TopBuild Corp.

Welcome to the Top Build Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. I will now lead the conference over to Tabitha Zane. Please go ahead.

Thank you and good morning. On the call today are Jerry Bolas, Chief Executive Officer, Robert Buck, President and Chief Operating Officer, and John Peterson, Chief Financial Officer. We have posted senior management's formal remarks on the investor relations section of our website at topbill.com. As shown on slide two of today's presentation, many of our remarks will include forward-looking statements concerning the company's operations and financial conditions. These forward-looking statements include known and unknown risks, including those set forth in this morning's press release, as well as in the company's filings with the SEC. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. Please note that, other than as otherwise specifically stated, the financial measures to be discussed on this call will be on a non-GAAP basis. The non-GAAP measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. We have provided a reconciliation of these financial measures to the most comparable GAAP measures in a table included in today's press release and in the presentation accompanying this call. Please turn to slide three. I will now turn the call over to Jerry Boulders.

Good morning, and thank you for joining us today. What a difference since we last spoke with you just a few months ago. COVID-19 has produced an unprecedented chapter for our country and the world. First and foremost, we extend condolences and get well wishes to those whose health and safety has been directly affected by this virus. Speaking on behalf of our leadership team and our 10,000 employees, TAP will prioritize whatever is necessary as a responsible citizen to manage through this pandemic. From a business standpoint, Top Hill is fortunate, as our installation and distribution services are considered essential in all but a few states. With strict safety protocols in place, our true team crews are on job sites, and our service partners' coworkers are filling and delivering orders. In addition, our traditionally conservative approach to managing our balance sheet provides us with ample liquidity to weather this storm. For those who have been following our company for many years, you know we are significantly stronger financially and leaner operationally than we were a decade ago. Many of the decisions made during the 2009 housing correction are benefiting us today as we face what will likely be a slowdown in housing starts. Our leadership team is proactively managing every aspect of our operations to minimize the impact of the pandemic on our company. Robert will talk in detail about what we've done from an operations standpoint to weather this period and what we are doing moving forward to ensure we capitalize on housing's projected recovery. Be assured we put the health and safety of our employees, their families, our customers, and our supplier partners first. While we can't determine the trajectory of housing starts, in our opinion, the medium and longer-term outlook for housing remains favorable. The last housing downturn was accelerated by an oversupply of housing from both overbuilding and foreclosures. Neither of those factors are in the mix today. The good news from our point of view is that both new home inventory and mortgage rates are very low and are expected to remain so. We look for consumer confidence to drive builder activity as the economy recovers. Turning to our financial results on slide four, we had a solid first quarter. with only minimal impact from the COVID-19 pandemic. Revenue increased 5.5% and adjusted even a margin expanded 150 basis points to 13.5%. The conversion of our top line to the bottom line was outstanding and produced adjusted EPS of $1.37 for the quarter, a 29.2% increase. All of the other earnings related metrics were very good and John will provide more detail on those. Moving to slide five, we completed two acquisitions in the first quarter, Cooper Glass and Hunter Installation, both of which we announced on our fourth quarter call in February. Given the current level of uncertainty, we have intentionally hit the pause button on further acquisitions. Looking ahead, we are fortunate to have a strong balance sheet with plenty of dry powder and expect to eventually resume our acquisition program, which remains our number one capital allocation priority. The $50 million ASR we announced last October was completed in the first quarter and an average price of $107.31 per share. Year to date through April 30, we have acquired 415,787 shares and an average price of $74.23 per share. Due to the uncertainty of the full impact of COVID-19, we have put our share repurchase program on hold. I'll now turn the call over to Robin.

