TopBuild Corp.

Greetings and welcome to Top Build's fourth quarter and full year 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 during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to P.I. Aquino, Vice President of Investor Relations. Thank you. May it begin.

Good morning, and thanks for joining us. With me today are Robert Buck, our president and CEO, John Achille, our COO, and Rob Coons, our CFO. Our earnings release, senior management's formal remarks, and a deck summarizing our comments can be found on our website at topbill.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 gap 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 Buck.

Thanks, and good morning, everyone. We appreciate you being with us. As PI mentioned, Rob and I are joined by John Achille, our COO. I've asked John to start joining us so he can share his business insights including our ongoing efforts to drive operational excellence across the organization. Many of you remember meeting John at our investor day a few months ago. We're really pleased to see many of you at our investor day in December. And if you weren't able to attend in person, I hope you've taken the opportunity to watch the replay on our website. I'd like to start my comments today by reiterating a couple of the key themes and messages that we shared in December. First, We have a clear, profitable growth strategy and a proven track record of delivering compounded growth and strong shareholder returns. Second, we have significant growth opportunities across our $95 billion total addressable market, which has increased non-cyclical and non-discretionary revenue drivers. We generate very strong free cash flow and we're disciplined in deploying capital both organically and through M&A. Third, We have a differentiated business model and we will continue to leverage our connected technology platform to continue driving growth and operational excellence to improve the customer experience. Finally, we have a cycle-tested leadership team. We're proud of the people-first culture we built at Top Build and we're grateful for the commitment of our nearly 15,000 employees to growing our business and to working safely every day. Let me transition now to discussing the operating environment at a high level. In the fourth quarter, weakness in the residential and light commercial end markets persisted. Consumer confidence remained low, interest rates are still elevated, and affordability continues to be an issue. All drivers of muted demand in the current environment. We continue to believe the underlying fundamentals are strong, supported by household formations and an underbuilt housing market. and this means there is great long-term opportunity for new residential construction. The commercial and industrial end markets remain solid. We continue to see expansion across a variety of verticals. Bidding and backlogs are healthy, and we're well-positioned to capitalize on that growth, both in the insulation and commercial roofing space. Turning now to our results, fourth quarter sales rose 13.2% to 1.49 billion dollars. fueled by the seven acquisitions we completed last year, including SPI in the fourth quarter. We finished the year with over $5.4 billion in revenue and adjusted the EBITDA of $1.04 billion or margin of 19.2%. Rob will discuss the financials in more detail later in today's call. Acquisitions continue to be our top priority for capital allocation. Last year, we deployed $1.9 billion in capital across the business, adding approximately $1.2 billion in annual revenue. Our M&A pipeline continues to be very healthy, the environment is active, and we're off to a solid start this year, having recently closed the acquisitions of Applied Coatings and Upstate Spray Foam. We also announced our second commercial roofing acquisition earlier this week, Johnson Roofing. We returned approximately $434 million to shareholders through our share repurchase program, demonstrating our ongoing confidence in our business and long-term strategy. Now, let me hand it over to John to cover operations, and Rob will follow to discuss the results and guidance. And I'll come back at the end with some closing thoughts.

Thanks, Robert. I'm glad to be here with you today. I'd like to cover two key areas, the supply chain environment and our ongoing efforts to drive operational excellence across the business. As housing demand has softened, we've seen the supply of building insulation, and more specifically fiberglass, loosen and become more available. In the second half of 2025, we saw a couple of fiberglass lines come down for extended maintenance as manufacturers work to balance supply with demand and stabilize pricing. We have strong relationships with our suppliers and our conversations are ongoing. Importantly, we are leveraging our tools and technology platform to manage inventory across the branch network. On the spray foam side, we continue to see plenty of availability. For mechanical insulation, fiberglass pipe insulation remains on allocation, and we continue to work closely with our supplier partners to ensure that we receive our fair share of existing supply. Turning to operational excellence. We have great control of our business. You'll remember that in the first quarter of 2025, we were able to quickly take actions to align our cost structure with the demand outlook. Our work here continues as we navigate changes in the macro environment. We talked at Investor Day about how we leverage technology and take information from our businesses to share best practices, be more efficient, and further optimize the network. Everything from installer productivity to job site routing to shipments. Our field teams are doing a great job managing profitability. As soft demand has persisted, we are responding appropriately and making disciplined pricing and volume decisions at the local level. Our efforts to optimize our cost structure across the business are ongoing, and ops leadership continues to focus on the bottom quartile of our branches to improve performance. On the specialty distribution side of the business, we are making great progress on integrating SPI. Late last year, we realigned specialty distribution field leadership to better serve our customers, and we've identified several cross-selling opportunities we expect to realize over time. On the supply chain side, we're capturing rebates and building on existing supplier relationships. Our teams are working diligently to transition the SPI business to our technology platform and, importantly, do so in a way that is seamless for our customers. We expect the IT integration to be completed by the end of the second quarter. As we move forward, we're confident that we'll meet or exceed our original synergy targets. Let me also say a few words about our commercial roofing business. Nick Haddon and the team continue to do a great job. As Robert mentioned, we announced the acquisition of Johnson Roofing this week and expect it to close later in the first quarter. Johnson Roofing generates about $29 million in annual sales and is based in Waco, serving the Texas, Louisiana, and Oklahoma markets. The acquisition will enable us to maximize many of our relationships with general contractors in the area that serve the technology, industrial manufacturing, and education verticals. We're really excited to continue expanding our commercial roofing platform in a very large and highly fragmented space, which looks a lot like insulation did 20 years ago. Finally, I want to echo my thanks to our employees across the network. We appreciate your hard work to lead your business, work safely, and drive operational excellence in everything you do. With that, I'll turn it over to Rob.

