TopBuild Corp.

Greetings, and welcome to Top Build's third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Pia Iacchino, Vice President, Investor Relations. Please go ahead.

Good morning, and thanks for joining us. With me today are Robert Buck, our President and CEO, and Rob Koons, our CFO. Our earnings release, senior management's formal remarks, and a deck summarizing our comments can be found 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 our website. Let me now turn the call over to our president and CEO, Robert Book.

Good morning. Thank you for joining us today for our third quarter earnings call. With more than three quarters of the year behind us, we are proud of what our teams have accomplished thus far in 2025. Let me start by giving you an update on where we are with our acquisitions. In the third quarter, we acquired Progressive Roofing, With roughly $440 million in annual sales, we've established an exciting new platform for growth in commercial roofing, which has a large and very fragmented $75 billion TAM. In the first 100 days following the acquisition, we continue to learn great things about the business and are refining a strategy to build on the platform. We've established a great connection points across the Progressive Roofing organization and our teams are doing a great job coming together and executing for the future. In October, we closed the SPI transaction. With this strategic deal, we're bringing together two leaders in the mechanical insulation and custom fabrication to better serve our commercial industrial customers across diverse vertical markets. The transaction extended our geographic footprint and expanded our capabilities. Our teams are already hard at work as we leverage our M&A integration expertise to get SPI onto our technology platform and drive synergies. We expect to deliver $35 to $40 million in annual run rate synergies over the next two years, and we're excited to have the SPI team on board. We also announced yesterday several additional acquisitions. We closed insulation fabrics, diamond door products, and performance insulation fabricators over the last few weeks and will soon close on a fourth acquisition, L&L Insulation. Together, these acquisitions add just over $50 million in annual revenue. Diamond Door Products is a very attractive complement to our specialty distribution business. Diamond Door fabricates and assembles insulated steel door systems, which gives us the opportunity to provide metal building insulation customers with a value-added bundle of products that customers have requested. Insulation Fabrics and Performance Insulation Fabricators expand our distribution offerings of insulation accessories and mechanical insulation, while L&L Insulation grows our residential insulation installation business in Colorado. Our M&A team is doing a great job. We continue to have very attractive pipeline of acquisition candidates, and there's no shortage of opportunities to consider. Let me transition to discuss our results in the quarter. Results were in line with expectations and similar to the prior quarter. Our performance was solid even as the macro environment remains uncertain. We posted total sales growth in the quarter of 1.4% to $1.4 billion. Although the residential new construction market continues to be weak, it was partially offset by ongoing growth in heavy commercial and industrial. We're also benefiting from the contribution of our commercial roofing acquisition. Fundamentally, housing in the U.S. is still underbuilt, and our long-term opportunity is intact. Near term, the downward movement of interest rates is encouraging. However, mixed economic signals and affordability concerns linger, impacting consumer confidence and home buying decisions. Profitability in the third quarter was again solid, and we reported adjusted EBITDA margin of 19.8%, As we continue our focus on operational excellence across the business and supply chain. Turning to capital allocation, our priorities have not changed. We continue to believe we can drive the greatest shareholder returns through M&A. We're always evaluating opportunities and we remain disciplined around valuation. In the third quarter, we repurchased nearly 178,000 shares, returning $65.5 million in capital to shareholders. As you know, we plan to host an investor day in New York on December 9th. So before I turn it over to Rob, let me give you a bit of a preview of the day so you have an idea of what to expect. Topfield has a differentiated business model and a clear profitable growth strategy, which drives compounded returns. Our strong track record of value creation would not be possible without our great team of leaders, many of whom you'll meet, including some folks from our recent acquisitions. You've heard us talk a lot about being a people business. One of our core strengths is our culture and our ability to attract and retain great talent, both of which we'll cover in more detail. This year, we've expanded our total addressable market to approximately $90 billion, so we'll spend some time discussing our strategy for continued growth in the space, both organically and through M&A. We have the advantage of having a single technology platform that enables us to drive operational excellence and efficiencies. As we look ahead, we'll share more on our digital roadmap to support continued operational excellence and solutions that improve the customer experience. Finally, we'll share our thoughts on Top Build's long-term financial outlook. We encourage you to join us in person. If you don't already have the details and would like to attend, please reach out to PI. With that, let me close by thanking our teams as we continue our focus on safety, driving profitable growth, and operational excellence. I also want to welcome our most recent acquisitions to our team. We look forward to working together and are delighted to have you join the Top Build family. Rob?

