Title

Presentation

TopBuild Corp. beats earnings expectations. Reported EPS is $4.63, expectations were $4.43.

Operator: Ladies and gentlemen, thank you for standing by. Greetings, and welcome to TopBuild’s First Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this conference is being recorded. At this time, I’ll now turn the conference over to your host, P.I. Aquino, Vice President, Investor Relations. P.I., you may begin.

P.I. Aquino: Good morning, and thanks for joining us today. I have with me Robert Buck, our President and CEO, and Rob Kuhns, 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. 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: Good morning. Thank you for joining us today for our first quarter 2025 earnings call. I’d like to start our call today with a few words on the macro landscape and current operating environment. New residential construction demand remains 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. 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&I end market.

More specifically, there’s been an acceleration in data center construction along with positive trends in health care and certain subsectors 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 TopBuild business is minimal. We are actively working with our supply base to mitigate the anticipated impact of current tariffs, and we will take pricing actions to the extent necessary. The direct and indirect impacts of tariffs on overall and on housing demand specifically remain uncertain, and we are monitoring the environment closely. Turning to our results.

Our first quarter performance is in line with our expectations. Total TopBuild sales declined 3.6% to $1.2 billion, as weakness in new residential construction impacted the business and was partially offset by growth in commercial and industrial. Our adjusted EBITDA totaled $234.8 million, and EBITDA margin was a very solid at 19%. Our Installation segment, which comprises about 62% of total TopBuild 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 light commercial. Our Specialty Distribution segment, which represents approximately 38% of our total revenue, grew sales low single digits. While we saw declines in 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-2024 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. Certain industrial verticals, such as ore refinery, LNG production, chemical and petrochemical production, lends 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 industrial customers, both in distribution and installation. New commercial and industrial facilities are being planned, and we anticipate continued mini-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 to help provide an in-depth understanding and control of our business — something we believe is a core strength of 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. Acquisitions continue to be our highest priority for capital allocation. And in April, we are pleased to close the acquisition of Seal-Rite. 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. 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 10-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. 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. We know how to adjust and outperform in a changing environment and remain committed to driving shareholder value. Rob?

Robert Kuhns: 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 end markets. Jumping into our results. Our first quarter sales declined 3.6% to $1.2 billion. Volume declined 7.4%, which was partially offset by M&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%. Our Installation segment sales were down 6.7% to $745.5 million 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&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 $559.8 million in the quarter. Volume declined 2.2% as slower residential sales were partially offset by commercial and industrial sales growth. 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 onetime costs of $13.9 million, which are primarily related to noncash lease impairment charges.

Separately, in the first quarter, we also made headcount reductions to align our cost structure with current demand levels. These reductions resulted in onetime severance costs of $1.5 million. Excluding these onetime 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&A as a percentage of sales in the first quarter was 13.9% versus 13.5% last year. The increase in SG&A percentage was primarily due to lower sales volume in the quarter. First quarter adjusted EBITDA for TopBuild was $234.8 million. Adjusted EBITDA margin of 19% represents an 80-basis point decline when compared to last year.

Installation segment adjusted EBITDA margin was 21.1%, 90 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 $11.5 million, an increase of $4 million due to lower interest income related to lower cash balances. First quarter adjusted earnings per diluted share was $4.63, $0.18 lower than last year. Turning to the balance sheet. Total liquidity was $746.4 million at the end of the quarter. We finished the first quarter with $308.8 million in cash and $437.6 million in availability under the revolver. Net debt totaled $1.07 billion, and our net debt leverage ratio was 1 time trailing 12 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 Seal-Rite, an Omaha-based residential installation business with about $15 million in annual revenue. Acquisitions remain our top capital allocation priority, and our pipeline is very active. In addition, we returned $215.6 million in capital to shareholders through our share buyback program. finishing the quarter with $972.4 million remaining under the current authorization. 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 TopBuild. Moving on to guidance. As you saw in the release, we are confirming our full year outlook for sales of $5.05 billion to $5.35 billion. 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 Seal-Rite to our M&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. M&A carryover, along with Seal-Rite, will add approximately $85 million 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. The second quarter will likely have the largest year-over-year decline of the remaining quarters. We are also maintaining our adjusted EBITDA guidance of $925 million to $1.075 billion. 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 TopBuild will continue to outperform in any environment.

Robert?

Robert Buck: 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 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: [Operator Instructions]. Our first question will be coming from the line of Stephen Kim with Evercore ISI.

Aatish Shah: This is Aatish on for Steve. I just wanted to touch on the commercial and industrial side. I think at the end of last year, has 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. It’s not so obvious why the financing environment would have improved. So, any color there would be helpful. Thanks.

