Earnings Call Transcript - BLD Q2 2025

Operator, Operator

Greetings, and welcome to the TopBuild Second Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce P.I. Aquino, Vice President of Investor Relations. Please go ahead.

P.I. Aquino, Vice President of Investor Relations

Good morning, and thanks for joining us. With me today are 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. 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. Let me now turn the call over to our President and CEO, Robert Buck.

Robert M. Buck, President and CEO

Good morning. Thank you for joining us today for our second quarter 2025 earnings call. With half of 2025 behind us, I want to start by saying how proud I am of everything our teams have accomplished so far this year. In July, we completed the acquisition of Progressive Roofing, establishing a new platform for growth in the large, highly fragmented $75 billion commercial roofing services market. The transaction aligns very well with our core strengths, expands our installation service offerings for commercial customers and increases our exposure to non-cyclical, non-discretionary revenue drivers. Commercial roofing is a natural adjacency to our core insulation business with exciting potential, and we're delighted to welcome the talented Progressive Roofing team to TopBuild. Our teams are starting to work together, including sharing best practices and thoughts on an integration road map. We also took steps in the first quarter to better align our cost structure with the demand environment and optimize our footprint, including the consolidation of 33 branches across our network. On a daily basis, our teams put a great deal of effort into driving our performance, and I want to thank everyone on our team for continuing to strive for improvement across our business and delivering solid results. Our continued solid profitability in the second quarter is a testament to our ability to successfully navigate changes in an uncertain macro environment. We are pleased with our sequential improvement from the first quarter with our second quarter adjusted EBITDA margin of 20.1%, which is a direct reflection of the command we have over our business and is supported by our ongoing work to drive improvements across the business and our supply chain. Softness in residential new construction was partially offset by growth in heavy commercial and industrial, where verticals like technology, education and health care continue to flourish. Total TopBuild sales in the second quarter declined 5% to $1.3 billion as the new residential construction market remained weak, and single-family demand slid further on a year-over-year basis. While the housing market in the U.S. is still underbuilt, mixed economic signals, interest rates and affordability concerns continue to weigh on consumer confidence, keeping some homebuyers on the sidelines. We'll continue to closely monitor the macro environment. Turning to capital allocation, we have a robust pipeline of acquisition candidates, and M&A is still our highest priority for deploying capital. In addition, the Progressive team has several acquisition opportunities in their pipeline. As always, we'll stay disciplined around evaluation and focused on driving strong shareholder returns. In the second quarter, we also repurchased just under 455,000 shares of our stock, returning a total of $136 million in capital to our shareholders. Before I turn it over to Rob, I want to give you a brief look back at our business, but also share with you some thoughts on how we're positioning TopBuild for the future. This past July 1 marked the 10-year anniversary for TopBuild as a public company. When I look back over that time, it's remarkable how much we've grown. When we spun in 2015, we had $1.6 billion in sales and mid-single-digit profit margins. Last year, we were roughly $5.3 billion in sales or about a 14% compounded annual growth rate. With Progressive, we'll be more than $5.5 billion on a pro forma basis this year. Since 2015, we've also more than tripled our EBITDA margin. Our safety metrics have also improved as we stay focused on keeping our people safe. Ten years ago, about 85% of our sales were tied to residential and 15% of our sales were tied to the commercial and industrial end markets. Now having completed 44 acquisitions, we've grown our commercial and industrial sales to approximately 40% of our total sales this year. We've successfully diversified our business. And in doing so, we've also improved our sales resiliency. About 20% of our total sales are considered recurring, nondiscretionary or non-cyclical. As we look out, our runway of opportunity for growth is exciting. We have a total addressable market of nearly $95 billion for insulation and commercial roofing and are encouraged by our growth prospects. Let me give you just one example of how our business diversification positions us well for our next level of growth and more exposure to commercial, industrial and non-discretionary spend and reduced dependence on residential housing. Just last week, our leadership team was on site at a multi-phase data center campus in Arizona. At the same data center campus, our now combined TopBuild family of companies was providing multiple services and products for the same contractor. The Progressive Roofing team was providing new construction roofing services for the first 200,000 square foot facility at the site, while our Distribution International team was delivering fabricated mechanical insulation parts. And prior to that, our local TruTeam business had provided building envelope insulation solutions in the form of fiberglass and spray foam insulation. Currently, there are 324 data center projects under construction and 110 data centers that are in the engineering stage. We're also tracking nearly 2,000 more projects that are in the planning stage. This growing vertical of data centers is just one example of the commercial and industrial projects for which TopBuild can now provide a full suite of service solutions. Let me conclude my remarks today by recognizing and thanking each one of our employees. Our success over the last 10 years would not be possible without the hard work and support of our talented and highly motivated teams. Rob?

