and industrial flattish.
Yeah, if if we kind of took the trend line, where it is today.
The level of activity.
Hmm.
I'm kind of more <unk>.
<unk> in residential, but if you have any comments on commercial industrial as well.
I'm trying to think about the first half of 'twenty six and recognizing you know guidance is a little premature but you know if we think about the fact that just mathematically if residential kind of.
Did have softness that progressed throughout 2025 with this still point to some level of year over year decline in the first half.
Of 26 year over year, just trying to understand.
The trajectory of 25, and how it might impact at least one H two six.
Yeah. Michael This is Rob So I'd say you know what we're seeing out there right now.
Single family.
It was weak throughout most of the country. There is there are some pockets of strength in the Midwest and northeast.
But for the most part week across the country. It definitely got a little bit worse in Q3, I'd say as we anticipated then it was the first half of the year.
Our our projections would say you know Q4 is probably a little little softer as well. So so to answer your question as you roll that into into next year, I think youre looking at probably flat to potentially slightly down first half of the year on single family. The you know the other side of the equate.
Multifamily.
Sales remain weak there.
A little bit of bright side, we see there is we are seeing some some backlog starting to improve in certain certain markets across the country. So there could be some some potential upside on the multifamily next year, yes, Microsoft I'll add on to that so Rob drive on the single family a little sluggish.
And we'll see how that bears out to start the year, but he's right multifamily backlogs meeting.
It is building there.
I'd say fairly consistently if you look across the.
The regions.
And I think what this shows too is if you look at the quarter here. The plan around commercial industrial is I mean, the backlogs that are building there even as we're seeing continued momentum whether it be mechanical.
As we look at backlog in roofing and stuff as well we think thats.
The positive is we look at what we've done in the mix of the business here as well.
Great. Thank you.
Our next question is from Susan <unk> with Goldman Sachs.
Thank you good morning, everyone.
Good morning first question is on is on the margin, it's really nice to see how especially in insulation and installation. The operating margin has held up in there can you talk about your efforts to support that and how we should be thinking about the path there for fourth quarter and anything looking out from that.
Yeah. Susan this is Rob so yes, the profitability on the install side of the equation has been a strong suit all year long I would say something where we're really happy with it really.
The biggest driver there I'd say is there are the cost savings actions we took in.
In the first quarter of this year that we've talked about in the past so that's the consolidation of facilities.
Some head count reductions across back office and support functions as well as some some direct labor to really align our cost structure with our with the current.
Environment like I like I mentioned earlier, there is some pressure on price there, but we've done a really good job of maintaining.
That's impact overall on our margins. So so just really a terrific story. This year in terms of the margin resiliency is the the installation segment.
Yeah. Okay. Thank you for that and then turn to <unk>.
<unk> given the weakness that we've seen on the new construction side, especially in some of the end markets. There can you talk about what youre seeing on the re roofing side of that business is there any change in the competition and your ability to come up against that and continue to see the level of <unk>.
That you expect.
Yes, good morning, Robert So I think we feel very confident and comfortable with what's going on in roofing is we look at their mix of re roofs and new construction.
As we look at our backlog plus being bid what's being one.
Even Q4 and definitely very strong for 2026.
Margins are doing a nice job there given the mix of business as well so.
Highly comp that say some people ask us questions about hey, you've owned the business here for call It 100 days or more.
What have you learned or what have you seen in that is just that team and the backlog that theyre building.
Especially across the southwest and Texas, where they're strong and stuff. That's been has had been a bright spot and we think a bright spot for the future. So highly confident in what's going on there and what we see in the and the fundamentals of the business.
Okay. Thank you both for the color and good luck with the quarter.
Do you.
Okay.
Our next question is from Ken Zenner.
Seaport research.
Good morning, everyone, Robert Great Investor summary, save me a trip.
Yeah.
Alright so.
Rob the question about public builder inventories or inventory units are down 15% to 20% I mean, you can pick a range in there by call it mid teens <unk>.
To the extent that that correction tied to demand what they consider to many spec homes accelerating cycle time, you know the routine suggests they could have fewer inventory units.
What gives you confidence that that kind of bogey of mid teens, which we're seeing broadly in at least that.
If we had permit data that'd be useful, but you do have better data.
It gives you confidence that the first half.
In res.
Can be so benign and it kind of reminds me of the whole concerns around multifamily as we exited last year, but could you expand on that a little bit given your view that.
The data you have on bids in the absence of government data I really appreciate that.
Yeah, I'd say I mean, we were.
We're not giving guidance for 2026 at this point I mean, just nobody logic.
Yeah, Yeah, I mean, I think just given what we're what we're seeing we're not anticipating the market to dramatically improve from here right, but we will be comping.
Pretty tough first and second quarter from last year. So that's really the thinking there around the comment to flattish.