Thanks, Robert. Let me start by thanking our teams for continuing to drive solid results. Despite some challenging macro headwinds, our business continues to generate healthy margins and strong free cash flows, proving the strength and resiliency of our models. Turning to the third quarter results, our performance was in line with our expectations. Total sales grew 1.4% to $1.4 billion, driven by M&A of 7.9% and pricing of 0.3%, which were partially offset by a 6.7% decline in volume. Sales in our installation services segment totaled $858.3 million, up 0.2%, as M&A added 11%, which was offset by a decline of 10.4% in volume and a 0.5% pricing decrease. As a reminder, our installation services segment includes progressive roofing, and they drove the majority of the $95 million of M&A revenue for the segment in the quarter. During the third quarter, the demand for our legacy installation services remained challenged in both residential and light commercial markets, but was in line with our expectations. Specialty distribution sales grew 1.4% to $608.9 million in the third quarter. Our sixth consecutive quarter of year-over-year sales growth in specialty distribution was driven by acquisitions of 2.3% and pricing of 1.2%, which were partially offset by a 2.1% volume decline. During the third quarter, specialty distributions, volumes, and pricing remained challenged in residential products, but continued to be strong for commercial products, especially mechanical insulation. Adjusted gross profit in the third quarter was 30.1%, which compares to 30.7% last year. Adjusted SG&A as a percentage of sales in the third quarter was 13.6% versus 12.8% last year. The increase in SG&A percentage was primarily driven by incremental amortization from acquisitions. On a same branch basis, excluding acquisitions, SG&A was 13.1% in the third quarter. Third quarter adjusted EBITDA for top build totaled $275.6 million, and adjusted EBITDA margin was 19.8%, down 100 basis points versus the third quarter of last year. Our margins continue to be very resilient, primarily due to actions we took earlier this year and supply chain improvements. These cost savings are helping to offset price pressure on residential insulation products. Installation services adjusted EBITDA margin with 22.5%, an improvement of 20 basis points versus the third quarter of last year. Specialty distribution adjusted margin of 16.9% was down 150 basis points versus the third quarter of 2024. Other expense for the quarter was $24.5 million compared to $16.1 million last year. The increase is due to higher interest expense resulting from the increased borrowing on our upsized credit facility that occurred in May of this year. Third quarter adjusted earnings per diluted share was $5.36 and compares to $5.68 last year. Turning to the balance sheet and cash flows, we ended the third quarter with total liquidity of $2.1 billion, of which $1.1 billion was cash and $933.4 million was available under our revolver. Total debt at the end of the quarter was $2.9 billion. $1.5 billion higher than last year due to the refinancing and expansion of our credit facility and $750 million in senior notes issued in September. Third quarter net debt was $1.7 billion, and our net debt leverage ratio was 1.6 times trailing 12 months pro forma adjusted EBITDA. Our TTM free cash flow as of Q3 was $791.2 million, up 13.4% versus last year, primarily due to working capital. Working capital as a percentage of sales totaled 14.2%, which compares to 14.1% last year. We've been talking about our active M&A pipeline, and we are very excited to announce some results on that front as we close the SPI transaction in October, And as you saw in our press release yesterday, we have signed and or closed four additional deals across our businesses. M&A remains our top capital allocation priority. Assuming we owned SPI and the four most recent acquisitions for the last 12 months, our pro forma net debt leverage would have been 2.4 times. In the third quarter, we also repurchased shares totaling $65.5 million in which brings our year-to-date total to 417.1 million, or more than 1.3 million shares. 770.9 million remains under the current authorization. As you saw in our release, we are updating our guidance today to incorporate the impact of our recent acquisitions. In the release and presentation, we formatted our guidance table to make your modeling more straightforward. We expect full-year sales to be between $5.35 to $5.45 billion, with the following assumptions at the midpoint. On a same-branch basis, including price, we continue to expect residential sales will be down low double digits for the year, driven by continued weakness in both single-family and multifamily. Commercial and industrial same-branch sales are expected to be flattish. We expect heavy commercial projects to remain strong while light commercial will continue to be challenged. The full year impact of M&A on sales is expected to be approximately $450 million. We are raising our adjusted EBITDA guidance for the year to be between $1.01 billion to $1.06 billion, which represents adjusted EBITDA margin of 19.2% at the midpoint. Depreciation and amortization are expected to be in the range of $166 to $171 million, and interest expense and other will be between $88 to $91 million for the year. We continue to expect our tax rate to be approximately 26%. In closing, I would like to welcome the employees from our recent acquisitions to the Top Build family. These recent acquisitions have strengthened our legacy installation and distribution businesses, They've made our revenue streams less cyclical, and they have broadened our opportunities for growth. We are looking forward to sharing our excitement about the future at our Investor Day in New York next month. Let me now turn it back over to Robert.

