TopBuild Corp Q1 FY2025 Earnings Call

Ladies and gentlemen, thank you for standing by. Greetings, and welcome to TopBuild's First Quarter 2025 Earnings Conference Call. 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.

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.

Good morning. Thank you for joining us today for our first quarter 2025 earnings call. I want to begin by discussing the current macro landscape and operating environment. Demand for new residential construction remains weak, and we are seeing fluctuations across different regions. The spring selling season was slower than expected due to high interest rates and economic uncertainty impacting consumer confidence, leading to reduced housing demand. However, the fundamentals of the housing market are solid, and we are optimistic about the long-term outlook for our business. On the commercial and industrial side, we are seeing an increase in projects entering production and ongoing bidding activity in the C&I sector. In particular, data center construction is gaining momentum, and we also see positive developments in health care and certain manufacturing subsectors like chemicals. While tariffs and trade issues between the United States and other countries are a concern, the direct impact of the currently announced tariffs on TopBuild is minimal. We are proactively working with our supply chain to mitigate the expected effects of these tariffs, and we will adjust prices as necessary. The overall impact of tariffs on housing demand remains uncertain, and we are closely monitoring the situation. Now turning to our results. Our first quarter performance met our expectations. Total TopBuild sales fell 3.6% to $1.2 billion, primarily due to weakness in new residential construction, partially offset by growth in the commercial and industrial sectors. Our adjusted EBITDA was $234.8 million, with a strong EBITDA margin of 19%. The Installation segment, which represents about 62% of total sales, saw a mid-single-digit decline in sales driven by the residential market. Our Commercial Installation business remained flat, with strong performance in the heavy commercial segment compared to light commercial. Our Specialty Distribution segment, which accounts for roughly 38% of our revenue, experienced low single-digit sales growth. Although there were declines in our Service Partners business due to weakened residential demand, we saw strong growth in our DI mechanical insulation business in the U.S. and Canada. We faced project delays in mid-2024 across commercial and industrial, but these have begun to progress this year. Additionally, recurring revenue represents about 25% of the Specialty Distribution segment, with certain industrial verticals needing regular inspection and replacement of insulation materials. We are well-positioned to seize opportunities with our diverse commercial and industrial customer base in both distribution and installation, and we expect continued growth in new commercial and industrial facilities. Regarding operational improvements, our common technology platform and single ERP system allow us to analyze data continually and gain insights that enhance our operational control. In the first quarter, our field leadership and special ops teams advanced a footprint optimization project, consolidating 33 facilities to improve efficiencies across our operations. This is an excellent example of how our team drives operational excellence. On capital allocation, acquisitions continue to be our main focus. In April, we successfully completed the acquisition of Seal-Rite and are considering several other opportunities. Our strategy focuses on increasing our total addressable market while leveraging our core strengths, such as our people, extensive branch model, technology platform, strong supply chain, and disciplined financial and strategic approach. We remain committed to achieving strong shareholder returns and have repurchased nearly 694,000 shares in the first quarter. Before I hand it over to Rob for more details on our results and outlook, I want to highlight a few key points. This year marks our 10-year anniversary as a public company, and our success is driven by our people, who are dedicated to growing their business, driving improvements, and ensuring safety daily. We are proud to have been recognized as a Great Place to Work for the third consecutive year, reflecting our commitment to our culture and teams. We also published our 2024 sustainability report, available on our website. Our business inherently promotes sustainability through enhanced energy efficiency in our services. Despite the current macro uncertainty, we believe in our medium and long-term opportunities. Our teams are strong, collaborating to turn challenges into opportunities. We know how to adapt and succeed in a changing environment and remain dedicated to enhancing shareholder value.

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 one-time 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 one-time severance costs of $1.5 million. 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&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 one 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 the 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.

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.

Our first question will come from Stephen Kim with Evercore ISI.

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

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 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 combination of projects coming online and great execution in the vertical market strategy by our field teams.

It's Steve Kim. Thank you for that. My second question relates to the pricing environment. Broadly speaking, there are two ways that TopBuild can benefit from pricing dynamics. One way is through participating in manufacturers' pricing power when their capacity utilization is high. Another way is leveraging your relative size to secure better pricing compared to smaller competitors, especially when manufacturers have slightly lower capacity utilization. Over the past year, you’ve benefited from the first scenario, as capacity utilization has been quite tight. However, looking ahead, with utilization rates potentially decreasing and some manufacturers announcing capacity additions, like we saw recently, I'm curious if you believe your competitive advantage in pricing will counteract any slowdown in industry or manufacturing pricing. Can you comment on that dynamic and provide your outlook on pricing moving forward?