Robert Buck: Thank you, Aatish, 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. I would also point to, I think our teams in the field ops are 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 and that’s showing up in the numbers as well. So, I’d say a combo project coming online, great execution the vertical market strategy by our field teams.

Stephen Kim: It’s Steve Kim. Thanks so 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. But you can also, I think, bring your relative size to your advantage, allowing you to get preferred pricing versus your small competitors maybe when capacity utilization for the manufacturers is a little lower. And so, I think that over the last years, you’ve really benefited from the former as capacity utilization has been really tight. But as we look forward here with utilization rates may be dropping a little bit, some manufacturer capacity additions being announced, like just last — yesterday from [indiscernible].

I’m wondering whether or not you think that your relative competitive advantage on pricing would offset any slower rate of sort of industry or manufacturing 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: 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. And you’re right, we’ve had three of the four announced additional capacity expansions here, some — maybe a little bit hitting in ’26 and some more coming in ’27. So, I think that’s favorable for TopBuild. I think if you look even at current results, I mean, the teams have done a nice job. We wouldn’t expect necessarily any new pricing per se here in 2025. But I think you tell the teams have done a nice job holding on and leveraging for the — obviously, the services and products that we provide there.

So, we’ll stay close to our manufacturing partners as material loosens up. And again, we have the ability to take that where it exists in the country and across our footprint.

Stephen Kim: So, I just want to clarify, Robert, you said you don’t expect new pricing in 2025. I guess your main industry manufacturer pricing. Is that what you meant by that?

Robert Buck: 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: Yes. Okay. I just wanted to clarify. Appreciate it.

Operator: The next question is from the line of Michael Rehaut with JPMorgan. Proceed with your question.

Michael Rehaut: 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. Previously, you reiterated commercial and industrial, up low single. So, I just wanted to understand what kind of was the offset to the slightly lower resi outlook. And if it’s kind of playing with the ranges here, maybe before you were at the high end of — to 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: 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 we’re anticipating on the single-family side of things where things are expected to be a little slower. So, as we came into the year, 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. 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&A by $10 million, 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: Great. That’s helpful, Rob. I appreciate that walk through. I guess, secondly, it’s interesting to hear about the footprint optimization, the consolidation of 33 facilities. That seems a little bigger perhaps then 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. So just if you could kind of help us better appreciate the magnitude or the impact of the footprint optimization from a dollar perspective, what that’s 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: Yes, Mike, 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, we’re able to look at some logistics that type of thing. So, this was really maybe a handful of M&A overlap, if you will. So, it’s really a combination of being able to put all those pieces together in a very, very targeted and systematic way. And so, we’ve 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 is very targeted and done in a very calculated way, if you will. So, I think it’s just the power of the model here and the competency we have to look at that across to 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 Andrew’s question is how we continue to have room in this I’ll let Rob talk about some of the tailwind piece of it.

Robert Kuhns: Yes. 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 are very careful. And we want to do it in a way that we don’t damage the top line at all, and we’re confident we’re not going to do that. But as a result of this, obviously, we’ve got the onetime charge, so about $13.9 million related to the consolidations. That’s primarily noncash 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 our headcount around current volumes, should be about $30 million or more of additional annual savings.

But as we talked about in the prepared remarks, that is baked into our guidance. As 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: Great. Thanks so much.

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

Adam Baumgarten: 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. Should we expect the year-over-year price contribution to moderate as we move through the year given that dynamic?

Robert Kuhns: Yes, Adam, this is Rob. I’d say that’s definitely baked in our assumption right now. So, we would expect pricing to moderate particularly on the install side, we did have some in mental C&I pricing that 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: 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 have they been kind of flattish for a while?

Robert Buck: Yes. 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, I’d call flattish.

Operator: Our next questions are from the line of Susan Maklari with Goldman Sachs. Please proceed with your question.

Susan Maklari: Good morning, everyone.

Robert Buck: Good morning.

Susan Maklari: My first question is on 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: 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 at what’s going on with bidding and adjusting our head count 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 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&A. We think this is a good time to do some M&A. And so, we’re hopeful to be able to add some volume to the business through M&A. And as a result, we don’t want to cut too deep too quickly here.

Susan Maklari: Okay. That’s helpful. And then maybe building on that, Rob. Can you talk a bit about the M&A pipeline any changes that you’re seeing there? And what you’re seeing perhaps on sort of the more traditional install side of the business relative to some of the deals on the C&I side?

Robert Buck: Yes. Susan, it’s Robert. So very healthy, and I’d say a variety of — I think I mentioned in the prepared comments, a variety of sizes of deals in there. And it’s really, quite honestly, across all of the end segments or residential, C&I for sure and across the businesses. So really healthy pipeline and busy time for us from a M&A 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: Good luck with everything.