Robert M. Kuhns, CFO

Thanks, Robert. First, I'd like to thank our teams for delivering another quarter of strong results in an uncertain macro environment. While weak demand in the residential markets continued, our teams have done an outstanding job adjusting our cost structure and driving profitability. In addition, our teams are continuing to drive profitable growth in heavy commercial and industrial end markets. Turning to the second quarter results. Total sales declined 5% to $1.3 billion. Volume was down 7.8%, partially offset by M&A of 1.9% and pricing of 0.9%. Our installation segment sales totaled $780.7 million, down 8.3%, driven by a 10.5% volume decline, which was partially offset by acquisitions of 1.4% and pricing of 0.9%. The volume decline was driven by weakness in new residential construction and light commercial end markets. Heavy commercial projects continue to be a bright spot and posted solid growth in the quarter. Specialty distribution sales improved 1.1% to $599.2 million in the quarter. Acquisitions grew our sales by 2.3% and price added 0.8%. This was partially offset by lower volume of 2.1%. Lower volumes were driven by slower sales of residential products, which were partially offset by continued strong growth in mechanical insulation for the commercial and industrial end markets. Adjusted gross profit in the second quarter was 30.3% and 70 basis points lower than last year. Adjusted SG&A as a percentage of sales in the second quarter was 13.3% versus 13.6% last year. Second quarter adjusted EBITDA for TopBuild was $261.3 million or 20.1% of sales. Our EBITDA margin improved 110 basis points from the first quarter and was down only 20 basis points to prior year. This strong profitability was driven by the cost actions we took in the first quarter and supply chain improvements. These savings almost entirely offset the EBITDA margin pressures from lower sales volume and price pressure on residential products in our specialty distribution segment. Installation adjusted EBITDA margin was 22.3%, up 120 basis points sequentially and flat versus the second quarter of last year. Specialty distribution adjusted EBITDA margin of 17.2% was up 90 basis points sequentially and down 50 basis points versus the second quarter of 2024. Other expense for the quarter was $16.2 million compared to $7.2 million last year. The increase is due to the combination of lower interest income from lower cash balances and higher interest expense from our expanded credit facility. Second quarter adjusted earnings per diluted share was $5.31 when compared to $5.42 last year. Turning to the balance sheet and cash flows. We ended the second quarter with total liquidity of $1.8 billion, of which $842.5 million was cash and $938.8 million was available under our revolver. Our total debt at the end of the quarter was $1.9 billion, $500 million higher than the prior year due to the refinancing and expansion of our bank credit facility. This new $2.25 billion credit facility includes a $1 billion term loan, a $1 billion revolver and a $250 million delayed draw term loan, all of which mature in May of 2030. Net debt at the end of the quarter totaled $1.1 billion, and our net debt leverage ratio was 1.01x trailing 12 months pro forma adjusted EBITDA. Year-to-date, our free cash flow is $321.4 million, up approximately 38% from the prior year, primarily due to the improvement in timing of working capital. Working capital as a percentage of sales totaled 13.7%, which compares to 14.8% last year. We continue to prioritize our strong free cash flow towards M&A. And in July, we closed the acquisition of Progressive Roofing. This acquisition establishes a new platform for growth and expands the building envelope installation services we can provide for commercial contractors. We funded the transaction with cash on hand and proceeds from our expanded credit facility. Assuming Progressive Roofing within our results for the second quarter, our net debt leverage would have been approximately 1.65x trailing 12 months pro forma adjusted EBITDA. In the second quarter, we also repurchased shares totaling $136 million. On a year-to-date basis, we've returned a total of $351.6 million in capital to shareholders, representing about 1.1 million shares. We have approximately $836.4 million remaining under the current authorization. Turning to guidance. As you saw in the release, we are issuing guidance today that includes the impact of the Progressive Roofing acquisition for the balance of the year. We expect full-year sales to be between $5.15 billion to $5.35 billion. Our assumptions are as follows: on a same-branch basis, including price, we are now assuming that residential sales will decline low double digits for the year, driven by continued weakness in both single-family and multifamily activity. Commercial and industrial same-branch sales are expected to be flattish to up low single digits. We expect heavy commercial to remain strong, while light commercial will continue to be challenged. The full-year impact of M&A is expected to add approximately $300 million to sales. Inclusive of M&A, total net sales will be flattish in the third quarter and up low single digits in the fourth quarter, as the fourth quarter will benefit from a full quarter of Progressive sales and the comparison to prior year is slightly softer. We expect adjusted EBITDA for the year to be between $970 million to $1.07 billion. At the midpoint of our guidance, our adjusted EBITDA margin will be 19.4%, a very strong profit performance. In closing, I want to thank our teams once again for their efforts, and I would also like to welcome our new teammates from Progressive Roofing. As TopBuild enters its second decade as a public company, I couldn't be more excited about the growth opportunities that lie ahead for our teams and for our shareholders. With that, I'll turn it back to Robert.