Thanks, John. 2025 marked our 10th year as a standalone public company, and so I thought I would take a quick second to reflect back on our growth. Over the past decade, we have grown our sales and adjusted earnings per share at compounded annual rates of 13% and 31%, respectively. This extraordinary growth has been the result of our unique business model that is driven by our people and culture. I want to take this opportunity to thank our teams in the field and at our branch support center for their efforts in delivering these results. And while we are proud of Top Build's past successes, we are even more excited about the growth opportunities that lie ahead, which we detailed at our Investor Day in December. Before I dive into the numbers, I wanted to point out that we provided a little more detail in our presentation this quarter to split out our same branch results versus M&A results. Given the sizable impact of the Progressive and SPI acquisitions that we closed last year, we thought that would be useful. Shifting to our fourth quarter results, total sales were $1.49 billion, up 13.2% the prior year. Acquisitions contributed 23% as both Progressive and SPI had solid quarters and exceeded our expectations. Pricing added 0.7%, as positive price on gutters and mechanical insulation was partially offset by lower pricing on residential insulation products. Volume declined 10.5%, driven by ongoing weakness in the residential and light commercial end markets. Turning to our segments, installation services sales of $798 million rose 1.2% compared to last year. The M&A contribution of 16.3% more than offset the volume decline of 14.5% and pricing decline of 0.5%. Specialty distribution sales totaled $755 million in the quarter, up 25.5% versus last year. Acquisitions added 28.9% and pricing rose 2.2%. This was partially offset by a volume decline of 5.5%. Fourth quarter adjusted gross profit was $416 million with a margin of 28%, down 190 basis points the prior year. 100 basis points of the decline in margin was driven by a higher mix of distribution versus installation sales as a result of the SPI acquisition and weaker sales volumes in the legacy installation services segment. The remainder of the gross margin decline was driven by price-cost pressure and deleveraging on lower sales volumes. Adjusted SG&A as a percentage of sales in the fourth quarter was 14.1% compared to 13.2% last year. The increase in SG&A was driven by acquisitions, including amortization of customer lists and trade names. On a same branch basis, SG&A was down 19 million or 20 basis points due to cost reduction actions taken during the year. Top billed adjusted EBITDA in the quarter totaled $265 million, or a margin of 17.9%, down 180 basis points compared to prior year. The drivers of the EBITDA decline were the same as discussed with gross margins. Installation services adjusted EBITDA margin was 21% in the fourth quarter, down 40 basis points year over year. Specialty distribution adjusted EBITDA margin was 15.4%, down 230 basis points to last year's fourth quarter. Excluding the impact of M&A, EBITDA margins were down 80 basis points the prior year. Fourth quarter interest and other expense rose to $36 million due to the expansion of our credit facilities and the addition of the $750 million bonds due in 2034. Fourth quarter adjusted earnings totaled $4.50 per diluted share as compared to $5.13 in 2024. Moving to our balance sheet and cash flow, total liquidity was $1.1 billion at the end of the year. Cash was $185 million and availability under our revolver totaled $934 million. We ended the quarter with net debt of $2.7 billion and our net debt leverage was 2.35 times trailing 12 months adjusted EBITDA. Working capital was $959 million or 15.4% of sales. For the full year 2025, we generated $697 million in free cash flow. We deployed $1.9 billion for acquisitions and returned $434 million to shareholders via share buybacks. Turning now to our 2026 guidance, while there are signs for cautious optimism in our end market, significant near-term uncertainty remains as the residential market continues to deal with challenges from consumer confidence and affordability. We remain highly confident around the long-term demand fundamentals and the 2030 projections we shared at our investor day in December. As we worked through our guidance for 2026, our overall philosophy at the midpoint was to assume no significant change in end market conditions. Under that lens, our 2026 guidance is for sales of $5.925 billion to $6.225 billion, and adjusted EBITDA of $1.005 billion to $1.155 billion. The midpoint of our revenue guidance at $6.075 billion is based on the following key assumptions. Overall, we expect volume and price to each be down low single digits in 2026. From an end market perspective, residential sales, which account for roughly 52% of our total sales, will be down mid-single digits, inclusive of both volume and price. Commercial and industrial, approximately 48% of our total sales, is expected to grow low single digits, inclusive of volume and price. We expect M&A, which we have closed in the last 12 months, to contribute 800 to 850 million of revenue. The midpoint of our adjusted EBITDA guidance at 1.08 billion assumes the following. an EBITDA decremental of approximately 27% on lower volumes, 55 million of price-cost headwinds, and EBITDA margin on M&A in the mid-teens, inclusive of 15 million of progressive and SPI synergies that will impact 2026. Those synergies are in line with our initial projections, and we remain highly confident in delivering at or above the high end of our two-year synergy targets. With regard to the quarters, We expect quarterly sales to range between 1.4 billion and 1.6 billion, and our EBITDA margins to range between 16.5% and 18.5%, with the first quarter being the weakest and the third quarter being the strongest. Finally, let me give you a few additional inputs for your models. We expect the combination of interest and other will be 143 million to 149 million. Our tax rate will be approximately 26%, CapEx will be between 1% and 2%, and we expect working capital to be in the range of 15% to 17% of sales. With that, I'll turn it back over to Robert.

