TopBuild Corp. Q3 FY2024 earnings call

• Third quarter saw record high sales and adjusted EBITDA performance with both Installation and Specialty Distribution segments showing growth. • Macro environment: Housing demand in the second half was slower than anticipated, multifamily demand has slowed and not expected to improve soon, while commercial industrial bidding is active with a strong backlog going into 2025 but some projects pushed out. • Operations: Over 14,000 employees, focus on attracting and developing labor; material side: fiberglass still on allocation, planned and unplanned maintenance persistent, Texas manufacturing facility online slower than anticipated. • Highlighted Crossroads, Canadian specialty distribution business, with 18 facilities in key Canadian markets, involved in notable projects like LNG and shipbuilding programs. • Capital allocation: M&A as core competency, recently acquired Shannon Global Energy Solutions, continued share buyback in third quarter repurchasing 1.07 million shares for $413.9 million.

Installation sales grew 4.2% to $856.4 million. Net M&A added 2.7%, pricing contributed 1.1%, and volume was up 0.5%. Specialty Distribution sales rose 5.1% to $600.4 million in the third quarter. Volume improved 3%, acquisitions added 1.4%, and pricing contributed 0.8%. Overall, sales increased 3.6% to $1.37 billion, and adjusted EBITDA totaled $285.1 million, with an adjusted EBITDA margin of 20.8%.

• Expect to finish 2024 with sales between $5.3 billion and $5.35 billion, year-over-year growth of 2.5% at midpoint. • Tightened adjusted EBITDA expectations to $1.055 billion to $1.085 billion. • Optimistic about 2025 being potentially the tenth consecutive year of sales and profit growth, expecting rates to come down next year to benefit end market demand.

• Macro environment uncertainty, including housing demand being slower than anticipated, mortgage rate fluctuations. • Labor market could be a constraint in 2025. • Material supply constraints such as fiberglass allocation and maintenance issues at manufacturers. • Delays in commercial industrial projects due to financing reasons.

Q: Rob, can you give a framework for thinking about 2025 and if there are enough levers to drive organic top line and EBITDA growth?

A: Yes, optimistic about 2025, fundamentals are strong, rates expected to come down, bidding activity in some areas picked up, rest of business can grow despite multifamily headwinds Q: Talk about pricing realization, especially fiberglass and spray foam?

A: Fiberglass saw improvement quarter-over-quarter, but region-by-region conversations with builders; spray foam had price reductions due to increased supply, expected to stabilize heading into 2025 Q: Confirm extra days in quarter and commercial project delays?

A: Yes, extra day in Q3 and Q4; more delays in commercial projects, no cancellations, expecting bigger pickup in capital projects in 2025 if finance environment improves Q: What percent of sales does commercial represent and spray foam?

A: Commercial and industrial on install side about 35% of total sales; spray foam between segments 10% to 15% of total sales Q: Thoughts on M&A backdrop, medium to larger deals?

A: Current pipeline has active deals across end markets, focused on core competencies, optimistic about medium to longer term opportunities with good line of sight Q: Energy efficiency initiatives and cost environment?

A: Codes are a tailwind, can satisfy with fiberglass or other solutions; labor has choppiness in some markets, majority of workforce on piece rate, working on productivity improvements including distribution drivers Q: Supply constraints on fiberglass and regional impact?

A: Third quarter had fluctuations in fiberglass supply, tighter again in October; regionally, some areas improved, some choppy like Southern California, Arizona, but others steady Q: Fourth quarter guide for multifamily and market direction?

A: Total resi sales flat for full year, fourth quarter slightly negative from resi side, multifamily a challenge in Q1 and Q2 but bidding activity picked up, cautiously optimistic for 2025 growth Q: Spray foam price changes cadence and addressable market expansion?

A: Spray foam had dramatic inflation then pull back, dynamics due to builders' pencil and supply, expected to stabilize; evaluating opportunities in core business, focusing on core competencies in M&A