TopBuild Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 6, 2025
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Operator

Ladies and gentlemen, thank you for standing by. Greetings, and welcome to TopBuild's First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow today's formal presentation. Please note this conference is being recorded.

Operator

At this time, I'll now turn the conference over to your host, Pia Ichino, Vice President, Investor Relations. Pia, you may begin.

PI Aquino
PI Aquino
Vice President - Investor Relations at TopBuild

Good morning, and thanks for joining us today. I have with me Robert Buck, our President and CEO and Rob Koons, our CFO. 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. 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.

PI Aquino
PI Aquino
Vice President - Investor Relations at TopBuild

The company assumes no obligation to update any forward looking statements because of new information, future events or otherwise. Please note that some of the financial measures to be discussed during this call will be on a non GAAP basis. 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. I'd like to now turn the call over to our President and CEO, Robert Buck.

Robert Buck
Robert Buck
President & CEO at TopBuild

Good morning. Thank you for joining us today for our first quarter twenty twenty five earnings call. I'd like to start our call today with a few words on the macro landscape environment. New residential construction demand remained soft with choppiness continuing across various geographies. The spring selling season was slower than anticipated as interest rates remained elevated and economic uncertainty has eroded consumer confidence, both of which negatively impacted housing demand.

Robert Buck
Robert Buck
President & CEO at TopBuild

Despite this backdrop, the fundamentals of the underlying housing market are strong and we remain confident in the long term prospects of our business. On the commercial and industrial front, we are encouraged by the number of projects moving into production and ongoing bid activity in the C and I end market. More specifically, there's been an acceleration in data center construction along with positive trends in healthcare in certain sub sectors of manufacturing such as chemicals. While tariffs and trade restrictions between The United States and other countries are top of mind for everyone, including investors, the potential direct impact of currently announced and effective tariffs for our top build business is minimal. We're actively working with our supply base to mitigate the anticipated impact of current tariffs and we will take pricing actions to the extent necessary.

Robert Buck
Robert Buck
President & CEO at TopBuild

The direct and indirect impacts of tariffs on the economy overall and on housing demand specifically remain uncertain, and we are monitoring the environment closely. Turning to our results. Our first quarter performance was in line with our expectations. Total top billed sales declined 3.6% to $1,200,000,000 as weakness in new residential construction impacted the business and was partially offset by growth in commercial and industrial. Our adjusted EBITDA totaled $234,800,000 and EBITDA margin was a very solid at 19%.

Robert Buck
Robert Buck
President & CEO at TopBuild

Our installation segment, which comprises about 62% of total top build sales, reported a mid single digit sales decline driven by the residential end market. Our commercial installation business sales were flat in the quarter with heavy commercial outperforming like commercial. Our Specialty Distribution segment, which represents approximately 38% of our total revenue, grew sales low single digits.

Robert Buck
Robert Buck
President & CEO at TopBuild

While we saw declines in

Robert Buck
Robert Buck
President & CEO at TopBuild

our Service Partners business as residential demand softened, we are pleased with our DI mechanical insulation business in both U. S. And Canada, which drove very healthy top line and bottom line growth. If you remember, we saw some project delays mid-twenty twenty four across Commercial and Industrial, which are moving forward this year. The last point I'll make regarding special distribution is that recurring revenue represents about 25% of segment revenue.

Robert Buck
Robert Buck
President & CEO at TopBuild

Certain industrial verticals such as oil refinery, LNG production, chemical and petrochemical production lend themselves to recurring insulation revenue. These industries require regular inspection and replacement of insulation materials. 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. New commercial and industrial facilities and we anticipate continued meaningful growth. On the operational 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
Robert Buck
President & CEO at TopBuild

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. This allowed us to consolidate 33 facilities, which will drive ongoing efficiencies across the top build operations footprint. 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 team's ability to continue to drive operational excellence and meaningful improvements throughout our business. Let me say a few words on capital allocation.

Robert Buck
Robert Buck
President & CEO at TopBuild

Acquisitions continue to be our highest priority for capital allocation and in April, we are pleased to close the acquisition of SealRite. We continue to consider several opportunities of various sizes as our pipeline is very healthy. 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 strengths, including our people and teams, our ability to successfully operate a dispersed branch model, a common technology platform, our strong supply chain and customer relationships and our disciplined financial and strategic approach. As always, we remain disciplined and focused on driving strong shareholder returns. We're also committed to returning capital to shareholders and in the first quarter, we bought back nearly 694,000 shares of our stock.

Robert Buck
Robert Buck
President & CEO at TopBuild

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. This year, we are excited to be celebrating our ten year anniversary as a public company. Our success over this time is driven by our people. Our employees continue to focus their efforts on leading and growing their business, driving improvements and working safely every day. 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 ongoing commitment to our culture and our teams.

Robert Buck
Robert Buck
President & CEO at TopBuild

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. We have a unique and proven diversified business model. So even with the near term macro uncertainty, we are bullish about our medium and long term opportunities. Our teams are strong and we're working together to turn challenges into opportunities.

