TopBuild - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 results were broadly in line: revenue $1.23B (-3.6% YoY), adjusted EBITDA $234.8M (19.0% margin), and adjusted EPS $4.63, with weakness in new residential offset by growth in commercial/industrial and solid execution.
• Versus consensus, TopBuild delivered a modest beat on revenue ($1.233B vs ~$1.230B*) and adjusted EPS ($4.63 vs ~$4.40*), and a slight beat on EBITDA (company-adjusted $234.8M vs ~$227.7M*)—helped by pricing resilience and C&I strength; residential volumes were softer than anticipated.
• Full-year 2025 guidance reaffirmed (sales $5.05–$5.35B; adjusted EBITDA $925–$1,075M), with the residential outlook cut to down high-single digits while C&I remains up low-single digits; M&A carryover plus Seal-Rite expected to add ~$85M to sales.
• Strategic catalysts: consolidation of 33 facilities and headcount actions to drive ~$30M+ annual savings, continued buybacks ($215.6M in Q1), and upsized $2.25B credit facilities enhancing liquidity and flexibility.

What Went Well and What Went Wrong

• What Went Well

  • Specialty Distribution grew 2.6% YoY with healthy top-line and bottom-line performance in DI mechanical insulation (U.S. and Canada); recurring revenue now ~25% of segment sales supporting durability.
  • Pricing held up better than expected (especially C&I), supporting margins despite softer residential demand; adjusted gross margin was 29.6% and adjusted EBITDA margin 19.0%.
  • Operational optimization: 33 facility consolidations executed using the company’s technology platform and “Agility” tool; management expects ~$30M+ annual savings from footprint and headcount actions (contemplated in guidance).

• What Went Wrong

  • Residential demand was weak across single-family, multifamily, and light commercial; installation volume declined 9.6%, driving an overall sales decline of 3.6% and lower adjusted margins YoY.
  • Distribution pricing pressure on residential products (primarily spray foam) weighed on adjusted gross margin (down ~70 bps YoY); adjusted EBITDA margin fell 80 bps YoY to 19.0%.
  • Multifamily exposure in Installation amplified volume declines; light commercial was down double digits even as heavy commercial rose, highlighting mixed end-market dynamics.

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. Greetings and welcome to TopBuild's first quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow today's formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll now turn the conference over to your host, PI Aquino, Vice President of Investor Relations. PI, you may begin.

PI Aquino (VP of Investor Relations)

Good morning, and thanks for joining us today. I have with me Robert Buck, our President and CEO, and Rob Kuhns, our CFO. Our earnings release, senior management's formal remarks, and a deck summarizing our comments can be found on our website at topbuild.com. Also available is our recently published 2024 Sustainability Report. Many of our remarks today will include forward-looking statements, which are subject to known and unknown risks and uncertainties, including those set forth in this morning's press release and in the company's SEC filings. The company assumes no obligation to update any forward-looking statements because of new information, future events, or otherwise. Please note that some of the financial measures to be discussed during this call will be on a non-GAAP basis. These non-GAAP measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

We've provided a reconciliation of these financial measures to the most comparable GAAP measures in today's press release and in our presentation, both of which are available on our website. I'd like to now turn the call over to our President and CEO, Robert Buck.

Robert Buck (President and CEO)

Good morning. Thank you for joining us today for our first quarter 2025 earnings call. I'd like to start our call today with a few words on the macro landscape and current operating environment. New residential construction demand remains soft, with choppiness continuing across various geographies. The spring selling season was slower than anticipated, as interest rates remained elevated, and economic uncertainty has eroded consumer confidence, both of which negatively impacted housing demand. Despite this backdrop, the fundamentals of the underlying housing market are strong, and we remain confident in the long-term prospects of our business. On the commercial and industrial front, we are encouraged by the number of projects moving into production and ongoing bid activity in the CNIN market. More specifically, there's been an acceleration in data center construction, along with positive trends in healthcare and certain subsectors of manufacturing, such as chemicals.

While tariffs and trade restrictions between the United States and other countries are top of mind for everyone, including investors, the potential direct impact of currently announced and effective tariffs for our TopBuild business is minimal. We are actively working with our supply base to mitigate the anticipated impact of current tariffs, and we will take pricing actions to the extent necessary. The direct and indirect impacts of tariffs on the economy overall and on housing demand specifically remain uncertain, and we are monitoring the environment closely. Turning to our results, our first quarter performance was in line with our expectations. Total TopBuild sales declined 3.6% to $1.2 billion as weakness in new residential construction impacted the business and was partially offset by growth in commercial and industrial. Our adjusted EBITDA totaled $234.8 million, and EBITDA margin was very solid at 19%.

Our installation segment, which comprises about 62% of total TopBuild sales, reported a mid-single-digit sales decline driven by the residential end market. Our commercial installation business sales were flat in the quarter, with heavy commercial outperforming light commercial. Our special distribution segment, which represents approximately 38% of our total revenue, grew sales low single digits. While we saw declines in our service partners' business as residential demand softened, we are pleased with our DI mechanical installation business in both the U.S. and Canada, which drove very healthy top-line and bottom-line growth. If you'll remember, we saw some project delays mid-2024 across commercial and industrial, which are moving forward this year. The last point I'll make regarding special distribution is that recurring revenue represents about 25% of segment revenue. Certain industrial verticals, such as oil refinery, LNG production, chemical, and petrochemical production, lend themselves to recurring installation revenue.

