TopBuild Corp. Price & Performance (BLD)

Good morning and thank you for joining us. With me today are Robert Buck, our President and Chief Executive Officer and Rob Coons, our Chief Financial Officer. We posted our earnings release senior management's formal remarks and a presentation that summarizes our comments 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. 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 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 the website. I'd now like to turn the call over to our President and CEO, Robert Buck.

Good morning and thank you for joining us today. At TopBuild are proud to share that 2024 represents our ninth consecutive year of growth and profit expansion.

As we celebrate our ten year anniversary as a public company this year.

Since our spin in 2015, we have demonstrated the strength of our business model and the long term opportunity for TopBuild.

Our results have truly been a team effort.

I want to start by thanking our employees for their dedication and commitment to our business. Congratulations to our installation and special distribution as well as branch support center teams for working diligently to service our customers drive operational excellence and work safely [indiscernible] The new residential construction landscape in the the fourth quarter was much like the prior two quarters. Interest rates have remained elevated for longer than anticipated And although some builders noted increased traffic, external forecast for 2025 housing starts have been trimmed in the last few months. That being said, the underlying housing market fundamentals are strong and we continue to be bullish about the mid- and long term opportunity. Many uncertainties exist in today's environment. So before I move on to our results, let me cover a few topics. On tariffs, we do not anticipate a significant impact on our business.

Products potentially impacted represent a relatively small portion of our material spend and we are taking appropriate steps to mitigate this impact. Regarding labor, we are aware deportations happening in certain markets which have not impacted top TopBuild. This has the potential to slow the construction cycle putting labor at a premium. We are confident in the strength of our labor force and are being cautious and strategic as we manage our labor cost structure in this environment. Turning now to our results. Our residential business performed as expected in the quarter. Single family grew slightly while multifamily declined double digits.

Our commercial industrial business saw growth in the quarter and for the full year. We also started to see some delayed projects move forward the fourth quarter. We have built a strong backlog and continue to be very active on the bidding front. We Fourth quarter top billed sales grew 2% to $1,300,000,000 fueled by distribution growth.

Our adjusted EBITDA grew 2.5% to $258,000,000 and adjusted EBITDA margin of 19.7% improved 10 basis points year over year. Rob will provide more details and results in a moment. Turning to our operations, fiberglass supply has loosened as housing demand has softened. The new Knoep facility in Texas has started production the plant is still building to optimal capacity. While planned maintenance is expected to be less than last year, pricing in this environment will be dependent on future demand improving. Like previous times of uncertainty relative to demand, our seasoned operations team is working diligently and making strategic decisions to optimize our model across the footprint. We have great insights and control of our business that allows our field teams to be proactive in navigating changes to outperform in the current environment. Turning to capital allocation, acquisitions continue to be our top priority. Last year, we completed eight acquisitions across both installation and specialty distribution, for a total of approximately $153,000,000 in annual revenue. In 2024, we returned nearly $1,000,000,000 to shareholders through our share repurchase program. As you saw in the release today, our Board of Directors $1,000,000,000 demonstrating confidence in our business and long term strategy.

Our M and A pipeline continues to be very healthy The environment is active and we're off to a solid start this year. As I noted last quarter, we continue to focus on our core of insulation at the same time learning about opportunities that could expand our total addressable market. As always, we will be disciplined in our approach and seek opportunities that label us to leverage our core strengths. Let me take a minute and talk about how we define our strengths and core competencies. First, we are a people business. We have nearly 14,000 employees who are essential to our success. We have a core competence of recruiting and retaining direct labor and developing talent throughout the business. We have a diverse network with over four forty branches across U. S. And Canada.

Our operating philosophy is rooted in local empowerment. The day to day business decisions happen at the local level our field leadership are encouraged to be the owner to drive operational excellence and strong performance. Have a great track record of driving continuous improvement and are confident operating a dispersed branch model. Technology and the use of a single ERP system across our entire footprint is a key contributor to our business success. Our technology investments give us the ability to provide new business leads, facilitate best practices across the network, analyze real time business information, measure productivity, drive improvement initiatives and consolidate certain back office functions at our branch support center.

