TopBuild Corp.

Ladies and gentlemen, greetings and welcome to the Top Bill's fourth quarter and year-end 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, P.I. Aquino. Please go ahead.

Good morning, and thank you for joining us. With me today are Robert Buck, our President and Chief Executive Officer, and Rob Koons, our Chief Financial Officer. We've posted our earnings release, senior management's formal remarks, and a presentation that summarizes our comments on our website at topbills.com. Many of our remarks today will include forward-looking statements, which are subject to known and unknown risks and uncertainties, including those set forth in this morning's press release and in the company's SEC filings. 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 the website. I'd now like to turn the call over to our President and CEO, Robert Buck.

Good morning. Thank you for joining us today. We at Top Build are proud to share that 2024 represents our ninth consecutive year of growth and profit expansion, as we celebrate our 10-year anniversary as a public company this year. Since our spin in 2015, we have demonstrated the strength of our business model and the long-term opportunity for Top Build. Our results have truly been a team effort, and I want to start by thanking our employees for their dedication and commitment to our business. Congratulations to our installation and special distribution, as well as branch support center teams for working diligently to service our customers, drive operational excellence, and work safely every day. The new residential construction landscape in the fourth quarter was much like the prior two quarters. Interest rates have remained elevated for longer than anticipated, and although some builders noted increased traffic, External forecasts for 2025 housing starts have been trimmed in the last few months. That being said, the underlying housing market fundamentals are strong, and we continue to be bullish about the mid- and long-term opportunities. Many uncertainties exist in today's environment, so before I move on to our results, let me cover a few topics. On tariffs, we do not anticipate a significant impact on our business. Products potentially impacted represent a relatively small portion of our material spend, and we are taking appropriate steps to mitigate this impact. Regarding labor, we are aware of deportations happening in certain markets which have not impacted top build. This has the potential to slow the construction cycle, putting labor at a premium. We are confident in the strength of our labor force and are being cautious and strategic as we manage our labor cost structure in this environment. We will continue to watch closely and evaluate as regulatory and economic conditions impact our industry. Turning now to our results, our residential business performed as expected in the quarter. Single family grew slightly while multifamily declined double digits. Our commercial industrial business saw growth in the quarter and for the full year. We also started to see some delayed projects move forward in the fourth quarter We have built a strong backlog and continue to be very active on the bidding front. Fourth quarter top-billed sales grew 2% to $1.3 billion, fueled by specialty distribution growth. Our adjusted EBITDA grew 2.5% to $258 million, and adjusted EBITDA margin of 19.7% improved 10 basis points year over year. Rob will provide more details and results in a moment. Turning to our operations, fiberglass supply has loosened as housing demand has softened. The new Kanawha facility in Texas has started production and the plant is still building to optimal capacity. While planned maintenance is expected to be less than last year, pricing in this environment will be dependent on future demand improving. Like previous times of uncertainty relative to demand, our seasoned operations team is working diligently and making strategic decisions to optimize our model across the footprint. We have great insights and control of our business that allows our field teams to be proactive in navigating changes to outperform in the current environment. Turning to capital allocation, acquisitions continue to be our top priority. Last year, we completed eight acquisitions across both installation and specialty distribution for a total of approximately $153 million in annual revenue. In 2024, we returned nearly $1 billion to shareholders through our share repurchase program. As you saw in the release today, our board of directors authorized a new share buyback program of up to $1 billion, demonstrating confidence in our business and long-term strategy. Our M&A pipeline continues to be very healthy, the environment is active, and we're off to a solid start this year. As I noted last quarter, we continue to focus on our core of insulation, at the same time learning about opportunities that could expand our total addressable market. As always, we will be disciplined in our approach and seek opportunities that label us to leverage our core strengths. Let me take a minute and talk about how we define our strengths and core competencies. First, we are a people business. We have nearly 14,000 employees who are essential to our success. We have a core competence of recruiting and retaining direct labor and developing talent throughout the business. We have a dispersed network with over 440 branches across the U.S. and Canada. Our operating philosophy is rooted in local empowerment. The day-to-day business decisions happen at the local level, so our field leadership are encouraged to be the owner to drive operational excellence and strong performance. We have a great track record of driving continuous improvement and are confident operating a dispersed branch model. Technology and the use of a single ERP system across our entire footprint is a key contributor to our business success. Our technology investments give us the ability to provide new business leads, facilitate best practices across the network, analyze real-time business information, measure productivity, drive improvement initiatives, and consolidate certain back office functions at our branch support center. Our category has unique supplier and customer dynamics, and as the largest buyer of insulation in the industry, we operate in partnership with our suppliers. For our customers, our teams drive exceptional value and service. Finally, we are committed to being financially disciplined and thoughtful in our strategy. Our balance sheet is healthy, we have a great M&A track record, and a history of delivering strong shareholder returns. I'll close by giving you some broad thoughts on 2025, then turn it over to Rob to take you through the details of our results and guidance. Persistent inflation is keeping interest rates high, and ongoing economic and regulatory uncertainty is creating challenges for the construction industry. External forecasts for housing starts this year have come down in the past few months, with most predicting a decline in starts in 2025. We expect residential demand to improve. However, the timing is yet unclear. On the commercial and industrial front, at both installation and specialty distribution, we are seeing an uptick as some of last year's delayed projects are launched. Bidding activity in this space continues to be strong. We continue to be optimistic about the underlying fundamentals of our industry and our ability to outperform the market and capitalize on growth opportunities, both organic and inorganic. We see the diversification of our business model being an advantage. Finally, our guidance does not contemplate M&A, and given our pipeline, we are anticipating 2025 to be another active year on the acquisition front. Rob? Thanks, Robert.

