TopBuild Corp. Q1 FY2025 earnings call

• Macro Landscape: New residential construction demand remains soft due to elevated interest rates and economic uncertainty, but commercial and industrial projects show positive trends, including acceleration in data center construction and positive trends in healthcare and certain manufacturing subsectors. • Segment Results: Installation segment had mid-single-digit sales decline; Specialty Distribution segment saw low single-digit sales growth. • Operational Improvements: Consolidated 33 facilities as part of a footprint optimization project, incurring $13.9 million in one-time costs related to noncash lease impairment charges. • Capital Allocation: Acquisitions remain a top priority, with the acquisition of Seal-Rite closed in April, and $215.6 million returned to shareholders via share buyback. • Sustainability: Published the 2024 sustainability report, highlighting the company's contribution to enhanced energy efficiency through its business model.

Total TopBuild sales declined 3.6% to $1.2 billion. The Installation segment, comprising about 62% of total sales, experienced a mid-single-digit sales decline driven by the residential end market. The Specialty Distribution segment, representing approximately 38% of total revenue, saw low single-digit sales growth. Specifically, the Installation segment's sales dropped 6.7% to $745.5 million in the first quarter, with volume declining 9.6% but partially offset by growth in heavy commercial, M&A contributions of 1.8%, and pricing of 1.1%. Specialty Distribution sales grew 2.6% to $559.8 million, with volume declining 2.2% but offset by growth in commercial and industrial sales, acquisitions adding 3.4%, and pricing contributing 1.4%.

• Full-Year Sales: Confirmed sales guidance of $5.05 billion to $5.35 billion. Residential sales expected to be down high single digits, while commercial and industrial sales are expected to be up low single digits. M&A, including the acquisition of Seal-Rite, is expected to add approximately $85 million to total sales. • Adjusted EBITDA: Maintained guidance of $925 million to $1.075 billion, including savings from the branch footprint optimization project and headcount reductions.

• Tariffs: Potential minimal direct impact on TopBuild, but the company is actively monitoring the environment and working with the supply base to mitigate any anticipated effects. • Macroeconomic Uncertainty: The direct and indirect impacts of tariffs on housing demand and overall business performance remain uncertain, with the company closely monitoring the landscape.

Q: Touch on commercial and industrial projects moving forward despite financing issues.

A: Projects are coming online as stakeholders accept the current financing environment, and field teams are executing a vertical market strategy across multiple sectors.

Q: Pricing environment outlook.

A: No new pricing is expected in 2025, but the company is working with manufacturers regarding material supply and will take pricing actions as necessary.

Q: Guidance revision on resi outlook.

A: Residential outlook was lowered to down high single digits due to a slowdown in single-family markets, offset by stronger commercial and industrial sales and M&A contributions.

Q: Footprint optimization impact.

A: Consolidation of 33 facilities incurred $13.9 million in one-time costs, with expected annual savings of $30 million or more from lease consolidations and headcount rightsizing.

Q: Labor and housing outlook.

A: Headcount adjustments are being balanced with the longer-term housing outlook, with hopes that M&A will add volume to the business.

Q: M&A pipeline.

A: The M&A pipeline is healthy with a variety of deal sizes across segments, and the company remains disciplined in pursuing opportunities.

Q: Margin progression.

A: EBITDA margin is expected to follow seasonal trends, with Q2 likely experiencing the largest year-over-year sales decline among the remaining quarters.

Q: Single-family market detail.

A: Regional differences exist in single-family markets, with some areas like Dallas showing momentum while others like Florida and parts of Texas are slower.

Q: C&I demand variance.

A: Heavy commercial outperformed light commercial in the quarter, with bidding activity improving in certain markets.

Q: Distribution vs installation performance.

A: The resi portion of the distribution business outperformed the installation segment due to less exposure to multifamily markets.

Q: C&I visibility.

A: The C&I business has an average 6-month visibility in backlogs, with confidence in execution and ongoing project momentum.

Q: Single-family starts pace.

A: The outlook assumes normal seasonal changes, with single-family sales expected to be down low single digits for the year.

Q: Price mix and competitive environment.

A: Price mix improved due to price increases on commercial and industrial products and some incremental pricing on spray foam, with the competitive environment closely monitored.