Aatish Shah

Aatish Shah inquired about Installed Building Products' M&A landscape, any changes in strategy regarding targeted companies, and specifically if the commercial roofing market is an area of consideration.

Answer

Jeff Edwards (Chairman and CEO) confirmed interest in commercial roofing and mechanical/industrial installation segments, noting these are not new strategies but areas they are now actively pursuing. Michael Miller (CFO) emphasized continued significant opportunities in core residential insulation. Michael Miller (CFO) also clarified that the shift in customer mix was towards semi-custom/custom builders, which tends to improve gross margins, citing the Midwest region's higher gross margin.

Aatish Shah asked about the evolving M&A landscape, specifically if there's a change in strategy regarding targeted companies, and if the commercial roofing market is an area of consideration. He also requested details on the shift in customer mix within the installation segment.

Answer

CEO Jeff Edwards confirmed IBP's interest in the commercial roofing segment and mechanical/industrial installation, stating it's an execution of existing strategies rather than a change. CFO Michael Miller added that core residential insulation remains a significant M&A opportunity. Regarding customer mix, CFO Michael Miller clarified that higher sales rates with semi-custom/custom builders and weaker rates with production/entry-level builders in the residential installation business contributed to improved gross margins, particularly in regions like the Midwest.

Aatish Shah asked about the M&A landscape in commercial roofing, including the pacing of acquisitions and competition for assets, and sought more details on the realignment of Specialty Distribution field leadership and its intentions.

Answer

Robert Buck, President and CEO, described an active M&A environment for commercial roofing, with good integration progress and no significant competition for most assets, expecting the pace to continue. John Achille, COO, explained the Specialty Distribution realignment was to ensure optimal leadership, leveraging talent from the SPI acquisition. Robert Kuhns, CFO, noted synergy opportunities as potential upside.

Aatish Shah with Evercore ISI inquired about the M&A landscape in commercial roofing, including the pacing of acquisitions and any observed increase in competition for assets. Shah also asked for more details on the recent realignment of Specialty Distribution field leadership and its intended purpose.

Answer

President and CEO Robert Buck described the commercial roofing M&A environment as very active, with TopBuild not currently facing significant competition for most assets. COO John Achille explained that the Specialty Distribution realignment aimed to optimize leadership with talent from the SPI acquisition and existing teams. CFO Robert Kuhns highlighted confidence in exceeding synergy targets.

Aatish Shah of Evercore ISI inquired about the drivers behind the recovery in commercial and industrial (C&I) projects, questioning why they are moving forward now given the financing environment has not obviously improved.

Answer

President and CEO Robert Buck explained that the recovery is due to a combination of factors. He noted that companies have come to accept the current financing environment for essential, large-scale projects. Additionally, he credited TopBuild's field teams for successfully executing a 'vertical market strategy,' which has led to market share gains across diverse sectors like oil and gas, food and beverage, and manufacturing.

Aatish Shah asked for more details on the company's digital initiatives, specifically PROJECTWORKS and Kanopi, and how their impact has grown and evolved over time, along with any lessons learned.

Answer

CEO Vic Grizzle elaborated on PROJECTWORKS as an automated software platform that expedites design iterations for architects and provides accurate bills of materials for contractors, leading to higher project win rates. He described Kanopi as an effective online educational and selling platform for smaller customers, which has achieved record sales and EBITDA, continuously improving the customer experience and contributing to overall business profitability. Both initiatives are demonstrating strong operating leverage.

Aatish Shah asked for more details on the company's digital initiatives, ProjectWorks and Canopy, inquiring about how their impact has grown over time and any lessons learned from their implementation.

Answer

CEO Vic Grizzle explained that ProjectWorks, an automated design platform, helps architects expedite designs and provides accurate bills of materials for contractors, leading to higher project win rates. He added that Canopy, an online education and selling platform for smaller customers, achieved record sales and EBITDA, contributing significantly to the business, with both initiatives demonstrating strong operating leverage.

Aatish Shah asked about the overall size of the commercial business and its breakdown by segment, identifying which larger verticals are strengthening and which are most challenged. He also inquired about how the sales force is managed, distinguishing between commercial and residential segments during this challenging period.

Answer

Chairman and CEO Jeff Lorberbaum stated that commercial business accounts for about 25% of the company's total, with a larger portion in Global Ceramic, showing strength in the U.S. and Europe. He noted stable backlogs in U.S. Flooring North America, led by government and education, with Flooring Rest of the World having limited commercial exposure. He explained that sales forces are specialized by region, business, and segment, with distinct groups for retail, national accounts, multifamily, builders, and commercial categories, each with specialists to convey product value.

Aatish Shah, on for Stephen King, asked if the company's mid-single-digit pricing expectation has changed with the lower tariff forecast. Stephen King followed up, asking why the company wouldn't be 'over-mitigating' if pricing remains the same while the tariff headwind is smaller.

Answer

CEO Nicholas Fink stated that pricing has been maintained around the mid-single-digit average, and any further tariff mitigation provides flexibility to be more competitive. In response to the follow-up, Fink and CFO Jon Baksht clarified that the situation is complex. Pricing is not uniform across the portfolio, and some businesses like Outdoors are actually advantaged by tariffs. Baksht added a key point: as tariff rates fall, the calculated value of their supply chain mitigation actions also decreases, as it was measured against a higher baseline, meaning it's not a simple one-for-one offset.

Aatish Shah from Evercore ISI questioned how much the Kichler divestiture benefited the Decorative Architectural segment's margin guidance. He also asked about mix effects in the paint category and any consumer trade-down trends in DIY.

Answer

CFO Rick Westenberg acknowledged the Kichler divestiture was accretive to margins but stated that the improved guidance was equally, if not more, driven by strong operational performance and cost efficiencies. CEO Keith Allman added that there has not been a significant mix impact in paint, as the company has worked to reduce margin variability across its assortment.