Thanks, Rob. Let me close with a couple of thoughts on our outlook. On the residential side of business, external forecasts vary with some optimism for the back half of the year. And while we expect demand will improve, it's not yet clear what that timing will be, and it's too early in the year to bank on a second-half recovery. This uncertainty is baked into our guidance, as Rob discussed. Should the environment improve over the course of the year, we are very well positioned to capitalize. On the commercial and industrial front, bidding activity and backlog are solid and we're poised to capture growth in those verticals that are expanding. So, while near-term uncertainty exists, we remain bullish about the underlying fundamentals of our industry. Our $95 billion total addressable market and our ability to capitalize on both organic and inorganic growth opportunities. We have a proven track record of success fueled by our unique, flexible, and capital-efficient business model. We're well diversified between residential, commercial, industrial, between installation services and distribution, as well as between cyclical and non-cyclical revenues. We have great control over our business and we have demonstrated the ability to adapt quickly and navigate broader changes in the environment. Finally, we're disciplined stewards of capital. We have an active and robust M&A pipeline and will continue to focus on compounding returns and delivering increased shareholder value. With that, operator, let's open up the line for questions.

Thank you. And with that, we will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star 2 if you'd like to remove yourself from the question queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

One moment while we poll for questions. And our first question comes from the line of Sam Reed with Wells Fargo.

Please proceed with your question.

Awesome. Thanks so much, guys. Maybe starting off with a big picture question, wanted to dig a little bit deeper into the guide path for single family start as we move through the year. It sounds like you're rightfully embedding really no recovery here, which I think is probably the right call. We obviously do have a lot of detail from the public builders. especially on the production side, on their outlook for starts. But just curious kind of what you're hearing from the private builders and perhaps any differences in what those private builder conversations sound like versus what the public sound like. Thanks.

Hey, good morning, Sam. This is Robert. So you're right. You get a lot of color from the public builders, which I'm sure you've seen in their guides as well as discussions came out of the builder show last week. I'd say the regional builders, the private regional builders are, you know, keeping very cost competitive there, you know, pushing to make sure that they get their volumes and maintain their own compared to the public. And then I'd say on the, you know, smaller custom builders, you know, they're probably the least impacted. So they seem to definitely be holding their own relative to demand. And you think about their customer base as well. That's some of the color we see regional privates as well as the custom privates.

All helpful color there. And then maybe switching gears, it does sound like you're seeing some relatively solid backlogs on the commercial industrial side. But I did perhaps pick up on a little bit of a delineation between light versus heavy commercial. We'd just love to hear kind of where we are on the light commercial side and maybe just talk through kind of how a recovery on the light side could potentially work. Thanks.

I think we typically see the light follow residential. I think we see some positive trending in some of our backlogs on the light side. As we talk about backlogs relative to commercial, industrial, as we think about mechanical insulation, as we think about roofing, we see those probably trending at a faster clip. But typically, lighter commercial does follow residential. But we see some trending there in the right direction, we believe. But, again, more optimism on the mechanical and the commercial roofing side.

Thanks so much. I'll pass it on. Thank you.

And our next question comes from the line of Michael Rehout with J.P. Morgan. Please proceed with your question.