Robert M. Buck, President and CEO

Thanks, Rob. I want to express my confidence in the underlying fundamentals for our business. Our flexible and diversified business model enables us to deliver solid results, and we have incredibly focused teams that have great control over our business. We've proven that we can adjust our operations as demand changes and expect to outperform in a changing environment. As always, we'll stay focused on driving profitable growth and increasing shareholder value. We are planning to host an Investor Day in New York on Tuesday, December 9. We'll be sharing more details in the coming months and look forward to having you join us in person. With that, operator, let's open up the line for questions.

Operator, Operator

Our first question is from Michael Rehaut with JPMorgan.

Michael Jason Rehaut, Analyst

First, I wanted to dive in a little bit to Progressive and just the impact on the second half, more so from the margin side, if you expect that to be dilutive or accretive to margins and how you're thinking about the contribution in 2026? And I guess, more broadly, how you're seeing early opportunities, perhaps even from the sales synergy side as well?

Robert M. Kuhns, CFO

Sure, Michael. This is Rob. I'll start, and Robert will join in for the second half. Regarding our guidance for Progressive, we expect an incremental $215 million in sales. Previously, our guidance for M&A was about $85 million, and we're now looking at approximately $300 million. The EBITDA associated with this should be around 20%, which means it will not significantly impact our current operations, and it aligns well with our core business.

Robert M. Buck, President and CEO

Yes, Michael, regarding the question on cross-selling and synergy, I'm really excited about that. The data center project I mentioned in the prepared remarks is just one example. As we've begun collaborating with the Progressive team and exploring project overlaps, customer bases, and verticals, we definitely see an opportunity. I've also participated in several M&A visits with the Progressive team and discussed potential future companies that may join us. We observe crossover where they have connections with our insulation contractors as well. So, even though it wasn't part of our initial model, we definitely see potential upside as we continue to collaborate.

Michael Jason Rehaut, Analyst

That's great to hear. And obviously, very exciting in terms of the multiyear prospects that that whole vertical can lend itself to. So congrats on that. Secondly, I appreciate also the, I guess, more challenging core business, specifically residential end markets down low double digits versus down high single digits before. Maybe you could just talk about which parts of the business that's hitting more? Is it kind of equally on installation or distribution? And also just if there's particular areas of the country or any more color in terms of what's driving that softness and if we should expect perhaps a down low double-digit rate into, let's say, the first half of '26?

