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DATE
Tuesday, August 5, 2025 at 1:00 p.m. ET
CALL PARTICIPANTS
Chief Executive Officer — Robert Buck
Chief Financial Officer — Robert Kuhns
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RISKS
Residential Sales Decline— Management revised its outlook, projecting a low double-digit decline in residential sales for the year, citing "deterioration in single-family" demand and a weaker starts environment during Q2 2025.
Light Commercial Weakness— CFO Robert Kuhns noted, on the light commercial side, we’re down double digits on a year-to-date basis.
Price/Cost Headwinds— Management has incorporated $30 million of price/cost headwinds into second-half 2025 guidance, with significant impact on residential distribution margins.
Increased Interest Expense— Other expense rose to $16.2 million from $7.2 million last year, driven by higher interest expense from expanded credit facilities and lower interest income, which negatively impacted net earnings.
TAKEAWAYS
Total Sales-- $1.3 billion, a 5% decline, driven by a 7.8% volume decrease, partially offset by 1.9% M&A and 0.9% pricing gains in Q2 2025.
Installation Segment Sales-- $780.7 million, down 8.3%, with a 10.5% volume decrease, 1.4% from M&A, and 0.9% from pricing in Q2 2025.
Specialty Distribution Sales-- $599.2 million, up 1.1%, as 2.3% M&A and 0.8% price were offset by a 2.1% volume decline in Q2 2025.
Adjusted EBITDA-- $261.3 million (20.1% of sales) adjusted EBITDA in Q2 2025, up 110 basis points sequentially but down 20 basis points year-over-year.
Adjusted EPS-- $5.31 adjusted earnings per diluted share in Q2 2025, compared to $5.42 in Q2 2024.
Adjusted Gross Profit Margin-- Adjusted gross profit was 30.3%, 70 basis points below the prior year, in Q2 2025.
Segment EBITDA Margins-- Installation adjusted EBITDA margin was 22.3% (up 120 bps sequentially, flat year-over-year); Specialty Distribution adjusted EBITDA margin was 17.2% (up 90 bps sequentially, down 50 bps year-over-year) in Q2 2025.
Share Repurchases-- 455,000 shares were repurchased for $136 million in Q2 2025, with $836.4 million of authorization remaining.
Free Cash Flow-- Free cash flow was $321.4 million year-to-date, up approximately 38%, primarily due to improved working capital timing.
Liquidity & Debt-- $1.8 billion total liquidity ($842.5 million in cash; $938.8 million on revolver) as of Q2 2025; $1.9 billion total debt after a $500 million increase as of Q2 2025; Leverage was 1.01x trailing twelve months pro forma adjusted EBITDA as of Q2 2025.
Progressive Roofing Acquisition-- Closed in July 2025. Expected to add $215 million in second-half sales and $300 million to full-year sales (guidance for 2025). With an EBITDA margin "right around" 20%, aligning with core business profitability for the second half of the year.
Revenue Mix Shift-- Commercial/industrial sales now represent approximately 40% of total sales (including Progressive) in 2025, up from 15% in 2015. About 20% of total sales are considered recurring, non-discretionary, or non-cyclical.
Sales Guidance-- 2025 sales outlook (GAAP, full year): $5.15 billion–$5.35 billion. Same-branch residential sales projected "down low double digits" for full year 2025. Commercial/industrial same-branch sales are expected to be flattish to up low single digits for full year 2025.
Adjusted EBITDA Guidance-- Adjusted EBITDA for the full year 2025 is expected to be $970 million–$1.07 billion, with a midpoint adjusted EBITDA margin of 19.4%, including full-year M&A effects.
M&A Pipeline-- Management reiterated that M&A remains the highest capital allocation priority and highlighted several "chunkier deals" in commercial roofing under review.
Backlog Conditions-- No project cancellations noted; Progressive Roofing and broader heavy commercial backlogs were stronger than a year ago as of Q2 2025.
SUMMARY
Management detailed efforts to align costs with lower residential demand, including the consolidation of 33 branches in Q1 2025 and targeted headcount actions intended to protect profitability while retaining operational capacity for a demand recovery. The company emphasized resilience and diversification, noting that current commercial and industrial end-markets account for approximately 40% of revenue in 2025, and highlighted strategic wins in new data center, technology, and healthcare verticals. Sequential improvements in segment adjusted EBITDA margins in Q2 2025, along with robust free cash flow, were credited to supply chain optimization and ongoing cost actions. The addition of Progressive Roofing was described as immediately accretive to scale, with cross-selling and future M&A synergy opportunities already being pursued. Management indicated that Progressive Roofing's EBITDA margin is "pretty much in line with our core business," and that the majority of its business is in heavy commercial, with 70% of revenue from reroof and services. Longer-term, management cited a $95 billion total addressable market and ongoing M&A pipeline development as supporting multi-year growth, with a stated comfort to operate at up to 2–3 times net debt leverage for the right acquisitions.
CEO Buck stated, "With Progressive, we’ll be more than $5.5 billion on a pro forma basis this year (2025)." illustrating the impact of recent acquisitions on topline scale.
As of Q2 2025 quarter end, net debt leverage stood at 1.01x trailing twelve months pro forma adjusted EBITDA. With the acquisition impact, this increases to approximately 1.65x on a pro forma basis for Q2 2025.