Hi. Thanks. Good morning, everyone, and thanks for taking my questions. Good morning. I first wanted to – I'll also kind of delve in a little bit to the outlook, you know, and really focusing around the pricing trends. You mentioned that embedded in your outlook is $55 million in price-cost headwinds, and also that your mid-single-digit decline for Resi is inclusive of pricing, so I guess it's more of a revenue type of number. Just wanted to get a better sense for – you know, when you think about the $55 million, how much of that is negative price or if all of that is negative price and how you would expect that to flow through and impact the results throughout the year if it's going to be more first quarter or first half weighted, you know, just trying to get a sense of the degree of impact, you know, particularly as we start out the year.

Yeah, Mike, this is Rob. So, You know, similar to last year, you know, we started talking about these price-cost headwinds, definitely something, you know, we started seeing pockets of in different markets as certain markets slowed, pressure picks up around that side of things. We obviously were pretty successful last year doing a lot to take cost out both, you know, through negotiations with our suppliers, but also, you know, a lot of costs we took out in the business to help maintain margins. And certainly that's going to be the focus and the things that we can control in 2026. But since the main tenet of our guidance was really around, hey, the environment here from a macro standpoint, we're not going to forecast it improving dramatically. We do think we'll continue to see those headwinds similar to what we saw last year. It pops up in different pockets in different markets. As you go through the year, I'd say, you know, just like we said last year, it probably, you know, progressively gets a little worse as the year goes on. But, you know, we definitely saw some of that pressure in the fourth quarter, not quite as much as we had thought in our guidance. But, you know, we thought it was prudent to continue that given the macro environment we're in right now.

Okay. I appreciate that. And I guess, secondly, just looking at the fourth quarter results, We saw a pretty big differentiation in, you know, relative to our estimates at least, you know, with significantly lower sales but much better margins for both segments. So I apologize if I missed this in the prepared remarks, but I was hoping to get a sense of what were some of the drivers there and, you know, how you had, that better margin result despite, you know, at least relative to our estimates, a big gap in some of the top line.

Yeah, so you're talking about our margins on the installation side of the business primarily?

Actually, results for both segments.

Okay. Yeah, I mean, the big drivers of that are like what I said. I mean, we did a lot of work this year in terms of cost reduction and productivity. You know, we did some branch rationalization in the first quarter that's helped take costs out. You know, we have realigned our headcount given the volumes we're seeing right now, and we continue to do all the same things we've done in the past around focus on bottom quartile and focus on operational excellence, and those things have helped offset, you know, some of the price-cost headwinds we've seen in the markets.

I would say, Mike, this is Robert. I'd say the teams in the field did a nice job. I mean, they remained very disciplined. You know, they were driving where they could, the operational excellence piece that Rob talked about. But they did a nice job staying very disciplined during the year. And John spoke to it in his prepared remarks about, you know, the appropriate actions that were taken there being taken in the field. So I think nice job by the field teams in navigating the year as well.

Okay. Thank you.

Thank you.

Thank you. And our next question comes from the line of Steven Kim with Evercore ISI. Please proceed with your question.

Hi, this is for Steve. Thanks for taking the questions. I want to start with kind of how you see the M&A landscape and commercial roofing following the recent acquisition. How do you see the pacing of additional acquisitions in that space and then Have you observed any increased competition for those assets as you're looking at rolling those up?

Thanks. Hi, Tisha. It's Robert. So, yeah, very active on that front. We were excited to announce Johnson Roofing earlier this week. So, you know, we spent time in the first six months with Progressive working the M&A process, working the integration of the M&A process, sort of a really good space there relative to you know, how our process works, and even, you know, front end of identifying deals to diligence to the back end integration. So we've got a lot of progress there. Very active on the front, I would say, smaller deals to bigger, chunkier deals. And I would say, given the relationships that the progressive team have on some of the smaller deals and some of the relationships we have in the industry, I'd say, you know, we're not competing right now in those discussions that we're having for the majority of assets that we're talking with. So pretty excited about it. We see the pace keeping up here. But as we've always said, we're going to be disciplined. We're looking for good quality companies, and we're definitely, you know, building some relationships and evaluating several right now.

Great. That's super helpful. Thank you for that color. And then switching topics here a little bit, on the prepared remarks, I think you mentioned the realignment and especially distribution field leadership. Can you talk about that a little bit more and kind of what the intention was there?

Yeah, this is John. You know, as far as the changes that we made, you know, when you think of, you know, three distinct businesses that we have on the specialty distribution side, just making sure we had the right leadership in place. And I think coming off the SPI, acquisition, you know, we got some nice talent there that was able to accent with our existing talent. So just, you know, really good experience that we have leading those businesses today, driving the operational excellence that we expect of those teams. So that was really the biggest change there.

I think Atisha really speaks to the pace at which John and the team have really worked the integration piece. So you know, really quickly getting the right leadership team in place, which, by the way, some of that was SPI folks from the SPI side, some of it were folks from the DI side, so a nice mix of a team, which we think is driving buy-in and integration pretty aggressively here, and I think we said in our prepared remarks, highly confident in, you know, the top end or exceeding, you know, our synergy number that we talked about whenever we announced that deal.