Our category has unique supplier and customer dynamics. And as the largest buyer of insulation in the industry, we operate partnership with our suppliers. For our customers, our teams drive exceptional value and service. Finally, we are committed to being financially disciplined and thoughtful in our Our balance sheet is healthy. We have a great M and A track record and a history of delivering strong shareholder returns. I'll close by giving you some broad thoughts on 2025 then turn it over to Rob to take you through the details of our results and guidance. Persistent inflation is keeping interest rates high and ongoing economic and regulatory uncertainty is creating challenges for the construction industry. External forecast for housing starts this year have come down in the past few months, with most predicting a decline in starts in 2025. We expect residential demand to improve, however, the timing is yet unclear. The commercial and industrial front, at both installation and specialty distribution, we are seeing an uptick as some of last year's delayed projects are launched. Bidding activity in this space continues to be strong. We continue to be optimistic about the underlying fundamentals of our opportunities both organic and inorganic.

We see the diversification of our business model being an advantage. Our guidance does not contemplate M and A and given our pipeline, we are anticipating 2025 to be another active year on the acquisition front. [indiscernible] Rob? Thanks, Robert.

Let me start by saying thank you to our employees for their hard work and efforts. Which enabled us to deliver another record year for TopBuild.

Since our spin nine years ago, we have grown sales at a compounded annual growth rate of 14% and expanded adjusted EBITDA margins from 6.6% to 20.2%. These results have been driven by our teams that have a relentless focus on operational excellence and do a great job delivering exceptional value and service to our customers. Today on the call, I'll review our Q4 results, then I'll walk through our guidance for 2025. In the fourth quarter, we increased sales by 2% to $1,300,000,000 M and A contributed 2.4% pricing added 0.9%, and volume declined 1.3%. Turning to our segments. Installation sales were relatively flat year over year at $788,600,000 Volume declined 4.1% and was offset by M and A of 2.3% and pricing of 1.5%.

The volume decline was driven by the slowdown in multifamily activity. Single family activity remained choppy and was flat to prior year on a same branch basis.

Within Specialty Distribution, sales grew 6.6% to $601,800,000 in the fourth quarter.

Volume rose by 4.4% as commercial industrial sales grew and spray foam sales rose ahead of industry cost [indiscernible] Acquisitions added 2.2% Fourth quarter adjusted gross profit totaled $392,000,000 or margin of 29.9%. Which was 50 basis points lower than last year.

Gross margins were lower than prior year in both specialty distribution and installation as the residential housing industry continues to to tackle soft demand driven primarily by affordability challenges economic uncertainty.

The decline was driven by strategic price and volume decisions on residential products primarily in our distribution business, as well as conscious decisions around labor in certain installation markets. [indiscernible] Across our footprint, we are leveraging our tools and technology to strategically balance local volume and price decisions we are working closely with our supplier partners in this changing environment. Adjusted SG and A as a percentage of sales in the fourth quarter was thirteen point two percent seventy basis points lower than last year. TopBuild adjusted EBITDA in the quarter totaled $258,000,000 or a margin of 19.7% a 10 basis point improvement versus last year. Installation segment EBITDA margin was 21.4% in the fourth quarter, flat to prior year. Adjusted EBITDA margin for Specialty Distribution improved 20 basis points to 17.7%. Fourth quarter other income and expense of $14,700,000 was $4,300,000 higher than last year due to reduced interest income on lower cash balances. Fourth quarter adjusted earnings per diluted share of $5.13 improved 9.4% versus last year. Moving to our balance sheet and cash flow, total liquidity was $836,500,000 at the end of the quarter.

Cash was $400,300,000 and we have $436,200,000 of availability under our revolver. We ended the quarter with net debt of $987,200,000 and our net debt leverage ratio was 0.91x trailing twelve months adjusted EBITDA. [indiscernible] Working capital as a percentage of sales was 13% an improvement of 20 basis points compared to 2023. In 2024, we generated $706,700,000 in free cash flow, Our capital allocation priorities remain unchanged. [indiscernible] We spent $136,800,000 on acquisitions in 2024, and we also returned $966,400,000 in capital to shareholders last [indiscernible] Buying back about 2,500,000.0 shares.