These industries require regular inspection and replacement of installation materials. We are positioned for success and expect to continue to capitalize on opportunities given our diverse set of commercial and industrial customers, both in distribution and installation. New commercial and industrial facilities are being planned, and we anticipate continued meaningful growth. On the operational improvement front, our common technology platform, inclusive of our single ERP system, allows us to continually analyze data and gather insights that help provide an in-depth understanding and control of our business, something we believe is a core strength of TopBuild. In the first quarter, our field leadership teams and special ops teams executed upon a footprint optimization project that the team had been designing for a few months. This allowed us to consolidate 33 facilities, which will drive ongoing efficiencies across the TopBuild operations footprint.

We're often asked if we have more opportunities to drive improvements in our business. This operations footprint optimization project is a great example of our team's ability to continue to drive operational excellence and meaningful improvements throughout our business. Let me say a few words on capital allocation. Acquisitions continue to be our highest priority for capital allocation, and in April, we are pleased to close the acquisition of Seal-Rite. We continue to consider several opportunities of various sizes, as our pipeline is very healthy. As I noted in previous quarters, we continue to evaluate opportunities to increase our total addressable market under the lens of our ability to leverage our core strengths, including our people and teams, our ability to successfully operate a dispersed branch model, a common technology platform, our strong supply chain and customer relationships, and our disciplined financial and strategic approach.

As always, we will remain disciplined and focused on driving strong shareholder returns. We're also committed to returning capital to shareholders, and in the first quarter, we bought back nearly 694,000 shares of our stock. Before I turn the comments over to Rob to share additional details on our results and outlook, I'd like to highlight a few points. This year, we are excited to be celebrating our 10-year anniversary as a public company. Our success over this time is driven by our people. Our employees continue to focus their efforts on leading and growing their business, driving improvements, and working safely every day. We're pleased to have earned the designation as a great place to work for the third year in a row, a reflection of our ongoing commitment to our culture and our teams. We also recently published our 2024 Sustainability Report, which is available on our website.

Our business inherently drives sustainability as our work and the services we provide enable enhanced energy efficiency. We have a unique, improved, and diversified business model, so even with the near-term macro uncertainty, we are bullish about our medium and long-term opportunities. Our teams are strong, and we're working together to turn challenges into opportunities. We know how to adjust and outperform in a changing environment and remain committed to driving shareholder value. Rob?

Rob Kuhns (CFO)

Thanks, Robert. I want to start by thanking our teams for delivering a solid first quarter in a challenging macro environment. While the choppiness in the residential markets continued, our teams did a great job driving growth in our commercial and industrial end markets. Jumping into our results, our first quarter sales declined 3.6% to $1.2 billion. Volume declined 7.4%, which was partially offset by M&A of 2.6% and pricing of 1.2%. As a reminder, the first quarter had one less business day, which negatively impacted volumes by 1.6%. Our installation segment sales were down 6.7% to $745.5 million in the first quarter. Installation volume declined 9.6% due to weakness in single-family, multi-family, and light commercial, which was partially offset by strong growth in heavy commercial, M&A of 1.8%, and pricing of 1.1%.

The installation segment's pricing was primarily driven by the carryover impact of price increases in the middle of last year. Special distribution sales grew 2.6% to $559.8 million in the quarter. Volume declined 2.2% as slower residential sales were partially offset by commercial and industrial sales growth. Acquisitions added 3.4%, and pricing contributed 1.4%. The incremental pricing was primarily driven by Q1 price increases on certain commercial and industrial products. As Robert mentioned earlier, as part of our ongoing work to optimize our branch footprint, we consolidated a total of 33 facilities across both installation and special distribution. As a result of these consolidations, we incurred one-time costs of $13.9 million, which are primarily related to non-cash lease impairment charges. Separately, in the first quarter, we also made headcount reductions to align our cost structure with current demand levels. These reductions resulted in one-time severance costs of $1.5 million.

Excluding these one-time costs, our first quarter's adjusted gross profit of 29.6% was 70 basis points lower than last year. The margin decline was driven by lower sales volume and pressure on distribution pricing for residential products, primarily spray foam. Adjusted SG&A as a percentage of sales in the first quarter was 13.9% versus 13.5% last year. The increase in SG&A percentage was primarily due to lower sales volume in the quarter. First quarter adjusted EBITDA for TopBuild was $234.8 million. Adjusted EBITDA margin of 19% represents an 80 basis point decline when compared to last year. Installation segment adjusted EBITDA margin was 21.1%, 90 basis points below last year. In special distribution, adjusted EBITDA margin of 16.3% declined 60 basis points year over year. Other income and expense for the quarter was $11.5 million, an increase of $4 million due to lower interest income related to lower cash balances.

First quarter adjusted earnings per diluted share was $4.63, $0.18 lower than last year. Turning to the balance sheet, total liquidity was $746.4 million at the end of the quarter. We finished the first quarter with $308.8 million in cash and $437.6 million in availability under the revolver. Net debt totaled $1.07 billion, and our net debt leverage ratio was one times trailing 12 months adjusted EBITDA. Working capital as a percentage of sales totaled 13.7%, which compares to 14% last year. From a capital allocation perspective, we closed on the acquisition of Seal-Rite, an Omaha-based residential installation business with about $15 million in annual revenue. Acquisitions remain our top capital allocation priority, and our pipeline is very active. In addition, we returned $215.6 million in capital to shareholders through our share buyback program, finishing the quarter with $972.4 million remaining under the current authorization.