CFO Kuhns confirmed, "it's only 30% new construction. So 70% is reroof and services." demonstrating resilience against new build cyclicality.
Working capital was reduced to 13.7% of sales from 14.8% last year, reinforcing management’s efficiency focus.
Guidance reflects expectations that "total net sales will be flattish" in Q3 2025 and "up low single digits" in Q4 2025, with pricing comparisons to the prior year cited as a factor.
On M&A criteria, management reiterated a preference to "remain disciplined" and "go above" the 2x net debt leverage level when justified by return profiles, emphasizing rapid de-levering post-transaction.
INDUSTRY GLOSSARY
Mechanical Insulation: Specialized insulation systems used in commercial and industrial settings for thermal control in mechanical piping, ducting, and equipment.
Reroof: Replacement of an existing roof system, distinguished from new construction roofing.
Heavy Commercial: Large-scale commercial construction projects such as data centers, healthcare, power, and education facilities, typically less sensitive to residential cycles.
Light Commercial: Smaller-scale commercial projects generally more sensitive to economic conditions than heavy commercial.
Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, as adjusted for one-time and non-operational items, commonly used for evaluating operating performance.
Full Conference Call Transcript
Robert Buck: Good morning. Thank you for joining us today for our second quarter 2025 earnings call. With half of 2025 behind us, I want to start by saying how proud I am of everything our teams have accomplished so far this year. In July, we completed the acquisition of Progressive Roofing, establishing a new platform for growth in the large, highly fragmented $75 billion commercial roofing services market. The transaction aligns very well with our core strengths, expands our installation service offerings for commercial customers, and increases our exposure to non-cyclical, non-discretionary revenue drivers. Commercial roofing is a natural adjacency to our core insulation business, with exciting potential. And we're delighted to welcome the talented Progressive Roofing team to TopBuild.
Our teams are starting to work together, including sharing best practices and thoughts on an integration roadmap. We also took steps in the first quarter to better align our cost structure with the demand environment and optimize our footprint, including the consolidation of 33 branches across our network. On a daily basis, our teams put a great deal of effort into driving our performance, and I want to thank everyone on our team for continuing to strive for improvement across our business and delivering solid results. Our continued solid profitability in the second quarter is a testament to our ability to successfully navigate changes in an uncertain macro environment.
We are pleased with our sequential improvement from the first quarter, with our second quarter adjusted EBITDA margin of 20.1%, which is a direct reflection of the command we have over our business and is supported by our ongoing work to drive improvements across the business and our supply chain. Softness in residential new construction was partially offset by growth in heavy commercial and industrial, where verticals like technology, education, and healthcare continue to flourish. Total TopBuild sales in the second quarter declined 5% to $1.3 billion as the new residential construction market remained weak and single-family demand slid further on a year-over-year basis.
While the housing market in the U.S. is still underbuilt, mixed economic signals, interest rates, and affordability concerns continue to weigh on consumer confidence, keeping some homebuyers on the sidelines. We'll continue to closely monitor the macro environment. Turning to capital allocation, we have a robust pipeline of acquisition candidates, and M&A is still our highest priority for deploying capital. In addition, the Progressive team had several acquisition opportunities in their pipeline. As always, we'll stay disciplined around evaluation and focused on driving strong shareholder returns. In the second quarter, we also repurchased just under 455,000 shares of our stock, returning a total of $136 million in capital to our shareholders.
Before I turn it over to Rob, I want to give you a brief look back at our business but also share with you some thoughts on how we're positioning TopBuild for the future. This past July 1 marked the ten-year anniversary of TopBuild as a public company. When I look back over that time, it's remarkable how much we've grown. When we spun in 2015, we had $1.6 billion in sales and mid-single-digit profit margins. Last year, we were roughly $5.3 billion in sales or about a 14% compounded annual growth rate. With Progressive, we'll be more than $5.5 billion on a pro forma basis this year. Since 2015, we've also more than tripled our EBITDA margin.
Our safety metrics have also improved as we stay focused on keeping our people safe. Ten years ago, about 85% of our sales were tied to residential, and 15% of our sales were tied to the commercial industrial end markets. Now, having completed 44 acquisitions, we've grown our commercial industrial sales to approximately 40% of our total sales this year. We've successfully diversified our business, and in doing so, we've also improved our sales resiliency. About 20% of our total sales are considered recurring, non-discretionary, or non-cyclical. As we look out, our runway opportunity for growth is exciting. We have a total addressable market of nearly $95 billion for insulation and commercial roofing and are encouraged by our growth prospects.
Let me give you just one example of how our business diversification positions us well for our next level of growth and more exposure to commercial, industrial, and non-discretionary spend and reduced dependence on residential housing. Just last week, our leadership team was on-site at a multiphase data center campus in Arizona. At the same data center campus, our now combined TopBuild family of companies was providing multiple services and products for the same contractor. The Progressive Roofing team was providing new construction roofing services for the first 200,000 square foot facility at the site, while our Distribution International team was delivering fabricated mechanical insulation parts.