As you saw in our release, our Board of Directors has authorized a new $1,000,000,000 share repurchase program which brings the total available under authorization to $1,200,000,000 Turning to our outlook, I want to remind you that our guidance includes M and A that we have closed does not include any potential future M and A. Our guidance for 2025 is sales of $5,050,000,000 to $5,350,000,000 and adjusted EBITDA of $925,000,000 to $1,075,000,000 As we head into 2025, there continues to be significant uncertainty in residential markets. While we remain bullish around the long term fundamentals for residential housing, we anticipate the current environment of uncertainty will lead to continued choppiness. We do anticipate an inflection point in residential demand, but given the uncertainty around timing, we are not baking that into our guidance. Midpoint of our revenue guidance at $5,200,000,000 assumes the following: 2025 volume will be down low single digits.

Multifamily, which makes up 10% of our sales, will be down approximately As a reminder, multifamily benefited in 2024 from the carryover of a significant backlog, which delayed the impact of the slowdown in multi family starts. Single family, which makes up 55% of our sales, will be flat this prior year.

Commercial and industrial, which makes up 35% of our sales, will be up low single digits. Price mix will be down slightly as we expect the pressures we saw in the fourth quarter to continue into 2025.

Our revenue guidance assumes revenue will be down low single digits across all four quarters of the year with Q1 being down the most. [indiscernible] The midpoint of our EBITDA guidance is $1,000,000,000 or 19.2% of sales down 100 basis points to prior year.

To give you a little more color on the main drivers of the 100 basis point decrease First, roughly half of the decline is driven by lower sales volume will have an EBITDA decremental margin in the mid-30s. Slightly higher than our long term target. This will be driven by efforts to strategically manage labor and back office support given the uncertain timing of housing recovery the potential competition for labor moving forward, and our strong appetite for continued M and A. Second, we anticipate the other half of the decline will be due to gross margin pressure similar to Q4 as we continue to balance volume and price decisions in certain choppy residential markets. We expect productivity to offset both the impact of M and A carryover which comes with fixed costs in year one, and incremental investments in digital initiatives such as e commerce and data analytics. As you consider the quarterly cadence of profitability through throughout the year, we expect each quarter's EBITDA margin to fall within our full year guidance range of 18.3% to 20.1%. Q1 is expected to be the weakest and near the bottom end of the range. Finally, a few other data points from a modeling perspective on our guidance.

Interest expense will be between $49,000,000 and $55,000,000 Our income tax rate will be between 2527% CapEx will be 1.5% to 2% of sales and we expect working capital to be in the range of 12% to 14% of sales. Before I turn it back over, let me close by expressing my confidence in the health of our business and our opportunities for future growth. But we are currently facing some macro uncertainty I'm extremely confident that Topgolf will continue to outperform in any environment. Robert?

Let me close our call today by saying that we continue to be bullish about our industry and TopBuild's future.

Only do we operate in a great category with strong fundamentals, we also have a unique and proven business model. The underlying fundamentals for new construction are strong and our products and services play a critical role. We are confident at the top that we'll navigate fluctuations in near term demand and outperform the market even as the broader environment changes. Our business is inherently well positioned to capitalize on these opportunities for growth both organically and through acquisitions. Our acquisition pipeline is healthy. We remain committed to building on our track record delivering increased shareholder value.

With that, operator, let's open up the line for questions.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. The first question comes from Phil Ng with Jefferies. Please go ahead.

Hey, guys. Strong quarter And Rob, I appreciate all the color on some of the margin side of things. I guess on the pricing side of things, are you seeing things dial up from there just given the builders are under some pressure or it's kind of more of the same? And how are you kind of balancing that?

Certainly, pricing for certain pockets, I think there's a little inflation, spray foam kind of mentioned, a mechanical insulation. Just kind of help us think through what you're seeing on the pricing environment and if we do see input cost inflation, your ability to kind of pass that through and not getting squeezed on that front?

Hey, good morning, Phil. It's Robert. So I'll start with that. Yes, from a builders perspective, I mean, obviously, affordability is top of mind. Right now, right? So you do see in some of the slower markets more pressure from the builders. I mean, we're definitely not chasing share, but we're definitely working with the builders in those slower markets. And if you kind of look at that, the drop set heavier on the distribution side relative to some of the pressures Commercial industrials is doing very well from that perspective. [indiscernible] we would say there's been definitely pressures on the spray foam side of the business. And in some of the markets you definitely see on the fiberglass side. But our teams are doing a great job. I mean, we're being cautious in our outlook here. Appropriately given if you looked at 2024 and how that developed So we've not baked any of our optimism in because we want to make sure we have a realistic look as what we see today.

