TopBuild Corp Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Philip Ng - Jefferies LLC - Analyst : 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 thing dialogue from here 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 you kind of mentioned, maybe mechanical insulation. But 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 one.

Question: Philip Ng - Jefferies LLC - Analyst : And Robert, I'm a little surprised on the spray foam comment because I think there's 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 spread from China?

Question: Philip Ng - Jefferies LLC - Analyst : Okay. And then from an M&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 C&I side? And then Robert, this isn't the first time you kind of hinted that looking at adjacent markets. Is this going to be a bigger bite like the C&I opportunity we've seen in recent years? Or kind of more bolt-ons? Just give us a little more perspective what you kind of envision in terms of adjacent markets.

Question: Philip Ng - Jefferies LLC - Analyst : And Robert, would those adjacent opportunities be larger? Or are there going to be potentially more on the tuck-in side?

Question: Stephen Kim - Evercore ISI - Analyst : I appreciate all the color and the guidance here. If -- wanted to see if I could delve into a little bit of something that you said on the -- 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. I was wondering if you could elaborate a little bit on what you meant by that? And what we should be expecting as you're looking into 2025 on those points?

Question: Stephen Kim - Evercore ISI - Analyst : I understand, yeah. That's helpful. Okay. Great. And then similarly, I think -- I just want to make sure that I heard you correctly. Robert, when you talk about fiberglass price increases, I think what you indicated was that you thought that it would depend upon builder market conditions improving. I just -- other words, 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? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 25, 2025 / 2:00PM, BLD.N - Q4 2024 TopBuild Corp Earnings Call

Question: Stephen Kim - Evercore ISI - Analyst : Yeah. Okay. And then lastly, you had mentioned something in your prepared remarks about technology and using technology more significantly than you had in the past to aid, I think, with your pricing and I think volume decisions as well. Can you just elaborate a little bit on that? Like what does that mean from a practical perspective? What are you actually doing in your operations? And is it one side of your business more than the other?

Question: Susan Maklari - Goldman Sachs - Analyst : I wanted to talk a bit about the commercial side. You mentioned in your remarks that you are still seeing healthy levels of bidding activity despite the macro that is out there. 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?

Question: Susan Maklari - Goldman Sachs - Analyst : 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 locations and some of those other company-specific actions in there, can you talk a bit about how you can leverage those? And anything that 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?

Question: Keith Hughes - Truist Securities - Analyst : Your outlook on commercial industrial is 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?

Question: Keith Hughes - Truist Securities - Analyst : And you've talked about some, I guess, lack of price increases. We've all heard about some of the spray foam deflation that's going on. What's kind of your view near term for pricing and jobs with that are primarily fiberglass?

Question: Keith Hughes - Truist Securities - Analyst : Do you think there'll be compression in job prices in this environment? Is it bad enough for that?

Question: Rafe Jadrosich - Bank of America - Analyst : First, I 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?

Question: Rafe Jadrosich - Bank of America - Analyst : And then on the first quarter, we -- 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?

Question: Rafe Jadrosich - Bank of America - Analyst :

Question: Ken Zener - Seaport Research Partners - Analyst : 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 since it is dated, quite high today, as you know. And the idea is that they're leaning into more presale units in order to leverage mortgage buydown. How long do you think -- I mean, because you 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 do you see? Or could -- is it in your assumptions, they're building down inventory? Or are they just going to keep it up? I'm trying to understand the demand versus this excess bidding that we're seeing.

Question: Ken Zener - Seaport Research Partners - Analyst : Right. And I guess, Rob, the mid-30% incremental decline that you talked about not widespread market weakness, but in some markets, you did highlight there's price concessions and some other factors. Do those markets that are weaker, not widespread, pretty much overlap with what we're seeing, hearing, meaning pressure in Southwest Florida, these particular areas where inventory and margins are going down broadly? Are there -- is that to be interpreted the same where your margin pressure is with new house margin pressure?

Question: Kurt Yinger - D.A. Davidson - Analyst : 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. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 25, 2025 / 2:00PM, BLD.N - Q4 2024 TopBuild Corp Earnings Call 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 the competitive landscape kind of specifically for TopBuild as we look out over 2025?

Question: Kurt Yinger - D.A. Davidson - Analyst : 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 are 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?