Yeah, and just one more comment on that, just around guidance, right, in terms of You know, we've included, you know, the run rate that we signed up for for year one around synergies. And, you know, if there's anything we see opportunity in this year in terms of overachieving, you know, the midpoint of our guidance, it's definitely around the synergies, right? And so that's why, you know, when we think about, you know, what we can do, we're about controlling the controllables. The macro is going to be what it's going to be. But we're focused 100% on driving these synergies and getting the results that we can control there.

That's great. Thank you.

Thank you. And the next question comes from the line of Susan McClary with Goldman Sachs. Please proceed with your question.

Thank you. Good morning, everyone. My first question is on the cross-selling opportunities that you highlighted in your prepared remarks as you're working on the integration of SPI. Can you give a bit more color on what those are and how we should think about them coming through?

Yes, Susan, this is John. Yes, I would say today cross-selling for us is very much just people talking to other people within our business, right? So we could have a a DI customer that we have a great relationship with that happens to be, you know, working on a job where we can also offer that customer, you know, an insult service. So, you know, today it's really just connecting our sales teams and our managers, but we do plan on, you know, putting some digital resources behind that in the future and really making that, you know, kind of just leveraging another one of our strengths where we touch you know, all these different types of projects through different businesses that we have. So it's an exciting opportunity for us, and we plan on investing to make it even seamless for our internal staff.

Okay. That's helpful. And then as we do enter another year, that seems like it could be fairly challenged as we think about the outlook for housing and the macro. Can you talk a bit about the cost structure across the business, how you're thinking about your positioning? Are there opportunities to perhaps make further adjustments in there and what you're watching to determine if that needs to happen?

Yeah, I mean, Susan, this is Rob. That's something we're constantly monitoring, certainly something we have an advantage given a common ERP across our footprint, our ability to see activity going on in the business on a daily basis and make adjustments. Last year was a great example. As we saw things begin to slow early in the year, we quickly took action. And we'll be doing the same thing this year, right? We're going to continue to monitor the macro situation, continue to monitor what's going on. You know, more than 70% of our costs are variable. So, you know, we can adjust quickly and make changes where we need to.

Okay. Thank you, guys, and good luck with the quarter.

Thank you.

Thank you. And our next question comes from the line of Phil NG with Jefferies. Please proceed with your question.

Hey, guys. This is Maggie on for Phil. At first, I wanted to dig into the pricing outlook. I mean, pricing held up pretty well in the quarter and even stepped up in distribution, maybe a function of the in-market exposure. But how should we think about that guide for down those single-digit pricing and the outlook between the two segments and how the $55 million price-cost headwind is split and I think you also said, Forky, or maybe it was 2025 total, you saw some inflation in gutters and spray foam and fiberglass saw some pressure. Any color on how that's trending into 2026?

Yeah, Maggie, this is Rob. So, yeah, that price-cost bucket, it's obviously a mixed bag of products, some with price inflation, some with price pressure and price deflation. You know, and it's one of the good things about the diversification we have in our model now, right, and you can see that coming through on the, particularly on the specialty distribution side where, as you pointed out, pricing, you know, actually increased in the fourth quarter on the distribution side, and that's because of the, you know, heavier exposure to the commercial products on that side, the mechanical insulation, and also a heavier, you know, concentration of gutters on distribution than what we have on the install side. So when you think about that mixed bag of products we, you know, throughout last year, I'd say we started the year with some carryover pricing in fiberglass that was favorable, but definitely as the year progressed, you know, saw that get pressured and saw prices, you know, go down a bit the back half of the year. Pretty similar on trade from mechanical, we saw good price increases throughout the year. Commercial projects were strong, particularly on the mechanical side, and had really good pricing there. Gutters, because of tariffs, saw some pricing. So when you put that all together for the year, we netted out to positive sales price. I'd say it was still a drag on margins when you netted everything out. from a cost perspective, roughly about 10 basis points when you net everything we were able to do from a cost perspective, so not terribly impactful. But as we look out, like I said earlier, we expect a similar environment. We expect pricing on mechanical to be strong given the strong demand there. you know, the pricing on fiberglass and spray foam, we think we'll continue to see pressure as we did the back half of this year. And that's really the biggest driver of the, you know, the price pressure that we're talking about in 2026.

Okay, got it. That was all really helpful. And next on the margin guidance, you know, the pressure makes sense with volume, deleverage, and the price-cost headwinds you've outlined. But you're always doing stuff on the bottom quintile branches and the special ops teams to drive margins. Wondering if the outlook incorporates any of those productivity initiatives or if that could be upside to the guide. And then maybe just walk us through some different levers you have if demand is weaker than the outlook currently.