To slightly down, but obviously, there's a long way to go most of what we'll be working on.
And the first and second quarter of next year hasn't even been started yet by the builders. So we obviously got to see what activity happens there and that'll.
That will really ultimately end up driving our sales.
And if I can ask you to expand on that then given your.
Substitution for the census data in many ways.
<unk>.
We've seen builders really the margin pressure really coming out of places like Florida select parts of Texas, but.
Are you seeing them really slamming on the brakes in those areas and could you kind of contrast that with.
You know not.
Public builder.
Type business.
Thinking above the smile so to speak thank you.
Yes, Ken this Robert so yeah look in some in some certain markets you've definitely seen it slow and they are trying to work through that inventory to exactly what you just said.
<unk> enables would be a nice example of that in Austin, Texas would be a nice example of that so so that's definitely happened in some markets, but theres somewhere I would call. It steady we talked about the Midwest.
So whenever you look at some of those above use your term the smile states there.
Some pockets of some positiveness there relative to account steady.
Steady demand even in the Pacific Northwest isn't isn't a bad area to look at it or we look at what we're seeing in book sales and stuff also so.
Definitely some where they've slowed given the inventory and some where we're seeing I would call that given the current environment Steadiness, if you will.
Thank you.
Absolutely.
Our next question is from Phil <unk> with Jefferies.
Hey, guys congrats on another strong quarter and a choppy environment.
Robert I guess it'd be helpful to kind of give us a little more color in terms of backlogs and the pace of orders, particularly in your C&I business.
Losses between your legacy business versus some of the stuff you acquired whether it's progressive Spi or things accelerated I'm asking just because obviously the headlines data points on data center, it's been pretty encouraging but is it more steady than an inflect thing are you starting to see light commercial bottomed out here just a little more perspective on what youre seeing on the C&I side of things.
Yes, I think.
Morning, Phil.
So kind of hit the gamut there so C&I, we would call. It steady we would say the backlogs are growing there there's been some projects push out a little bit no cancellations by no means and there's even been some government project slowdown, although that's not a big percentage for us, but whenever we look at backlogs across mechanical.
D I N Spi.
There is a growing for sure I think Spi theyre definitely bring in focus back to the business, they're now being part of <unk>.
We call that a big positive and then someone asked a question previously progressive and as we look at commercial roofing.
It's been a real positive as well.
We're past about 100 days here of owning progressive, but those backlogs are building as well both re roof maintenance as well as.
New bigger projects high data centers that you are talking about some big projects that they've landed so very.
Steady to I'd call it bright spot and how we think about commercial industrial you mentioned light commercial was that is that bottoming out.
We would hope so there's definitely been a soft spot for sure is that followed the residential trends. Our teams are trying to go after appropriate.
Appropriate projects there.
Ross across the footprint, so hopefully bottomed on that standpoint, and we're seeing some we're seeing some wins in the light commercial space.
Okay.
Everything you are saying, yes.
Some some level of growth next year from <unk> 26 on C&I.
That a fair characterization.
I think we feel positive about C&I as we go into 'twenty six yes.
Okay, and then from a pricing standpoint appreciate it might be a little chop your and your cost margin below more affordability, but your commercial industrial business and 50% of the business at this point post all of the acquisitions you've announced this year.
How should we think about pricing in those categories just mechanical inflation everything we're reading is on allocation I think prices are going higher.
We certainly don't have as great of a fuel for commercial roofing, but in full perspective on pricing momentum and I guess at this point half of your business.
Yeah. Phil This is Rob So you hit the nail on the head there right prices definitely held up a lot better on the commercial industrial side. This year on the mechanical side of things we had some some.
Cost increases that came through in the first quarter and our teams have done a great job passing those along in recognizing price increases there.
From what we're seeing on the commercial roofing side pricing is holding holding up well there. So definitely there is a stronger demand environment.
Commercial industrial side is definitely helping to support the pricing environment there.
Okay I appreciate all the great color guys. Thank you so much.
Thank you Bill.
Our next question is from Jeffrey Stevenson with loop capital markets.
Hi, Thanks for taking my questions today.
Yeah, I was hoping to dive deeper into the variance between residential installation and distribution pricing and wondering if the better relative installation pricing is driven by builders reliance on top builds national scale and high quality service levels compared with independent competitors.
And then on distribution our channel inventories currently at elevated levels, leading to increased competitive dynamics.
Yeah. Good morning, it's Robert So I'll hit the first part of that Rob may add in as well. So yeah, I mean on the install side of the business I mean, there is there.
They are definitely pressure on the fiberglass side, but to Rob's point earlier that team's done a great job there.
Waiting their price volume discussion market by market and given what's happened in the uniqueness in each market, but it is a bundled solution right labor and material and our teams are known for great service. So.