Robert Buck: Thank you.

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

Phil Ng: 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 of upside as the branch consolidation headcount, a contributor? 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 at 19% EBITDA margin, 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: 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&I, a little better on the volume side. 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 has been good in the quarter. And price realization on C&I products that had price increases in the first quarter was good as well. 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, we 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. 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 19.2%, and Q4 will be a little bit worse than that 19.2%. But obviously, there’s a lot of time to go here that we’ve kept the range kind of wide because there is significant uncertainty out there. But at the midpoint, that’s kind of how we’re thinking about it.

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

Robert Buck: Yes, 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 offsetting any challenges from a price perspective, and I think you see that in the results, Phil. So, I think we feel pretty comfortable with how pricing plays out here. Obviously, volatile environment, but we have confidence in what our teams are doing and see what they’re doing every day in the field level.

Phil Ng: And then on some of the material costs, [indiscernible] C&I side, there’s some price increases out there?

Robert Buck: Yes, definitely some increases out. Obviously so where some of the tariff stuff fares out as well, but there are some increases in the market out there today in the areas that you mentioned.

Phil Ng: Okay. Thank you.

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

Trey Grooms: Good morning, everyone. Just a point of clarity. Rob, I think you mentioned 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 2Q. So, is there — does the new guide assume any demand pick up 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: 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, I said, Q2, the worst of the remaining three quarters from a year-over-year. I was talking about sales growth. 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 2 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 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: Okay. And kind of on the point of rightsizing, I guess, the footprint, the workforce, et cetera. 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 a little better.

Robert Buck: 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. It doesn’t mean that we’re always constantly looking, right? You know that about us, we’re constantly looking at anywhere to optimize the business. And if there needs to be more, we’ll do that, where appropriate. And then relative to ramping up, I mean, again, some of the — as Rob mentioned the headcount, that was just kind of pruning, if you will, in the appropriate areas. And we have the visibility with that say, very little issue to flex back up in some of those areas as we see demand come back or demand fluctuate.

Operator: Our next question is from the line of Keith Hughes with Truist Securities. Please proceed with your question.

Keith Hughes: Can you just talk about, in the quarter, the relative performance and distribution between Service Partners and they are around this kind of organic number you reported?

Robert Kuhns: Yes, Keith, this is Rob. So Yes. Obviously, the — we don’t break out the two, but we definitely saw weaker resi sales and stronger commercial sales quarter for specialty distribution, and we do break that out in total. So, on the specialty distribution side, I’m just taking the number here to make sure I get the right number. But special distribution on the resi side from a same branch basis perspective was down about 5% and on the commercial side, which is primarily mechanical, but a little bit of Service Partners in there as well was up around 2%. So definitely a stronger performance. 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: I’m sorry, those numbers, were those revenue or units or what specific were that…

Robert Kuhns: That’s revenue on a same branch basis.

Operator: The next question is from the line of Ken Zener with Seaport Research. Please proceed with your question.

Ken Zener: Good morning, everybody.

Robert Kuhns: Good morning, Ken.

Ken Zener: So, I think Q4 surprised at your held guidance despite the, I guess, decline in housing fundamentals. Obviously, you referred to M&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 cut in the public private common, if you could. Because public, right? They’re part there, the for start data. They’re down about 10% in 1Q. The guidance kind of implies flat for the year. It seems like the privates are doing worse than the public builder 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 6 months. Rob, if we were to see another 5% decline tied to who does tariffs service to that?

And I realize you’re giving data as very consistent with the publics and privates have kind of show you, what would a 5% decline in 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: 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 incremental. But what we know is if we don’t take out any labor or any cost with that, it’s going to 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 their baked in. But if we see an additional drop of 5%, we’re going to be targeting to get there. 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 our headcount reductions and get to that 27% quicker. If it’s — if we believe it’s not going to last as long and the market could come back quicker, we’re definitely going to take a more cautious approach. And that’s been our approach here, and that’s going to continue to be our approach going forward.

Ken Zener: Okay. And then Robert, can you maybe — if you would, given your guidance 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 strike in the Midwest. Southeast, if you will, north of Florida. Can you give us a little feel for how those regions are operating differently? We don’t assume, right, all your markets are down because you have good markets and bad markets.