Robert M. Kuhns, CFO

Yes, Michael, this is Rob. I'll begin by discussing what's included in our guidance and what we've observed. Robert can provide further details on the national trends. We have revised our midpoint guidance for residential to reflect a decrease in low double digits from the previous high single digits. This adjustment is mainly due to a decline in single-family conditions, as we initially expected the situation to remain stable following the first quarter. However, we have definitely noticed a slowdown in the starts environment during the second quarter, which we are now factoring into our guidance. Additionally, light commercial has been somewhat weaker, while heavy commercial and industrial sectors have shown strong growth. Therefore, we have slightly adjusted our commercial guidance to be flat to a low single-digit increase. These are the main changes to our guidance, and Robert can elaborate on the specific regional insights.

Robert M. Buck, President and CEO

It's a mixed situation across the country. In Florida, South Florida is slow while Orlando shows some positive trends. The Panhandle also has positive signs, but Jacksonville is slow. In the Southeast, we're pleased with developments in the Carolinas and feel optimistic about the Northeast and Midwest. Texas is mixed; Dallas and San Antonio are doing well, but Austin and Houston are experiencing slowness. In Colorado, single-family homes are slow, but there's some backlog in multifamily. Better trends are emerging in multifamily in Vegas and the Southwest, and we're noticing some positive developments in the Northwest. Overall, there's a mix of multifamily versus single-family performance.

Michael Jason Rehaut, Analyst

Great. And any thoughts about how that might carry over into the first half of next year?

Robert M. Buck, President and CEO

I think you're noticing what some of the builders are announcing, especially the public builders as they share their guidance. We seem to be in agreement among different sizes of builders. We're definitely beginning to bid for work in the fourth quarter and into early next year. Some of the multifamily projects we're discussing and observing in terms of starts are likely moving into the first quarter of next year. That's our perspective on the situation.

Operator, Operator

Our next question is from Susan Maklari with Goldman Sachs.

Susan Marie Maklari, Analyst

My first question is focused on the commercial industrial side of the business. Can you give us a bit more detail on how you're thinking about the volume versus price breakdown in there? And maybe with that, are you still seeing some of that momentum on the price side, within that segment of the business that you talked to in the first quarter?

Robert M. Kuhns, CFO

Yes, Susan, this is Rob. So yes, from a price perspective, what we talked about in the first quarter was we saw some incremental pricing on some of the mechanical insulation products and mineral wool products that we use on that side. Those definitely stuck through the second quarter. So we're continuing to see that. The weakness is really from a volume perspective on the light commercial side of things where we're down double digits, I'd say, on a year-to-date basis. We're up on the heavy commercial side of things more in the high single digits, almost double digits on a year-to-date basis. So seeing good growth there, but the light commercial weighing a little bit heavier on us right now.

Susan Marie Maklari, Analyst

Okay. That's helpful. And then one of the things that you mentioned in your prepared remarks was improvements to the supply chain. Can you talk a bit more about what some of those efforts are? How we should think about them continuing to flow through the business in the back half of this year? And any potential for additional opportunities there and what those could mean for the business?

Robert M. Buck, President and CEO

Susan, it's Robert. There are a couple of points to discuss. In the first quarter, we mentioned our efforts in optimizing our operations, which is now reflecting in our supply chain savings related to logistics and some productivity measures that we monitor as we adjust our resources according to where work is taking place. This certainly plays a role in our strategy. We are also collaborating closely with our supplier partners; we've previously mentioned our work with spray foam, for example. We're engaged in ongoing discussions with these partners due to some changing dynamics, and we expect this to continue in the latter half of the year as we strive to enhance our business and collaborate effectively with our partners.

Operator, Operator

Our next question is from Phil Ng with Jefferies.

Philip H. Ng, Analyst

Congratulations on a really strong quarter in a dynamic environment. My question is about pricing. Pricing was quite solid in the first half and is holding steady despite a challenging residential backdrop. Rob, in your guidance and discussions with your major builder customers, how do you see the pricing situation developing? They are certainly facing numerous affordability challenges. On the cost side, what are you observing, particularly regarding material costs, such as fiberglass or spray foam in the second half? When considering price and cost, what is included in your guidance and how are you approaching it?