Let me start by saying thank you to our employees for their hard work and efforts, which enabled us to deliver another record year for Topdome. Since our spin nine years ago, we have grown sales at a compounded annual growth rate of 14% and expanded adjusted EBITDA margins from 6.6% to 20.2%. These results have been driven by our teams that have a relentless focus on operational excellence and do a great job delivering exceptional value and service to our customers. Today on the call, I'll review our Q4 results, and then I'll walk through our guidance for 2025. In the fourth quarter, we increased sales by 2% to $1.3 billion. M&A contributed 2.4%, pricing added 0.9%, and volume declined 1.3%. Turning to our segments, installation sales were relatively flat year over year at $788.6 million. Volume declined 4.1% and was offset by M&A of 2.3% and pricing of 1.5%. The volume decline was driven by the slowdown in multifamily activity. Single-family activity remained choppy and was flat the prior year on a same-branch basis. Within specialty distribution, sales grew 6.6% to $601.8 million in the fourth quarter. Volume rose by 4.4% as commercial industrial sales grew and spray foam sales rose ahead of industry cost increases. Acquisitions added 2.2% while pricing was flat in the quarter. Fourth quarter adjusted gross profit totaled $392 million, or margin of 29.9%. which was 50 basis points lower than last year. Gross margins were lower than prior year in both specialty distribution and installation as the residential housing industry continues to tackle soft demand driven primarily by affordability challenges and economic uncertainty. The decline was driven by strategic price and volume decisions on residential products, primarily in our distribution business, as well as conscious decisions around labor in certain installation markets. Across our footprint, we are leveraging our tools and technology to strategically balance local volume and price decisions, and we are working closely with our supplier partners in this changing environment. Adjusted SG&A as a percentage of sales in the fourth quarter was 13.2%, 70 basis points lower than last year. Top billed adjusted EBITDA in the quarter totaled $258 million, or a margin of 19.7%, a 10 basis point improvement versus last year. Installation segment EBITDA margin was 21.4% in the fourth quarter, flat the prior year. Adjusted EBITDA margin for specialty distribution improved 20 basis points to 17.7%. Fourth quarter, other income and expense of 14.7 million was 4.3 million higher than last year due to reduced interest income on lower cash balances. Fourth quarter, adjusted earnings per diluted share of $5.13 improved 9.4% versus last year. Moving to our balance sheet and cash flow, total liquidity was 836.5 million at the end of the quarter. Cash was 400.3 million, and we have 436.2 million of availability under our revolver. We ended the quarter with net debt of 987.2 million, and our net debt leverage ratio was 0.91 times trailing 12 months adjusted EBITDA. Working capital as a percentage of sales was 13%, an improvement of 20 basis points compared to 2023. In 2024, we generated $706.7 million in free cash flow. Our capital allocation priorities remain unchanged, with acquisitions remaining our top priorities. We spent 136.8 million on acquisitions in 2024, and we also returned 966.4 million in capital to shareholders last year, buying back about 2.5 