TopBuild Corp. Q2 FY2024 earnings call

• TopBuild delivered solid second quarter with both segments growing top-line sales and bottom-line profits despite uneven housing demand, project delays, and supply tightness. • Sales reached $1.37 billion, highest quarterly sales in history, up 3.7%. Adjusted EBITDA was $277.7 million with a margin of 20.3%; excluding last year's margin benefit, same-branch incremental EBITDA margin was 41.2%. • Residential business grew 5.4%, single-family improving, multi-family strong but bidding slowed; Commercial and industrial affected by higher rates, projects pushed to 2025 but no cancellations. • Over 150 active data center projects in US, backlog grows into 2026. • Prioritize acquisitions, $280 million in annual revenue from last 18 months, recent acquisition of Texas Insulation ($39M annual sales). • $505 million returned to shareholders in Q2, $649.2M remaining under $1B repurchase program.

Installation Segment: Net sales grew 5.2% to $851 million. Net M&A added 2.9%, pricing added 1.3%, and volume was up 1.0%. Residential sales grew 6.7% with single-family improving and multi-family strong; commercial sales down 1.9% due to project timing and material issues. Specialty Distribution Segment: Net sales grew 3.2% to $593 million. Volume improved 0.6%, pricing and acquisitions each contributed 1.3%. Residential sales grew 4.6%, commercial and industrial sales grew 2.3%.

• Revised full-year sales guidance to $5.3-$5.5 billion, midpoint reduction of $100M due to choppiness in commercial markets, partially offset by M&A and fiberglass price increase. • Tightened EBITDA guidance to $1.055B-$1.125B, midpoint reduction of $20M, reflecting choppiness in commercial and industrial, but confidence in profitable growth.

• Uneven housing demand in regions, project delays due to higher interest rates. • Fiberglass and certain commercial products in tight supply, constraining volume growth. • Interest rate fluctuations, potential slowdown in commercial projects affecting growth.

Q: Concern about price realization and commercial industrial guidance A: Price realization affected by overlapping prior year price decreases; commercial industrial guidance low single digits due to project delays and supply chain issues, with second half expected to improve year-over-year.

Q: Margins and productivity A: Margins strong, adjusted EBITDA margin 20.3%, special ops team driving productivity, included in back half guidance but not long-term EBITDA guide.

Q: Capital allocation and M&A pipeline A: M&A priority, healthy pipeline; share repurchases prioritized with M&A pipeline, $649.2M remaining.

Q: Material constraints and choppiness A: Fiberglass supply tight in Q2, improving in back half; choppiness due to regional variations in housing starts and project progress.

Q: Single-family starts vs volumes, rate cuts impact A: Starts up but volumes lag due to supply constraints; rate cuts expected to boost 2025 momentum.

Q: Productivity and margin outlook A: Productivity initiatives from special ops team driving margins, margins expected to hold in slowdown but with potential decrementals.

Q: Large vs independent builder growth, light commercial demand A: Growth with large builders due to rate buy-downs; light commercial better than heavy, bidding strong but projects delayed.

Q: Multifamily backlog, spray foam/gutter pricing A: Multifamily backlog carries into 2025, regional variations; spray foam/gutter pricing headwinds from prior year roll off in back half.