Robert Buck
Robert Buck
President & CEO at TopBuild

We know how to adjust and outperform in a changing environment and remain committed to driving shareholder value. Rob?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Thanks, Robert. I want to start by thanking our teams for delivering a solid first quarter in a challenging macro environment. While the choppiness in the residential markets continued, our teams did a great job driving growth in our commercial and industrial markets. Jumping into our results, our first quarter sales declined 3.6% to $1,200,000,000 Volume declined 7.4%, which was partially offset by M and A of 2.6% and pricing of 1.2%. As a reminder, the first quarter had one less business day, which negatively impacted volumes by 1.6%.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Our installation segment sales were down 6.7% to $745,500,000 in the first quarter. Installation volume declined 9.6% due to weakness in single family, multifamily and light commercial, which was partially offset by strong growth in heavy commercial, M and A of 1.8% and pricing of 1.1%. The installation segment's pricing was primarily driven by the carryover impact of price increases in the middle of last year. Specialty distribution sales grew 2.6% to $559,800,000 in the quarter. Volume declined 2.2% as slower residential sales were partially offset by commercial and industrial sales growth.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Acquisitions added 3.4% and pricing contributed 1.4. The incremental pricing was primarily driven by Q1 price increases on certain commercial and industrial products. As Robert mentioned earlier, as part of our ongoing work to optimize our branch footprint, we consolidated a total of 33 facilities across both installation and specialty distribution. As a result of these consolidations, we incurred one time costs of $13,900,000 which are primarily related to non cash lease impairment charges. Separately, in the first quarter, we also made headcount reductions to align our cost structure with current demand levels.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

These reductions resulted in one time severance costs of 1,500,000.0 Excluding these one time costs, our first quarter's adjusted gross profit of 29.6% was 70 basis points lower than last year. The margin decline was driven by lower sales volume and pressure on distribution pricing for residential products, primarily spray foam. Adjusted SG and A as a percentage of sales in the first quarter was 13.9% versus 13.5% last year. The increase in SG and A percentage was primarily due to lower sales volume in the quarter. First quarter adjusted EBITDA for TopBuild was $234,800,000 Adjusted EBITDA margin of 19% represents an 80 basis point decline when compared to last year.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Installation segment adjusted EBITDA margin was 21.1%, ninety basis points below last year and Specialty Distribution adjusted EBITDA margin of 16.3% declined 60 basis points year over year. Other income and expense for the quarter was $11,500,000 an increase of $4,000,000 due to lower interest income related to lower cash balances. First quarter adjusted earnings per diluted share was four point six three dollars zero point one eight dollars lower than last year. Turning to the balance sheet, total liquidity was 7 and $46,400,000 at the end of the quarter. We finished the first quarter with $308,800,000 in cash and $437,600,000 in availability under the revolver.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Net debt totaled $1,070,000,000 and our net debt leverage ratio was one times trailing twelve months adjusted EBITDA. Working capital as a percentage of sales totaled 13.7%, which compares to 14% last year. From a capital allocation perspective, we closed on the acquisition of SealRite, an Omaha based residential installation business with about $15,000,000 in annual revenue. Acquisitions remain our top capital allocation priority and our pipeline is very active. In addition, we returned $215,600,000 in capital to shareholders through our share buyback program, finishing the quarter with $972,400,000 remaining under the current authorization.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Before we turn to guidance, let me say just a few words on tariffs. 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. We estimate the potential impact of tariffs as announced at less than 5% of our cost of sales. As Robert noted, we are working to mitigate any impact to top build.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Moving on to guidance, as you saw in the release, we are confirming our full year outlook for sales of $5,050,000,000 to $5,350,000,000 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 and the addition of SealRite to our M and A assumption. At the midpoint of guidance, our key assumptions are as follows. We expect residential sales will be down high single digits for the full year. Commercial and industrial sales will be up low single digits. Both of those measures are on a same branch basis including price.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

M and A carryover along with SealRite will add approximately $85,000,000 to total sales. As we think about the sales cadence in comparisons to prior year, the remaining three quarters will all be lower than the comparable quarter of the prior year. Second quarter will likely have the largest year over year decline of the remaining quarters. We are also maintaining our adjusted EBITDA guidance of nine twenty five million dollars to $1,075,000,000 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. With that, let me close by expressing my great confidence that our teams will continue to tackle the challenges ahead of us to ensure top build will continue to outperform in any environment.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Robert?

Robert Buck
Robert Buck
President & CEO at TopBuild

I'll close our call today by saying that we are confident in our unique and proven business model and the underlying fundamentals for our business. We have

Robert Buck
Robert Buck
President & CEO at TopBuild

a cycle tested team with deep understanding and control of our business and a diversified business model. We will continue to work diligently to outperform in this changing environment while driving profitable growth and continued shareholder value. With that, operator, let's open up the line for questions.

Operator

Thank you. We'll now be conducting a question and answer session. Thank you. Our first question will be coming from the line of Stephen Kim with Evercore ISI. Please proceed with your question.

Aatish Shah
Equity Research at Evercore ISI

Hi, this is Atish on for Steve. Thanks for taking the question. I just wanted to touch on the commercial and industrial side. At the end of last year, you mentioned that a lot of these projects were delayed mainly due to financing issues. And now you're seeing these projects kind of moving forward.

Aatish Shah
Equity Research at Evercore ISI

It's not so obvious why the financing environment would have improved. Any color there would be helpful. Thanks.