And Robert, I'm a little surprised on the spray from comment because I think you're are some dumping duties and you kind of mentioned you saw an uptick in that distribution business. With customers buying ahead of it. Are you starting to see that move higher or are you getting squeezed on that backdrop on the spray foam side of things?

Yes. So there are definitely a lot of material out there available. And so there's been some pressure around in the first And ending the year as that was announced right around Thanksgiving, and passing some of that along. But there's definitely that continues to get worked here in the first quarter. And so we expect as that comes around here, you're obviously seeing it relative to some of the demand, not as much demand there. As some of the housing market has slowed, so that could be fueling some of it as well. Okay.

Then from an M and A standpoint, I think you hinted that the pipeline is pretty robust. Certainly new administration here.

Give us a little more color on what you're seeing out there, especially on the CNX And then Robert, this isn't the first time you kind of hinted at looking at adjacent markets. Is this going to be a bigger like the C and I opportunity we've seen in recent years or kind of more bolt on? Just give us a little more perspective you kind of envision in terms of adjacent markets Yes. So as we think about current pipeline, I say it's we've got some great prospects across all three in segments, therapeutic, oil, residential, distribution, and then commercial, industrial as well. As we think about C and I specifically, which I think you mentioned, Phil, and if you look at some of our big acquisitions that we did in 2024, it was definitely in that space with Metro Supply and Shannon Global, which we closed the back half. So there's a lot of activity in that space. And as we think about adjacency I think the point that we're communicating here is C and I right down the fairway we've done a great job with that. There's more opportunity in our core insulation areas residential, commercial, industrial, C and I being part of that.

We're also saying, look, we have a set of core competencies and strengths as a company. That we think as we look at how we can expand, checks those boxes and gives us a high level of confidence as to the value per shareholders we can drive in some of those adjacent spaces. I'd say more to come on that. But I think you can probably hear in our tone here see some good opportunity for TopBuild. Given the cash that we generate and good use of capital allocation that we've had as a company I think we're thinking about that and thinking about the growth for the company here going And Robert, would those adjacent opportunities be larger or they're going to be potentially more on the tuck in side?

I think there's some potential larger opportunity out there for top Okay. Thank you.

The next question comes from Stephen Kim with Evercore ISI. Please go ahead.

Yes. Thanks very much guys. Appreciate all the color and the guidance here. Wanted to see if I could delve into a little bit of something what you said on you put it in your opening remarks. I think you talked about strategic price and volume decisions in residential products. Primarily in distribution and conscious decisions around labor in certain installed markets. Wondering if you could elaborate a little bit on what you meant by that and we should be expecting as you're looking into 2025 on those points?

Yes, Steve. So this is Rob. So just walking you through that a little bit. In terms of what we're seeing there. As Robert talked on the pricing side, we talked a little bit about this in Q3. We're seeing a little bit of extra supply on the spray foam side of things. That's that's created some price pressure. So So where we need to, we're making the decisions we need to continue to drive some volume with that product. So that created some some pressure in the quarter for sure.

And then on the distribution side, I'd say we're still price cost or on the I'm sorry, on the installation side, we're still definitely price cost positive there. We're seeing some pressure in certain markets for sure. But we're working through that and obviously working with our supplier partners on those things.

As volumes have slowed on the install side like we saw in the quarter, The pressure we get there is more from the labor side of things, right? And that's where we're being strategic in our thinking. Being that we're optimistic about the long term or the midterm even, that residential markets will bounce back here at some point.

We're being careful not to cut good labor that we have out there being that we want to continue to be active on the M and A front. We're being careful with our back office labor as well. That's really the driver of the deleveraging we're seeing there on the volume I understand. Yes, that's helpful.

Okay, great. And then similarly, I think I just want to make sure that I heard you correctly Robert, when you talked about fiberglass price increases, I think think what you indicated was that you thought that it would depend upon builder market conditions improving or just there was a if things stay the way they are, I'm sort of paraphrasing here, but if things stay as they are and they don't improve, they don't get worse either, they just sort of stay where they are. Would it be your expectation that you would not see pricing increase in fiberglass this year?