Thanks, Jerry. Rather than follow my traditional comments where I review poorly results for our two business segments, our remarks today will focus on how we are responding to the COVID-19 related challenges, the actions we are taking to navigate this pandemic, and why we believe we are very well positioned to manage through this environment and prevail stronger. Turning to slide six, first and foremost, the safety of our employees is our number one priority. Shortly after the COVID-19 outbreak occurred, we created a field operation support team to implement specific measures to safeguard our employees' health and well-being, while ensuring the company's ability to maintain key operations and service our customers. Where appropriate, we have instituted a work-from-home policy at certain operating facilities, including our Daytona Beach Branch Support Center. Our already extensive safety procedures were enhanced to include cleaning and sanitizing our facilities and vehicles and having employees practice social distancing. We're also monitoring on a daily basis where we are permitted to provide our installation and distribution services. In most states, construction has been deemed essential and in those locations our company continues to operate. In some larger metropolitan areas, we have seen a number of large commercial projects delayed due to the density of construction crews on site. In the four states where construction initially was not considered essential, Washington and Pennsylvania are currently reopening residential and commercial construction, and we hope to see the same in New York and Michigan very soon. Our supply chain across both business segments remains strong, and our supply chain partners have been very supportive as they continue to do their part to ensure service levels are maintained, enabling us to provide timely service to our customers across the country. With safety protocols in place and our supply chain assured, we turned our attention to flexing our business model to adapt to the current environment. To provide you with a little bit of history, as shown on slide seven, most of our senior leadership team went through the Great Recession and the associated housing downturn in the late 2000s. John and I arrived here in late 2009 and 2010 when the company was part of MASCO and known as MASCO Contractor Services. Although the COVID-19 pandemic is very different, we have not forgotten what we learned and the leadership required to manage through such times. When the last recession hit, we had over 330 branches which installed, in addition to insulation, over 40 non-core building products. Since the last housing downturn, we have optimized our footprint, shutting down over 130 redundant branches, moved all of our branches to a common ERP system, simplified our business processes, exited non-core products, renewing our focus on our core lines of business, significantly cut redundant fixed overhead, removed waste out of the business, brought talent back into the business and our field operations, and appropriately leveraged our supply chain scale. These strategic and deliberate actions over the last several years have not just honed our current strategy as top builders, but have created a very focused cadence by which we run the company on a daily basis. So, we're a very different company today than we were just five years ago at the time of the spin for MASCO. Our decade-long focus on operational efficiency, sales and labor productivity, and strong balance sheet management is serving us well as we manage our business to best serve our customers, care for our employees, and position our company to gain share and grow as housing recovers. Turning to slide eight, our playbook, honed over the years, has multiple levers we can pull to take costs out of the business. Obviously, one of the easiest targets is discretionary spending, and we've already identified and eliminated the majority of those expenses. Capital expenditures have also been pared back considerably, and we've taken appropriate actions to reduce overhead. Our two largest cost buckets are labor and material. Starting with material, we have no long-term commitments with any of our manufacturers and are working closely with our supplier partners to align our supply of material with demand, keeping our price-cost model in sync. Turning to labor, as most of you know, labor has been extremely tight in the construction industry. Currently, with most states allowing construction services to continue and a good backlog of housing starts, we are keeping the majority of our crews busy and in some instances bringing on new team members. However, in states where construction was deemed non-essential and in those branches where work has slowed, we have flexed our labor force on the downside. To help mitigate this impact, we have implemented a COVID-19 leave plan that continues to pay our team members for a period of time to help provide assistance to them and their families. We believe this is the right investment in our team to create goodwill and improve the probability we can rehire them when conditions improve. As we've stated previously, we believe we are the employer of choice in our industry and our COVID-19 leave plan demonstrates our commitment to our employees and the strength of the company today and for the future. From an ongoing labor management perspective, having all of our branches on a common ERP system gives us a distinct competitive advantage. It is another unique strength for Topville. For example, in Florida, our Jacksonville, Orlando, and Tampa branches can pull resources, labor, trucks, material, from each location as needed, enabling us to meet customer demands efficiently and keep labor productivity high. The integrated ERP system also gives us real-time information across all of our branches that allows us to respond quickly in this dynamic environment. At this point, we have not closed or consolidated any branches. However, our playbook incorporates various scenarios, and this is another lever we can pull to take costs out of the business. This is a normal cadence of our monthly branch operations review. Moving to slide nine, as we look at the business as a whole, we see a clear opportunity to differentiate our company from most of our competitors and play offense. We can service and support our existing customers while gaining new customers and growing market share. Our national network, ability to retain labor, and financial stability gives us the ability to meet changing customer demands, something many smaller companies may not be able to do over the next few months. For example, in a few major markets, we've already picked up new business as some of the competitors have struggled to provide consistent service. In closing, we recognize that the situation remains fluid. Our leadership team continues to monitor our operations on a daily basis and will calibrate the business as needed. I'm extremely proud of the way our entire team has stepped up to meet this challenge. Our operations team, headed by Steve Rea, Jeff Franklin, David Cush, and Jeff Benson, all of our teams in the field, and of course, our branch support center team, did not make it through these times to come out the other side stronger without an aligned leadership team with a sense of urgency And that's what we have in spades at Top Build. We know how to quickly adapt to changing market conditions to ensure we are on the best and safest course possible for our employees and our company. John?