Robert Buck
Robert Buck
President & CEO at TopBuild

Hey, Keesha. Good morning. It's Robert. So yes, I think some of the delays we saw projects move forward, I think folks have just come to accept the current financing environment and some of the bigger projects and those projects were justified. So we've seen many of those come online.

Robert Buck
Robert Buck
President & CEO at TopBuild

I would also point to, I think, our teams in the field are absolutely doing a great job of executing what we call the vertical market strategy, which means they're into they're bidding jobs and they're doing work across multiple verticals, whether you think about oil and gas, food and beverage, pharmaceutical, manufacturing. So I think there's share gain in there as to how the team is executing that showing up in the numbers as well. So I'd say a combo project coming online and great execution, the vertical market strategy by our field teams.

Aatish Shah
Equity Research at Evercore ISI

Great. That's super Hey

Stephen Kim
Senior Managing Director at Evercore ISI

guys, it's Steve Kim. Thanks for that. Second question, I guess, we have relates to the pricing environment. At a high level, I think, generally, there's two ways that TopBuild can benefit from pricing dynamics. The first one is that you can participate in manufacturers' pricing power when capacity utilization for the manufacturers is very high.

Stephen Kim
Senior Managing Director at Evercore ISI

But you can also, I think, bring your relative size to your advantage, allowing you to get preferred pricing versus your smaller competitors, maybe when capacity utilization for the manufacturers is a little lower. And so I think that over the last few years, you've really benefited from the former as capacity utilization has been really tight. But as we look forward here with utilization rates maybe dropping a little bit, some manufacturer capacity additions being announced, like just last yesterday from Knopf. I'm wondering whether or not you think that your relative competitive advantage on pricing could offset any slower rate of sort of industry or manufacturer pricing. If you could 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?

Robert Buck
Robert Buck
President & CEO at TopBuild

Good morning, Stephen. It's Robert. So yes, I think you hit on some good points there. Obviously, material and the current environment is a fluid situation. But as you very well know from our history and conversations that we've had, we're constantly partnering and talking with the manufacturers relative to excess supply, where that excess supply exists.

Robert Buck
Robert Buck
President & CEO at TopBuild

And you're right, we've had three of the four announced additional capacity expansions here, maybe a little bit hitting in 2026 and some more coming in 2027. So I think that's favorable for top build. 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 per se here in 2025, but think you can tell the teams have done a nice job holding on and leveraging for the obviously the services and products that we provide there. We'll stay close to our manufacturing partners as material loosens up.

Robert Buck
Robert Buck
President & CEO at TopBuild

And again, we have the ability to take that wherever it exists in the country and across our footprint.

Stephen Kim
Senior Managing Director at Evercore ISI

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?

Robert Buck
Robert Buck
President & CEO at TopBuild

Yes. That would be our look sitting here, call it, sitting here in Q2 of the year. That's why we would view it.

Stephen Kim
Senior Managing Director at Evercore ISI

Yes. Okay. Just wanted to clarify. Thanks very much. Appreciate it.

Robert Buck
Robert Buck
President & CEO at TopBuild

Thank you.

Operator

The next questions are from the line of Michael Rehaut with JPMorgan. Please proceed with your question.

Michael Rehaut
Michael Rehaut
Executive Director at JP Morgan

Thanks. Good morning, everyone. Thanks for taking my questions. First, I would love to get a sense in terms of the guidance. Obviously, you reiterated the top line and EBITDA, but I believe slightly lowered your resi outlook to down high single digits from down mid single digits.

Michael Rehaut
Michael Rehaut
Executive Director at JP Morgan

Previously, you reiterated commercial and industrial up low single. So just wanted to understand what kind of was the offset to the slightly lower resi outlook? And if it's just kind of playing with the ranges here maybe before you were at the high end of the down mid single. But just any sense of what some of the puts and takes are if you had an incremental slightly more conservative outlook for resi?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Sure, Mike. This is Rob. I'll take that one. So yes, as you noted, we've lowered our range on residential from saying we were going to be down mid single digits to high single digits. And that's really driven by what anticipating on the single family side of things, where things are expected to be a little slower.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

So as we came into the year, we were kind of expecting things to be a little bit flattish 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, pricing held up a little better in Q1 than expected. So that's a partial offset in there as well. On the commercial industrial side, we're still at low single digits.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

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, a little more optimistic on that side. And then we did do one acquisition, which has taken up our assumption on M and A by $10,000,000 and we're not taking up the overall range 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.

Michael Rehaut
Michael Rehaut
Executive Director at JP Morgan

Great. That's helpful, Rob. Appreciate that walkthrough. I guess, secondly, it's interesting to hear about the footprint optimization, the consolidation of 33 facilities. That seems a little bigger perhaps than some of the more, I don't want to say generic, but sort of the ongoing efforts that you have from a productivity standpoint from your special ops teams.

Michael Rehaut
Michael Rehaut
Executive Director at JP Morgan

So was curious if you could kind of help us better appreciate the magnitude or the impact of the footprint optimization from a dollar perspective, what that kind of represents in terms of a tailwind this year, if that indeed was part of the original guidance when you gave it a couple of months ago, or if it's incremental and sort of continuing to help out your ability to realize the EBITDA guidance?