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 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.

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?

Yes, that would be our outlook as we sit here in Q2 of the year.

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 residential 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 residential outlook. And if it's kind of playing with the ranges here, maybe before you were at the high end of down to 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 residential?

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.

Thank you for the explanation, Rob. It’s interesting to learn about the optimization of the footprint and the consolidation of 33 facilities. That seems larger than some of the usual ongoing productivity efforts from your special ops teams. Could you help us understand the scale or financial impact of the footprint optimization? Specifically, how much it contributes as a tailwind this year, whether it was included in your original guidance from a couple of months ago, or if it's an additional factor that supports your ability to meet the EBITDA guidance?

Yes, Mike, it's Robert. I'll begin by discussing the project, and then Rob will address some of your questions regarding the numbers. We have been developing this for a few months as part of our technology initiatives. We have an optimization tool called agility that helps us analyze customer delivery points and logistics. This involves a limited amount of M&A overlap, allowing us to integrate these elements in a very targeted and systematic manner. For instance, we might consolidate a TruTeam location with a DI location or even have some distribution locations co-locating from a DI Service Partners perspective or within our MBI business. This approach is focused and calculated. Our model empowers us to make strategic moves that enhance efficiencies in the business. This is an area we've been actively working on. As for Andrew's question about our ongoing capacity, I’ll let Rob elaborate on some of the tailwind aspects.

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 one-time 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.

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?

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 incremental 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.

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.

Good morning, everyone.

Good 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 residential 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?

Yes, this is Rob. We're constantly balancing our approach based on market conditions, considering factors like volumes and bidding, and adjusting our headcount accordingly. This process is ongoing. We're optimistic that the changes we implemented in Q1 will mean we won't need to make any significant adjustments moving forward, just minor tweaks. We feel confident that we haven't made any detrimental cuts; we want to continue growing and exploring M&A opportunities, as we believe this is an opportune time for it. Therefore, we aim to avoid making cuts too deep or too quickly.

Yes. Susan, it's Robert. The pipeline is very healthy, featuring a range of deal sizes. We've observed this across all end segments, including residential and commercial and industrial. It's a busy time for us from an M&A perspective. However, we will remain disciplined and prioritize what’s best for shareholders. Overall, we are quite excited about the ongoing developments.

Congratulations on a strong quarter. Rob, you mentioned that margins came in better than expected. Can you elaborate on what areas are contributing to the upside, particularly regarding branch consolidation headcount? Additionally, can you provide some insight on how that is progressing? Looking at your full year guidance, the midpoint indicates a 19% EBITDA margin, which is impressive given the current environment, yet it appears flat compared to Q1, whereas typically you would see a seasonal increase in Q2 and Q3. Can you help us understand how the margin progression is expected to unfold this year?

Yes. So, I'd say looking at the quarter, if you think about what went better, 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 the 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 of a softer 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.

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?

Yes, regarding pricing, we expect the teams to be compensated for the excellent services and products they provide. Therefore, we anticipate that pricing will remain stable. The teams in the field have a strong understanding of the business and are effectively finding efficiencies to counter any pricing challenges. We see this reflected in the results. Overall, we are comfortable with the pricing outlook, even though the environment is unpredictable. We have confidence in our teams and observe their efforts daily at the field level.

And then on some of the material costs, there's some price increases out there?

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.

Good morning, everyone. I just want to clarify something. Rob, you mentioned that Q2 experienced the biggest decline, and I believe you were talking about the revenue on that point. However, it seems that the comparison between Q3 and Q2 is quite similar. So, does the new guidance anticipate any demand improvement in the latter half of the year, or is there another timing factor we should consider?

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 perspective. 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 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 to be flat to slightly down. But we're talking low single digits across the board when we're talking about the numbers there.

This is Robert. Considering the effort that went into that work over time, I would say it was completed primarily in the first quarter. However, it doesn't mean we aren't always searching for ways to optimize the business. You know how we are; we're continuously looking for opportunities. If more needs to be done, we'll take action where it's suitable. Regarding ramping up, as Rob mentioned about the headcount, it involved some adjustments in the right areas. We have the capability to easily increase capacity in those areas as demand returns or fluctuates.

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?

Yes, Keith, this is Rob. So Yes. Obviously, we don't break out the two, but we definitely saw weaker residential 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 specialty distribution on the residential side from a same-branch basis 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.

Good morning, everybody.

Good morning, Ken.

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 do tariffs serve to that? And I realize you're giving data is 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 incremental 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?