Yes, I would say, Stephen, so there's definitely material available right [indiscernible] Given the slower demand environment and I'd say there's as you know, there was increases announced for earlier in January. Those didn't see traction really. And so I think it is going to have to be driven by an increased demand environment drive cost price there in 2025. [indiscernible] Okay.

And then lastly, you had mentioned something in your prepared remarks about technology and using technology more significantly than you hadn't asked. To aid I think with your pricing and I think volume decision as well. Can you just elaborate a little bit on that? Like what does that mean from a practical perspective? What do you actually doing in your operations? And is it one side of your business more than the other?

Yes. I'll start with that, Stephen. I'm sure Rob will chime in as well. So So I wouldn't say any more than usual other than I'd say our ERP tool is extremely valuable in these times where we're able to see fluctuations of demand by market, by business, install versus distribution, so it allows us to make appropriate decisions. One, from a pricing perspective, we're able to put guardrails around that. So empowerment that we're able to give locally and then even from as we think about labor perspective, productivity perspective, sales productivity perspective, gives us insight to that, which is really gives great control to our field teams, to drive decisions and management of resources.

Yes. And Stephen, the only thing I'd add to that is just we talked about volume pressure on the other side Likewise, the common ERP gives us great visibility into where things are slowing from an orders perspective. Allows us to get out ahead, start planning some of those labor reductions So we're using our common ERP that way as well.

Okay. Appreciate it. Very much guys.

Thank you. Thank you. Next question comes from Susan MacLeary with Goldman Sachs. Please go ahead.

Thank you. Good morning, everyone. Good morning. Good morning. Good morning. I wanted to a bit about the commercial side. You mentioned in your remarks that you are still seeing healthy [indiscernible] Can you talk a bit more about where that bidding activity is coming from and how you're thinking about that relative to perhaps some of that actual work starting to flow through and what we need to see to get that activity a bit higher?

Yes. Good morning, Susan. This is Robert. So, commercial industrial side was definitely nice job by our teams in the field and we saw that for full year. Results. We saw it in the quarter as well in Bedidec activity is very active there. So So we're as you heard Ralph talk about in his guidance, we're definitely looking for growth in that commercialindustrial side of the business here in 2025. If you look at I think the the main thing is you look across the verticals of that business, commercial industrial business, I'd say we're pretty optimistic across most verticals. If you think about manufacturing, [indiscernible] oil and gas, food and beverage, pharmaceutical, those types of areas.

We like what we see there. The bidding verifies that. We like the diversification there. And sometimes people ask where do you see any weakness Battery plants, EV facilities, there's been been some in those areas, but we're pretty diversified across those verticals and we like what we've seen looking back, but then most of importantly looking forward bidding. And we mentioned we're seeing projects get launched here that were delayed some of 2024 as well.

Okay. That's helpful color. And then maybe turning to the margins, appreciating the commentary around the labor and some of those actions there. But as you think about some of the other efforts that you have coming through, perhaps on the distribution side and consolidating some of those [indiscernible] Can you talk a bit about how you can leverage those? And anything that's you're looking for this year to come through given the environment that we're in and how that could help the margin as we go through the next several quarters?

Yes, Susan, so that's this is Rob. So that's obviously something that's out there, definitely an opportunity for us. So as we look across our footprint, and as we're looking at some of the challenges ahead, we're definitely looking at some consolidation off Like I talked about, we're looking at labor opportunities. And like I mentioned on the call, we've got productivity number baked in to the midpoint of that guidance.

That's offsetting some of the investments we're making on the digital side of things with some e commerce initiatives and some things around data analytics. As well as you have the decremental impact of carryover M and A on your EBITDA margins as well. But But we do have that productivity baked in. And it's something that we're we're on top of in terms of the environment we're in right now.

Okay. Thank you for the color. Good luck with everything.

Thank you. Thank you. Thank you. The next question comes from the line of Keith Hughes with Tuis Securities. Please go ahead.

Thank you. Your outlook on commercial industrial flattish, would that mean that within this guidance framework, we would see the distribution business feel less pressure than what would be coming in installation. Yes, Keith, this is Rob. So actually we're guiding to low single digit growth on the commercial side. So we do expect to be up on that side of things. Obviously, to your point, that makes up a much bigger piece of our distribution business.

More like 60% of the business on that side.