Robert M. Kuhns, CFO

Yes, this is Rob. I'll start, and Robert will join in. From a guidance perspective, similar to what we mentioned last quarter, we have accounted for some price cost challenges, roughly $30 million in the latter half of the year. The pricing in the first half was positively influenced by the carryover benefit of fiberglass pricing from the middle of last year, which we will no longer benefit from, along with the commercial products I mentioned earlier that we expect to continue seeing benefits from throughout the year. However, the comparisons will become tougher regarding pricing. Builders are making adjustments, and we are observing a greater impact on margins in the distribution business, particularly on the residential side. As such, we've incorporated some headwinds into our forecast for the second half, which is why the EBITDA margins are expected to be lower than in the first half. We hope this proves to be a conservative estimate, but we need to see how things develop.

Robert M. Buck, President and CEO

Yes, to add on to what Rob mentioned, you can see the performance in the second quarter. The calculations for the latter half show solid profitability. This reflects the great work by our teams in the field in several areas, including enhancing productivity in labor and sales, maximizing volume, and driving efficiencies. Additionally, we are actively collaborating with our supply partners, particularly regarding foam and fiberglass, to manage uncertainty in a challenging environment.

Philip H. Ng, Analyst

No doubt, Robert and Rob. I mean, that margin performance guidance for the year is pretty incredible given the current backdrop, so true testament to the business. On your C&I side of things, any more color on how booking orders are progressing as well as the Progressive deal? Any cancellation or project delays? And how is the order book looking into 2026?

Robert M. Buck, President and CEO

Yes, Phil and Robert. I would describe things as solid. Looking at bidding activity and backlogs, the outlook for heavy commercial and industrial sectors remains positive. We are not seeing any concerning cancellations at this time. Additionally, we have been developing our relationship with Progressive for nearly a month now, and I am very pleased with the progress. Their team is doing an excellent job maintaining relationships across various service areas and continues to build backlogs effectively.

Robert M. Kuhns, CFO

Yes, Phil, I would just add to that. I mean, we were in Arizona with the Progressive folks about a week ago, and they're really happy with where their backlogs are sitting right now and definitely stronger than a year ago. So feeling really good about that.

Philip H. Ng, Analyst

That's really great color. Can you emphasize some of these stronger end markets in C&I that you're seeing, whether it's data centers or perhaps some of these LNG projects and whatnot? Just kind of give us a little perspective on how impactful it is for your C&I franchise?

Robert M. Buck, President and CEO

Yes, there are several important points to consider. First, data centers are crucial, particularly concerning the power generation infrastructure needed for them. Additionally, when we think about power, we consider LNG in both the U.S. and Canada. Our Canadian team is performing exceptionally well, and if we examine their results and backlog for the remainder of the year, we notice strong performance across various sectors in Canada. I would also highlight the strength in healthcare, manufacturing, and food and beverage industries. Furthermore, due to our established relationships, we are experiencing positive developments in education within several key markets.

Operator, Operator

Our next question is from Keith Hughes with Truist Securities.

Keith Brian Hughes, Analyst

You had said earlier in the call, I think you were about 40% commercial and industrial sales. Did that include the Roofing transaction? Or was that before the transaction?

Robert M. Kuhns, CFO

That's inclusive of the Roofing transaction.

Keith Brian Hughes, Analyst

Okay. Okay. And on Progressive, Keith, can you give us a feel how much of their business would be in the heavy commercial versus the light commercial? Is that something you know?

Robert M. Buck, President and CEO

On the Progressive side of the business, by far, the majority heavy commercial, Keith.

Robert M. Kuhns, CFO

Yes. The important part to remember there is that it's only 30% new construction. So 70% is reroof and services. But to Robert's point, more towards heavy commercial projects.

Keith Brian Hughes, Analyst

And does Progressive slant towards any one of the different applications, EPDM, TPO or anything like that?

Robert M. Buck, President and CEO

No. They're agnostic. They really got a great skill set there to provide any of the solutions, including to Rob's point, can handle it on new construction, but definitely any of the applications from a reroof service maintenance perspective as well. So great skill set across the team there.