Yeah, Maggie, this is Rob. So, you know, in the prepared remarks, we tried to give you some bookends around where EBITDA margins will be, you know, throughout the year. I'd say, you know, like we said in the prepared remarks, the strongest quarter will be Q3, probably, you know, in the neighborhood of 18.5 or call it 18 to 19%, and Q1, you know, more in that 16.5%. And so... Yeah, we're definitely seeing, you know, we've talked a lot already about kind of some of the price cost pressure. Like we've said, we've done a really good job of offsetting a lot of that with cost reductions, and we plan to continue to do that. But the other thing that's really, you know, impacting margins too is M&A, particularly, you know, the SPI transaction with that being a 10% EBITDA business that we acquired in the fourth quarter. It's still running around 10% today, but obviously, like we talked about, we see a lot of opportunities on the synergy side. We're moving quickly there. And, you know, with synergies, you know, the goal would be to get that to the mid-teens this year. So we'll see that improve as the year goes on on that piece. So that's definitely a big lever in terms of what we can do this year. And then, like I said earlier, I mean, the other levers are, you know, around our cost structure, and we're going to continue to monitor the environment. We feel like we made the adjustments necessary for the current volume environment we're in, but we'll make, you know, if that does get worse from here, we'll adjust and take more action. So, you know, that volume guide we talked about and saying, hey, you know, we expect volume down, you know, low single digits for the year, but talked about a decremental of 27%. I mean, that includes us taking cost out to get to that 27. So definitely something we're, you know, we've done in the past and something we're comfortable we'll be able to do this year.

Okay, great. Thanks, guys. Thank you.

And our next question comes from the line of Ken Zenner with Seaport Research. Please proceed with your question.

Good morning, everybody. Welcome, John.

Good morning.

Can you guys talk to, this is going to be more residential focused. The guidance for us is down mid-single digit. can you bridge the dynamics between, you know, kind of on the install side, the 15% decline we see, realizing subres is rolling through specialty distribution, which is down six, and then talk to the persistence or the dynamics, why on the install side the volume is down. And if you see an equivalent, decline, I guess, in the same residential products that you're not installing.

Yeah, Ken, this is Rob. So, you know, from a, you know, volume perspective, on the install side, in the fourth quarter, you know, we definitely saw, you know, residential down single family and multifamily, as we've seen throughout the year, we would definitely say, you know, particularly December slowed down significantly. We were well ahead of our expectations at the end of November, and then December slowed significantly on the resi side. And on the install side, our commercial business, as we've talked about throughout the year, about half of that business on the install insulation side is light commercial work. That's been slow throughout the year. So that also has been a drag on volumes on that side. So that's The resi side and commercial side really driven by the slower starts environment. On the specialty distribution side, because of the diversification of our end markets there, and now that being a much heavier commercial-focused business, you're not seeing as big an impact. We definitely have the resi product down, and that's why volumes overall were down. But we were able to offset a good portion of that with, you know, a really good year in mechanical insulation. And also on some of the other commercial products, we move, you know, through the service partner side of things and through our metal building business.

Okay. Thank you. And then given that you guys have a very, probably the best, amongst the best visibility on what builders, you know, what you're bidding on, The mid-single-digit decline, could you comment on, you know, Florida, Texas, if you would feel comfortable, you know, kind of talking about the dynamics you're seeing, given that those markets were certainly, you know, impacted by COVID. It seems like we're kind of coming through that more in Florida versus Texas. But could you talk to how that is impacting your business? if you would. Thank you.

Yeah, Ken, it's John. So, you know, on the resi side, Florida, you know, you hit on it. It's a bit optimistic down there. We're seeing things start to recover. You know, I would say there's a good story coming there versus Texas, probably still a little flat to slow. You know, so we're seeing a little mixed bag between those two, but You know, maybe just take the opportunity to take you, you know, take you around the country a little bit. You know, the Northeast, often a bit of a flat start, but I would say there's a good story coming there. Probably impacted by weather, you know, as that area just got hammered again this past week. So, you know, nothing surprising there. Midwest, a bit flat, but really down the middle of the country, we see some good optimism, you know, through Arkansas, Missouri. Iowa, you know, some probably nice story going to shape up there. And then as you work out west a little bit, Colorado is still a little slow out of the gate. Just west of that, some of the northwestern, you know, the Pacific Northwest, we've got probably a good story coming there, Montana, Utah. And really the only one that's not showing signs of improvement is more around California. So, you know, that's the only one that I've marked as you know, probably, you know, probably hasn't initially bottomed out yet.

Excellent. Thank you.

And our next question comes from the line of Mike Dahl with RBC Capital Markets. Please proceed with your question.

Good morning. Thanks for taking my questions. Sorry to belabor the pricing point. I just want to make sure we understand kind of the outdoor pricing versus the cost you're taking. Our sense has been that on the resi fiberglass side, there is kind of low single-digit price pressure that the OEMs are also seeing. So if you're looking for down low singles on price out the door, is that worse for you in the resi installation, and that's why you're seeing – the price-cost pressure, or just maybe a little more color on that kind of differential and what's actually driving that. And I think Maggie asked this, but also maybe just another clarification on how much is assumed within the install versus distribution sides.