Thanks, Rob. The underlying fundamentals for our business are solid, and we have a uniquely positioned, diversified business model across the residential, commercial, and industrial construction and markets. Our leadership has a great control over our business. as demonstrated by our ability to navigate successfully in a challenging environment. And as always, we're focused on driving profitable growth and increased shareholder value. We look forward to seeing you at our Investor Day on Tuesday, December 9th. With that, operator, let's open up the line for questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Steven Kim with Evercore ISI. You start, I'll follow.

Hi, this is Atishan for Steve. Thanks for taking the question. I just want to touch on Progressive. Can you talk about the sales contribution for Progressive in the quarter? And are you still on track for the, I think, the incremental $215 million for the full year? If you could touch on that, that would be helpful.

Yeah, Tiege, this is Rob. So their total contribution in the quarter was about $92 million of sales. For the quarter, they're probably closer to about a 205 number now than the 215 we had previously. There's been a handful of projects pushed out, a big data center in Iowa, some school funding in Arizona that was a little bit slower than originally anticipated. I'd say despite that, we're still looking at the back half of the year up, low single digits for them, so nothing that we're concerned about at this point.

Great. Thanks for that. Yeah, it's Steve Kim. Appreciate that. You also announced these four acquisitions yesterday, and one of them was a manufacturer, and it seemed like that was sort of an interesting move on your part. So I was curious, and frankly, also the fabric distributor was also interesting. Can you just provide a little bit more color on those and why those were something that was particularly intriguing for you For example, like the fabric, you know, the distribution, you know, why not just add the bags, netting and suits, you know, to your existing facilities? I assume there's, you know, something, the value add they bring and that would be helpful to understand. And then the doors, the insulated doors, you know, is this, is your intent to move deeper into manufacturing of specialty products like that? You know, those are the sort of the questions that I had around those acquisitions.

Hey, Steven. Good morning. It's Robert. So let's start with Diamond Doors. And not a manufacturer. They just do assembly and some fabrication, i.e., you know, assembling those doors. So I would definitely not call it manufacturing. And it's really just a bundle that goes with the metal building industry and the metal building products. And where our customers have been asking for it is doors would typically get delivered at the beginning of the project. You would have damage to doors, that type of stuff, but they were sitting on job sites. And so given our relationships now, we're able to bundle it. with the insulation that both get installed at the same time, these door systems. So it's a great adjacency that put our sales force on top of what we think is going to drive some, you know, great cross-selling opportunities. So we call it right down the fairway from that perspective. Insulation fabric, from that perspective, is some of the products that we sold, some new products, but it's all really insulation accessories. They have a great reputation in the industry, as well as some great customer relationships as well. So, it was really a good add-on there, given some of the talent, relationships, and it just adds to the installation accessories. So, we would consider that right down the fairway from a distribution perspective.

Okay. So, were you already selling those nettings and suits in your existing facility?

Some of those products, like the suits and the nettings, We were already in some of those products as well. Yes, absolutely. Okay. Gotcha.

Okay. Thanks a lot, guys. Appreciate the color.

Absolutely.

Our next question is from Michael Rahat with J.P. Morgan.