Before we turn to guidance, let me say just a few words on tariffs. Our exposure to tariffs that have been announced is minimal. Our products that could face tariff impacts include a chemical input for spray foam, gutters, and certain mechanical installation items. We estimate the potential impact of tariffs, as announced, at less than 5% of our cost of sales. As Robert noted, we are working to mitigate any impact to TopBuild. Moving on to guidance, as you saw in the release, we are confirming our full-year outlook for sales of $5.05 billion-$5.35 billion. While our expectations for single-family volumes have come down since the start of the year, that decrease is being offset by slightly stronger commercial and industrial sales and the addition of Seal-Rite to our M&A assumption. At the midpoint of guidance, our key assumptions are as follows.

We expect residential sales will be down high single digits for the full year. Commercial and industrial sales will be up low single digits. Both of those measures are on a same branch basis, including price. M&A carryover, along with Seal-Rite, will add approximately $85 million to total sales. As we think about the sales cadence in comparison to prior year, the remaining three quarters will all be lower than the comparable quarter of the prior year. The second quarter will likely have the largest year-over-year decline of the remaining quarters. We are also maintaining our adjusted EBITDA guidance of $925 million-$1.075 billion. The savings from our branch footprint optimization project and the headcount reductions we made in the first quarter are included in this range as those projects have been ongoing for several months and were contemplated in our initial guidance.

With that, let me close by expressing my great confidence that our teams will continue to tackle the challenges ahead of us to ensure TopBuild will continue to outperform in any environment. Robert?

Robert Buck (President and CEO)

I'll close our call today by saying that we are confident in our unique and proven business model and the underlying fundamentals for our business. We have a cycle-tested team with deep understanding and control of our business and a diversified business model. We will continue to work diligently to outperform in this changing environment while driving profitable growth and continued shareholder value. With that, Operator, let's open up the line for questions.

Operator (participant)

Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question today, please press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Thank you. Our first question will be coming from the line of Stephen Kim with Evercore ISI. Please proceed with your question.

Aatish Shah (Equity Research Analyst)

Hi. This is Aatish on for Steve. Thanks for taking the question. I just want to touch on the commercial and industrial side. At the end of last year, as mentioned, a lot of these projects were delayed mainly due to financing issues, and now you're seeing these projects kind of moving forward. It's not so obvious why the financing environment would have improved, so any color there would be helpful. Thanks.

Robert Buck (President and CEO)

Hey, Aatish. Good morning. It's Robert. Yeah, I think some of the delays, we saw projects move forward. I think folks have just come to accept the current financing environment, and some of the bigger projects and those projects were justified, so we've seen many of those come online. I would also point to, I think, our teams in the field are absolutely doing a great job of executing what we call the vertical market strategy, which means they're bidding jobs and they're doing work across multiple verticals, whether you think about oil and gas, food and beverage, pharmaceutical manufacturing. I think there's share gain in there as to how the team is executing that, showing up in the numbers as well. I'd say a combo project coming online and great execution, the vertical market strategy by our field teams.

Aatish Shah (Equity Research Analyst)

Great. That's super helpful.

Stephen Kim (Senior Managing Director and Head of Housing Research Team)

Hey, guys. It's Steve Kim. Thanks for that. The second question I guess we have relates to the pricing environment. At a high level, I think, generally, there's two ways that TopBuild can benefit from pricing dynamics. The first one is that you can participate in manufacturers' pricing power when capacity utilization for the manufacturers is very high. You can also, I think, bring your relative size to your advantage, allowing you to get preferred pricing versus your smaller competitors, maybe when capacity utilization for the manufacturers is a little lower. I think that over the last few years, you've really benefited from the former as capacity utilization has been really tight.

As we look forward here with utilization rates maybe dropping a little bit, some manufacturer capacity additions being announced, like just yesterday from Knauf, I'm wondering whether or not you think that your relative competitive advantage on pricing could offset any slower rate of sort of industry or manufacturer pricing. If you could just sort of comment on that dynamic, is that the way you think about it, and what kind of outlook for pricing you think that we can look forward to as a result of that?

Robert Buck (President and CEO)

Yeah. Good morning, Steven. It's Robert. Yeah, I think you hit on some good points there. Obviously, material and the current environment is a fluid situation. As you very well know from our history and conversations that we've had, we're constantly partnering and talking with the manufacturers relative to excess supply, where that excess supply exists.

You're right. We've had three of the four announced additional capacity expansions here, some maybe a little bit hitting in 2026 and some more coming in 2027. I think that's favorable for TopBuild. I think if you look even at current results, the teams have done a nice job. We wouldn't expect necessarily any new pricing per se here in 2025, but you can tell the teams have done a nice job holding on and leveraging for, obviously, the services and products that we provide there. We'll stay close to our manufacturing partners as material loosens up. Again, we have the ability to take that wherever it exists in the country and across our footprint.

Stephen Kim (Senior Managing Director and Head of Housing Research Team)

Thanks. I just want to clarify, Robert. You said you don't expect new pricing in 2025. I guess you mean industry manufacturer pricing. Is that what you meant by that?

Robert Buck (President and CEO)

Yeah. That would be our look sitting here, call it sitting here in Q2 of the year. That's the way we would view it.

Stephen Kim (Senior Managing Director and Head of Housing Research Team)

Yes. Okay. Just wanted to clarify. Thanks very much. Appreciate it.

Robert Buck (President and CEO)

Thank you.

Operator (participant)

The next questions are from the line of Michael Rehaut with JPMorgan. Please proceed with your question.

Michael Rehaut (Head of US Homebuilding and Building Products Research)

Thanks. Good morning, everyone. Thanks for taking my questions. First, I would love to get a sense in terms of the guidance. Obviously, you reiterated the top line and EBITDA, but I believe slightly lowered your RESI outlook to down high single digits from down mid single digits. Previously, you reiterated commercial, industrial, up low single. Just want to understand what kind of was the offset to the slightly lower RESI outlook and if it's just kind of playing with the ranges here, maybe before you were at the high end of the down mid single. Just any sense of what some of the puts and takes are if you had an incremental, slightly more conservative outlook for RESI.