Versus 15% on the installation side. So you're correct. As we look at the year, from a segment perspective, the sales growth year over year will be tougher for install than it will be for distribution. And you've talked about some [indiscernible] I guess, lack of price increases We've all heard about some of the spread time deflation that's going on. What's kind of your view near term for pricing and jobs with primarily fiberglass.

Yes.

So fiberglass for perspective, as we mentioned earlier, there wasn't a lot of traction given the excess material right now. So obviously, we're able to give our our teams new guidance right now. There's no new increases announced out there. And we're just making sure our teams do a good job of maintaining. We're not chasing any share from that perspective. So we're giving them guidance here to make sure they're bidding consistently for the next call it, ninety days on the residential side. Do you think there'll be compression in job prices in this environment? Is that is it bad enough for that?

In certain markets, we do see that, right? And like Robert mentioned on the spray foam side of things, there's certainly some more pressure there than on the fiberglass side of things. But in the slower markets, there's pressure, but that's why we talk about it being chop We still have markets that are performing well. A lot of them kind of average. So it's certainly not a wide I think what you've seen from us, Keith, you've watched us for a while is our teams do a good I would say, a great job of optimizing that margin volume perspective And some of these markets that Rob just spoke to that are that are choppier or uncertain, they're making some of those decisions. And so we do a good job of that. And I think you see overall the margins are holding up very nice if you look at the guide that we're giving for the full year.

Thank you.

The next question comes from the line of Rave Jadzrosik with Bank of America. Please go ahead.

Hi, good morning. Thanks for taking my questions. First and appreciate that it's a choppy environment.

But it's a pretty wide range that you have on the guidance. Just Can you help us understand some of the assumptions that get you to the high end versus the low end of the guidance range, particularly on the single family starts outlook?

Yes, Ray, this is Rob. So I'd say, our like we focus on our midpoint as we do this and then given the uncertainty, we put a little wider range than normal as you point out on it. I mean from a single family perspective, when we think about the low end, that's probably closer to minus 2%.

On a year over year basis and on the high end more of a plus two, right? And our midpoint is kind of flattish there. So that's kind of the range there. And then similarly, we've got a similar range on multifamily around the 30% down we're talking about. And then on commercial industrial, similarly, we've got the low single digits at the midpoint, a little better than that on the high and a little below that at the low. And then on the first quarter, I know it's like relatively balanced through the year, but it sounds like you expect the first quarter to be weaker. Can you just talk about what's impacting the first quarter? Are you assuming the macro gets better after the first quarter or are there specific headwinds that you're facing there that are going to subside?

Yes. No, I'd say, I mean, the first quarter, we do have the benefit of we've got a month and a half in the books here that we've seen. So we know what we're seeing right now.

And so we've obviously got that baked in. And as we think about the balance of the year, like we've said, we're often missed that demand for residential is going to come back stronger, but we haven't baked an upturn in that into our guidance when you think about what we're seeing right now, we basically baked in kind of normal seasonality through the rest of the year And when you do that, right, if you do that from where we are today and you look at the year over year comps you'll see we're going to be kind of low single digits down most of the year with Q1 down the most.

We did have some weather in January. That's definitely a factor as well. But we have weather every year as well. So we tend to not not call that out.

So it's a consistent macro view, but the comp is just different on a year over year Yes. And it's important to point out too, we do have one less day in Q1. So for the year, one less day and it's in Q1.

The rest of the year, the the days will be the same.

Yes. Hey, Greg, this is Robert. Just to add on there, I mean, I think with ADX 2024, I think everybody was sitting here at the beginning of the year with a outlook for what was going to happen in the back half of the year. And so to Rob's point, we have optimism, but we're being cautious as to as to the outlook based on what we see today. And not wanting to get in a situation that it was in 2024 where the back half didn't develop as everybody thought early in 2024.

Thank you.

The next question comes from the line of Ken Zener with Seaport Research Partners. Please go ahead.

Good morning, everybody. Robert, I'd like to ask you a high level question and ask Rob just more like an operating leverage question. But Robert, the narrative is that housing has been underbuilt and builders' new home inventory census data is quite high today. And the idea is that they're leaning into more presale units in order to leverage mortgage buy downs.