Great. Good morning. Thanks, everyone. First question, you know, wanted to zero in, and apologies if I missed this in your prepared remarks, but You know, a quarter ago, you kind of baked in some price-cost headwind into the back half of the year based on the potential for maybe pricing on the margin to weaken insulation pricing, that is. I wanted to know, you know, in your current guidance, if that, you know, headwind is still baked in. I believe it was a $30 million headwind. And, you know, more broadly, you know, how insulation pricing – has trended during 3Q.

Yeah, Michael, this is Rob. So, you know, that is still baked into our guidance, about $30 million for the full year. We got impacted by roughly $12 million, I'd say, in the third quarter. You know, more heavily on the distribution side of the business than on the installation side of the business. Now, you do see, you know, pricing on installation. We did have, you know, negative price there. So, we're kind of seeing... The product mix play out between the two segments. So when you look at the installation segment, where we're having price pressure is on residential products, fiberglass and spray foam. It's a much larger percentage of our revenue on the installation side of the business. Now we're doing a good job of maintaining margins there and working back with our supply chain partners and taking costs out where we can. On the distribution side, I'd say those pressures in residential products are even stronger and having more margin impact, but it's a much smaller percentage of the product mix on that side of the business because of all the commercial products. And then the other thing you've got going on that's driving pricing actually positive on the distribution side is that we've got gutters and mechanical insulation, which make up a larger percentage of the product mix on that side that have positive pricing going on this year, and that's helping to drive that number up to the 1.2% you saw in the quarter.

No, great. That's very helpful, Rob. I appreciate all the detail there. Maybe secondly, you know, you reiterated, I believe, your end market assumption for the year for residential to be down low double digits. commercial and industrial flattish. If we kind of took the trend line where it is today, the level of activity, I'm kind of more interested in residential, but if you have any comments on commercial industrial as well, I'm trying to think about the first half of 26 and recognizing guidance is a little premature, but You know, if we think about the fact that just mathematically, if residential kind of did have softness that progressed throughout 2025, would this still point to some level of year-over-year decline in the first half of 26 year-over-year? Just trying to understand the trajectory of 25 and how it might impact at least 1H26s.

Yeah, Michael, this is Rob. So I'd say what we're seeing out there right now is single family. It was weak throughout most of the country. There's some pockets of strength in the Midwest and Northeast. But for the most part, weak across the country. It definitely got a little bit worse in Q3, I'd say, as we anticipated, than it was the first half of the year. You know, our projections would say, you know, Q4 is probably a little softer as well. So, to answer your question, as you roll that into next year, you know, I think you're looking at, you know, probably flat to potentially slightly down first half of the year on single-family. You know, the other side of the equation, multifamily... Sales remain weak there. The little bit of bright side we see there is we are seeing some backlogs starting to improve in certain markets across the country. So there could be some potential upside on the multifamily next year.

Yeah, Mike, I'll add on to that. So Rob's right on the single-family little sluggish, and we'll see how that fares out to start the year. But he's right. Multifamily backlogs is building their momentum. I'd say fairly consistently if you look across the regions. And I think what this shows, too, is if you look at the quarter here, the plan around commercial industrial is, I mean, the backlogs that are building there, even as we're seeing continued momentum, whether it be mechanical, as we look at backlogs in roofing and stuff as well, we think that's the positive as we look at what we've done in the mix of the business here as well. Great. Thank you.

Our next question is from Susan McLaurin with Goldman Sachs.

Thank you. Good morning, everyone. My first question is on the margins. It's really nice to see how, especially in installation, the operating margin is held up in there. Can you talk about your efforts to support that and how we should be thinking about the path there for fourth quarter and anything looking out from that?

Yeah, Susan, this is Rob. So, yeah, the profitability on the install side of the equation has been a strong suit all year long, I'd say, something we're really happy with. Really, the biggest driver there, I'd say, are the cost savings actions we took in the first quarter of this year that we've talked about in the past. So, that's the consolidation of facilities and some headcount reductions across back office and support functions, as well as some direct labor to really align our cost structure with the current environment. Like I mentioned earlier, there is some pressure on price there, but we've done a really good job of maintaining that impact overall on our margins. So just really a terrific story this year in terms of the margin resiliency of the installation segment.