Robert Buck
Robert Buck
President & CEO at TopBuild

Yes, Mike. Good morning, it's Robert. I'll start with the first part of the project itself and then Rob will tackle some of your questions around the numbers. So this is something that we've been working for a few months as part of our technology. We have an optimization tool called Agility that we're able to look at customer delivery points.

Robert Buck
Robert Buck
President & CEO at TopBuild

We're able to look at some logistics, that type of thing. So this was really maybe a handful of M and A overlap, if you will. So it's really a combination of able to put all those pieces together in a very, very targeted and systematic way. And we got it's really consolidations of can be a TruTeam location into maybe a DI location as an example or maybe even some distribution locations co locating, if you will, from a DI service partners perspective or even our MBI business as well. So I think it was very targeted and done in a very calculated way, if you will.

Robert Buck
Robert Buck
President & CEO at TopBuild

So I think it's just the power of the model here and the competency we have to look at that across and make some very strategic moves and good moves for driving efficiencies in the business. So that's a little bit of something we've been working on, I think answers questions how we continue to have room in this model. I'll let Rob talk about some of the tailwind piece of it.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

And so as Robert said, this is something we've been working on, obviously implementing that tool and that technology has taken time. It's something we're very careful 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. But as a result of this, obviously, we've got the one time charge. So about $13,900,000 related to the consolidations.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

That's primarily non cash write off of leases for those facilities. And as we move forward between the combined savings, I'd say between this lease consolidation as well as the rightsizing of some of headcount around current volumes should be about $30,000,000 or more of additional annual savings. 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.

Michael Rehaut
Michael Rehaut
Executive Director at JP Morgan

Great. Thanks so much.

Operator

Our next question is from the line of Adam Baumgarten with Zelman and Associates. Please proceed with your question.

Adam Baumgarten
Managing Director at Zelman & Associates

Hey guys, good morning. On the pricing side, just given the commentary that you're talking about carryover pricing from mid last year 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?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Yes, Adam, this is Rob. I'd say that's definitely baked in as our assumption right now. So we would expect pricing to moderate, particularly on the install side. We did have some incremental C and I pricing definitely impacted more on the SD side to start this year. So obviously that should hold up throughout the rest of the year, but the fiberglass increases from the middle of last year should go down as the year moves on.

Adam Baumgarten
Managing Director at Zelman & Associates

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

Adam Baumgarten
Managing Director at Zelman & Associates

of flattish for a while?

Robert Buck
Robert Buck
President & CEO at TopBuild

Yes. Good morning, Adam. It's Robert. I'd say flattish. There's still some fluctuations across the industry including still some maintenance and stuff that's going on.

Robert Buck
Robert Buck
President & CEO at TopBuild

So I'd call it flattish.

Operator

Great. Thanks guys. Our next questions are from the line of Susan Maklari with Goldman Sachs. Please proceed with your question.

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Good morning, everyone.

Operator

Good morning.

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Morning. My first question is on the labor side. You've talked about 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 resi 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?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Yes. So Susan, I'd say this is Rob. I'd say 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 and adjusting our headcount accordingly. So it's something that continues to go on. We're hopeful that the adjustments we made in Q1, we won't have to do anything that significant moving forward.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

It will be more kind of tweaking as we go. And we definitely feel like we haven't cut muscle, right? We've talked about the fact that we don't want to cut muscle. We're definitely from our perspective, we still want to grow. We want to do M and A.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

We think this is a good time to do some M and A. And so we're hopeful to be able to add some volume to the business through M and A. And as a result, we don't want to cut too deep too quickly here.

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Okay. That's helpful. And then maybe building on that, Rob, can you talk a bit about the M and 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 C and I side?

Robert Buck
Robert Buck
President & CEO at TopBuild

Yes. Good morning, Susan. It's Robert. So very healthy and I'd say a variety of I think I mentioned in the prepared comments, variety of sizes of deals in there. And it's really quite honestly across all of the end segments, the residential, C and I for sure and across the businesses.

Robert Buck
Robert Buck
President & CEO at TopBuild

So really healthy pipeline and busy time for us from an annuity 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.

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Okay. Thanks for the color guys. Good luck with everything.

Robert Buck
Robert Buck
President & CEO at TopBuild

Thank you.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Thanks.

Operator

Our next question is from the line of Phil Ng with Jefferies. Please proceed with your question.

Philip Ng
Philip Ng
Managing Director at Jefferies Financial Group

Hey guys. Congrats on a strong quarter. I think, Rob, you talked about how margins came in better than you expected. Can you give us some color on what are some of the areas upside? Was the branch consolidation headcount a contributor?