million shares. As you saw in our release, our board of directors has authorized a new $1 billion share repurchase program, which brings the total available under authorization to $1.2 billion. Turning to our outlook, I want to remind you that our guidance includes M&A that we have closed but does not include any potential future M&A. Our guidance for 2025 is sales of $5.05 billion to $5.35 billion and adjusted EBITDA of $925 million to $1.075 billion. As we head into 2025, there continues to be significant uncertainty in residential markets. While we remain bullish around the long-term fundamentals for residential housing, we anticipate the current environment of uncertainty will lead to continued choppiness. We do anticipate an inflection point in residential demand, but given the uncertainty around timing, we are not making that into our guidance. The midpoint of our revenue guidance at $5.2 billion assumes the following. 2025 volume will be down low single digits. Multifamily, which makes up 10% of our sales, will be down approximately 30%. As a reminder, multifamily benefited in 2024 from the carryover of a significant backlog which delayed the impact of the slowdown in multifamily starts. Single family, which makes up 55% of our sales, will be flat the prior year. Commercial and industrial, which makes up 35% of our sales, will be up low single digits. Price mix will be down slightly as we expect the pressures we saw in the fourth quarter to continue into 2025. Our revenue guidance assumes revenue will be down low single digits across all four quarters of the year with Q1 being down the most. The midpoint of our EBITDA guidance is 1 billion or 19.2% of sales down 100 basis points the prior year. To give you a little more color on the main drivers of the 100 basis point decline in EBITDA margin, first, Roughly half of the decline is driven by lower sales volume, which will have an EBITDA decremental margin in the mid-30s, slightly higher than our long-term target. This will be driven by efforts to strategically manage labor and back office support given the uncertain timing of housing recovery, the potential competition for labor moving forward, and our strong appetite for continued M&A. We anticipate the other half of the decline will be due to gross margin pressure, similar to Q4, as we continue to balance volume and price decisions in certain choppy residential markets. We expect productivity to offset both the impact of M&A carryover, which comes with fixed costs in year one, and incremental investments in digital initiatives, such as e-commerce and data analytics. As you consider the quarterly cadence of profitability throughout the year, we expect each quarter's EBITDA margin to fall within our full-year guidance range of 18.3% to 20.1%. Q1 is expected to be the weakest and near the bottom end of the range. Finally, a few other data points from a modeling perspective on our guidance. Interest expense will be between $49 million and $55 million. Our income tax rate will be between 25% and 27%. CapEx will be 1.5% to 2% of sales. And we expect working capital to be in the range of 12% to 14% of sales. Before I turn it back over, let me close by expressing my confidence in the health of our business and our opportunities for future growth. While we are currently facing some macro uncertainty, I'm extremely confident that TopGrid will continue to outperform in any environment. Robert?