Yeah, okay, thank you for that. And then turning to progressive, given the weakness that we've seen on the new construction side, especially in some of the end markets there, can you talk about what you're seeing on the re-roofing side of that business? Is there any change in the competition and your ability to come up against that and continue to see the level of growth that you expect?

Yeah, good morning, it's Robert. So I think we feel very confident and comfortable with what's going on roofing as we look at their mix of re-roofs and new construction, as we look at their backlog, what's being bid, what's being won, even Q4, and definitely very strong for 2026. And margins are doing a nice job there, given the mix of business as well. So highly confident. I'd say some people ask us questions about, hey, you've owned the business here for, call it 100 days or more. what have you learned or what have you seen, and that is just that team and the backlog that they're building, you know, especially across that southwest into Texas where they're strong and stuff. It's been a bright spot, and we think a bright spot for the future. So highly confident in what's going on there and what we see in the fundamentals of the business.

Okay. Thank you both for the color. Good luck with the quarter.

Thank you.

Our next question is from Ken Zenner with Seaport Research.

Good morning, everyone. Robert, great investor summary. Save me a trip. I'm just kidding. All right. So, Rob, the question about, look, public builder inventories, inventory units are down 15% to 20%. I mean, you can pick a range in there, but call it mid-teens. To the extent that that correction tied to demand, what they consider too many spec homes, accelerating cycle time, you know the routine, suggests they could have fewer inventory units. What gives you confidence that that kind of bogey of mid-teens, which we're seeing broadly in at least, you know, if we had permadata, that'd be useful, but you do have better data, gives you confidence that the first half in res you know can be so benign and i it kind of reminds me of you know the whole concerns around multi-families we exited last year but could you expand on that a little bit given your view the data you have on bids in the absence of government data i really appreciate that yeah i'd say i mean we we're we're not giving guidance for for 2026 at this point i mean just no but the logic

Yeah, I mean, I think just given what we're seeing, we're not anticipating the market to dramatically improve from here, right? But we will be comping pretty tough first and second quarter from last year. So that's really the thinking there around the comment to flattish to slightly down. But obviously there's a long way to go. Most of what we'll be working on you know, in the first and second quarter of next year hasn't even been started yet by the builders. So, you know, we obviously got to see what activity happens there and that'll really ultimately end up driving our sales.

And if I can ask you to expand on that then, given your substitution for the census data in many ways. You know, we've seen builders really, the margin pressure really coming out of, you know, places like Florida, select parts of Texas. But are you seeing them really slamming on the brakes in those areas? And could you kind of contrast that with, you know, not public builder type business? You know, I'm thinking above the smile, so to speak. Thank you.

Yeah, Ken, this is Robert. So, yeah, look, in some certain markets, you've definitely seen it slow, and they're trying to work through that inventory to exactly what you just said. And Naples would be a nice example of that, and Austin, Texas would be a nice example of that. So that's definitely happened in some markets. But, you know, there's some where I'd call it steady. We talked about the Midwest. So whenever you look at some of those above, use your term, the smile states there, you know, there's some pockets of some positiveness there. relative to, I call it steady, steady demand. Even the Pacific Northwest isn't a bad area to look at whenever we look at what we're seeing in book sales and stuff also. So definitely some where they've slowed, given the inventory, and some where we're seeing, you know, I'd call that, given the current environment, steadiness, if you will.

Thank you.

Absolutely.

Our next question is from Bill Ng with Jefferies.

Hey guys, congrats on another strong quarter in a choppy environment. Robert, I guess it'd be helpful to kind of give us a little more color in terms of backlogs and the pace of orders, particularly in your CNI business. Any nuances between your legacy business versus some of the stuff you acquired, whether it's progressive, SPI, are things accelerating? I'm asking you this because obviously the headlines, data points on data center has been pretty encouraging, but Is it more steady than inflecting? Are you starting to see light commercial bottom out here? Just a little more perspective on what you're seeing on the C&I side of things.