And prior to that, our local TruTeam business had provided building envelope installation solutions in the form of fiberglass spray foam installation. Currently, there are 324 data center projects under construction and 110 data centers that are in the engineering stage. We're also tracking nearly 2,000 more projects that are in the planning stage. This growing vertical, data centers, is just one example of the commercial and industrial projects which TopBuild can now provide a full suite of service solutions. Let me conclude my remarks today by recognizing and thanking each one of our employees. Our success over the last ten years would not be possible without the hard work and support of our talented and highly motivated teams. Rob?
Robert Kuhns: Thanks, Robert. First, I'd like to thank our teams for delivering another quarter of strong results in an uncertain macro environment. While weak demand in the residential markets continued, our teams have done an outstanding job adjusting our cost structure and driving profitability. In addition, our teams are continuing to drive profitable growth in heavy commercial and industrial end markets. Turning to the second quarter results, total sales declined 5% to $1.3 billion. Volume was down 7.8%, partially offset by M&A of 1.9% and pricing of 0.9%. Our installation segment sales totaled $780.7 million, down 8.3%, driven by a 10.5% volume decline, which was partially offset by acquisitions of 1.4% and pricing of 0.9%.
The volume decline was driven by weakness in new residential construction and light commercial end markets. Heavy commercial projects continued to be a bright spot and posted solid growth in the quarter. Specialty Distribution sales improved 1.1% to $599.2 million in the quarter. Acquisitions grew our sales by 2.3% and price added 0.8%. This was partially offset by lower volume of 2.1%. Lower volumes were driven by slower sales of residential products, which were partially offset by continued strong growth in mechanical insulation for the commercial and industrial end markets. Adjusted gross profit in the second quarter was 30.3%, and 70 basis points lower than last year.
Adjusted SG&A as a percentage of sales in the second quarter was 13.3% versus 13.6% last year. Second quarter adjusted EBITDA for TopBuild was $261.3 million or 20.1% of sales. Our EBITDA margin improved 110 basis points from the first quarter and was down only 20 basis points to the prior year. This strong profitability was driven by the cost actions we took in the first quarter and supply chain improvements. These savings almost entirely offset the EBITDA margin pressures from lower sales volume and price pressure on residential products in our Specialty Distribution segment. Installation adjusted EBITDA margin was 22.3%, up 120 basis points sequentially and flat versus the second quarter of last year.
Specialty Distribution adjusted EBITDA margin of 17.2% was up 90 basis points sequentially and down 50 basis points versus 2024. Other expense for the quarter was $16.2 million compared to $7.2 million last year. The increase is due to the combination of lower interest income from lower cash balances and higher interest expense from our expanded credit facility. Second quarter adjusted earnings per diluted share was $5.31 and compares to $5.42 last year. Turning to the balance sheet and cash flows, we ended the second quarter with total liquidity of $1.8 billion, of which $842.5 million was cash, and $938.8 million was available under our revolver.
Our total debt at the end of the quarter was $1.9 billion, $500 million higher than the prior year due to the refinancing and expansion of our bank credit facility. This new $2.25 billion credit facility includes a $1 billion term loan, a $1 billion revolver, and a $250 million delayed draw term loan, all of which mature in May 2030. Net debt at the end of the quarter totaled $1.1 billion, and our net debt leverage ratio was 1.01 times trailing twelve months pro forma adjusted EBITDA. Year to date, our free cash flow is $321.4 million, up approximately 38% from the prior year, primarily due to the improvement in timing of working capital.
Working capital as a percentage of sales totaled 13.7%, which compares to 14.8% last year. We continue to prioritize our strong free cash flows towards M&A, and in July, we closed the acquisition of Progressive Roofing. This acquisition establishes a new platform for growth and expands the building envelope installation services we can provide for commercial contractors. We funded the transaction with cash on hand and proceeds from our expanded credit facility. Assuming Progressive Roofing was in our results for the second quarter, our net debt leverage would have been approximately 1.65 times trailing twelve months pro forma adjusted EBITDA. In the second quarter, we also repurchased shares totaling $136 million.
On a year-to-date basis, we've returned a total of $351.6 million in capital to shareholders, representing about 1.1 million shares. We have approximately $836.4 million remaining under the current authorization. Turning to guidance, as you saw in the release, we are issuing guidance today that includes the impact of the Progressive Roofing acquisition for the balance of the year. We expect full-year sales to be between $5.15 billion to $5.35 billion. Our assumptions are as follows: on a same-branch basis, including price, we are now assuming that residential sales will decline low double digits for the year, driven by continued weakness in both single-family and multifamily activity.
Commercial and industrial same-branch sales are expected to be flattish to up low single digits. We expect heavy commercial to remain strong, while light commercial will continue to be challenged. The full-year impact of M&A is expected to add approximately $300 million to sales. Inclusive of M&A, total net sales will be flattish in the third quarter and up low single digits in the fourth quarter as the fourth quarter will benefit from a full quarter of Progressive sales and the comparison to the prior year is slightly softer. We expect adjusted EBITDA for the year to be between $970 million to $1.07 billion.
At the midpoint of our guidance, our adjusted EBITDA margin will be 19.4%, a very strong profit performance. In closing, I want to thank our teams once again for their efforts, and I would also like to welcome our new teammates from Progressive Roofing. As TopBuild enters its second decade as a public company, I couldn't be more excited about the growth opportunities that lie ahead for our teams and for our shareholders. With that, I'll turn it back to Robert.