And have really strong relationships with those builders in their local market. So that has definitely helped.
Although some headwind but has helped us.
Those margins hold up on distribution side look the material is definitely readily available right now and so that obviously creates the supply and demand environment.
And we've seen more pressure there specifically as Rob called out fiberglass and spray foam. So it's really supply and demand there that's created some more competitive dynamics.
But again you can look at the overall margins of teams to data is to do a nice job, but it's the balance there as well, but more pressure distribution on that residential side of.
The equation.
Great. Thanks for that color Robert and.
We should all be <unk>.
The integration of Progressive route premium, but just wondered on the roof.
Roofing M&A pipeline and you know now that you've had that business.
For several months now you know how has the pipeline evolves give him a frac.
Fragmented nature of that market and would you expect an acceleration in bolt on acquisitions as we move through 2026.
Yes, so great question. So we're.
Very active from an M&A perspective in the roofing space I'll hit it from two different angles I think we mentioned on the last call. Some investment we're making on the M&A side and the team on roofing. So some of that's coming together for sure.
The progressive team has a lot of relationships in the industry. So theyre working those relationship size of.
Some of the smaller to chunky acquisitions, then obviously, we've got our relationships broader in the industry and so we're definitely working some firm I would say that.
Bigger side or again chunkier side of the of some roofing acquisitions. So definitely very active we feel good about.
Activity going on from both ends and commercial roofing and we definitely would look to that to lead to some good execution in 2026.
Great. Thank you.
Our next question is from Keith Hughes with <unk> Securities.
Thinking kind of building on the last question on more commercial roofing deals is there a specific region that youre looking.
Going after the June quarter.
And does it make a difference.
These are deals with the major suppliers of membrane or to the installers.
Hey, Keith this is Robert So a couple a couple of points. There. So we have a lot of white space and it's highly fragmented. So we're not being too as far as the geographic location, obviously progressive has that great footprint, especially in the southwest and some other spots across so no particular area I think it's back to probably the discipline there.
<unk> had in the past and that is looking at looking for great companies, great talent to come along here in the white spaces is pretty broad relative to the supply base. If you think about the big suppliers in this space there, they're big top milk suppliers today.
Have a great relationships there so it doesn't doesn't have to lean too much on who their supplier is given our breadth of those partnerships.
And geography again were just looking for we're looking at good quality companies here that match up and checks. The box as you would expect to hear from our competency perspective talent perspective and performance.
Okay got it thank you.
Thank you.
Our next question is from Colin Marin with Deutsche Bank.
Good morning. Thank you for taking my question I just wanted to go back to the installation margins and the strength. There you called out the primary driver being the cost saving actions and you guys have taken can you just help us think about how much was realized in the third quarter and maybe to date in 2025, and what you expect the annualized benefit of those cost.
Sections to be as you go forward and into 2026.
Yes, Collyn. This is Rob so yes, the cost actions, we took in the first quarter annualized is about $35 million.
Savings.
I would say our productivity in the third quarter.
We had a shift a quarter share of that as well as I'd say some some additional.
Savings, we had there that helped really drive the margins up in the quarter.
Okay.
Great. Thank you very much.
Our next question is from Kurt Yinger with D. A davidson.
Great. Thank you I just wanted to go back to competitive dynamics on the residential installs sided it sounds to me like that's primarily.
Some savings on the material side.
Is that the case or are you seeing increased bidding pressures, depending on geography, and then maybe stepping back can.
Can you just talk about kind of the tone of customer conversations as builders kind of battle, the affordability challenges and maybe work to share some of that with suppliers like yourself.
Yeah, Good morning, Curtis Robert So.
Relative to the competitiveness I mean, obviously, we worked in a productivity side of it if you think about margins. We've obviously worked with our supplier partners.
As well, but they're definitely in the slower markets Theyre definitely increased competitiveness and some of that bidding I think thats, where we look at our team and the job they've done and while we complement them on the work they've done there because I think they try to find that right balance of volume and price and obviously, we were able to put some controls around that from a.
From a bidding perspective as well so that's some of that some of that debt excuse me some of the dynamics.
That have happened from from that standpoint, and then if you look at the commentary around the country.
The builders are obviously smart themselves so between not just coming to us relative to some of the pressures I mean, obviously there the reengineering some of the products are going to market with you know you can look at whether it be some of the footprints whether some of the things that they're doing obviously, we've done some of that value engineering with them as well.
To help them as they face the pressures they come to us as well, but it definitely has to be the be the partnership because as we said in our prepared remarks look the fundamentals are intact here.
But we've got a time period here too.
<unk> point, so we're working with customers on it I think our teams in the field are doing a nice balance of that.
Okay I appreciate that and maybe just following up on kind of the balance of price and volume does.