Yeah, I think, Morningfield, so kind of hit the gamut there. So C&I, we would call it steady. We would say the backlogs are growing there. There's been some projects push out a little bit, no cancellations by no means. There's even been some government projects slow down, although that's not a big percentage for us. But whenever we look at backlogs across mechanical, DI, and SPI, those are growing for sure. I think SPI, they're definitely bringing focus back to the business there, now being part of top bills. We call that a big positive. And then someone asked a question previously, progressive, and as we look at commercial roofing, It's been the real positive as we're past 100 days here of owning Progressive, but those backlogs are building as well, both re-roof maintenance as well as new bigger projects, i.e. data centers that you're talking about, some big projects that they've landed. So very steady to, I'd call it, bright spot and everything about commercial industrial. You mentioned light commercial. Is that bottoming out? Uh, you know, we would hope so. It's definitely been a soft spot for sure as it followed the residential trends. Um, our teams are trying to go after, uh, appropriate projects there, um, across the, across the footprint. So hopefully bottomed, uh, on that standpoint and, and we're seeing some, we're seeing some wins in the light commercial space.

I mean, everything you're saying for just probably some, some level of growth next year for 26 on CNI, is that a fair characterization?

I think we feel positive about CNI as we go into 26. Yes.

Okay. And then from a pricing standpoint, appreciate your customers and dealing with affordability, but your commercial industrial business is 50% of business at this point, uh, post all the acquisitions you've announced this year. How should we think about pricing in those categories? Just because like mechanical installation, everything we're reading, it's on allocation. I think prices are going higher. Uh, certainly don't have as great of a feel for commercial roofing, but Give us a little perspective on pricing momentum in, I guess, at this point, half your business.

Yeah, Phil, this is Rob. So you hit the nail on the head there, right? Prices definitely held up a lot better on the commercial industrial side this year. On the mechanical side of things, we had some cost increases that came through in the first quarter, and our teams have done a great job passing those along and recognizing price increases there. You know, from what we're seeing on the commercial roofing side, pricing is holding up well there. So definitely, you know, the stronger demand environment on the commercial industrial side is definitely helping to support the pricing environment there.

Okay. Appreciate all the great color guys. Thank you so much. Thank you, Phil.

Our next question is from Jeffrey Stevenson with Loop Capital Markets.

Hi, thanks for taking my questions today. Yeah, I was hoping to dive deeper into the variance between residential installation and distribution pricing and wondered if the better relative installation pricing is driven by builder's reliance on top builds national scale and high quality service levels compared with independent competitors. And then in distribution, are channel inventories currently at elevated levels leading to increased competitive dynamics?

Yeah, good morning. It's Robert. So, I'll hit the first part of that. Rob may add in as well. So, yeah, I mean, on the install side of the business, I mean, there's definitely pressure on the fiberglass side, but to Rob's point earlier, the team's done a great job there of, you know, weighing that price-volume discussion market by market, given what's happening, the uniqueness in each market. But it is a bundled solution, right? Labor and material, and our teams are known for great service. So, and have really strong relationships with those builders in their local markets. So that has definitely helped, although some headwind, but has helped those margins hold up. On distribution side, the material is definitely readily available right now. And so that obviously creates the supply and demand environment. And we've seen more pressure there, specifically, as Rob called out, fiberglass and spray foam. So it's really supply and demand there that's created some more competitive dynamics But again, you can look at the overall margins. The team continues to do a nice job, but it's the balance there as well. But more pressure distribution on that residential side of the equation.

Great. Thanks for that color, Robert. And I appreciate all the updates on the integration of progressive roofing, but just wondered on the roofing M&A pipeline and you know, now that you've had that business, you know, for several months now, you know, how, you know, has the, you know, pipeline evolved given the, you know, fragmented nature of that, that market and would you expect an acceleration and, you know, bolt on acquisitions as we move through 2026? Yes.

So great question. So we're, you know, very active from an M&A perspective and the roofing space, I'll hit it from two different angles. I think we mentioned on the last call, you know, some investment we're making on the M&A side and the team on roofing, so some of that's coming together for sure. That progressive team has a lot of relationships in the industry, so they're working those relationship sides of, you know, some of the smaller to chunky acquisitions, then obviously we've got our relationships broader in the industry, and so we're definitely working some from, I'd say, the, you know, bigger side or, again, chunkier side of the some roofing acquisitions. So definitely very active. We feel good about activity going on from both ends in commercial roofing, and we definitely would look to that to lead to some good execution in 2026.