Thank you, Robert, and good morning, everyone. We are very pleased with our strong first quarter performance, which, as Jerry already mentioned, was not significantly impacted by COVID-19. I will start with a brief review of our first quarter results, starting on slide 10, then put some color around a few of the initiatives Robert just discussed as we flex our business model to adapt to this environment. In the first quarter, net sales increased 5.5% to $653.2 million, driven by price and volume increases at both business segments, partially offset by a negative mix due to continued growth in multifamily a continued move to a smaller footprint, and some marginal impact due to COVID-19. We believe COVID-19 negatively impacted sales about $10 to $11 million, most of which was the result of the four states, Washington, Michigan, Pennsylvania, and New York, that had identified construction services as non-essential. Gross margin expanded 120 basis points to 26.3% compared to the same period a year ago, benefiting from pricing, volume growth, and continued operational efficiencies, partially offset by higher material prices. Adjusted operating profit grew 18.9% to $70.3 million, with the corresponding margin improvement of 130 basis points. Both gross margin and operating margin improvements were driven by higher selling prices, residential and commercial sales volume, and improved labor and sales productivity, partially offset by higher amortization expenses, higher stock-based compensation costs, and higher material costs. First quarter 2020 adjustments totaled approximately $272,000, primarily tied to acquisitions. First quarter adjusted EBITDA was $88.4 million compared to $74.5 million in 2019, and our adjusted EBITDA margin was 13.5%, a 150 basis point improvement from first quarter 2019. Our dropdown to adjusted EBITDA margin was 40.8%. Same branch dropdown came in at 43.8%, and the dropdown for our three acquisitions came in at 22.5%, a testament to our strong operational performance and our ability to successfully target, acquire, and integrate acquisitions. Adjusted net income was $45.9 million, or $1.37 per diluted share, compared to $36.6 million, or $1.06 per diluted share in the first quarter of 2019. First quarter interest expense declined from $9.6 to $8.7 million, driven by an 82 basis point decline in our interest rate on our term loan, on average, compared to the first quarter of 2019. Moving to slide 11, CapEx was $15.9 million, approximately 2.4% of revenue. CapEx was slightly higher than our historical levels due to an investment to upgrade our branch IT infrastructure. Working capital as a percent of pro forma trailing 12-month sales was 10.5%, 160 basis points lower than prior year, driven by lower inventory levels at both segments, and improved collections primarily at True Team. Operating cash flow was $72.9 million for the quarter. As you can see on slide 12, we ended the first quarter with very moderate net leverage of 1.46 times trailing 12 months adjusted EBITDA. Total liquidity at March 31st, 2020 was $576 million inclusive of the available balance on our $450 million revolver of $389 million and cash of $187 million. Our total liquidity at the end of April was approximately the same as the March ending balance. As a reminder, on March 23rd, we announced an amend and extend of our senior credit facility, extending the maturity date three years to 2025, increasing our revolver from $250 to $450 million and increasing the headroom on our financial covenants. As you can see, we are well positioned with strong cash flow, a solid capital structure, and ample liquidity. We have no near-term debt maturities. Our recently upsized credit facility matures in 2025, and our 5.58% bonds mature in 2026. We have ample room under our debt governance and understanding that the preservation of cash is a high priority, we have suspended our share repurchase program and M&A activities and significantly reduced capital spending. Turning to COVID-19 cost savings initiatives on slide 13, we talked with many of you in the past about the flexibility of our business model. 70% of our costs are variable, 20% are fixed, and 10% are a mix of the two. This model enables us to expand margins in periods of growth and adapt the downturns to mitigate the impact on our operations and financial results. As Robert noted, labor and material are our largest expenditures, and both can be dialed back relatively quickly as demand falls. Right now, it's not possible to know the full impact that COVID-19 will have on the housing industry and on our business. which is why we withdrew our 2020 revenue and adjusted EBITDA guidance last month. However, we will share that in April, COVID-19 negatively impacted same branch sales by approximately 9% versus prior year. This was primarily driven by the four states where construction was deemed non-essential, as well as commercial construction where, as Robert mentioned, a number of projects were delayed. We do anticipate further declines in the second quarter as we work through our backlog. Be assured we'll continue to adjust our cost structure as required. To date, our cost savings initiatives include elimination of most travel, entertainment, and in-person meetings, postponement of other discretionary spending, significant reduction of capital expenditures, and the reduction of workforce in both the field and at our branch support center. As Robert noted, we also have the option to close or mothball branches, but we'll be appropriately cautious before taking this step. We don't believe this downturn in housing will be as deep or as long as the last one, and we want to ensure we'll be able to properly service our customers and play offense as we enter the recovery. As we've often discussed with many of you on the call today, all of Topfield's branches roll off to a common ERP system. This provides us many advantages as we can track daily activity in every branch, giving us the ability to react quickly to business changes in real time. While we can't predict how long the economic impact of the pandemic will last, we are confident in our long-term strategy and our ability to adjust to changing market conditions. Jerry?