Does it feel like as the year has progressed and we've kind of seen that additional step down in residential that.
More often you're maybe having to walk away from some of these projects or bids or has that been.
Pretty consistent with what you felt over the last couple of quarters.
Yeah.
This is Rob I would say it hasn't gotten a whole lot worse.
Worse in terms of us having to step away from volume we have.
As we talked about and as we anticipated we have seen the price pressure pick up and we have gotten a little more aggressive on pricing as a result of that so I'd say, we're not we're not stepping away from more work I'd say, we're doing we're holding our share out there and you.
You can see the impact of that a little bit on the on the price side on the install side, where price was negative in the quarter, but as we've talked about we've done a great job in terms of managing our costs and recouping most of that.
Through productivity savings.
Okay, Great I appreciate the color. Thank you.
Our next question is from Rob Okay.
Gross Smith with Bank of America.
Hi, Good morning, it's Rafe thanks for taking my questions.
Good morning.
The distribution side the pricing improves.
Due to the price cost getting worse there.
So I think that's all just on the residential piece of that can you just help me understand like what's going on there.
And if the market stays soft is there an opportunity from a cost perspective.
So differently.
The market.
Things like this could you get to a point, where you're able to lower your cost where you can get some price cost neutral, even if pricing stays negative.
Yeah. Ryan this is Rob so so we're working with our suppliers today in terms of that price cost equation and we are seeing some some relief there, but like we've talked about we're definitely seeing the price pressure on the sales side.
We've talked about how on install we've we've done a great job offsetting on the distribution side.
A little tougher little more pressure there because you don't have the labor component so.
Pressure, we're seeing is.
Having a negative impact on margins now.
This is what I was trying to explain a little bit earlier.
When you look at our overall pricing on distribution were up and it's really a product mix impact there because of gutters, we're seeing inflationary pressures.
On those products mechanical installation, we talked about how commercial products were seeing good strong price. So we're driving price costs are up in price are up on those products and we're maintaining margins and then you got the residential products, where you got cost down price down and when you put the two of those together you're kind of netting out too.
To a positive price negative cost and a net slightly negative price cost number for distribution.
I think relative to <unk>.
Ralph talked about productivity I mean, we're always looking at I think thats something we always said, we always look at what's going on across our footprint. We look at what's going on by market and so we have to make any adjustments I think we've shown in the past we've got track record of being.
Ahead of the curve on any of those as well so.
Okay. That's helpful and then in the quarter you bought back stock and then you obviously continued to close acquisitions, how much of a priority is getting the leverage below two times versus just continued M&A buyback are you comfortable sort of continuing to do that with the leverage for both the long term cargo.
Yeah.
Yeah. Ralph this is Rob so yeah, we're not uncomfortable with where our leverages today pro forma with DSP idea. We're at two four times.
We've been that higher slightly higher before after after large deals we certainly will be more comfortable in that long term target range of one to two we don't feel the need to.
To get there overnight obviously.
There is multiple paths to get there ones that to drive growth in EBITDA, which is definitely you know.
Plan, one and how we'd like to get there.
We can also pay down debt or hold on to cash and it would take about $500 million of cash to get us back down to the to the two times, which would be a portion of next year's free cash flow. So we can we can continue to do M&A and kantar.
New to have like we've talked about in the past, we balance buybacks with M&A and typically put a grid in place that we think we can continue that strategy at these levels with.
Longer term goal of getting that leverage back down to closer to two times.
Thank you very helpful.
Our next question is from Adam Baumgarten with vertical research partners.
Hey, good morning, everyone.
Just on the kind of implied <unk> guidance, it kind of points to worsening year over year margin pressure, maybe if you could sort of run through the drivers there whether it's some of the acquisitions pricing cost.
The outlook there in the near term.
Yeah, Adam this is Rob so.
Yeah.
If you back into the to the Q4 numbers from the from the guidance. We've given you know I mentioned price cost we plan for that to continue to be a headwind slightly worse in the fourth quarter than what we saw in the third quarter.
We again hope that's a conservative estimate, but we're working our best on that one M&A, obviously, you know in year one.
Before we get the synergies with Spi, that's going to have a negative impact on the overall EBITDA with them coming in at 10% to 11% type EBITDA business.
So that's you know, but as we as we drive synergies there.
We anticipate getting them up to the mid teens on that deal. So those are those are really the two biggest drivers as well as the continued volume headwinds that we've talked a lot about those you know in the fourth quarter can be a little more pronounced as well.
Due to seasonality.
Okay, great. Thanks best of luck.
Thank you.
Thank you there are no further questions at this time I'd like to hand, the floor back over to management for any closing comments.
Thank you for joining us today, we look forward to seeing you next month at our Investor Day on December nine.
This concludes.
Today's conference you may disconnect your lines at this time, thank you for your participation.