Great. Thank you.

Our next question is from Keith Hughes with Truist Securities.

Thank you. Kind of building on the last question on more commercial roofing deals, is there a specific region that you're looking specifically going after to acquire? And does it make a difference in terms of deals who the major suppliers of membrane are to the installers?

Hey, Keith, it's Robert. So a couple of points there. So we have a lot of white space and it's highly fragmented. So We're not being too, you know, as far as the geographic location. Obviously, Progressive has that great footprint, especially in the southwest and some other spots across. So no particular area. I think it's back to probably the discipline that Top Build's had in the past, and that is looking for great companies, great talent to come along here, and the white space is pretty broad. Relative to the supply base, if you think about the big suppliers in the space there, they're big Top Build suppliers today. We have great relationships there, so it doesn't have to lean too much on who the supplier is, given our breadth of those partnerships and geography. Again, we're just looking at good quality companies here that match up and check the boxes you would expect here from a competency perspective, talent perspective, and performance. Okay, great. Thank you. Thank you.

Our next question is from Colin Barron with Deutsche Bank.

Good morning. Thank you for taking my questions. I just wanted to go back to the installation margins and the strengths there. You called out the primary driver being the cost-saving actions that you guys have taken. Can you just help us think about how much was realized in the third quarter and maybe to date in 2025 and what you expect the annualized benefit of those cost sections to be as you go forward and into 2026?

Yeah, Colin, this is Rob. So yeah, the cost actions we took in the first quarter annualized about $35 million of savings. I'd say our productivity in the third quarter definitely had a quarter share of that, as well as I'd say some additional savings we had there that helped really drive the margins up in the quarter.

Great, thank you very much.

Our next question is from Kurt Yinger with DA Davidson.

Great, thank you. Just wanted to go back to competitive dynamics on the residential install side. It sounds to me like that's primarily, you know, some savings on the material side. Is that the case, or are you seeing increased bidding pressures depending on geography? maybe stepping back, can you just talk about kind of the tone of customer conversations as builders kind of battle the affordability challenges and maybe work to share some of that with suppliers like yourself?

Yeah, good morning, Curtis Roberts. So, you know, relative to the competitiveness, I mean, obviously we worked, you know, productivity side of it. If you think about margins, we've obviously worked with our supplier partners as well, but they're definitely in the slower markets, there definitely increased competitiveness in some of that bidding. And I think that's where, you know, we look at our team and the job they've done and why we compliment them on the work that they've done there, because I think they've tried to find that right balance of volume and price. And obviously, you know, we were able to put some controls around that from a bidding perspective as well. So that's some of the dynamics that have happened from that standpoint. And if you look at the commentary around the country, you know, the builders are obviously smart themselves. So between not just, you know, coming to us relative to some of the pressures, I mean, obviously they're reengineering some of the products they're going to market with, you know, can look at, you know, whether it be some of the footprints, whether some of the things that they're doing, obviously we've done some of that value engineering with them as well to help them as they face the pressures and they come to us as well. But it definitely has to be the be the partnership because, as we said in our prepared remarks, look, the fundamentals are intact here, but, you know, we've got a time period here to the inflection point. So we're working with the customer zone, and I think our teams in the field are doing a nice balance of that.

Okay. I appreciate that. And maybe just following up on kind of the balance of price and volume, does it feel like as the year has progressed and we've kind of seen that additional step down and residential that, more often you're maybe having to walk away from some of these projects or bids, or has that been pretty consistent with what you felt over the last couple quarters?

Yeah, this is Rob. I'd say it hasn't gotten a whole lot, you know, worse in terms of us having to step away from volume. We have, you know, as we talked about and as we anticipated, we have seen, you know, the price pressure pick up and we have gotten a little more aggressive on on pricing as a result of that. So I'd say we're not stepping away from more work. I'd say we're holding our share out there. And you can see the impact of that a little bit on the price side, on the install side, where price was negative in the quarter. But as we've talked about, we've done a great job in terms of managing our costs and recouping most of that through productivity savings. Okay, great. Appreciate the color.