Keith Brian Hughes, Analyst

Okay. And final question. As you move into the second half of the year, I believe the commercial numbers are weakening, as you mentioned on the call. Are there any indications of increased order activity that could suggest a more positive outlook for 2026?

Robert M. Kuhns, CFO

Yes, Keith, this is Rob. I'd say on the heavy commercial side and some of the larger projects, we still feel pretty good given the backlogs we have there. Definitely feel good about the back half of the year. We'll have to see on 2026, but we're definitely bidding work out that far. And like I said, Progressive's backlog is strong there as well.

Robert M. Buck, President and CEO

Yes. So no light at the end of the tunnel on that yet? Not on light commercial, but to Rob's point, I think we feel solid about heavy commercial and the industrial side based on the backlogs.

Operator, Operator

Our next question is from Stephen Kim with Evercore.

Stephen Kim, Analyst

Appreciate all the color. Let me start on the M&A side. I think you had talked previously about the fact that Progressive has superior margins to its competitors in the space. And I'm curious as to how you think Progressive might go about raising any acquired entities kind of up to their level. If you could sort of just walk us through what you think the opportunity there is and how you would go about capturing that, that would be helpful. And then also, you also have this other vertical where it seems like it's been a little quiet in the mechanical and industrial side on the M&A side, notwithstanding the efforts at SPI or with SPI. Curious if you can give us an update specifically on the mechanical and industrial pipeline, how that's looking?

Robert M. Buck, President and CEO

Yes, Stephen, this is Robert. Let me start with Progressive. We have spent considerable time understanding their structure and track record. When we announced the transaction, our focus was on their business system. This includes how they target and bid for jobs, selecting projects based on bid specifications. As they engage with a job, they manage and track progress, including man hours and days, with specific checkpoints to ensure jobs stay on track. This comprehensive approach covers everything from job selection to bidding and management, ensuring successful execution. There are also synergies they bring to each transaction, alongside contributions from TopBuild. While we observe a range of margins within the M&A landscape in Roofing, our analysis shows that there are substantial returns for our investors. We have thoroughly examined Progressive and are confident in their business system. Regarding mechanical, you raise a valid point. We completed two transactions in that space at the end of '24, with Shannon Global and Metro. We have additional opportunities in the pipeline, and while we have integrated the recent acquisitions, we continue to find new prospects. However, we have declined a few options, maintaining our discipline to ensure that any new acquisitions will generate strong returns. There is ongoing activity in mechanical, and we remain focused on identifying further opportunities. The core business still has significant potential, and Progressive also offers many opportunities.

Stephen Kim, Analyst

On the Progressive, the system that they have, are there proprietary computer systems or software that they utilize? Or is it merely the way in which they utilize or employ just the standard type of computer systems or management systems that everybody else has? It's just they utilize them in a better way.

Robert M. Buck, President and CEO

I'll hit that from 2 or 3 different directions. Rob may have some additional comments here. So I think what they've done from a job costing perspective in that, I'd say there are some things others don't have. So you could call that proprietary. But I would just say their training. I mean, how they bring folks on board, how they train the talent development, the focus on talent development, whether it be leadership in the field or whether it be from a sales talent perspective, they've got something they've developed there that works, and that's how they've continued to scale the business. I think whenever we made the announcement, we talked about the organic growth rate, some things that have led to that organic growth rate in that business. So I'd say some proprietary, but I'd also say beyond what I call business system, I'd say some great training and talent development as well.

Robert M. Kuhns, CFO

Yes. And this is Rob. I'd just add. I mean, I think similar to our business, it's a relationship business, right? And Nick and team do a great job of building relationships with key contractors and getting bids on jobs where they know they're going to have a right to win. And Robert touched on it in terms of their job tracking and cost tracking that they do. They've developed and worked to put together a tool that's really helpful for them with that, and it's really integrated not just into their accounting, but into their operations. And that's certainly not something we see with every company we've looked at in that space. And so while, as Robert mentioned, the margin profiles of other companies in the space are not as strong as Progressives, that just makes a bigger opportunity for us in terms of what we can bring them to. So that's another reason we're so excited about the space.