Let me close our call today by saying that we continue to be bullish about our industry and Top Build's future. Not only do we operate in a great category with strong fundamentals, we also have a unique and proven business model. The underlying fundamentals for new construction are strong, and our products and services play a critical role. We are confident that Top Build will navigate fluctuations in near-term demand and outperform the market, even as the broader environment changes. Our business is inherently well positioned to capitalize on these opportunities for growth, both organically and through acquisitions. Our acquisition pipeline is healthy. We remain committed to building our track record of delivering increased shareholder value. With that, operator, let's open up the line for questions.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from Phil Engie with Jefferies. Please go ahead.

Hey, guys. Strong quarter and Rob, appreciate all the color on some of the margin side of things. I guess on the pricing side of things, are you seeing things dial up for me 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 even mechanical inflation, 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 point.

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

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 that. You saw an uptake in that distribution business with customers buying ahead of it. Are you starting to see that move higher or are you getting squeezed on that backdrop on the spray foam side of things?

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

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 at 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-on? Just give us a little more perspective what you kind of envision in terms of adjacent markets.

Yeah, so as we think about, you know, current pipeline, I'd say it's, you know, we've got some great prospects across all three industries. you know, in segments there, if you will, residential distribution and then, you know, commercial industrial as well. As we think about, you know, C&I specifically, which I think you mentioned, Phil, and if you looked at some of our big acquisitions that we did in 2024, it was definitely in that space with Metro Supply and Shannon Global, which we closed the back half. So there's a lot of activity in that space. And as we think about adjacencies, I think the part that we're communicating here is, you know, C&I right down the fairway, We've done a great job with that. There's more opportunity in our core insulation areas, residential, commercial, industrial, C&I being part of that. But we're also saying, look, we have a set of core competencies, the strengths of the company that we think as we look at how we can expand, check those boxes and give us a high level of competence as to the value for shareholders we can drive. in some of those adjacent spaces. I'd say, you know, more to come on that, but I think you can probably hear in our tone here, we see some good opportunity for top building given, you know, the cash that we generate and, you know, good use of capital allocation that we've had as a company. I think, you know, we're, we're thinking about that and thinking about the growth for the company here going forward.

And Robert, would those adjacent opportunities be larger or they're going to be potentially more on the tucking side?

um i think there's some potential larger opportunity out there for for top build okay excellent appreciate the color guys thank you thank you the next question comes from stephen kim with evercore isi please go ahead yeah thanks very much guys appreciate all the the color and the guidance here um if uh

I wanted to see if I could delve into a little bit of something that you said on the – you put 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 install markets. I was wondering if you could elaborate a little bit on, you know, what you meant by that and what we should be expecting as you're looking into 2025 on those points.

Yeah, Steve. So this is Rob. So just, you know, walking you through that a little bit. In terms of what we're seeing there, as Robert talked on the pricing side, and we talked a little bit about this in Q3, we're seeing a little bit of extra supply on the spray foam side of things. That's created some price pressure. So where we need to, we're making the decisions we need to to continue to drive some volume with that product. So that created some pressure in the quarter for sure. And then... On the distribution side, you know, I'd say we're still, you know, price cost or on the, I'm sorry, on the installation side, we're still definitely price cost positive there. We're seeing some pressure in certain markets for sure, but we're working through that and obviously working with our supplier partners on those things. But, you know, as volumes have slowed on the install side, like we saw in the quarter, the pressure we get there is more from the labor side of things, right? And that's where, you know, we're being strategic in our thinking, you know, being that we're optimistic about the long-term or the mid-term even, you know, that residential markets will bounce back here at some point. You know, we're being careful not to cut, you know, good labor that we have out there. Being that we want to continue to be active on the M&A front, you know, we're being careful with our back office labor as well. So that's really the driver of the deleveraging we're seeing there on the volume side.

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 talked about fiberglass price increases, I think what you indicated was that you thought that it would depend upon builder market conditions improving. In 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?

Yeah, I would say, Stephen, so there's definitely material available right now, given the slower demand environment. And I'd say there's, you know, as you know, there was increases announced for earlier in January. You know, those didn't see traction really. And so I think it is going to have to be driven by an increased demand environment to, to, uh, drive cost price there in 2025. Yep. Okay.

And then lastly, you had mentioned something in your prepared remarks about technology and using technology more significantly. I mean, you had asked 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, you know, from a practical perspective? What are you actually doing in your operations? And is it one side of your business more than the other?

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

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

Okay, appreciate it. Thanks very much, guys.

Thank you. Thank you. The next question comes from Susan McLary with Goldman Sachs. Please go ahead.

Thank you. Good morning, everyone.

Good morning. Good morning.

Good morning. Good morning. 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?

Yeah, good morning, Susan. It's Robert. So, you know, commercial industrial side was definitely, you know, nice job by our teams in the field, and we saw that for full-year results. We saw it in the quarter as well, and bidding activity is very active there. So, you know, we're, as you heard Rob talk about in his guidance, you know, we're definitely looking for growth in that commercial industrial side of the business here in 2025. If you look, I think the main thing is you look across the verticals of that business, commercial industrial business, I'd say we're pretty optimistic across most verticals if you think about manufacturing, obviously data centers, oil and gas, food and beverage, pharmaceutical, those types of areas. We like what we see there. The bidding verifies that. We like the diversification there. Sometimes people ask, where do you see any weakness? Battery plants, EV facilities, there's been some in those areas, but we're pretty diversified across those verticals and stuff. We like what we've seen, you know, looking back, but then most importantly, looking forward, bidding, and we mentioned we're seeing projects get launched here that were delayed some in 2024 as well.