Rob Kuhns (CFO)

Sure, Mike. This is Rob. I'll take that one. Yeah, as you noted, we've lowered our range on residential from saying we were going to be down mid single digits to high single digits. That's really driven by what we're anticipating on the single family side of things, where things are expected to be a little slower. As we came into the year, we were kind of expecting things to be a little bit flattish on the single family side. We're now expecting that to be down slightly for the year, down low single digits. When you roll that in, pricing held up a little better in Q1 than expected. That's a partial offset in there as well.

On the commercial-industrial side, we're still at low single digits, but I'd say we're more towards the higher end of that now between volume and some pretty good pricing we're seeing on that side, a little more optimistic on that side. We did do one acquisition, which has taken up our assumption on M&A by $10 million, and we're not taking up the overall range as a result of that. Net-net, we're getting back to the same midpoint, just a little bit of play between the pieces there.

Michael Rehaut (Head of US Homebuilding and Building Products Research)

Oh, great. That's helpful, Rob. Appreciate that walkthrough. I guess, secondly, it was interesting to hear about the footprint optimization, the consolidation of 33 facilities. That seems a little bigger, perhaps, than some of the more, I don't want to say generic, but sort of the ongoing efforts that you have from a productivity standpoint from your special ops teams. I was curious if you could kind of help us better appreciate the magnitude or the impact of the footprint optimization from a dollar perspective, what that kind of represents in terms of a tailwind this year, if that indeed was part of the original guidance when you gave it a couple of months ago, or if it's incremental and sort of continuing to help out your ability to realize the EBITDA guidance.

Robert Buck (President and CEO)

Yeah. Mike, good morning. It's Robert. I'll start with the first part of the project itself, and then Rob will tackle some of your questions around the numbers. This is something that we've been working for a few months as part of our technology. We have an optimization tool called Agility that we're able to look at customer delivery points. We're able to look at some logistics, that type of thing. This was really maybe a handful of M&A overlap. It's really a combination of being able to put all those pieces together in a very, very targeted and systematic way.

We have really consolidations of, can be a true team location into maybe a DI location as an example, or maybe even some distribution locations co-locating from a DI service partner's perspective, or even our MBI business as well. I think it was very targeted and done in a very calculated way. I think it is just the power of the model here and the competency we have to look at that across to make some very strategic moves and good moves for driving efficiencies in the business. That is a little bit of something we have been working on. I think it answers questions how we continue to have room in this model. I will let Rob talk about some of the tailwind piece of it.

Rob Kuhns (CFO)

Yeah. As Robert said, this is something we have been working on. Obviously, implementing that tool and that technology has taken time. It's something we were very careful, and we want to do it in a way that we don't damage the top line at all. We're confident we're not going to do that. As a result of this, obviously, we've got the one-time charge, so about $13.9 million related to the consolidations. That's primarily non-cash write-off of leases for those facilities. As we move forward, the combined savings, I'd say, between this lease consolidation as well as the right-sizing of some of our headcount around current volumes should be about $30 million or more of additional annual savings. As we talked about in the prepared remarks, that is baked into our guidance.

This is something we've been working on for a while and something we implemented to help offset some of the volume and price cost pressures we're seeing in the market.

Michael Rehaut (Head of US Homebuilding and Building Products Research)

Great. Thanks so much.

Operator (participant)

Our next question is from the line of Adam Baumgarten with Zelman & Associates. Please proceed with your questions.

Adam Baumgarten (Equity Research Analyst on Building Products)

Hey, guys. Good morning. Just on the pricing side, just given the commentary that you were talking about, about carryover pricing from mid last year impacting the early part of this year, do we expect the year-over-year price contribution to moderate as we move through the year, given that dynamic?

Rob Kuhns (CFO)

Yeah. Adam, this is Rob. I'd say that's definitely baked in as our assumption right now. We would expect pricing to moderate, particularly on the install side. We did have some incremental C&I pricing that definitely impacted more on the SD side to start this year. That should hold up throughout the rest of the year. The fiberglass increases from the middle of last year should go down as the year moves on.

Adam Baumgarten (Equity Research Analyst on Building Products)

Got it. Just on the material side, have you started to see prices for the materials you're buying on the insulation side come down, or have they been kind of flattish for a while?

Robert Buck (President and CEO)

Yeah. Good morning, Adam. Robert. I'd say flattish. There's still some fluctuations across the industry, including still some maintenance and stuff that's going on. So I'd call it flattish.

Adam Baumgarten (Equity Research Analyst on Building Products)

Great. Thanks, guys.

Operator (participant)

Our next questions are from the line of Susan Maklari with Goldman Sachs. Please proceed with your questions.

Susan Maklari (Senior Equity Research Analyst)

Good morning, everyone.

Robert Buck (President and CEO)

Morning.

Rob Kuhns (CFO)

Morning.

Susan Maklari (Senior Equity Research Analyst)

Good morning. My first question is on the labor side. You've talked about in the last quarter taking some of the labor on the install side, especially out just to adjust to the market. I guess with your revised expectations on the RESI side, are there any further changes that you're making there? Any thoughts on how you're balancing the near-term relative to the longer-term outlook for housing?