Philip Ng
Philip Ng
Managing Director at Jefferies Financial Group

And kind of give us a little color on how that kind of progresses? If I look at your full year guidance, the midpoint is calling it 19% EBITDA margins, which is a great outcome given the current backdrop, but it's effectively flat from 1Q and typically you see that seasonally pick up in 2Q, 3Q. Kind of help us contextualize how that margin progression will kind of shape up this year?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Yes. So I'd say, looking at the quarter, if you think about what went better, what better than expected, what was a little worse than expected. I mean, in general, we were pretty on top of what we expected for the quarter, as you pointed out, a little better from a profitability standpoint. On the volume side, single family, slightly worse than we expected, but not significantly. C and I, a little better on the volume side.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

So net net, not too different there. I'd say pricing on the resi side held up a little better as we talked about on our previous calls. We've talked about in markets where volumes have slowed, making some price concessions where we need to hold on to volume that didn't surface as much as we had anticipated. So that was something good in the quarter. And price realization on C and I products that had price increases in the first quarter was good as well.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

So 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. And so as we move forward, right, I mean, we obviously don't give quarterly guidance. But to your point, we do typically seasonally see EBITDA go up from Q1 to Q2 and Q3 kind of flattish or slightly up to Q2 and then a drop down in Q4, really all of that driven by volumes throughout the year. So while volumes are a bit muted, we do expect kind of normal seasonality there.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

As we talked about in the prepared remarks, we expect on a year over year basis, we expect sales to be down the most in Q2 as compared to prior year. Q3 should be a little better than that. And then Q4 will be flattish to down slightly as a result of basically having a little bit softer of a comp in Q4 as things were starting to slow down at that time. And so as we think about the EBITDA that goes with that, I'd expect like in most years Q2 and Q3 will be a little better, probably a little ahead of our midpoint of our guide in twenty nineteen point two percent and Q4 will be a little bit worse than that twenty nineteen point two But obviously, there's a lot of time to go here. That's why we've kept the range kind of wide because there is significant uncertainty out there.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

But at the midpoint, that's kind of how we're thinking about it.

Philip Ng
Philip Ng
Managing Director at Jefferies Financial Group

Yes. That's great color, Rob. 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 to stay pretty steady here. But there's been some spray foam increases.

Philip Ng
Philip Ng
Managing Director at Jefferies Financial Group

Certainly tariffs is an element of that. And I think there's been some C and I price increases for July. Like how do you kind of anticipate pricing for your materials that's non fiberglass, you see some upward momentum and does that help margins as well?

Robert Buck
Robert Buck
President & CEO at TopBuild

Yes. I would say from a pricing perspective, we you're asking about the environment stuff. So we would expect the teams to get paid for the great services and products they're providing. So we would expect pricing to hold. And 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 looking for efficiencies and looking for ways to offset any challenges from a price perspective.

Robert Buck
Robert Buck
President & CEO at TopBuild

And I think you see that in the results, Phil. So 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.

Philip Ng
Philip Ng
Managing Director at Jefferies Financial Group

And then on some of the material costs, spray foam and C and I side, there's some price increases out there?

Robert Buck
Robert Buck
President & CEO at TopBuild

Yes, definitely some increases out. Obviously, we're some of the tariff stuff fares out as well, but there 's some increases in the market out there today in the areas that you mentioned.

Philip Ng
Philip Ng
Managing Director at Jefferies Financial Group

Okay. Thank you.

Operator

Our next question is from the line of Trey Grooms with Stephens. Please proceed with your questions.

Trey Grooms
Managing Director at Stephens Inc

Hey, good morning, everyone. Just a point of clarity. Rob, I think

Trey Grooms
Managing Director at Stephens Inc

you mentioned

Trey Grooms
Managing Director at Stephens Inc

2Q 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 is there does the new guide assume any demand pickup anywhere in the business in the back half or is there some other kind of timing aspect that we need to be mindful of?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Yes. No, Trey, this is Rob. I'd say, we're not anticipating the environment to get significantly better during the year like we've talked about. 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. So yes, what I was referencing when I said Q2, the worst of the remaining three quarters from a year over year, I was talking about sales growth.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

So our expectation is Q2 will probably look similar to Q1 on a year over year basis, just given the comps are similar between those two quarters. I'd say things kind of started to slow down late Q3 last year. So we'll see a little bit better year over year, at least from what we're thinking today in Q3 and then Q4 things were a bit softer and we expect things to be flat to slightly down. But we're talking low single digits across the board when we're talking about the numbers there.

Trey Grooms
Managing Director at Stephens Inc

Okay. And kind of on the point of rightsizing, I guess, the footprint, the workforce, etcetera, is that pretty much behind you right now? And are you where you want to be? And I guess the follow-up to that would be, how quickly can you flex up if needed? Or what would you need to I guess what position are you in from that from a footprint standpoint as we look out a little further in an environment where maybe demand is a little better?

Robert Buck
Robert Buck
President & CEO at TopBuild

Yes. Good morning. This is Robert. So given the thought that went into that work over a time period, I'd say that work got completed really in the first quarter. Doesn't mean that we're always constantly looking, right, you've known that about us, we're constantly looking at anywhere to optimize the business.

Robert Buck
Robert Buck
President & CEO at TopBuild

And if there needs to be more, we'll do that where appropriate. And then relative to ramping up, mean, again, some of the as Rob mentioned, the headcount that was just kind of pruning, if you will, in the appropriate areas. And we obviously have the ability 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.

Trey Grooms
Managing Director at Stephens Inc

Okay. Thanks, Robert. Thanks, Rob. Take care. Our

Operator

next questions are from the line of Keith Hughes with Tudor Securities. Please proceed with your questions.