Robert Buck: Thanks, Rob. I want to express my confidence in the underlying fundamentals for our business. Our flexible and diversified business model enables us to deliver solid results. We have incredibly focused teams that have great control over our business. We've proven that we can adjust our operations as demand changes and expect to outperform in a changing environment. As always, we'll stay focused on driving profitable growth and increasing shareholder value. We are planning to host an Investor Day in New York on Tuesday, December 9. We'll be sharing more details in the coming months and look forward to having you join us in person. With that, operator, let's open up the line for questions.
Operator: Thank you. We'll now be conducting a question and answer session. Our first question is from Michael Rehaut with JPMorgan.
Michael Rehaut: Yes. Good morning, everyone. Thanks for taking my questions. First, I wanted to dive in a little bit to Progressive and just the impact on the second half more so from the margin side if you expect that to be dilutive or accretive to margins, and how you're thinking about the contribution in 2026. And I guess more broadly, how you're seeing early opportunities perhaps even from the sales synergy side as well?
Robert Kuhns: Sure, Michael. This is Rob. I'll start and Robert will jump in. With the second half, in terms of our guidance, what we have baked in for Progressive, from a sales perspective, it's roughly about $215 million incremental for Progressive. Our guide last time was around $85 million for M&A. We're up to about $300 million, and then the EBITDA that goes with that is going to be right around in the neighborhood of 20% EBITDA. So really not decremental or heavily incremental to where we're running right now. Pretty much in line with our core business.
Robert Buck: Yeah, Michael, relative to the question on cross-selling and the synergy piece, yes, really excited about that. I mean, just that data center project I gave you the example of in the prepared remarks. I mean, that's one example. We've started working with the Progressive team and looking at, you know, crossover and projects, customer base, verticals, that type of thing. We definitely see an opportunity in, you know, I've already been on a few M&A visits with the Progressive team as well and talking to some, you know, I'm gonna say future companies that'll be coming on board. We see that as well and some crossover where they have relationships with our insulation contractors and stuff as well.
So, yeah, we think it was a part of our model, but we definitely see upside to that we're starting to work together.
Michael Rehaut: Oh, that's great to hear and obviously very exciting in terms of the multiyear prospects that whole vertical can lend itself to. So, congrats on that. Secondly, appreciate also I guess, challenging core business specifically residential end markets down low double digits versus down high single digits before. Maybe you could just talk about which parts of the business that's hitting more? Is it kind of equally on installation or distribution? And also, just, you know, if there's particular areas of the country or any more color in terms of what's driving that softness and if we should expect perhaps a down low double digit rate, you know, into, let's say, '26?
Robert Kuhns: Yeah, Michael, I'll this is Rob. I'll start with kind of what we've got baked into our guidance and what we saw Robert can get into some of the details of what we're seeing kind of across the country. Yes, we've adjusted our midpoint guidance around residential to be down low double digits from high single digits before. And that's really primarily driven by deterioration in single-family that we've seen. Really, the guidance we had previously assumed things weren't going to get worse from what we saw in the first quarter. And we definitely saw the starts environment slow down here in the second quarter. So we're baking that into the guidance.
I'd say the other piece, it's that's been a little bit softer is light commercial. You know, heavy commercial, as we talked about, has been strong. Industrial has been strong. So I've seen a lot of good growth there, but light commercial has remained challenged. So we've eased up a little bit on the commercial guidance as well to being, you know, to up low single digits. So that's really the core changes in the guidance. Robert can take you around the country a little bit in terms of what we're seeing.
Robert Buck: Yeah. So it's a mixed bag around the country as you might expect. Mike, I'll give you a few instances. So let's just picture in Florida where we are. You know, South Florida is slow. Orlando, some positive trends. The Panhandle, some positive trends. But Jacksonville, slow. You move up to the Southeast, we like what we're seeing coming here. The Carolinas and even I'd say even optimistic up in the Northeast and the Midwest. Texas is the mixed bag again. Right? Like what we're seeing in Dallas and San Antonio, but Austin, Houston, you know, slow from that perspective. Just a couple other. Colorado, single-family slow. Building some multifamily backlog in Colorado, so a little bit's back there.
Some better trends in multifamily, probably Vegas and Southwest. We see some positive things building in the Northwest right now. So it's kind of mixed as you go around, a little mixed multi versus single.
Michael Rehaut: Great. And any thoughts about how that might, you know, carry over into the first half of next year?
Robert Buck: I think, you know, you're seeing some of the builders where they're coming out with the public builders as they're talking, as you've seen their guidance and stuff. And so I think we're aligned across the variety of size of builders there. So you know, we're definitely starting to bid work for in the fourth quarter into the first part of next year. Think some of that multifamily that we're talking about and even seeing some of the starts, probably heading into the first quarter of next year. So that's kind of how we think about it and see it.
Michael Rehaut: Great. Thanks so much.
Operator: Our next question is from Susan Maklari with Goldman.
Susan Maklari: Thank you. Good morning, everyone. My first question is focused on the commercial industrial side of the business. Can you give us a bit more detail on how you're thinking about the volume versus price breakdown in there? And maybe with that, are you still seeing some of that momentum on the price side within that segment of the business that you talked to in the first quarter?