Rob Kuhns (CFO)

Susan, I'd say this is Rob. I'd say it's an equation we're constantly balancing market by market, looking at what's going on with volumes, looking at what's going on with bidding, and adjusting our headcount accordingly. It's something that continues to go on. We're hopeful that the adjustments we made in Q1, we won't have to do anything that significant moving forward. It'll be more kind of tweaking as we go. We definitely feel like we haven't cut muscle, right? We've talked about the fact that we don't want to cut muscle. We're definitely, from our perspective, we still want to grow. We want to do M&A. We think this is a good time to do some M&A. We're hopeful to be able to add some volume to the business through M&A.

As a result, we don't want to cut too deep too quickly here.

Susan Maklari (Senior Equity Research Analyst)

Okay. That's helpful. Maybe building on that, Rob, can you talk a bit about the M&A pipeline, any changes that you're seeing there, and what you're seeing perhaps on the more traditional install side of the business relative to some of the deals on the C&I side?

Robert Buck (President and CEO)

Yeah. Good morning, Susan. It's Robert. Very healthy. I'd say a variety of, I think I mentioned in the prepared comments, a variety of sizes of deals in there. It's really, quite honestly, across all the end segments, residential, C&I for sure, and across the businesses. Really healthy pipeline and busy time for us from an M&A perspective. As always, you can expect us to stay disciplined and do what's right for shareholders here. We're pretty excited about things that are going on there.

Susan Maklari (Senior Equity Research Analyst)

Okay. Thanks for the call, guys. Good luck with everything.

Robert Buck (President and CEO)

Thank you.

Rob Kuhns (CFO)

Thanks.

Operator (participant)

Our next question is from the line of Phil Ng with Jefferies. Please proceed with your questions.

Phil Ng (Equity Analyst)

Hey, guys. Congrats on a strong quarter. I think, Rob, you talked about how margins came in better than you expected. Can you give us some color on what were some of the areas upside? Was the branch consolidation headcount a contributor and kind of give us a little color on how that kind of progresses? If I look at your full-year guidance, the midpoint's calling it 19% EBITDA margins, which is a great outcome given the current backdrop. But it's effectively flat from Q1. Typically, you see that seasonally pick up in Q2, Q3. Kind of help us contextualize how that margin progression will kind of shape up this year.

Rob Kuhns (CFO)

Yeah. I'd say looking at the quarter, if you think about what went better, what was better than expected, what was a little worse than expected. I mean, in general, we were pretty on top of what we expected for the quarter, as you pointed out, a little better from a profitability standpoint. On the volume side, single family, slightly worse than we expected, but not significantly. C&I, a little better on the volume side. Net-net, not too different there. I'd say pricing on the RESI side held up a little better, as we talked about on our previous calls. We've talked about in markets where volumes have slowed, making some price concessions where we need to to hold on to volume. That did not surface as much as we had anticipated. That was something good in the quarter.

Price realization on C&I products that had price increases in the first quarter was good as well. It was really price-driven in terms of the better profitability, I'd say, in Q1. Like we've talked about, the actions we took in Q1 were anticipated. That's not driving a significant amount of the upside. As we move forward, we obviously don't give quarterly guidance. To your point, we do typically seasonally see EBITDA go up from Q1 to Q2 and Q3 kind of flattish or slightly up to Q2, and then a drop down in Q4. Really, all of that driven by volumes throughout the year. While volumes are a bit muted, we do expect kind of normal seasonality there.

As we talked about in the prepared remarks, we expect on a year-over-year basis, we expect sales to be down the most in Q2 as compared to prior year. Q3 should be a little better than that. Q4 will be flattish to down slightly as a result of basically having a little bit softer of a comp in Q4 as things were starting to slow down at that time. As we think about the EBITDA that goes with that, I'd expect, like in most years, Q2 and Q3 will be a little better, probably a little ahead of our midpoint of our guide in 2019/2020, and Q4 will be a little bit worse than that 2019/2020. Obviously, there's a lot of time to go here. That's why we've kept the range kind of wide because there is significant uncertainty out there.

At the midpoint, that's kind of how we're thinking about it.

Phil Ng (Equity Analyst)

Yeah. That's great color, Rob. With pricing coming in a little better, do you still feel pretty good? Pricing, particularly on the install side, kind of hanging in there just given some of the choppiness on the demand side. Robert, I think you're expecting, I believe, fiberglass material prices to stay pretty steady here. There's been some spray foam increases. Certainly, tariffs is an element of that. I think there's been some C&I price increases for July. How do you kind of anticipate pricing for your materials that's non-fiberglass? You see some upward momentum, and does that help margins as well?

Robert Buck (President and CEO)

Yeah. I would say from a pricing perspective, you're asking about the environment stuff. We would expect the teams to get paid for the great services and products they're providing. We would expect pricing to hold. I would say that the teams in the field who have a great command and control of the business, they're doing a really nice job of looking for efficiencies and looking for ways to offset any challenges from a price perspective. I think you see that in the results field. I think we feel pretty comfortable with how pricing plays out here. Obviously, a volatile environment, but we have confidence in what our teams are doing and see what they're doing every day in the field level.

Phil Ng (Equity Analyst)

On some of the material costs, spray foam and C&I side, there's some price increases out there?

Robert Buck (President and CEO)

Yep. Definitely some increases out. Obviously, we'll see where some of the tariff stuff fares out as well. There are some increases in the market out there today in the areas that you mentioned.

Phil Ng (Equity Analyst)

Okay. Thank you.

Operator (participant)

Our next question is from the line of Trey Grooms with Stephens. Please proceed with your questions.