How long do you think I mean, because you and I probably have some of the best data out there This slowdown You mentioned the word affordability, but how long do you think it takes to actually work off this high level of under construction complete units that the inventory that the industry is in. I mean, is that kind of the headwind you see or Is it in your assumptions they're building down inventory or they're just going to keep it up? Trying to understand the demand versus this excess [indiscernible] Yes. Morning, Ken. So I think, Martin, I think that's where to your point about the the inventory that I think that's where some folks are leaning into the back half of the year. So we'll see how that develops. I think if things pick up, that could definitely be realistic. We'll see what happens. I think the builders, it kind of depends on the builder population you're talking about, So the big builders continue to to buy downs and they're in a situation for that. I think the longer that goes on, the more we price this in 2024, the more it can impact some of the smaller regional smaller builders here.

So you're right, where you got the extra inventory sitting on the ground, it would bigger guys are able to continue to build, but they're also they're builders are smart business people, so they're obviously adjusting the product they're going to market with. Based on those affordability issues and maybe where they see more of the inventory as well. So they're adjusting their approach as well. Right. And I guess, Rob, mid-thirty percent incremental decline that you talked about not widespread market weakness, but in some markets you did highlight there's price concessions in some other factors.

Do those markets that are weaker, not widespread, pretty much overlapped with What worth seeing, hearing meaning pressure in South West Florida these particular areas where inventory and margins going down broadly. Is that to be interpreted the same where your margin pressure is? With new housing margin pressure?

I'd say in general, yes, right? I think there's definitely some correlation there. But what we're seeing is definitely it's very different market by market even within states, so it's hard to even generalize the state of Florida or the state of Texas.

But certainly where there's more inventory that creates more pressure for the builders.

And that can have a trickle down effect on us as well.

Thank you very much.

Thank you. The next question comes from the line of Kurt Yinger with D. A. Davidson. Please go ahead.

Great. Thanks and good morning everyone. Just one question on the commentary around deportation activity. And not putting a premium on labor. I mean, it's pretty intuitive in terms of the benefit that could serve to the service kind of oriented offering that you guys have. I'm curious if there's maybe a little bit more nuance as you guys see it in regards to competitive advantages or how that might impact [indiscernible] the competitive landscape kind of specifically for top billed as we look out over 2025?

Yes. As we think about that morning this is Robert. I'd say a few things. Number one is, it's probably more impactful of of things up in the construction cycle earlier and maybe some things right after us in the cycle. So talked about there could be a cycle time impact. I think we think about it from that perspective. Think obviously we're very confident in our workforce We think that that is a value in our workforce, obviously. As we think about what we can offer the builders to serve levels that we can offer, whether it be the builders, the contractors, commercial side of our install business as well. So we think it's advantage for us for sure we can't control the cycle time, but we'd have to be able to control the service and and how we'll be able to make sure that we're there for the builders from a labor perspective. So definitely advantage for TopBuild.

Okay.

That makes sense. And just one follow-up. I mean, it's kind of an impossible question to answer without knowing all the variables. But as you think about kind of holding on to some of the labor and with the view that perhaps some of these demand pressures more temporary, what would what are a couple of things you might need to see change that might impact your decision to maybe be a little bit more aggressive looking at the cost side and kind of readjusting the size [indiscernible] So this is Rob. So like we talked about, I mean, we'll monitor [indiscernible] across the footprint, right? We're obviously talking with the field, who's talking directly with the customers. So as we understand what's going on in each market, kind of get a feel for where we think it's going. We'll get more aggressive with the cost actions we're taking. I mean, we're always we've been through this before. Our team has been through it before. We went through it during COVID when we sell our sales drop off, 20% immediately after COVID. And for us, given our cost structure, right, it's it's about labor, right, and it's about knowing your A players, your B players and your C players and we do our best to hold on to those A's and B players as long as we can.

And this is a similar situation in those slower markets right now. Yes. Just to add on that, Curt. I think Rob said it well. We'd have to see prolonged weakness, but our productive labor, we want to we want to keep and as COVID is a good example, but if you look back also even back to wherever there was choppiness in residential 2017 and 2018, we took appropriate action that came out stronger and we see the same here. Right. Makes sense. Okay. Appreciate the color. Thank you. Thank you.

Thank you.

As there are no further questions, I would now like hand the conference over to Robert Buck for closing comments.

Thank you for joining us today. We look forward to talking with you in early May whenever we report our Q1 earnings.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time.