Robert Kuhns: Yes, Susan, this is Rob. So yes, from a price perspective, what we talked about in the first quarter was we saw some incremental pricing on some of the mechanical insulation products and mineral wool products. That we use on that side. Those definitely stuck through the second quarter, so we're continuing to see that. You know, the weakness is really, you know, from a volume perspective on the light commercial side of things where we're down, you know, double digits, I'd say, on a year-to-date basis. We're up, you know, on the heavy commercial side of things, more in the high single digits, almost double digits on a year-to-date basis.
So seeing good growth there, but the, you know, the light commercial is weighing a little bit heavier on us right now.
Susan Maklari: Okay. That's helpful. And then one of the things that you mentioned in your prepared remarks was improvements to the supply chain. Can you talk a bit more about what some of those efforts are? How we should think about them continuing to flow through the business in the back half of this year? And any potential for additional opportunities there and what those could mean for the business?
Robert Buck: Good morning, Susan. It's Robert. So a couple of things to talk about. In the first quarter, we talked about some of the work we did in optimizing the footprint. That's obviously coming through in supply chain savings for us relative to logistics, relative to even some productivity measures that we track as we work through that as we make sure we position our resources appropriately based on where work and jobs are happening. So that's definitely part of it. We're obviously working with our supplier partners. I mean, you know, we've talked about openly around spray foam as an example. So we're obviously working with those supplier partners as there's been some dynamic change there.
So we'll expect that to continue the back half of the year here. As we're in constant, you know, discussions and constantly working with the, you know, working to drive improvements in our business. And working with our partners as well.
Susan Maklari: Okay. Thank you for the color. Good luck with the quarter.
Operator: Our next question is from Phil Ng with Jefferies.
Phil Ng: Hey, guys. Congrats on a really strong quarter and dynamic environment. So I guess the question for me is around pricing. Pricing was actually pretty solid in the first half. It's holding despite a pretty tough resi backdrop. Rob, I guess implicit in your guide and your conversations with your big builder customers, how are you seeing that pricing backdrop kind of unfolding? Obviously, they're dealing with a lot of affordability headwinds as well. And on the flip side, the cost side, what are you seeing on that side of things, especially material cost? Whether it's fiberglass or spray foam in the back half?
So when you kind of think about price cost, what's embedded in your guide and how you're thinking about it?
Robert Kuhns: Yes. So, Phil, this is Rob. I'll start. Robert will jump in. But I'd say what we've got baked in from a guidance perspective, similar to what we've talked about last quarter, we do have some price cost headwinds baked in roughly $30 million of headwind in the back half of the year. Knowing that, you know, really the price, the first half of this year was driven by carryover benefit of fiberglass pricing that hit kind of middle of last year. So we're gonna be rolling over that, no longer benefiting from that. As well as, you know, the commercial products that I talked about a little bit earlier, we're seeing the benefits of those.
We do expect those to carry forward through the remainder of the year. But, obviously, with that dynamic, you know, where the comparisons are gonna get a little tougher on price. And to your point, you know, the builders are pushing out there and, you know, where necessary, we do make adjustments. We're definitely seeing the price impacts, you know, a little heavier impacting the margins on the distribution side of the business, the residential side of the distribution business. But like I said, we've got some headwinds baked into the second half forecast. That's why EBITDA margins are a little bit worse than the first half.
Hopefully, that proves to be conservative, but we gotta see how that plays out.
Robert Buck: Yeah. I think, Phil, so to add on to what Rob said, I mean, you can see the performance in the second quarter. You can do the calculation in the back half. We still have very solid profitability. So what that equates to is, you know, great work by the teams in the field. From a few different things. One, driving productivity. You know, working all elements including, you know, labor productivity, sales productivity, you know, where do we get, you know, where do we pick up more volume and how do we, you know, leverage that relative to driving our efficiencies in the fields. I think that speaks loudly to that.
And then also, you know, definitely work with our supply partners. You talked about the foam side, you know, fiberglass as well. So, you know, continue to work with our supply partners here because we can provide some certainty in an uncertain environment.
Phil Ng: Got it. No doubt, Robert and Rob. I mean, that margin performance guidance for the year is pretty incredible given the current backdrop. So true testament to the business. On your C&I stack of things, any more color on how booking orders are progressing, as well as the Progressive deal? Any cancellation project delays? And how is the order book looking into 2026?
Robert Buck: Yes. So Phil, Robert, I'd say solid. As we look at so just give a few data points here. As we look at bidding, as we look at bidding activity backlogs here, heavy commercial industrial looks positive, continues. I would say cancellations not nothing on the radar that we're seeing on cancellations. I'd say just, you know, obviously, we've been working the relationship with Progressive for a while, and I'll be in part of our team here for nearly a month. You know, love what we're seeing there, and that team just does a fabulous job of continuing to work their relationships across multiple service areas, and, you know, continue to build backlogs there as well.
Robert Kuhns: Yes, Phil, I would just add to that. I mean, we were in Arizona with Progressive folks about a week ago, and they're really happy with where their backlogs are sitting right now and definitely stronger than a year ago. So feeling really good about that.