Robert Buck: Yes. I’m glad to take the question, Ken. So maybe I’ll just try to give a little overview of country and try to give you some flavor around that. So, if you think about years past where you talk about areas like Florida and Texas, and those were growth areas. And obviously, those are big markets in the Southeast as well. Those are from a percentage basis, some of the slower markets right now. And usually, if you looked around Florida, you would say, it’s a mixed bag. But Florida’s first off, maybe definitely probably Orlando better than in Naples, if you will. But North and South Florida a little slow. Texas, I would say, of North versus South. So, Dallas still continues to hold up, very strong, and we see backlogs building in Dallas, and I would 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, are seen there. 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 that gives you a little view around the country from that perspective, and it is a little different by market, Dallas versus the rest of the rest of Texas is a pretty good example of that. 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 I just mentioned where things are building momentum. It is like to take the Northeast as an example, there’s 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, I hope that gives you a little bit of flavor you’re looking for based on what we see.

Ken Zener: It does. And I wonder where — could people say consumer confidence, uncertainty, you can get the politics of it. But like 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 would be great.

Robert Buck: Yes. I think probably you had 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 the 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.

Ken Zener: Thank you, very much.

Operator: Our next question is from the line of Jeff Stevenson with Loop Capital Markets. Please proceed with your question.

Jeff Stevenson: Thanks for taking my questions. I was wondering if you could provide more color on the variance between light and heavy commercial demand in your Installation segment during the quarter. And I wondered whether light commercial bidding activity remains soft? Or you’ve seen any signs of stabilization since the start of the year?

Robert Kuhns: 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 like commercial. I think we have seen some improvement in certain markets there.

Robert Buck: Yes. And if you think about that light commercial, I mean, Rob rightly 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 at the 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.

Jeff Stevenson: Okay. Great. That’s helpful. And then I wanted to shift to your M&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 more opportunities now given reduced seller expectations are potential sellers now focus on navigating this period of market uncertainty.

Robert Kuhns: Yes, Jeff, this is Rob. I would say it’s a mixed bag. I would say, you haven’t seen multiples decline in any meaningful way. I think folks are look similar to what we say, right, looking at the midterm, long term and saying we’re still under built in the U.S. and so they see that as an opportunity. At the same time, whether it be succession planning, whether it 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 seen, but it is a very active time.

Jeff Stevenson: Great. Thank you.

Operator: The next question is from the line of Reuben Garner with Benchmark Company. Please proceed with your question.

Reuben Garner: Good morning, everybody. If 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 at the — 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: Yes. I’d say, Reuben, 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 the — 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 the distribution side as it is on the installation side.

Reuben Garner: Okay. Great. That’s really helpful. And then what are you guys assuming in terms of the size of homes in your outlook? Or 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: Yes, Reuben, this is Rob. I mean, it’s definitely been a trend, but I’d say that’s been a trend for the last 5 years plus, and we really haven’t seen a meaningful shift down a 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.

Operator: Our next question is from the line of Collin Verron with Deutsche Bank. Please proceed with your question.

Collin Verron: I guess I’m going to start with C&I. It was pretty resilient in the quarter, and you called out the backlog in orders being solid still. Can you just talk about how much visibility into revenue you have in the C&I business? Are you booked out through the end of the year here? And do you see any risk of an air pocket impacting ’25 or ’26, just as you work through the current backlogs? Or just has bidding activity been strong enough to really replace that backlog?

Robert Buck: This is Robert. So, we have pretty good visibility, definitely in the backlog from a C&I perspective. I’d say 6 months on average, probably a good way to think about it. 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 an items 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 field teams are going after different type of job, 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: Great. That’s really helpful color. And then I guess I just wanted to ask 1 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 they get later into 2025? Or do you see it being pretty steady from current levels?

Robert Kuhns: 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 midpoint 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.

Operator: Our last question is from the line of Rafe Jadrosich with Bank of America. Please proceed with your question.

Rafe Jadrosich: Good morning. Thanks for taking my question. 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, that those pressures would continue, and now the outlook is a little bit better. What’s the upside versus your initial expectation, 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: Yes, Rafe, this is Rob. 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 the volumes and just as necessary out there. 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 antidumping tariffs, et cetera, 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: That’s helpful. And then just on the rationalization, it sounds like that’s more related to the long-term optimization, not really adjusting for the current environment. if single-family starts stay under pressure through the end of ’25 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 decrementals stay elevated?

Robert Kuhns: Yes, Rafe, this is Rob. So, I mean we’ve already started adjusting cost. 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 stand-alone basis, I mean, first, you got to back out the impact of M&A when you do that, you’re still going to see a slightly elevated number. But we do have baked in, as we talked going into the year, some margin pressure related to price cost as we navigate 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.

Rafe Jadrosich: Thank you.

Operator: Thank you. At this time, we conclude our question-and-answer session. I would like to turn the floor back over to Robert Buck for closing comments.

Robert Buck: Thank you for joining us today. We look forward to speaking with you in early August to discuss our Q2 results.

Operator: Thank you. This concludes today’s call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.