Keith Hughes
Keith Hughes
Managing Director at Truist Securities

Yes. Thank you. Can you just talk

Keith Hughes
Keith Hughes
Managing Director at Truist Securities

about in the quarter the relative performance and distribution between service partners and DI around this kind of organic number you reported?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Yes, Keith, this is Rob. So yes, obviously, we don't break out the two, but we definitely saw weaker resi sales and stronger commercial sales in the quarter for specialty distribution and we do break that out in total. So on specialty distribution side, I'm just checking the number here to make sure I give you the right number, but specialty distribution on the resi side from a same branch basis perspective was down about 5%. And on commercial side, which is primarily mechanical, but a little bit of service partners in there as well was up around 2%. So definitely a stronger performance.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

And I can say within that commercial, our mechanical products definitely performed the best of the group in there as well. So it's a nice offset to the slower single family environment we're seeing.

Keith Hughes
Keith Hughes
Managing Director at Truist Securities

I'm sorry, but those numbers were those revenue or units or what specific were those?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

That's revenue on a same branch basis.

Keith Hughes
Keith Hughes
Managing Director at Truist Securities

Revenue on same branch, okay. Thank you very much.

Robert Buck
Robert Buck
President & CEO at TopBuild

Yes. Thank you.

Operator

The next questions are from the line of Ken Zener with Seaport Research. Please proceed with your questions.

Kenneth Zener
Senior Analyst at Seaport Research Partners

Good morning, everybody.

Michael Rehaut
Michael Rehaut
Executive Director at JP Morgan

Good morning, morning, Ken.

Kenneth Zener
Senior Analyst at Seaport Research Partners

So Q4 is surprised that your health guidance despite the, I guess, decline in housing fundamentals. Obviously, you've referred to M and A cost cuts. But I wonder if you could help frame the single family market for us a little bit in more detail. Kind of in the kind of public private comment, if you could, because public, right, they report their inventory and start data. They're down about 10% in 1Q.

Kenneth Zener
Senior Analyst at Seaport Research Partners

The guidance kind of implies flat for the year. It seems like the privates are doing worse than the public builders or maybe they're doing better from what you could tell us regionally. But could you kind of frame that out if, let's say, the publics, which did take down guidance and they have visibility of about six months. Rob, if we were to see another 5% decline tied to tariffs or this or that. And I realize you're giving data that's very consistent with what the public and private sector kind of are showing you.

Kenneth Zener
Senior Analyst at Seaport Research Partners

What would a 5% decline if volume for some reason falls off? What type of incrementals on margins would unfold in that scenario just to kind of frame out how you think about volatility of your guidance if we were to see another 5% decline in single family?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Yes. So Ken, inside of there, what I'd say is, what we're always targeting for the long term from a decremental margin, we've talked about in the past is kind of that 27% that we have on the incrementals. But what we know is if we don't take out any labor or any costs with that, it's going be much higher than that, right? And so as we look at this year and what we have baked into our guidance, we're getting pretty close to that number when you adjust for price cost and some of the potential impacts we have there baked in. But if we see an additional drop of 5%, we're going to be targeting to get there.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

It all depends on what our outlook looks like going forward, right? If we think that 5% dip is going to stick for a while, we're going to be a little more aggressive in headcount reductions and get to that 27% quicker. If it's if believe it's not going to last as long and the market could come back quicker, we're definitely going to take a more cautious approach and that's been approach here and that's going to continue to be our approach going forward.

Kenneth Zener
Senior Analyst at Seaport Research Partners

Okay. And then Robert, can you maybe if you would, given your guys' visibility into single family bidding, can you maybe give us a little feel? There's lots of news talking about negative news led by Florida, Texas. But often, I think people are missing right strength in the Midwest, Southeast, if you will, North Of Florida. Can you give us a little feel for how those regions are operating differently?

Kenneth Zener
Senior Analyst at Seaport Research Partners

We don't assume, right, all your markets are down because you have good markets and bad markets. Thank you.

Robert Buck
Robert Buck
President & CEO at TopBuild

Glad to take the question, Ken. So maybe I'll just try to give a little overview of the country and try to give you some flavor around that. If you think about years past where you talk about areas like 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, would say it's a mixed bag, but Florida is fairly soft, maybe definitely probably Orlando better than Naples, if you will.

Robert Buck
Robert Buck
President & CEO at TopBuild

But North and South Florida, a little slow. Texas, I would say, little tale of 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, I'd say slow. On the opposite side, some markets that are building and seem to be building momentum Northeast and Midwest, we're seeing it there.

Robert Buck
Robert Buck
President & CEO at TopBuild

I even say Southern Cal. And 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, but Northern California lagging behind and Southwest. I would include Vegas and Phoenix in that. So it gives you a little view around the country from that perspective, and it is a little different by market, Dallas versus the rest of Texas is a pretty good example of that.

Robert Buck
Robert Buck
President & CEO at TopBuild

But that's how what we're seeing from a region perspective. And you've seen what the public builders have said. And then some of those markets that I just mentioned where things are building momentum, it is like to take the Northeast as an example. It is some of the custom builder that seems to be getting having some momentum there, but maybe not that custom builder, maybe not as much in the in Florida, if you will. So hope that gives you a little bit of flavor you're looking for based on what we see.

Kenneth Zener
Senior Analyst at Seaport Research Partners

It does. And I wonder where because people say consumer confidence, uncertainty, you could get into the politics of it. But what are the factors you see that are causing those markets like in Dallas? Is it just job growth and 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?