Great. That's helpful, Collar. And then, you know, 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, you know, perhaps on the on the distribution side and consolidating some of those locations and some of those other companies 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?

Yep, Susan. So that's, this is Rob. So, you know, that's obviously something that's out there, definitely an opportunity for us. So as we look across our footprint and as we're Looking at some of the challenges ahead, we're definitely looking at some consolidation opportunities. Like I talked about, we're looking at labor opportunities. And like I mentioned on the call, we've got a productivity number baked in into the midpoint of that guidance that's offsetting some of the investments we're making on the digital side of things with some e-commerce initiatives and some things around data analytics. as well as you have the, you know, the decremental impact of carryover M&A on your EBITDA margins as well. But we do have that productivity baked in, and, you know, it's something that, you know, we're on top of in terms of, you know, the environment we're in right now.

Okay. Thank you for the call, or good luck with everything.

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

Thank you. Your outlook on commercial industrial claddish, would that mean that within this guidance framework we would see the distribution business feel less pressure than what would be coming in installation?

Yeah, Keith, this is Rob. So actually we're guiding to low single-digit growth on the commercial side, so we do expect to be up on that side of things. Obviously, to your point, That makes up a much bigger piece of our distribution business, more like 60% of the business on that side versus 15% on the installation side. So you're correct as we look at the year from a segment perspective, the sales growth year over year will be tougher for install than it will be for distribution.

And you've talked about some, 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 primarily fiberglass?

Yeah, so fiberglass perspective, as we mentioned earlier, there wasn't a lot of traction given the excess material right now. So obviously we're able to give our teams guidance right now. There's no new increases announced out there. And so we're just making sure our teams do a good job of of maintaining. We're not chasing any share from that perspective. So we're getting guidance here to make sure they're bidding consistently for the next, call it 90 days on the residential side.

Do you think there'll be compression in job prices in this environment? Is it bad enough for that?

In certain markets, we do see that. And like Robert mentioned on the spray foam side of things, there's certainly some more pressure there than on the fiberglass side of things. In the slower markets, there's pressure, but that's, you know, why we talk about it being choppy. We still have markets that are performing well. A lot of them kind of, you know, kind of average. So it's certainly not a widespread thing at this point.

And I think what you've seen from us, Keith, you've watched us for a while, is our teams do a good, I would say, great job of optimizing, you know, that margin volume perspective. And, you know, some of these markets that Rob just spoke to that are, that are choppier or uncertain, you know, they're making some of those decisions. And so we do a good job of that. And I think you see overall the margins are holding up very nicely if you look at the guide that we're giving for the full year. Okay, great. Thank you.

Thank you. The next question comes from the line of with Bank of America. Please go ahead.

Hi, good morning. Thanks for taking my questions. First, I appreciate that it's a choppy environment, but it's a pretty wide range that you have on the guidance. 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?

Yeah, Ray, this is Rob. So I'd say, you know, we focus on our midpoint as we do this, and then, you know, given the uncertainty, we put a, A little wider range than normal, as you point out, on it. I mean, from a single-family perspective, when we think about the low end, that's probably closer to minus 2% on a year-over-year basis, and on the high end, more of a plus 2, right? And our midpoint's kind of flattish there. So that's kind of the range there. And then, you know, similarly, we've got a similar range on multifamily around the 30%. Dan, we're talking about, and then on commercial industrial, you know, similarly, we've got the low single digits at the midpoint a little better than that on the high and a little below that at the low.

And then on the first quarter, um, we, I know it's like relatively balanced through the year, but, um, it sounds like you expect the first quarter to be weaker. Um, can you just talk about what's impacting the first quarter? Are you assuming that the macro gets better? after the first quarter, or are there specific headwinds that you're facing there that are going to subside?