Trey Grooms (Managing Director)

Hey. Good morning, everyone. Just a point of clarity. Robert, I think you mentioned 2Q seeing the largest decline. I think you were referring to the top line on that comment. It seems like the comp is similar in the 3Q to the 2Q. Does the new guide assume any demand pickup anywhere in the business in the back half, or is there some other kind of timing aspect that we need to be mindful of?

Rob Kuhns (CFO)

No, Trey, this is Rob. I'd say we're not anticipating the environment to get significantly better during the year. Like we've talked about, we're very confident in the long-term fundamentals, and we do believe things are going to get better. But trying to predict that inflection point is difficult. What I was referencing when I said Q2, the worst of the remaining three quarters from a year-over-year, I was talking about sales growth. Our expectation is Q2 will probably look similar to Q1 on a year-over-year basis, just given the comps are similar between those two quarters, I'd say. Things kind of started to slow down late Q3 last year. We'll see a little bit better year-over-year, at least from what we're thinking today in Q3. Q4, things were a bit softer, and we expect things to be flat to slightly down.

We're talking low single digits across the board when we're talking about the numbers there.

Trey Grooms (Managing Director)

Kind of on the point of right-sizing the footprint, the workforce, etc., is that pretty much behind you right now? Are you where you want to be? The follow-up to that would be how quickly can you flex up if needed, or what position are you in from a footprint standpoint as we look out a little further in an environment where maybe demand's a little better?

Robert Buck (President and CEO)

Yeah. Good morning. This is Robert. Given the thought that went into that work over a time period, I'd say that work got completed really in the first quarter. That does not mean that we're always constantly looking, right? Even though I'm not about us, we're constantly looking at anywhere to optimize the business. If there needs to be more, we'll do that where appropriate. Relative to ramping up, again, some of the, as Rob mentioned, some of the headcount that was just kind of pruning in the appropriate areas. We obviously have the ability with, I'd say, very little issue to flex back up in some of those areas as we see demand come back or demand fluctuate.

Trey Grooms (Managing Director)

Okay. Thanks, Robert. Thanks, Rob. Take care.

Robert Buck (President and CEO)

Yep.

Operator (participant)

Our next questions are from the line of Keith Hughes with Truist Securities. Please proceed with your questions.

Keith Hughes (Managing Directo for Sell Side Equity Research)

Thank you. Can you just talk about in the quarter the relative performance and distribution between service partners and BI around this kind of organic number you reported?

Rob Kuhns (CFO)

Yeah. Keith, this is Rob. Yeah, obviously, we do not break out the two, but we definitely saw weaker RESI sales and stronger commercial sales in the quarter for specialty distribution. We do break that out in total. On the specialty distribution side, I am just checking the number here to make sure I give you the right number. Specialty distribution on the RESI side, from a same branch basis perspective, was down about 5%. On the commercial side, which is primarily mechanical, but a little bit of service partners in there as well, was up around 2%. Definitely a stronger performance. I can say within that commercial, our mechanical products definitely performed the best of the group in there as well. It was a nice offset to the slower single family environment we are seeing.

Keith Hughes (Managing Directo for Sell Side Equity Research)

I'm sorry, but those numbers, were those revenue or units or what specifically were those?

Rob Kuhns (CFO)

That's revenue on a same branch basis.

Keith Hughes (Managing Directo for Sell Side Equity Research)

Revenue on the same branch. Thank you very much.

Rob Kuhns (CFO)

Yep. Thank you.

Operator (participant)

The next questions are from the line of Ken Zener with Seaport Research Partners. Please proceed with your questions.

Ken Zener (Senior Analyst for the Housing Sector)

Good morning, everybody.

Robert Buck (President and CEO)

Morning, Ken.

Rob Kuhns (CFO)

Morning, Ken.

Ken Zener (Senior Analyst for the Housing Sector)

I think people are surprised that you held guidance despite the decline in housing fundamentals. Obviously, you've referred to M&A, cost cuts. I wonder if you could help frame the single family market for us a little bit in more detail, in the public-private comment, if you could. Because public, they report their inventory and start data, they're down about 10% in 1Q. Their guidance kind of implies flat for the year. It seems like the privates are doing worse than the public builders, or maybe they're doing better from what you could tell us regionally. Could you kind of frame that out if, let's say, the public, which did take down guidance, and they have visibility of about six months?

Rob, if we were to see another 5% decline tied to, who knows, tariffs or this or that, and I realize you're giving data that's very consistent with what the public's and privates have kind of are showing you, what would a 5% decline if volume, for some reason, falls off? What type of incrementals on margins would unfold in that scenario? Just to kind of frame out how you think about volatility of your guidance if we were to see another 5% decline in single family.

Rob Kuhns (CFO)

Ken, inside of there, what I'd say is, we're always targeting for the long term from a decremental margin. We've talked about in the past is kind of that 27% that we have on the incrementals.

What we know is if we do not take out any labor or any costs with that, it is going to be much higher than that. As we look at this year and what we have baked into our guidance, we are getting pretty close to that number when you adjust for price cost and some of the potential impacts we have there baked in. If we see an additional drop of 5%, we are going to be targeting to get there. It all depends on what our outlook looks like going forward. If we think that that 5% dip is going to stick for a while, we are going to be a little more aggressive in our headcount reductions and get to that 27% quicker.

If we believe it's not going to last as long and the market could come back quicker, we're definitely going to take a more cautious approach. That's been our approach here, and that's going to continue to be our approach going forward.

Ken Zener (Senior Analyst for the Housing Sector)

Okay. Robert, can you maybe, if you would, given your guys' visibility into single family bidding, can you maybe give us a little feel, there's lots of news talking about negative news led by Florida, Texas. Often, I think people are missing right strength in the Midwest, Southeast, north of Florida. Can you give us a little feel for how those regions are operating differently? We don't assume all your markets are down because you have good markets and bad markets. Thank you.