Kenneth Zener
Senior Analyst at Seaport Research Partners

Thank you.

Robert Buck
Robert Buck
President & CEO at TopBuild

Yes, I think probably you hit on it, right? Oversupply, if you look at Florida and probably even like from a Houston perspective, other areas that maybe didn't go as far or could be some of the drivers you're talking about job growth, the Dallas area to your point. I'd even include The Carolinas in that. If I think about Raleigh and Charlotte, we're seeing some good momentum there, actually going to be in Raleigh here next couple of days meeting with some customers in that area. So we're seeing some momentum, I think in areas that just weren't probably as much inventory sitting on the ground as well as maybe some positive dynamics happening in those markets.

Kenneth Zener
Senior Analyst at Seaport Research Partners

Thank you very much.

Robert Buck
Robert Buck
President & CEO at TopBuild

Thank you.

Operator

Our next questions are from the line of Jeff Stevenson with Loop Capital Markets. Please proceed with your question.

Jeffrey Stevenson
Vice President at Loop Capital Markets LLC

Hi, thanks for taking my questions today. I was wondering if you could provide more color on the variance between late and heavy commercial demand in your installation segment during the quarter. And wondered whether light commercial bidding activity remains soft or you've seen any signs of stabilization since the start of the year?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Yes. Jeff, this is Rob. So yes, we definitely saw a big difference between the performance of those two on the install side in the quarter with light commercial down double digits in the quarter and heavy commercial up double digits in the quarter. So kind of a tale of two markets there. I'll let Robert talk about bidding activity on light commercial.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

I think we have seen some improvement in certain markets there.

Robert Buck
Robert Buck
President & CEO at TopBuild

Yes. And then if you think about that light commercial, I mean, Rob's right, it follows the residential trend. But we have so much opportunity there that we continue to see bidding opportunities there, opportunity for share growth and that's how our teams will fluctuate some of their resources, if you will. So but heavy commercial, there was some nice performance there in the first quarter. And as we think about that on the distribution side, especially on the mechanical side, we would expect that to continue.

Jeffrey Stevenson
Vice President at Loop Capital Markets LLC

Okay, great. That's helpful. And then I wanted to shift to your M and A pipeline, which sounds like it remains active. But I wanted to focus on the residential side of the business. And I wonder at a high level whether you believe there could be opportunities now given reduced seller expectations or potential sellers now focus on navigating this period of market uncertainty?

Robert Buck
Robert Buck
President & CEO at TopBuild

Jeff, this is Rara. I'd say it's a mixed bag. I would say you haven't seen multiples decline in any meaningful way. I think folks are similar to what we say, right, looking at the midterm, long term and saying we're still under built in The U. S.

Robert Buck
Robert Buck
President & CEO at TopBuild

And so they see that as an opportunity. At the same time, whether it be succession planning, whether it be some folks 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 as to what we're seeing, but it is a very active time.

Operator

Great. Thank you. The next question is from the line of Reuben Garner with Benchmark Company. Please proceed with your question.

Reuben Garner
Equity Research Analyst at The Benchmark Company LLC

Thank you. Good morning, everybody.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Good morning.

Reuben Garner
Equity Research Analyst at The Benchmark Company LLC

If

Reuben Garner
Equity Research Analyst at The Benchmark Company LLC

I heard you correctly, it seems the distribution the resi portion of the distribution business outperformed the installation side. Is that in part that sort of hedge dynamic that you have in that business? Or if not, I guess, how far does that business have to or does the industry have to fall from a volume perspective where you start to get a return of some customers that can't buy direct?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Yes, I'd say, Ruben, this is Rob. So yes, you're hitting on part of it for sure. As markets get slower, you'll see people come into distribution to buy less than truckload orders. But the other big factor there is really that on the distribution side, we're less exposed to multifamily. And so the multifamily side, which was down in the neighborhood of 30% for the quarter, which is what we anticipated for this year, that's not impacting us as much on distribution side as it is on the install side.

Reuben Garner
Equity Research Analyst at The Benchmark Company LLC

Okay, great. That's really helpful. And then 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 volume of insulation that you work through?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Yes, Ruben, this is Rob. I mean, it's definitely been a trend, but I'd say that's been a trend for the last five years plus and we really haven't seen a meaningful shift down in our take per unit or volume per unit. And I think really what benefits us and benefits our industry is the code changes over time that have added insulation per square foot to the house. And so from a net net perspective, we haven't seen a meaningful impact there.

Reuben Garner
Equity Research Analyst at The Benchmark Company LLC

Great. Thanks guys and good luck.

Operator

Our next question is from the line of Colin Vernon with Deutsche Bank. Please proceed with your question.

Collin Verron
Collin Verron
Director at Deutsche Bank

Good morning. Thank you for taking my questions here. I guess I wanted to start with C and I. It was pretty resilient in the quarter and you called out the backlog and orders being solid still. Can you just talk about how much visibility into revenues you have in the C and I business?

Collin Verron
Collin Verron
Director at Deutsche Bank

Are you booked out through the end of the year here? And do you see any risk of an air pocket impacting late twenty twenty five or 2026 just as you work through the current backlogs? Or just has bidding activity been strong enough to really replace that backlog?