Yeah, so this is Rob, Mike. So we don't break out the guidance by segment, but to give you a you know, try to give a little more color on the pricing. I mean, we have seen, you know, there is price pressure, obviously, in the market. You know, the builders are dealing with affordability challenges, demand challenges. So there's, you know, been price pressure on that side. Like you said, you know, the manufacturers are definitely feeling that as well. And You know, and so there have been price reductions. I mean, for us, what I have to always remind folks is, I mean, pricing is a local decision in our business, right? It's a local, you know, the builders are making local decisions. So, you know, it's literally thousands of decisions being made around pricing. And so we think we do a really good job of adjusting to local markets and controlling that and putting guardrails around it with our ERP system. But just given the macro environment, you know, we saw it in the fourth quarter. You know, we do see markets where, you know, things are getting more competitive. You know, prices are picking up. We're going to do what we can to recover that. But, you know, even if we recover dollar for dollar with what we're seeing there, you know, that can be a margin headwind for us as well. So, you know, we're going to do our best to offset it. But like we said, in the midpoint of our guidance, we've got a headwind baked in there.

Mike, this is Robert, just to build upon that. I mean, I think, you know, we've done exactly what we said, right? We talked about being disciplined in 2025, but volumes have stayed, you know, slower for longer. And so as they stay slower for longer, you get the, you know, things that John talked about, his prepared remarks where they were making some good discipline decisions at the local level, which is what Rob just talked about. So discipline, and then as things stay slower for longer, then we appropriately stay disciplined, but pivot appropriately as well.

Okay, got it. Yeah, that's helpful. I appreciate it. My second question just on the commercial roofing dynamics, can you appreciate some of the high-level commentary? Since that business has some today pretty concentrated geographic exposures, can you help us understand at a market level what you're seeing on the commercial roofing and market volume growth and then you know, maybe then the outgrowth that Progressive is seeing and what you're assuming versus the market in 26?

Yeah, so maybe I'll – this is Robert, so I'll start looking backwards a little bit. Progressive had a great 2025. It's a nice organic growth in the business, really strong execution in Q4, and if we look at, you know, back half of of the year, our ownership of Progressive. So great job of 20 and 25. As we look at 26, I think I mentioned a while ago, those backlogs are growing at a steeper clip. And you're right, I mean, great, great footprint in the Southwest, in Arizona, Texas, those areas, Johnson, obviously, we just purchased his focus, Texas, but also get some work in Oklahoma and Louisiana as well. So we got a nice footprint down there. But You know, we do quite a bit of travel in that work. I know we just picked up a major project in Idaho. We're doing some projects up in Utah as well. So we'll travel for some of the bigger projects. But as we do M&A, as you think about the future, we'll build out that footprint. And that's part of, as we're looking at companies, looking at where we want to be, that type of thing, part of it is building out that footprint. So we think a great 2026 coming. On the commercial roofing side and the leading indicator of that is backlogs and obviously staying close to the progressive team. And as John said, they're doing a fabulous job and, again, a platform that we see building upon here with a high level of confidence.

That's great. Thank you.

And our next question comes from the line of Trey Grooms with Stevens Inc. Please proceed with your questions.

Yeah, thanks for taking the question and good morning. So, you know, you guys have been realigning headcount and some other actions you've taken. You know, when we get back into an eventual kind of, you know, recovery mode, I guess the question is how much of these cost outs do you see as, you know, sustainable versus, you know, kind of what you need to bring back pretty quickly as you look at the different levers you guys have been pulling?

Yeah, Trey, this is Rob. I'll start. You know, from a cost perspective, there's definitely, you know, a portion of what we did last year that we think will stick, right? I mean, some of the facility consolidations, that rent cost, you know, isn't going to come back on us. You know, some of the back office fixed costs, you know, we like to try to move on. You know, we're trying to do things in the back office to automate and do things more efficiently. So, You know, our hope there would be to not have to add back as much on that side. And then, obviously, the installer side, we're going to need to add back to adjust to the volumes as they go. But that's where our, you know, our recruiting practices and our, you know, our skill at doing that comes into play. And we've always, you know, outperformed at that. So we're confident we'll be able to adjust and get labor back as volume comes back.

All right, thanks for that. And then I know you touched on this a little bit, but, you know, as we're looking at the guide on the margins, the puts and takes there, you know, you mentioned synergies as an area where, you know, there may could possibly be some upside there. You seem pretty confident in that. But, you know, as we think about the high end of the margin range versus the low end, again, we're specifically asking about the margins. So what would be the other swing factors there in your opinion, you know, to get us to the high end versus the low end outside of the synergies? Is that going to be more, you know, volume related or could there be some swings in price cost or where are the more likely kind of swing factors there?