Robert Buck (President and CEO)

Yeah. I'm glad to take the question, Ken. Maybe I'll just try to give a little overview of the country and try to give you some flavor around that. If you think about years past where you would talk about areas like Florida and Texas, and those were growth areas, obviously, those are big markets in the Southeast as well. Those are, from a percentage basis, some of the slower markets right now. Usually, if you looked around Florida, you would say it's a mixed bag, but Florida's fairly soft, maybe definitely probably Orlando better than a Naples. North and South Florida, a little slow. Texas, I would say a little tale of north versus south. Dallas still continues to hold up very strong, and we see backlogs building in Dallas. I would even include multifamily in that.

If you look at Houston, San Antonio, Austin, I'd say slow. On the opposite side, some markets that are building and seem to be building momentum, Northeast and Midwest, we're seeing it there. I even say Southern Cal. Even looking at Southern California, most areas seem to be showing some positive trend there. Pacific Northwest would be right there close to Southern California, but Northern California lagging behind. Southwest, I would include Vegas and Phoenix in that. That gives you a little view around the country from that perspective. It is a little different by market. My Dallas versus the rest of Texas is a pretty good example of that. That's what we're seeing from a region perspective. You've seen what the public builders have said.

Some of those markets that I just mentioned where things are building momentum, like you take the Northeast as an example. It is some of the custom builder that seems to be having some momentum there, but maybe not that custom builder, maybe not as much in Florida. Hopefully, that gives you a little bit of flavor you're looking for based on what we see.

Ken Zener (Senior Analyst for the Housing Sector)

It does. I wonder where, because people say consumer confidence, uncertainty, you can get into the politics of it. What are the factors you see that are causing those markets, like in Dallas, is it just job growth and confidence is better, or in Florida, it's just there's too much supply? If you could give us a little more granularity on why those markets are different, that'd be great. Thank you.

Robert Buck (President and CEO)

I think probably you hit on it. Oversupply, if you look at Florida and probably even from a Houston perspective, other areas that maybe did not go as far or could be some of the drivers you are talking about, job growth, the Dallas area, to your point. I would even include the Carolinas in that. If I think about Raleigh and Charlotte, we are seeing some good momentum there. Actually going to be in Raleigh here the next couple of days, meeting with some customers in that area. We are seeing some momentum, I think, in areas that just were not probably as much inventory sitting on the ground, as well as maybe some positive dynamics happening in those markets.

Ken Zener (Senior Analyst for the Housing Sector)

Thank you very much.

Rob Kuhns (CFO)

Thank you.

Operator (participant)

Our next questions are from the line of Jeff Stevenson with Loop Capital Markets. Please proceed with your questions.

Jeff Stevenson (VP of Equity Division)

Hey, thanks for taking my questions today. I was wondering if you could provide more color on the variance between light and heavy commercial demand in your installation segment during the quarter. We wondered whether light commercial bidding activity remains soft or you've seen any signs of stabilization since the start of the year.

Rob Kuhns (CFO)

Yeah. Jeff, this is Rob. Yeah, we definitely saw a big difference between the performance of those two on the install side in the quarter with light commercial down double digits in the quarter and heavy commercial up double digits in the quarter. Kind of a tale of two markets there. I'll let Robert talk about bidding activity on light commercial. I think we have seen some improvement in certain markets there.

Robert Buck (President and CEO)

Yeah. If you think about that light commercial, I mean, Rob's right. It follows the residential trend. We have so much opportunity there that we continue to see bidding opportunities there, opportunity for share growth. That's how our teams will fluctuate some of their resources. Heavy commercial, there was some nice performance there in the first quarter.

As we think about that on the distribution side, especially on the mechanical side, we would expect that to continue.

Jeff Stevenson (VP of Equity Division)

Great. No, that's helpful. I wanted to shift to your M&A pipeline, which sounds like it remains active. I wanted to focus on the residential side of the business. I wondered at a high level whether you believe there could be more opportunities now, given reduced seller expectations, or are potential sellers now focused on navigating this period of market uncertainty?

Robert Buck (President and CEO)

Jeff, this is Robert. I'd say it's a mixed bag. I would say you haven't seen multiples decline in any meaningful way. I think folks are looking similar to what we say. Looking at the midterm, long term, and saying we're still underbuilt in the U.S. And they see that as an opportunity. At the same time, whether it be succession planning, whether it be some folks getting tired in the current environment, we have a lot of conversations going on with potential sellers right now. I'd say a little bit of mixed bag to your question as to what we're seeing, but it is a very active time.

Jeff Stevenson (VP of Equity Division)

Great. Thank you.

Operator (participant)

The next question is from the line of Reuben Garner with Benchmark Company. Please proceed with your questions.

Reuben Garner (Equity Research Analyst on Building Products and Commercial Interiors Industries)

Thank you. Good morning, everybody.

Robert Buck (President and CEO)

Good morning.

Reuben Garner (Equity Research Analyst on Building Products and Commercial Interiors Industries)

If I heard you correctly, it seems the distribution, the RESI portion of the distribution business outperformed the installation side. Is that in part that sort of hedge dynamic that you have in that business? If not, I guess, how far does that business have to or does the industry have to fall from a volume perspective where you start to get a return of some customers that can't buy direct?

Rob Kuhns (CFO)

Reuben, this is Rob. You're hitting on part of it for sure. As markets get slower, you'll see people come into distribution to buy less than truckload orders. The other big factor there is really that on the distribution side, we're less exposed to multifamily. The multifamily side, which was down in the neighborhood of 30% for the quarter, which is what we anticipated for this year, that's not impacting us as much on the distribution side as it is on the install side.