Thank you.

Our next question is from Raf Jadrosic with Bank of America.

Hi, good morning. It's Rafe. Thanks for taking my question. Good morning. On the distribution side, the pricing improved, but you took a price cost getting sort of worse there. I think that's just on the residential piece of that. Can you just help me understand what's going on there? And if the market stays soft, is there an opportunity from a cost perspective? If the market kind of stays like this, could you get to a point where you're able to lower your costs, where you can get to price-cost neutral, even if pricing stays negative?

Yeah, Rafe, this is Rob. So we're working with our suppliers today in terms of that price-cost equation, and we are seeing some relief there. But like we've talked about, we're definitely seeing the price pressure on the sales side. We've talked about how on install we've done a great job offsetting. On the distribution side, a little tougher, a little more pressure there. You don't have the labor component, so the price pressure we're seeing is having a negative impact on margins. Now, this is what I was trying to explain a little bit earlier. When you look at our overall pricing on distribution, we're up, and it's really a product mix impact there because of gutters. We're seeing inflationary pressures increase. On those products, mechanical insulation, we talked about how commercial products we're seeing good, strong price. So we're driving price. Costs are up and price are up on those products, and we're maintaining margins. And then you've got the residential products where you've got cost down, price down. And when you put the two of those together, you're kind of netting out to a positive price, negative cost, and a net slightly negative price-cost number for distributions.

And I think, you know, relative to, you know, Ralph talked about productivity. I mean, we're always looking at, I think that's something we, we always said, we always look at what's going on across the footprint. We look at what's going on by market. And so, you know, if we have to make any adjustments, I think we've shown in the past, we've got track record of being, you know, ahead of the curve on any of those as well. So.

That's helpful. And then in the quarter you bought back stock and then you obviously continued to close acquisitions. how much of a priority is getting the leverage sort of below two times versus just continuing M&A and buyback? Are you comfortable sort of continuing to do that with the leverage above the long-term target?

Yeah, Rafe, this is Rob. So, yeah, we're not uncomfortable with where our leverage is today. You know, pro forma with the SPI deal, we're at 2.4 times. You know, we've been that high or slightly higher before after large deals. We certainly – We'll be more comfortable in that long-term target range of one to two. We don't feel the need to, you know, try to get there overnight. Obviously, you know, there's multiple paths to get there, ones to, you know, drive growth in EBITDA, which is definitely, you know, plan one and how we'd like to get there. You know, we can also, you know, pay down debt or hold on to cash. And, you know, it would take about $500 million to of cash to get us back down to the two times, which would be a portion of next year's free cash flow. So we can continue to do M&A and continue to have, like we've talked about in the past, we balance buybacks with M&A and typically put a grid in place. So we think we can continue that strategy at these levels with the longer-term goal of getting that leverage back down to closer to two times.

Thank you, very helpful.

Our next question is from Adam Baumgarten with Vertical Research Partners.

Hey, good morning, everyone. Just on the kind of implied 4Q guidance that kind of points to worsening year-over-year margin pressure, maybe if you could sort of run through the drivers there, whether it's some of the acquisitions, pricing, price costs, just kind of the outlook there and then your turn.

Yeah, Adam, this is Rob. If you back into the Q4 numbers from the guidance we've given, I mentioned price-cost, we plan for that to continue to be a headwind, slightly worse in the fourth quarter than what we saw in the third quarter. We, again, hope that's a conservative estimate, but we're working our best on that one. M&A, obviously, in year one, Before we get the synergies with SPI, you know, that's going to have, you know, a negative impact on the overall EBITDA with them coming in at, you know, 10% to 11% type EBITDA business. So that's, you know, but as we drive synergies there, you know, we anticipate getting them, you know, up to the mid-teens on that deal. So those are really the two biggest drivers as well as, you know, the continued growth. you know, volume headwinds that we've talked a lot about, you know, those, you know, in the fourth quarter can be a little more pronounced as well just due to seasonality.

Great. Thanks. Best of luck.

Thank you.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments.

Thank you for joining us today. We look forward to seeing you next month at our Investor Day on December 9th. Thank you.

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