Stephen Kim, Analyst

Appreciate that. That's really clear. Last one for me, staffing. I think in previous calls, you had indicated that you were reluctant to move too quickly on reducing staffing levels on the idea that you might see a recovery in volume and you want to be ready for it. Simply put, do you feel that given the modest deterioration in the market in the last several months that maybe you're taking a harder look at staffing levels?

Robert M. Buck, President and CEO

Yes, I'll begin with that, Stephen. We took specific actions in the first quarter that we believe were appropriate. Our team is focused on local markets, and the standard ERP provides us with insights to evaluate performance on a market-by-market basis. We made significant adjustments based on our first-quarter actions. As we mentioned, we didn't reduce our core capabilities, so we feel ready for any potential increases or changes that may arise. The team has indeed taken the necessary steps thus far.

Robert M. Kuhns, CFO

Yes. I want to add that we previously discussed the cost actions from last quarter. These actions are saving us more than $30 million annually in lease and personnel costs. You can see the positive impact of these savings in this quarter's results. Our decremental margin was 23% for the quarter, which is in line with what we projected when excluding the effects of mergers and acquisitions. This is below our earlier target of 27%, and our full-year guidance is around 29%, due to the challenges posed by price and cost factors that I previously mentioned. I believe we have adjusted our headcount to align with the current volumes we are experiencing. As Robert noted, we will keep monitoring this situation and will make additional changes if needed.

Operator, Operator

Our next question is from Collin Verron with Deutsche Bank.

Collin Andrew Verron, Analyst

I just want to start just a follow-up on the Progressive Roofing here. I know you've only owned it for less than a month, but any early reads on how quickly you can start executing M&A in commercial roofing and what the deals in the Progressive pipeline look like from a size perspective when you acquired it?

Robert M. Buck, President and CEO

Yes, Collin, this is Robert. I'll begin by mentioning that we shared a few key points about a month ago during our announcement. Firstly, there are some significant deals in the pipeline. As I noted in previous discussions, I've visited several of these potential deals, and Rob and I have begun participating in the process. Progressive has a dedicated team focused on this, which makes it exciting. We previously indicated that we expect the multiples to remain similar to what you've seen in our traditional multiples for some of the roofing side deals. There's good activity in that area. I'm pleased to say that we're investing to ensure that our momentum in mergers and acquisitions continues, while also maintaining discipline. We believe there are great opportunities ahead, and we look forward to updating you on this in the future.

Collin Andrew Verron, Analyst

Great. I appreciate the color. And then just one follow-up question on the price/cost question. I think, Rob, you mentioned that it was a $30 million headwind in the back half of the year. Was that just a price comment? Or was that a total price/cost headwind?

Robert M. Kuhns, CFO

It's both really, right? It's more driven by the top line, but it's the net impact between it.

Operator, Operator

Our next question is from Ken Zener with Seaport Research Partners.

Kenneth Robinson Zener, Analyst

That makes me think, yes, because this quarter, you guys had a big footprint. You all said you're going to grow into your branches that would provide you operating leverage with your IT system, et cetera, et cetera. We've by and large, seen that. Then the concern was during a contraction, which volume down 10% res, it's a modest one. You guys cut costs. Your SG&A is still percentage-wise the same. Rob, you're talking about the second half price/cost headwinds that are baked in your guidance. It's just that you guys have been able to handle the incrementals better, right? So specific to the second half positive and negative factors, what kind of gets you if you're guiding conservative to that 29%, what are kind of the things that you think about in the positive bucket that could get you more to what you saw in the first half? And what are the things that could go against you to get to that midpoint? Is it volume predominantly?