I'm extremely proud of Robert, John, and their teams for the work they have done and continue to do every day to manage our company through these difficult times. We are laser-focused on controlling costs and ensuring we can continue to serve our customers where we are safely permitted to do so. As I said in my opening remarks, we remain bullish on residential and commercial construction for the medium and long term. In the near term, our experience management team and strong balance sheet will guide us through the current environment. And while we can't predict the timing of the recovery, we are very confident Topfield will be well positioned when it does arrive. Operator, we are ready for questions.

Thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. Again, to register for a question, press the 1, 4 on your telephone. And our first question comes from Ken Zenner with KeyBank. Please proceed.

Good morning, everybody. Good morning, Ken. I appreciate your comments about April down 9%. Can you maybe talk operationally to how your shared ERP systems tactically can help you? I know sometimes you've talked about moving teams into a region, for example, or between cities and pricing. Is there something about you know, when you think about sharing resources between branches to ease your fixed costs, I mean, how should we think about that? Is that, or how do you think about that? I mean, is there, you know, is it a mileage issue between branches? I know driving time is important for you guys. Could you go into that a little bit is my first question?

I can, Robert. So I'll take the first part of that. So yeah, the ERP system, we definitely see as a definitive strength for the business. So relative to As we're looking to route crews, route jobs, route shipments, obviously that gives us the ability to do that the most efficient way possible relative to our crews or from a distribution perspective. We talk about sharing labor, we talk about sharing material, we talk about sharing equipment, trucks, other equipment as well. As you may see demand fluctuate in a certain market from that perspective, it's easy for us, very easy for us, and most importantly, our managers in the field to move those resources around. So it allows us to keep labor productivity high, allows us to keep asset utilization high among some of that equipment as well. You mentioned pricing. I think you know that we have great controls in our system relative to margin thresholds and how those are approved with our leadership team in the field as well. So it gives us a lot of opportunities. And I think if you even look at how we eliminated redundancies in the footprint, and even how dedicated we are to merging acquisitions onto our ERP system. We think it's a great tool to drive those efficiencies, and it gives us visibility. It gives us visibility of labor productivity, gives us visibility of demand in the field by branch, by region, by customer. So it allows us to drill into a lot of different areas, which allows our operators in the field to really pull those levers you know, a daily, weekly, monthly basis to help the business perform and drive that performance.

Excellent. And then, Jonah, the incrementals you guys have been delivering are pretty amazing. I assume that's not what you would expect to achieve if sales decline. So could you talk to a little about pricing in terms of when you do contracts, which I assume – perhaps might be a bit delayed just given construction constraints we see. But how are you thinking about pricing where it is today versus bids you're seeing? I mean, if, you know, if April's down nine so far, it seems like it would be hard to have pricing going through. So, I mean, how are initial conversations going around bids? Thank you very much. And prices. Thank you.

Hey, Ken, it's Robert again. So, you know, absolutely constant discussions with builders and, as always, not just now, but as always, whenever we're bidding new work. And, you know, in this type of environment, there's always going to be some pressure from a margin perspective. At the same time, we're making sure, as we always have, to really drive efficiency, drive productivity, work our supply chain piece of it as well. So, you know, you can expect us to continue to do that, but there will be discussions that are ongoing with with builders and, again, on the supply chain side as well in this type of environment. And it will all depend on, you know, how demand goes here in the next few months and the next couple quarters here as well.