Phil Ng: That's really great color. Any way to size on these stronger end markets in C&I that you're seeing, whether it's data centers or perhaps some of these LNG projects and whatnot. Just kind of give us a little perspective and how impactful it is for your C&I functions.
Robert Buck: Yeah. So a couple points there. So, you know, data centers key one. If you think about power, power generation, which got to have that infrastructure relative to the data centers. Say that's another one to point to. And by the way, as we think about, you know, power, you think about LNG, that's US and Canada. Our Canadian team is doing fabulous. When we look at their results and when we look at backlog there for the rest of the year, so we're seeing that strength across verticals in Canada.
And I'd also point out, you know, definitely healthcare and then, you know, manufacturing, food, beverage, then we're seeing it and, again, because of the relationships we have, we're seeing an education as well in some key markets.
Phil Ng: Okay. Appreciate all the great color, guys. Continue to good works.
Operator: Our next question is from Keith Hughes with Truist Securities.
Keith Hughes: Thank you. You said earlier on the call, I think you're about 40% commercial industrial sales. Did that include the roofing transaction? Was that before the transaction?
Robert Kuhns: That's inclusive of the roofing transaction.
Keith Hughes: Okay. And on Progressive, can you give us a feel how much of their business would be in the heavy commercial versus the light commercial?
Robert Buck: On the Progressive side of the business, by far, the majority is heavy commercial.
Robert Kuhns: Yes, the important part to remember there is that it's only 30% new construction. So 70% is reroof and services. But to Robert's point, more towards heavy commercial projects.
Keith Hughes: And does Progressive slant towards any one of the different applications, you know, PPDM, TPO, anything like that?
Robert Buck: No. They're agnostic. They really got a great skill set there to provide any of the solutions, including to Rob's point, can handle it on new construction, but definitely any of the applications from a reroof service maintenance perspective as well. So great skill set across the team there.
Keith Hughes: Okay. And final question. As you progress in the second half of the year, these commercial numbers are I think they're weakening. I think we said that in the call. Is there any signs of life in terms of order activity coming in that could paint to something brighter in 2026?
Robert Kuhns: Yes, Keith, this is Rob. I'd say on the heavy commercial side and some of the larger projects, we still feel pretty good given the backlogs we have there. Definitely feel good about the back half of the year. We'll have to see on 2026, but we're definitely bidding work out that far. And like I said, Progressive's backlog is strong there as well. But the headwinds on the light commercial side are what's been the drag on that side of things.
Keith Hughes: Okay. So no light at the end of the tunnel on that yet?
Robert Buck: Not on light commercial, but the point, I think we've sold solid about heavy commercial and the industrial side based on the backlogs.
Keith Hughes: Okay. Great. Thank you.
Operator: Our next question is from Stephen Kim with Evercore.
Stephen Kim: Yeah. Thanks very much, guys. Appreciate it. All the color. Let me start on the M&A side. I think if you had talked previously about the fact that Progressive has superior margins to its competitors in the space. And I'm curious as to how you think Progressive might go about raising any acquired entities, you know, kind of up to their level. If you could sort of just walk us through what you think the opportunity there is and how you would go about capturing that, that would be helpful.
And then also, you also have this other vertical where it seems like it's been a little quiet in the mechanical and industrial side on the M&A side, notwithstanding the efforts at SPI or with SPI. How is the industrial pipeline looking? Thanks.
Robert Buck: Yes, Stephen, this is Robert. Good morning. So let me start on the Progressive side. It's something that we spend a lot of time with understanding and learning and seeing the track record. So if you think back to our announcement about the transaction, it's really about the business system that Progressive has. And so the ability to, you know, how they target jobs, how they bid jobs, know, the spec of the job, if you will. And then, obviously, as they get involved, how they engineer, and how they track and manage the job, you know, man hours, man days, and they've got certain checkpoints, if you will, throughout the process there.
Of making sure that those jobs are staying on track. So that's really, you know, the business system and how they manage those jobs everywhere from what they go after to how they bid it, to how they manage the job to make sure landing appropriately. Or exceeding. And then I'd say other things around, you know, they're definitely, you know, synergy perspective of whenever they do a transaction, and then there are obviously gonna be some of those that TopBuild adds as well. So you're right. There's a variety of margins that we see across the M&A landscape in roofing. Recent ones here, know, the record of what can happen there.
High level confidence, and we would say generates a great, great return for our shareholders. So Progressive, we dug into that. A lot of detail. And, high level confidence in their business system and how that works. I think relative to mechanical, you bring up a great point. So we did two transactions in the space at the end of '24. And, you know, Shannon Global and then Metro. So we get to get things in the pipeline here. Those companies have come on board, have gotten integrated. But we continue to have pipeline opportunities there. But know, we ran we've had a couple that we've, you know, walked away from.
Because we continue to remain disciplined here and gonna focus on ones that are gonna drive great returns here. So there's definitely activity in that space. But we'll stay targeted there and we see opportunity continue to be on the mechanical side. That's a great question. And as we said on the M&A standpoint, the core still has a lot of opportunity. And, Progressive is bringing a ton of opportunity as well.