Yes, Ken, regarding our long-term target for decremental margin, we have previously discussed aiming for around 27% on the incremental side. However, if we don’t reduce any labor or costs, that figure will likely exceed 27%. Looking at this year and our guidance, we are getting close to that number when adjusting for price costs and other potential impacts. If we experience an additional 5% decrease, we aim to reach that target. It all hinges on our outlook moving forward. If we expect that 5% drop to persist, we will be more aggressive in reducing headcount to achieve that 27% target sooner. Conversely, if we believe the downturn will be short-lived and the market may rebound quickly, we'll adopt a more cautious strategy. This has been our approach, and it will continue to guide us in the future.

I'm happy to answer your question, Ken. I'll start with a brief overview of the country. In the past, states like Florida and Texas were considered growth areas, and they still are significant markets in the Southeast. Currently, these areas are showing some slower growth. Florida, for instance, has mixed performance; Orlando is doing better than Naples, while North and South Florida are lagging. In Texas, Dallas remains strong and is seeing increasing backlogs, including in the multifamily sector. However, Houston, San Antonio, and Austin are performing slowly. On the other hand, markets in the Northeast and Midwest are gaining momentum, and Southern California is also showing positive trends. The Pacific Northwest is similarly performing well, while Northern California is falling behind. In the Southwest, areas like Las Vegas and Phoenix are also notable. This provides a snapshot of market variations across the country, with Dallas exemplifying the differences within Texas. Public builders are echoing these observations, especially in the Northeast where some custom builders are gaining traction, though not as much in Florida. I hope this gives you the insights you were looking for regarding our observations.

It does. I wonder what factors are influencing markets like in Dallas, whether it’s consumer confidence, uncertainty, or political issues. Is it just job growth and improved confidence there, or is the situation in Florida affected by too much supply? A bit more detail on why those markets differ would be appreciated.

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 in 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.

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?

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

Yes. When considering the light commercial sector, Rob has accurately highlighted the residential trend. However, we have significant opportunities in that area, and we continue to see several bidding prospects and chances for market share growth. Our teams will adjust their resources accordingly. In terms of commercial performance, we saw positive results in the first quarter. Looking at the distribution side, particularly in the mechanical segment, we anticipate this positive trend to persist.

Yes, Keith, this is Rob. So, yes. Obviously, we don't break out the two, but we definitely saw weaker residential sales and stronger commercial sales quarter for specialty distribution, and we do break that out in total. So, on the specialty distribution side, specialty distribution on the residential side from a same-branch basis 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.

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?

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 incremental 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.

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.

Good morning, everyone.

Good 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 residential 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?

Yes. This is Rob. We're continually balancing the market by market, assessing volumes and bidding, and adjusting our headcount as necessary. This ongoing process allows us to make minor tweaks moving forward without significant changes as we did in Q1. We believe we haven't made significant cuts and are focused on growth. We still plan to pursue mergers and acquisitions, viewing this as an opportune time for M&A. Therefore, we're cautious not to make abrupt cuts.

Yes, Susan, it's Robert. The pipeline is very healthy, with a variety of deal sizes involved. This activity spans all end segments, including residential and commercial & industrial, indicating a busy time for us concerning mergers and acquisitions. However, we will remain disciplined and prioritize shareholder interests. We are quite excited about the developments taking place.

Congratulations on a strong quarter. Rob, you mentioned that margins exceeded your expectations. Can you provide more details on what areas contributed to this upside, specifically regarding branch consolidation and headcount? Additionally, looking at your full year guidance with the midpoint at a 19% EBITDA margin, it's impressive considering the current environment, yet it appears flat compared to Q1. Typically, we see a seasonal increase in Q2 and Q3. Can you help us understand how you expect the margin progression to unfold this year?

Yes. So, I'd say looking at the quarter, if you think about what went better, 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 the 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 of a softer 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.

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?

From a pricing perspective, we expect our teams to be compensated for the excellent services and products they deliver. We anticipate that pricing will remain stable. The teams in the field have a strong grasp of the business and are effectively seeking efficiencies and solutions to counter any pricing challenges. This is evident in our results. We feel confident about how pricing will develop, even though the environment is unpredictable. We trust in our teams and observe their efforts daily at the field level.

And then on some of the material costs, there's some price increases out there?

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.

Good morning, everyone. I just wanted to clarify something. Rob, I believe you mentioned that the second quarter saw the largest decline, which I assume was in reference to the top line. However, it appears that the comparison for the third quarter is similar to the second quarter. Does the new guidance anticipate any increase in demand in the latter half of the year, or is there another timing factor we should consider?

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 perspective.