Say, Ken, Jerry, here, the one thing I would add to that is, you know, Robert's commentary around visibility gives us the ability to always play that balance between price and volume, you know, locally. We have that visibility by branch, so... So we're pretty good at understanding what the tradeoffs are, and they're different by geography. So that's another advantage that we have. And over time, I think we've shown that we can do that throughout the cycle. And this will just be another example of us doing that well. Thank you.

And our next question comes from Mike Wood. with Numero Instant Net. Please proceed.

Hi, good morning. Morning, Mike. Could you give us a sense of where the pace of new orders coming in for April are tracking, not the sales? And when would you expect the benefits of the backlog that you have to start of, you know, and stop mitigating kind of that new order decline pace?

Hey, Mike, this is John. So, you know, obviously the reason we came off the guidance is because of the uncertainty in the environment right now. And so, although, you know, we did operate in April at a pretty good clip, and I think that was pretty constant, by the way, throughout the month. It's the unknown right now, obviously, that's affecting our ability to predict what's going on on the May, June, and beyond that timeframe. So, at this point, we're not going to speculate in terms of when the backlog is going to drop. That can include even the potential or the possibility there's cancellations on things we did, etc. So, So we're not going to talk about that in terms of a go forward, and that's our position at this point.

Okay, and what are the puts and takes that may make the decrementals better or worse than that kind of mid-20% gross margins and that fixed cost piece that you highlighted, 20% to 30%? And would there be any short-term inefficiencies in second quarter from implementing any COVID-19-type precautions

Yeah, Mike. So, this is John again. So, yeah, we gave you that breakdown, that 70, 20, and 10. So, how we address the 20 and 10 is going to be obviously critical in terms of how the decrementals look. So, typically, we would be in the same range of the 22 to 27 that we provide for incremental margins. I think initially in the second quarter, we're going to be a little deliberate and thoughtful as this ramps down and we anticipate that happening to some degree here throughout the second quarter. We don't want to get caught short-sighted and short-handed in terms of the recovery also. So I think we would expect the decrementals in the second quarter to be a little bit higher than 30%. But as we get to kind of an ongoing run rate, I think that 22 to 27 range that we provide for incrementals is probably a good way to think of the business.

Okay, thank you.

You're welcome.

And our next question comes from the line of Phil Ng with Jefferies. Please proceed.

Hey, guys. On the commercial side, can you remind us how deep your backlogs are and be helpful to kind of break down some of the end markets within commercial?

Yeah, good morning, Phyllis Roberts. So, you know, the backlog, I think we talked about, you know, not necessarily dollars, but visibility. I mean, we're bidding work today. I mean, let me start off by saying one thing that we've probably been pleasantly surprised with is the amount of bidding that we continue to do on the commercial side. There's been a lot of, a lot of jobs that have come to us that we've been bidding and our activity there has kept up pretty consistently from a bidding perspective during this time. You know, we're bidding jobs definitely into 2022 now. So not just this year, next year, but some longer term jobs that go out as well. As we think about, I think, you know, we have plus or minus 17, 18 heavy commercial locations across the U.S., everywhere from New York through D.C., Baltimore to Orlando, and then across the country, Chicago, and really well represented out west, Seattle, Northern California, Southern California. So as you can imagine, as we talked about commercial some here, the biggest areas impacted would be the areas that you would think. So Washington State, Seattle, we have a lot of heavy commercial operations there. Northern California, which You probably remember it was one of the first areas to do some of the shelter-in-place type of actions. The Tri-City area, New York, New Jersey, Connecticut, that area as well. So that's where we saw some of the biggest impact. We've seen delays in projects, not necessarily cancellations of projects, but just some delays in projects. And again, as I mentioned, we're seeing the Washington State area. We're seeing some of those jobs open back up as well as some Northern California jobs open back up.

Excellent. And then within your distribution business, I think in the past you've talked about, you know, one of the added benefits is, you know, in the downturn, you might be able to win back some of that business on the contractor side where they got too big. You know, are you seeing that dynamic play out currently or just still too early?

Phil, this is John. So I think, you know, the whole basis of that is that, you know, customers were not servicing today. Some of them may be buying direct from a manufacturer. So, you know, A little too early to say that there's been an impact from that at this point in time, about a month and a half into this, but I think, you know, as this plays out, that's certainly a potential, and we'd expect that to deliver some incremental results for service partners, again, depending on the depth and breadth of the downturn here.