Yeah, I mean, you kind of hit on the two key ones there. I mean, for sure, you know, the higher end of our range assumes higher volumes and if that comes You know, we'll definitely, you know, like we typically say, we expect our incrementals to be in that 22 to 27 type range, and we're going to, you know, increase margins by putting volume in at that level. If demand is stronger, we would expect, you know, the price-cost situation to improve as well. So that's, you know, the second piece of that. So those are really the two other things. I mean, the other The other piece is what we can do with the cost structure, which is like what I referenced earlier in terms of our focus. We're focused on what we can control there. And so we're doing all the things we always do around operational excellence. And this year we have the unique opportunity with the synergies to outperform on that piece as well.

Okay, got it.

Thanks for the comment, Rob. I'll pass it on. Thank you.

And our next question comes from the line of Adam Baumgarten with Vertical Research Partners. Please proceed with your question.

Hey, good morning. Just back to the price-cost outlook, I guess is it fair to headwinds? You noted that $55 million will result more acutely in installation than specialty distribution given the competitive behavior that you guys mentioned earlier?

So, I'd say, I mean, the price-cost pressure on the residential products, we've seen more of it in distribution, right? Because of the labor component on install, it's less pressure there. It doesn't mean we don't have any pressure there, but we've seen less. But the distribution side, it doesn't show up as much in the P&L because of the diversification of the business on that side. So, from a pure... You know, impact of what you'll see, yeah, more than likely I'd say more of it would be on the install side just because of the business mix piece of it.

Okay, got it. And then just since John brought it up when he was going through the markets, just any kind of sizing you could do on the weather impact you've seen in 1Q so far given the couple storms?

Yeah, really hard at this point given we're still, you know, shoveling out in certain parts of the country. So it's definitely, you know, significant, you know, and definitely, you know, baked into kind of that or at least what we know of as of today baked into, you know, kind of that bookend we gave around quarterly revenue.

Okay, got it. Thanks.

And our next question comes from the line of Ruben Garner with Benchmark Company. Please proceed with your question.

Thanks. Good morning, everyone. Most of my questions have been answered. I just have one on the commercial business and outlook. I was wondering, you know, data centers have been a pretty big focus of late, but I was wondering if you could go into a little more detail on some of the other areas some of the other areas that you're seeing that are driving growth in your mechanical and commercial segment? And what kind of, you know, if you had to pick, is this the mechanical side where you see the most upside to your outlook at this point this year?

Yeah, good morning. This is Robert Rubin. So I would say if we think about some of the other verticals here, so obviously data centers is, You hear everybody talking about that, but I think, you know, the one thing is we look across the verticals, make sure we're bidding across the verticals so you don't become too heavily relying on one. So I would say education is big right now, healthcare for sure. We're seeing manufacturing as well. So we're seeing it really across the board, you know, even some things, food and beverage on the mechanical side. So really diverse, several of them growing there, and we're making sure that we're bidding across all the different areas. all the different verticals from that. And that's why we talk about, you know, we do think there's upside there. There's going to be growth. Rob talked about in the guidance of commercial industrial growth. So we do see upside potential there. We think both top line and bottom line. We talked about how we're going to leaning in on the synergies, highly competent in our synergy number around the SPI, DIPs, but also the progressive synergies. There was a smaller number, but we're highly competent in that. And then I talked about how The outlook is on commercial roofing for 26 as we look at backlogs and work that we're securing there. So definitely commercial, industrial, mechanical, and roofing. We would say those are offsides and really across the different verticals.

Great. Thanks, guys, and good luck.

Thank you.

And our next question comes from the line of Colin Baron with Deutsche Bank. Please proceed with your question.

Good morning. Thank you for taking my question. Just one for me. You talked about pricing some of your categories, but I don't think you mentioned commercial roofing. I know it's a smaller piece of the pie right now, but it's growing. So I'd just be curious as to how prices are tracking there and if the price cost expectations differ from the consolidated company at all in 2026. Thanks.

Yeah, so obviously in our guide right now, any pricing related to roofing for half the year is baked into the M&A number. But overall, I'd say in general, pricing is flattish on the commercial roofing side from what we're seeing. They can get a little bit different pricing depending on their mix of business from new roof to re-roof and depending on new roofs, what end market it goes into. So there's a little bit of a mix. element there. But from an overall pricing perspective with the suppliers, I'd say it's an overall flattish environment right now.

Operator, do we have anyone else in the queue?

No. With that, that was the last question. So I would like to pass the floor back to Robert Buck for any closing comments.

Okay. Thanks, everyone, for joining us today. We look forward to seeing many of you at the upcoming conferences. Thank you.

Thank you. And with that, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time, and have a wonderful day.