Stephen Kim: Thanks for that, Robert. On the Progressive system that they have, are there proprietary computer systems or software that they utilize? Or is it merely the way in which they utilize or employ just the standard type of, you know, computer systems or management systems that everybody else has? It's just they utilize them in a better way.
Robert Buck: So I'll hit that from two or three different angles. Rob may have some additional comments here. So I think what they've done from a job costing perspective in that, I'd say there's some things others don't have. So you could call that proprietary. But I would just say their training I mean, how they bring folks on board, how they train, the talent development, the focus on talent development, whether it be leadership in the field, or whether it be from a sales talent perspective. They've got something you know, they've developed there that works. That's how they've continued to scale the business. I think whenever we made the announcement, we talked about the organic growth rate.
Some things that have led to that organic growth rate in that business. So I'd say some proprietary, but I'd also say beyond what I call business system, I take some great training and talent development as well.
Robert Kuhns: Yeah. And this is Rob. I'd just add, I mean, I think, you know, similar to our business, it's a relationship business. Right? And Nick and team do a great job of building relationships with key contractors and getting bids on jobs where they know they're gonna have a right to win. And Robert touched on it in terms of their job tracking and cost tracking that they do. They've developed, you know, and worked to put together a tool that's really helpful for them with that, and it's really integrated not just into their accounting, but into their operations. And that's certainly, you know, not something we see with every company we've looked at in that space.
And so while, as Robert mentioned, you know, the margin profiles of other companies in the space are not as strong as Progressive's. That just makes a bigger opportunity for us in terms of what we can bring them to. So that's another reason we're so excited about the space.
Stephen Kim: Appreciate that. That's really clear. Last one for me, staffing. I think in previous calls, you had indicated that you were reluctant to move too quickly on reducing staffing levels, you know, on the idea that, you know, you might see a recovery in volume and you want to be ready for it. Simply put, do you feel that given the modest deterioration in the market in the last several months that maybe you're taking a harder look at staffing levels?
Robert Buck: Yeah. I'll start with that, Steven. So you saw what we did in the first quarter. I think we appropriately calibrated with those actions, but our team continues at a local market and, obviously, the standard ERP gives us that insights to look at that. A market by market basis. But we did a lot of calibration there at that first quarter. And I think what you heard us say is, we didn't cut muscle. So we feel like we're prepared for, you know, if there are updates in things that happened here. But yeah, we definitely the team's taken the appropriate action to this point.
Robert Kuhns: Yeah. And I'll just add, Steven. We did know, we talked about last quarter those cost actions we took between the lease cost and the people cost north of $30 million a year in savings and you can see the benefit of that in this quarter's results, right? Our decremental was 23% for the quarter, same branch decremental when you pull out the impact of M&A. From 27%, our full-year guidance is closer to 29%, but that's because of the price cost headwind we've got baked in that I talked about. But definitely feel like we've calibrated from a headcount standpoint to the volumes we're seeing right now.
And as Robert points out, we're going to continue to monitor that and we'll take further actions if necessary.
Operator: Our next question is from Collin Verron with Deutsche Bank.
Collin Verron: Hey, good morning. Thank you for taking my questions. I just want to start just to follow-up on the Progressive Roofing here. I know you've only owned it for less than a month, but any early reads on how quickly you can start executing M&A in commercial roofing and what the deals in the Progressive pipeline look like from a size perspective when you acquired it?
Robert Buck: Yes. So morning, Collin. This is Robert. I'll start off. So we said a few things when we made the announcement about a month ago. Number one is there's some nice chunkier deals in the pipeline there. We've seen that, like I mentioned, maybe on one of the previous questions. Visited a few of those, and Rob and I started getting involved with the process. But Progressive's got a team there that's focused on it. So that's why it is exciting. You know, I think we said earlier, we think the multiples stay pretty close to what you multiples for some of those side deals. On the roofing side. So you know, good activity there.
We're you know, I don't mind saying this. We're making an investment to make sure that the momentum of we think there's good opportunity there. And we'll be excited to, you know, be talking to you about that in the future as well.
Collin Verron: Great. I appreciate the color. And then just one follow-up question on the price cost question. I think Rob, you mentioned that it was a $30 million headwind in the back half of the year. Was that just a price comment? Or was that a total price cost headwind?
Robert Kuhns: It's both really, right? It's more driven by the top line, but it's the net impact.
Collin Verron: Great. Thank you. I'll leave it there and pass it on.
Operator: Our next question is from Ken Zener with Seaport Research Partners.
Ken Zener: Good morning, everybody.
Robert Buck: Good morning.
Ken Zener: Ten years, Robert. Long time.
Robert Buck: Yes. That makes me think like this quarter, you know, you guys had a big footprint. You all said you're gonna grow into your branches that would provide you operating leverage with your IT system, etcetera, etcetera? We've, by and large, seen that. Then the concern was during a contraction, which you know, volume down 10% res, that's you know, it's a modest one. You guys cut costs. Your SG&A is still, you know, percentage wise, the same. Rob, you're talking about the second half price cost headwinds that are baked into your guidance. It's just you guys have been able to handle the incrementals better, right?
So specific to positive, negative factors, what kinda gets you if you're guiding conservative to that 29, what are kind of the things that you think about in the positive bucket that could get you? And what are the things that could go against you to get to that midpoint?