Got it. And just one last one for me, just picking back in question earlier. You know, your two biggest cost profile is the variable side. It's laborer. and your raw mat side, it doesn't sound like you're furloughing a ton of people from a headcount standpoint. And then, obviously, the fiberglass manufacturers got some pricing in January. So, I just want to understand, you know, how quickly can you manage these two bigger pieces to help you kind of get back to the decrementals you talked about?

Phil, I'm sorry. Is your question around labor and material? How quickly?

Yeah, how quickly can you throttle that back? Those are the two biggest cost components, right?

Yeah, material is pretty immediate. On that one, obviously, we will dial down our purchasing immediately as we see the reduction. I think labor, we're always going to be a little bit cautious as the market starts to decline a little bit. We don't want to get short-sighted. We don't want to get caught short-servicing customers. But certainly that's something we turn around pretty quickly also. It's just that there's a little bit of inefficiency as you're declining, both in terms of the ability to service the customer. And, again, you're a little bit more cautious to let go of that labor in the decline mode.

Got it. Okay. Great color. Thanks a lot. Yep.

As a reminder, to register for a question, press the 1 followed by the 4 on your telephone. And our next question comes from Trey Moorish with Evercore ISI. Please proceed.

Thanks very much, everyone. So let's talk a little bit about your pricing. And typically, you've historically talked about you're able to push pricing and raise pricing because of the tightness in the labor. However, it starts pulling back. It seems that labor is less likely going to be as tight. And similarly, with demand for new construction, at least in the near term, likely to fall, insulation manufacturers may have the potential to also pull back on pricing. So I'm wondering how you're thinking about your pricing to your customers going forward over the next three to six months as demand is likely to at least remain weak in the near term.

Yeah, Trey, this is Robert. So as I mentioned earlier, you know, in constant discussions, not just now, but it's normal constant discussions with builders and then obviously our supply chain partners as well. I mean, whenever we think about labor and, you know, from that perspective, we haven't seen anything significant yet. I would say that, you know, during this time, whenever service is extremely important from a customer perspective, you know, we focused on that. We think that'll continue to be you know, critical. So let me give you one example of what's causing delays today in the field is inspections. The limited number of inspectors that are in the field today. So the last thing a builder wants to do is miss an inspection today because you're going to have, you know, extreme delays in getting that inspector back out. So, you know, I would say making sure that we're able to service them on a timely basis so they get their inspections, meet their inspections, pass inspections and stuff. But I would say on the other side of the labor piece of it, we see it as an opportunity. We see it as an opportunity. There's some markets that, you know, we're growing in, that we're gaining business where some of our, in some major markets where we've seen some competitors stumble due to service. So we're seeing it as an opportunity to pick up some labor in those markets that remain strong. We also see it as an opportunity to upgrade some of the team as well. So I would say we take the labor as You know, yep, there'll be conversations with builders. We'll drive productivity. We'll also drive service and continue to differentiate ourselves. On the other side, we see the labor piece as an opportunity in certain markets and an opportunity to upgrade the team both, you know, in the field and from a back office perspective as well.

Got it. Thanks very much, Scott. And then just thinking about volumes and sales across the country, you talked about how April is down 9%, four states where you're kind of shut down and some commercial projects have been pushed out. But outside of those areas that were forced to be shut down, were sales actually down in April or were they kind of flash or maybe even showing some strength in major regions?

Detroit, this is Robert. So yeah, those states that John spoke to are the main drivers. I think I also mentioned the tri-state area, New Jersey, Connecticut, Northern California being drivers. But a lot of areas that we were strong, we would say that those four areas as well as commercial more than made up that 9% that John spoke to in the month of April. And if I think about through that southwest area, Texas, Florida, even up to the Carolinas, we are still working our crews at a pretty full pace right now, given some of the backlog. And we are still bidding new work as well. But definitely those four areas and some of those heavy commercial spots that I mentioned more than drove that.

And just to be clear also, the 9% is on a same branch basis. We did have some M&A on the three acquisitions, a little over a couple million dollars in the month of April also.

All right. Thank you very much, guys. Appreciate it.

You're welcome. And our next question comes from Justin Spear with Selman & Associates. Please proceed.