Yeah, no, I'd say, I mean, the first quarter, we do have the benefit of, you know, we've got a month and a half in the books here that we've seen, so we know what we're seeing right now, you know, and so we've obviously got that baked in. And as we think about the balance of the year, like we've said, we're optimistic that, you know, demand for residential is going to come back stronger, but we haven't baked an upturn in that into our guidance. So when you think about what we're seeing right now, we basically baked in kind of normal seasonality through the rest of the year. And when you do that, right, if you do that from where we are today and you look at the year-over-year comps, you'll see, you know, we're going to be, you know, kind of low single digits down most of the year with Q1 down the most. We did have some weather in January. That's definitely a factor as well. but, you know, we have weather every year as well, so we tend to not call that out.

So it's a consistent macro view, but the comp is just different on a year-over-year basis.

Yeah, and it's important to point out, too, we do have one less day in Q1, so for the year, one less day, and it's in Q1. The rest of the year, the date will be the same.

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

Great.

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

Good morning, everybody. Robert, I'd like to ask you a high-level question and ask Rob just more like, you know, an operating leverage question. But, Robert, you know, the narrative is that housing has been underbuilt, and builders' new home inventory census data is quite high today, as you know. And the idea is that they're leaning into more presale units in order to leverage mortgage buy-downs. How long do you think, I mean, because you 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 industry is in? I mean, is that kind of the headwind you see here? 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.

Yeah, I think, yeah, morning, Ken. So I think that's where, to your point about the inventory, I think that's where some folks are leaning into the back half of the year. So we'll see, you know, how that develops. I think, you know, if things pick up, that could definitely be realistic. We'll see what happens. I think the builders, you know, it kind of depends on the builder population you're talking about, right? So the big builders continue to buy downs and they're in a situation for that. I think the longer that goes on, the more, and we probably said this in 2024, the more it can impact some of the smaller regional, smaller builders here. So, but you're right, where you got the extra inventory sitting on the ground, the bigger guys are able to continue to But, you know, they're also – the builders are smart business people, so they're obviously adjusting the product they're going to market with based on those affordability issues and maybe where they see more of the inventory as well. So they're adjusting their approach as well.

Right. And I guess, Rob, the mid-30% incremental decline that you talked about, not widespread market weakness, but, you know, in some markets you did highlight, you know, there's price concessions and, you know, 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, you know, these particular areas where inventory and margins are going down broadly? Is that... to be interpreted the same where your margin pressure is, with new housing margin pressure?

I'd say in general, yes, right? I think there's definitely some correlation there, but what we're seeing is definitely, it's very different market by market, even within states, so it's hard to even generalize the state of Florida or the state of Texas. But certainly where there's more inventory, that creates more pressure for the builders and that can have a trickle-down effect on us as well.

Thank you very much.

Yep. Thank you. The next question comes from the line of Kurt Engel with DA Davidson. Please go ahead.

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

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

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, you know, with the view that perhaps some of these demand pressures are more temporary, what are a couple 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, and kind of readjusting the size.

Yeah. Yeah. So this is Rob. So like we talked about, I mean, we're, we're monitoring with our, with our systems, our bidding activity across, across the footprint, right. And we're, we're obviously, you know, talking with the field who's talking directly with the customer. So as we understand, you know, what's, what's going on in each market, kind of get a feel for where we think it's going. We'll get more aggressive with the cost actions we're taking. I mean, we've been through this before. Our team's been through it before. We went through it during COVID when we saw our sales drop off 20% immediately after COVID. And, you know, for us, given our cost structure, right, it's about labor, right, and it's about knowing your A players, your B players, and your C players. And, you know, we do our best to hold on to those A's and B players as long as we can. And, you know, this is a similar situation in those slower markets right now.

Yeah, just to add on that, I think Ralph said it well. We have to see prolonged, you know, weakness, but, you know, our productive labor, we will not. we want to keep and, you know, the COVID is a good example, but if you look back also, even back to whenever there was choppiness in residential 17 and 18, you know, we took appropriate action that came out stronger and we see the same here.

Right. Makes sense. Okay. Appreciate the color. Thank you.

Thank you.

Thank you. A reminder to all the participants, you may press star and one to ask a question. As there are no further questions, I would now like to hand the conference over to Robert Buck for closing comments.

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

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