Robert Kuhns: Yeah, Ken. This is Rob. Yeah. I mean, volume is definitely a player in that, right? I mean, the residential single-family in particular environment continues to get worse from here, you know, that could be a potential headwind. We're not, you know, we're not hearing that at this point or projecting it to get a whole lot worse. I'd say it's gonna be our guidance has it a little worse the back half than the first half. But not a dramatic fall off there. I think commercial industrial's potential upside, right? I mean, as we talk about in the past, there's large projects can fluctuate quarter to quarter in terms of timing. But our backlogs are good.
So we feel like that could be an opportunity in the back half of the year. I think, you know, the big ones, you know, that's different than the first half is price cost. We've had, you know, kind of a price cost headwind, you know, cost us a ton so far this year. I'd say on the distribution side, you see a little bit of impact there. On the install side, not as strong at this point. So, you know, hopefully, potentially, that's a conservative assumption that gets us, you know, maybe in a little better spot. But potential puts and takes there, but I think all in all, we feel really good about the mid of our guidance.
I think, you know, roofing is, you know, it's new. We gotta see what they do. Or the backlog of work they have. And the results we've seen so far. So feel pretty good about that as well as the potential upside potential in the back half of the year.
Ken Zener: And then, you know, we are today the public builders, you know, the res exposure, you guys are, you know, call it 30 give or take percent to the larger builders, top 10. Are you doing better with the publics, would you say, or with the private builders? And, given your guidance, do you think that the public builders are doing better than the private builders?
Robert Kuhns: Yeah, Ken. This is Rob. I'll start and Robert can add on here. But I'd say overall, what we're seeing year to date, you know, the private and regional builders have held up pretty well. Custom builders especially, I think, have done pretty well so far this year. So, you know, in a tough environment, pretty well is relative. Right? But, you know, they're hanging in there. I wouldn't say they're doing significantly worse than the big builders this year.
Robert Buck: And I think your custom builders doing well. I mean, obviously, you think about that client base for the majority of them. But then I'd say regional builders look. Regional builders have to sell what's coming out of the ground. So they've done well, but they gotta sell their inventory. And, you know, we see that in our discussions with them and our bidding with them as well. So I think that's where you see the pressure point there with the regionals.
Ken Zener: Thank you very much.
Operator: Our next question is from Rafe Jadrosich with Bank of America.
Rafe Jadrosich: Hi, good morning. It's Rafe. Thanks for taking my question. I wanted to just follow-up on some of the price cost commentary for the second half of the year. The $30 million headwind, it sounds like that's predominantly price on the installation side. Are you getting any relief? Are you able to push back on the manufacturers yet? And if we go into 2026 and say the market stays like, stable with where it is, remains soft, will there be more opportunity on the cost side of that price cost equation? Like, could that narrow going forward? If the backdrop stays consistent?
Robert Buck: Yes. Morning, Rafe. It's Robert. So look, there's an abundance of supply out there now, no doubt about it. So obviously, it's constant conversations with, you know, the supply partners to make sure we're calibrating. Obviously, they're important to us. We're important to them. So we're definitely having constant dialogue and conversations there. Mentioned spray foam earlier is a good example of that. So there's definitely a consistent dialogue happening with us. So with the supply partners right now across the business, quite honestly.
Rafe Jadrosich: Got it. And then in terms of the outlook for M&A on the commercial roofing side with Progressive, can you talk about your willingness of the level of leverage you would be comfortable with? Just given some of the weakness on the core business?
Robert Kuhns: Yes, Rafe. This is Rob. So as we've talked historically, we're very comfortable between one and two times net debt leverage. That's where we've spent most of our time, but we've gone above that and we'll go above that for the right deals. You know, with DI and USI, we went up kind of north of two and a half times. So I think between two and three times certainly very, very comfortable there. If we see, you know, a good opportunity from an M&A perspective, and, you know, as we have in the past, we've always delevered pretty quickly after that. And so we would anticipate doing that if we saw the right opportunity there to do that.
Rafe Jadrosich: Great. Thank you.
Operator: Our next question is from Reuben Garner with the Benchmark Company.
Reuben Garner: Thanks. Good morning. Congrats on the results. Just one question from me. In the past few years, not a ton of focus I don't think, from you guys on kind of growing your R&R business on the residential side, you know, didn't have the time, didn't have the resources, didn't have the materials. Can you talk about that market? Is this kind of down cycle in new housing an opportunity to focus more there? Or is that still not kind of top of mind for you guys?
Robert Buck: Yeah. Good morning, Reuben. This is Robert. So I'd say, you know, our Service Partners team gets after that on the R&R side. Relative to the smaller contractor that's doing that work, that's definitely a focus of our distribution business on the Service Partners side. So continues to be a good part of the business, continues to be a healthy part of the business there. They're definitely, you know, smaller projects going on, you know, in the residential side. And so definitely, our Service Partners team gets after that, and that continues to be a focus for our distribution side of the business.
Reuben Garner: Thanks, guys. Good luck.
Operator: There are no further questions at this time. I'd like to hand the floor back over to Robert for any closing comments.
Robert Buck: Okay. Thank you for joining us today, and we look forward to talking with you in early November where we'll be discussing our Q3 results. Thank you.
Operator: This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.