Thank you, guys. Just a few questions, actually, just recognizing that this is more of a 2021 kind of discussion in terms of the revenue impact for you, but But what's your outlook across the core in verticals in the non-residential channel that you play in in terms of like start activity based on your conversations and based on your experience, given the nature of the disruptions that we're seeing right now?

Yeah, Justin, I would say, so your question is around residential starts and what we see 2021. Is that the question?

Non-residential, so more commercial and office and some of the non-residential work that you do.

You know, Justin, Robert may have a few things to say about this, but my point of view on the whole thing is that the depth of what happens here and how long it lasts, both residential, commercial, and just the economy in general, obviously depends a lot on the consumer. How fast does the consumer bounce back? You can make an argument on either side of the equation. We believe that the consumer will come back over a period of time here. It may take a quarter or two for that to happen. The thing that we like about Top Build and what we've always talked about is the diversity that we have across residential, commercial, the fact that we're represented geographically across the entire country. Whatever trend lines or paradigm changes come out of this, We're somewhat agnostic relative to that impacting our company. I would say, and Robert and John may have something they may want to add to this, by 2021, I would think that we'll be back in reasonable shape and we'll start to reestablish the momentum that we had in the first quarter. I mean, the first quarter, everybody knows that the housing industry and top of it, we were actually doing fantastic and looking towards one heck of a good 2020. and on into 21. So this is a speed bump without question. But there's a lot of reasons to believe. I mean, you read articles about people, you know, they've been trapped in their homes for two months. You know, now you hear a lot about nesting. People are going to want to buy homes. They're going to want to have a bigger home. They're going to want to have this or that. So there's a lot of reason to believe that coming out of this there are going to be some positive housing trends. And also don't forget that we were underbuilt coming into this. And so that's much, much different than 2009. So those are some of the reasons why I'm very positive, actually. And I think that, you know, later this year into 2021, I expect to have momentum reestablished without question.

And Justin, this is John. I think the thing I'd add to that is when you talk about non-residential or commercial is that, you know, as we've shown the past five years, we've had fantastic evidence of growing share. So even if the market does get a little flattish, we think we've got a great opportunity to continue to push there and continue to gain share in that space as we've done. So that remains a prime opportunity for us in a growth mode or a flat mode.

That's helpful. And I'd love to get a sense for what non-residential activity looked like in the first quarter and where it paced in April, recognizing there were disruptions, but just to kind of get a baseline.

This is Justice Roberts. On the same branch basis, on the commercial side, we were up in Q1. Our backlogs, we had very good backlogs heading out of Q1. As I mentioned, we were bidding jobs into 2022, and that bidding has kept up in the commercial space. So we were glad to see that, as John said, continuing to push picking up share in different markets across the country. across the country and again these projects we feel like are delayed not we're not seeing projects canceled um and the only other thing i would just mention is uh multi-family you know we're bidding a lot of multi-family now so not just single family but multi-family and as jerry mentioned as as things as people probably move to the suburbs more which is one of the things you hear happening here we think that footprint that we have uh you know serve us well as there may be some of that migration

Actually, the last question for me is just on the M&A playbook going forward. What do you need to see to gain more confidence with deploying capital towards M&A? And I'd love to get a sense for your mindset in terms of timing or magnitude or perhaps the type or the nature of M&A in terms of residential, non-residential areas that you think are interesting as you think about deploying capital.

Justin, we're still very much in the M&A game. We made the comment on our prepared remarks that we're hitting the pause button It's just for what I think will be a short timeframe here. It's still our number one capital allocation priority. The acquisitions we've done have performed extremely well. So we're very anxious to continue that. We talked about hitting the pause button. We thought that was the prudent thing to do here for a quarter or two to see how this evolves and see if we're right about the trajectory and if we're right that by 2021 we're back moving in a positive direction. You know, we have a pretty full pipeline of folks that we've been talking to. We're going to continue conversations with other candidates. And so, you know, as I said, if we're right about the trajectory here, you know, look for M&A to continue to be both residential and commercial. Look for that to be really important to top build going forward, just like it has been the last couple, three years.

Thank you, guys.

As a reminder, to register for a question, press the 1 followed by the 4 on your telephone. And our next question comes from Keith Hughes with SunTrust. Please proceed.

My question has been answered. Thank you.

Thank you. And the next question comes from Sheldon Clark with Deutsche Bank. Please proceed.