Reuben Garner (Equity Research Analyst on Building Products and Commercial Interiors Industries)

Great. That's really helpful. What are you guys assuming in terms of the size of homes in your outlook? Are you assuming that continues to shrink, and how meaningful of an impact does that have on the volume of insulation that you work through?

Rob Kuhns (CFO)

Reuben, this is Rob. I mean, it's definitely been a trend, but I'd say that's been a trend for the last five years plus. We really haven't seen a meaningful shift down in our take per unit or volume per unit. I think really what benefits us and benefits our industry is the code changes over time that have added insulation per square foot to the house. From a net-net perspective, we haven't seen a meaningful impact there.

Reuben Garner (Equity Research Analyst on Building Products and Commercial Interiors Industries)

Great. Thanks, guys, and good luck.

Operator (participant)

Our next question is from the line of Collin Verron with Deutsche Bank. Please proceed with your questions.

Colin Verron (Building Products and Homebuilders Analyst)

Hi, good morning. Thank you for taking my questions here. I guess I wanted to start with C&I. It was pretty resilient in the quarter, and you called out the backlog and orders being solid still. Can you just talk about how much visibility into revenues you have in the C&I business? Are you booked out through the end of the year here? Do you see any risk of an air pocket impacting late 2025 or 2026 just as you work through the current backlogs, or has bidding activity been strong enough to really replace that backlog?

Robert Buck (President and CEO)

Good morning. This is Robert. We have pretty good visibility, definitely in the backlog from a C&I perspective. I'd say six months on average would probably be a good way to think about it. I'd say barring some major fluctuation in the economic environment, as we said, we feel comfortable with that business the remainder of the year and what's in the guidance that Rob talked about earlier. That's a combination of projects that we've secured, projects that have come online that were delayed in 2024. I'd also say great execution in the field relative to some share gain and that vertical market strategy where field teams are going after different types of jobs, basically being agnostic to any particular vertical. I think it's a combination of visibility as well as confidence as the execution in the field.

Colin Verron (Building Products and Homebuilders Analyst)

Great. That's really helpful color. I just wanted to ask one more on the single-family side of the business. Just given the macro backdrop, does your guidance assume any change in the start pace of the builders here as we get later into 2025, or do you see it being pretty steady from current levels?

Rob Kuhns (CFO)

We're anticipating kind of the normal seasonal changes you would see there. Like I said earlier, kind of at the midpoint of our guidance, we'd expect our single-family sales to be down in the low single digits for the year, net-net.

Colin Verron (Building Products and Homebuilders Analyst)

That's helpful. Thank you for taking my questions.

Operator (participant)

Our last question is from the line of Rafe Jadrosich with Bank of America. Please proceed with your questions.

Rafe Jadrosich (Managing Director and Senior Equity Analyst)

Hi, good morning. Thanks for taking my questions. I wanted to follow up on just the price mix. I think last quarter, you were last quarter was down. This quarter was up. You were sort of expecting at the time that those pressures would continue, and now the outlook's a little bit better. What's the upside versus your initial expectation? How much of the change is price versus mix? Could you just talk about the competitive environment relative to what you're expecting?

Rob Kuhns (CFO)

Rafe, this is Rob. I'll give you a little bit more color there on price. From an install side of things, I'd say not a huge surprise. We went from 1.5% in Q4 to 1.1% this quarter. As we talked about coming into the year, we did expect in certain markets to see some pressure as we adjust to volumes and adjust as necessary out there. I wouldn't say any big surprises there. On the SD side, as you noted, or on the special distribution side, we were flat in the fourth quarter, up in Q1. The big driver there is really price increases on commercial and industrial products we were able to push through in the first quarter, as well as some improvement in spray foam.

While spray foam, I'd say net-net on a year-over-year basis, is still negative sequentially with some of the anti-dumping tariffs, etc., we did see some incremental price come through on that side of things. That is really the difference between what we expected coming into Q1 and where we landed.

Rafe Jadrosich (Managing Director and Senior Equity Analyst)

That's helpful. Then just on the rationalization, it sounds like that's more related to long-term optimization, not really adjusting for the current environment. If single-family starts stay under pressure through the end of 2025 and into 2026, when would you anticipate that you would start to adjust expenses to move towards that 27% long-term decremental? How long would you anticipate that the decremental stay elevated?

Rob Kuhns (CFO)

Rafe, this is Rob. I'd say, I mean, we've already started adjusting costs. I mean, the headcount reductions we've made in the quarter, like we said, we don't feel like we've cut muscle, but we've certainly started cutting into not just the variable installer piece, but also into our back-office support side of things. We are adjusting to get to that. I think if you're just looking at the decrementals on a standalone basis, first, you got to back out the impact of M&A. When you do that, you're still going to see a slightly elevated number. We do have baked in, as we talk going into the year, some margin pressure related to price cost as we navigate this softer environment and navigate that price volume equation. We've got some headwinds baked in there.

When you back that out from a volume perspective, we do expect our decrementals to be in that, call it, high 20s- low 30s type range for the year.

Operator (participant)

Thank you. At this time, we have concluded our question-and-answer session. I would like to turn the floor back over to Robert Buck for closing comments.

Robert Buck (President and CEO)

Thank you for joining us today. We look forward to speaking with you in early August to discuss our Q2 results.

Operator (participant)

Thank you. This concludes today's call. Let me disconnect your lines at this time. Thank you for your participation. Have a wonderful day.