Robert Buck
Robert Buck
President & CEO at TopBuild

Yes. Good morning. This is Robert. So we had pretty good visibility definitely in the backlog from a C and I perspective. I'd say six months on average would probably be a good way to think about it.

Robert Buck
Robert Buck
President & CEO at TopBuild

I'd say barring some major fluctuation in the economic environment, as we said, we feel comfortable with that business, the remainder of the year and what's in the guidance that Rob talked about earlier. And again, that's a combination of projects that we've secured, projects that have come online that were delayed in 2024. But I'd also say great execution in the field relative to some share gain and that vertical market strategy where our field teams are going after different type of jobs, basically about agnostic to any particular vertical, if you will. So I think it's a combination of visibility as well as confidence as the execution in the field.

Collin Verron
Collin Verron
Director at Deutsche Bank

Great. That's really helpful color.

Collin Verron
Collin Verron
Director at Deutsche Bank

And then I guess I just wanted to

Collin Verron
Collin Verron
Director at Deutsche Bank

ask one more on the single family side of the business. Just given the macro backdrop, I guess does your guidance assume any change in the starts pace of the builders here as we get later into 2025? Or do you see it being pretty steady from current levels?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Yes. I mean, we're anticipating kind of the normal seasonal changes you would see there. 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.

Collin Verron
Collin Verron
Director at Deutsche Bank

That's helpful. Thank you for taking my questions.

Operator

Our next question is from the line of Rafe Jardiance with Bank of America. Please proceed with your questions.

Rafe Jadrosich
Rafe Jadrosich
Managing Director & Senior Equity Analyst at Bank of America

Hi, good morning. Thanks for taking my questions. I wanted to follow-up on just the price mix. I think last quarter you were last quarter was down, this quarter was up and you were sort of expecting at the time that those pressures would continue and now the outlook is a little bit better. What's the upside versus your initial expectation?

Rafe Jadrosich
Rafe Jadrosich
Managing Director & Senior Equity Analyst at Bank of America

How much of the change is price versus mix? And then could you just talk about like the competitive environment relative to what you're expecting?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Yes, Rafe, this is Rob. So I'll give you a little bit more color there on price. So yes, from a install side of things, I'd say not a huge surprise. We went from 1.5% in Q4 to 1.1% 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 and adjust as necessary out there.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

So I wouldn't say any big surprises there. On the SD side, as you noted, on the specialty distribution side, we were flat in the fourth quarter, up in Q1. That's the big driver there is really price increases on commercial and industrial products we were able to push through in the first quarter as well as some improvement in spray foam, while spray foam, let's say net net on a year over year basis is still negative sequentially with some of the anti dumping tariffs, etcetera. We did see some incremental price come through on that side of things. So that's really the difference between what we expected coming into Q1 and where we landed.

Rafe Jadrosich
Rafe Jadrosich
Managing Director & Senior Equity Analyst at Bank of America

That's helpful. And then just on the rationalization, it sounds like that's more related to long term optimization, not really adjusting for the current environment. If single family starts stay under pressure through the end of twenty twenty five and into 2026, when would you anticipate that you would start to adjust expenses to move towards that 27% long term decremental? I guess how long would you anticipate that the decremental stay elevated?

Robert Kuhns
Robert Kuhns
CFO at TopBuild

Yes, Ray, this is Rob. So I'd say, I mean, we've already started adjusting costs. I mean, the headcount reductions we've made in the quarter, like we said, 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 side of things. So we are adjusting to get to that. I think if you're just looking at the decrementals on a standalone basis, I mean, you got to back out the impact of M and A.

Robert Kuhns
Robert Kuhns
CFO at TopBuild

When you do that, you're still going to see a slightly elevated number, but we do have baked in as we talk going into the year, some margin pressure related to price cost as navigate this softer environment and navigate that price volume equation. We've got some headwinds baked in there. But net, when you back that out from a volume perspective, we do expect our decrementals to be in that, call it, high 20s, low 30s type range for the year.

Operator

Thank you. At this time, we've concluded our question and answer session. I would like to turn the floor back over to Robert Buck for closing comments.

Robert Buck
Robert Buck
President & CEO at TopBuild

Thank you for joining us today. We look forward to speaking with you in early August

Operator

Thank you. This concludes today's call. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.

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Key Takeaways

  • Despite soft residential demand in Q1 (down mid-single digits), TopBuild achieved $1.2 billion in top-billed sales (–3.6%) and $234.8 million in adjusted EBITDA (19% margin), aided by low-single digit growth in commercial and industrial end markets.
  • The Commercial & Industrial segment saw acceleration in data center and healthcare projects, while the direct impact of US tariffs remains minimal and is being mitigated through supply-chain actions and targeted pricing.
  • Management executed a footprint optimization by consolidating 33 facilities using its unified ERP system, incurring $13.9 million of one-time charges but targeting over $30 million of annualized savings.
  • TopBuild closed the acquisition of SealRite and maintains a healthy M&A pipeline, with acquisitions ranked as its highest capital allocation priority, while returning capital through nearly 694,000 share repurchases in Q1.
  • The company reiterated its full-year outlook of $5.05 billion–$5.35 billion in sales and $925 million–$1.075 billion in adjusted EBITDA, anticipating full-year residential sales down high-single digits and commercial & industrial sales up low-single digits.
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Earnings Conference Call
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