Robert M. Kuhns, CFO

Yes, Ken, this is Rob. Volume is certainly a factor in that. If the residential single-family environment worsens from here, it could present a potential challenge. However, we are not currently hearing indications of significant deterioration and do not expect it to get much worse. Our guidance suggests it may be a little tougher in the second half compared to the first, but not dramatically so. The commercial and industrial sectors present potential opportunities. As we've mentioned before, large projects can vary in timing from quarter to quarter, but our backlogs are solid, which gives us confidence that there could be an opportunity in the latter part of the year. A major difference compared to the first half is the price and cost situation. We've had a price/cost headwind factored into our expectations throughout the year, but it hasn't significantly impacted us thus far. On the Distribution side, we've seen a slight effect, while the install side hasn't shown much impact yet. We hope that our conservative assumption may lead to a better outcome than anticipated. There are various factors at play, but overall, we feel confident about the midpoint of our guidance. Regarding Roofing, it's new territory for us, and we need to see how it performs. However, we are optimistic about the backlog of work they have and the results to date, which suggests potential upside in the latter half of the year as well.

Kenneth Robinson Zener, Analyst

And then we estimate to the public builders, the res exposure, you guys are, call it, 30%, give or take, percent to the larger builders, top 10. Are you doing better with the publics, would you say, or with the private builders? And given your guidance, do you think that the public builders, which kind of more the smile states, we all kind of know where they are, but like, is inventory more of an issue in those markets where the publics are? Or is it more on the private side?

Robert M. Kuhns, CFO

Yes, Ken, I'll start on that, and Robert will add on here. But I'd say, overall, what we're seeing year-to-date, the private and regional builders have held up pretty well. Custom builders, especially, I think, have done pretty well so far this year. So in a tough environment, pretty well is relative, right? But they're hanging in there. I wouldn't say they're doing significantly worse than the big builders this year.

Robert M. Buck, President and CEO

And I think custom builders are doing well. I mean, obviously, you think about that client base for the majority of them. But then I'd say regional builders. Look, regional builders have to sell what's coming out of the ground. So they've done well, but they got to sell their inventory, and we see that in our discussions with them and our bidding with them as well. So I think that's where you see the pressure point there with the regionals.

Operator, Operator

Our next question is from Rafe Jadrosich with Bank of America.

Rafe Jason Jadrosich, Analyst

It's Rafe. I wanted to just follow up on some of the price/cost commentary for the second half of the year. The $30 million headwind, it sounds like that's predominantly price on the installation side. Are you getting any relief? Are you able to push back on the manufacturers yet? And if we go into 2026 and say the market stays like stable with where it is, remains soft, will there be more opportunity on the cost side of that price/cost equation? Like could that narrow going forward if the backdrop stays consistent?

Robert M. Buck, President and CEO

Rafe, it's Robert. So look, there's an abundance of supply out there now, no doubt about it. So obviously, it's constant conversations with the supply partners to make sure we're calibrating. Obviously, they're important to us, we're important to them. So we're definitely having constant dialogue and conversations there. I mentioned spray foam earlier, is a good example of that. So there's definitely a consistent dialogue happening with the supply partners right now across the business, quite honestly.

Rafe Jason Jadrosich, Analyst

You haven't seen anything on the fiberglass side yet, though, it sounds like in terms of the relief from manufacturers?

Robert M. Buck, President and CEO

I'd say there's been equal discussions there as well.

Operator, Operator

Our next question is from Reuben Garner with the Benchmark.

Reuben Garner, Analyst

Congratulations on the strong results. I have one question. In recent years, it seems there hasn't been much focus on expanding your residential R&R business. You may not have had the time, resources, or materials for that. Can you discuss this market? Is the current downturn in new housing an opportunity to focus more on it, or is it still not a priority for you?

Robert M. Buck, President and CEO

Yes. Reuben, this is Robert. So I'd say our Service Partners team gets after that on the R&R side. So relative to the smaller contractor that's doing that work, that's definitely a focus of our Distribution business on the Service Partners side. So that continues to be a good part of the business, continues to be a healthy part of the business there because there are definitely smaller projects going on in the residential side. And so definitely, our Service Partners team gets after that, and that continues to be a focus for our distribution side of the business.

Operator, Operator

There are no further questions at this time. I'd like to hand the floor back over to Robert for any closing comments.

Robert M. Buck, President and CEO

Okay. Thank you for joining us today, and we look forward to talking with you in early November where we'll be talking our Q3 results. Thank you.

Operator, Operator

This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.