Hey, thanks for the question. um kind of just long term but how does the supply demand balance feel in the insulation market right now relative to previous downturns do you think that just the nature of this slowdown and the shutdowns has helped at all from the supply side um you know just given the fact that things had to be forced to shut down and you know we kind of knew this was coming to some extent hi selden it's uh it's robert so you know i would i would say

I think Jerry mentioned earlier, this is very different than what happened previously, right? I mean, there's been, you know, underbuilding, there's been pent-up demand. Even if you think about some of these areas that have been shut down, you know, as they're opening back up, there is a backlog, there is pent-up demand there. So we would expect that to come through here. So I'd say it doesn't feel as, you know, from my timeframe going back 10 years ago, it definitely is different than it was 10 years ago, given that overbuilt situation. And then I think, you know, obviously you're hearing the builders say that they're slowing down on building the specs or building what's sold, so we would expect that to manage things through, and, you know, that'll prevent some of the overbuilt from happening as well. So, and then my last comment would be, others may have comments, but just the multifamily side, and we're bidding a lot of multifamily work, which could speak to the affordability issue that'll be coming up here in the next 12, 18, or or so months, so we would be obviously well represented there and participating from the multifamily perspective as well.

Okay, that's helpful. I guess as it relates to your backlogs and just like new orders that you're seeing, how much line of sight does this give you from a timing perspective? And what's the buyer's ability to cancel or defer some of these orders if things don't kind of come back or slow down in the next couple of months?

Yeah. So this is John. So I think typically we talk about this, that on single family, we have about a 60 to 90 day type of window where we see, and that's under normal conditions. I think What makes this a little, you know, different, obviously, is the uncertainty involved here. And builders do have the ability to cancel a previously placed order that we have or delay one. And that's what's causing us to pause in terms of giving any type of guidance near term, certainly long term also. So, you know, I'd say generally, you know, we have that two to three months on the single family side. But again, we're going to be cautious here in terms of you know, what builders are going to do, because we can't predict that right now, and it's just going to depend on, you know, what happens in terms of their pipeline, and that will certainly affect us. In terms of the commercial side, again, a nice, healthy pipeline there that we're working. I think the challenge there, as we've said, especially on the heavy commercial right now, those have been delayed to a large degree, disproportionately more than we've seen in any other line of business. So if you think about heavy commercial, you know, the reason for that, multiple trades on the job site, So, you know, in that case, GCs are going to be very, very cautious until there's, you know, some level of comfort from a safety standpoint. So, again, we're not seeing those jobs canceled, but they are being deferred at least to a larger degree than we've seen anything on the residential side at this point.

Okay, that's helpful. Thank you. That's it for me.

And our next question comes from the line of trade rooms with Stevens. Please proceed with your question. Trach rooms, your line is now open. Can you verify mute button?

Yep. Sorry about that. And sorry, I missed a portion of the Q&A, so forgive me if this has been asked. But with the current situation, do you think that this could change the M&A pipeline at all for you guys? Do you think this could bring new opportunities that maybe otherwise wouldn't have come up and and what's your appetite for something like that as you kind of look into the next few quarters or the next several months here?

Trey, Jerry here. Our appetite for M&A is, you know, even though we have our foot on the brake right now, we view that as very short-term. It's still our number one capital allocation priority. We've been hugely successful with it. And so we have a pipeline that's pretty full right now. We are still talking to a number of people, and we'll talk to more. So, you know, here, if it plays out like I think it will here, and we do reestablish a momentum of the business here by the end of the year into next year, you can look for us to get involved in M&A to the degree that we have. I mean, it's been a big part of our success here over the last couple, three years, and we think it will certainly be on a go-forward basis. We have the balance sheet and the liquidity to be able to do it. We're not limping here as it relates to dry powder to be able to do things. As to whether or not there are some short-term opportunities from anybody here in terms of their business, in terms of the timing, we're open to that for sure. Again, the strength of our balance sheet and our liquidity puts us in a position to be able to do that. Conversations are ongoing and Look for us to stay in the game.

All right. Thanks for the color, Jerry. That's all I had, and thanks for taking my question.

Sure. There are no other questions at this time. I'll turn the call back over to you for any closing remarks.

Thanks, everybody. We look forward to our second quarter earnings call in early August. Be safe.

Thank you. That does conclude the call for today. We thank you for your participation. Have a great day.