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Date
Tuesday, Nov. 4, 2025 at 9 a.m. ET
Call participants
Chief Executive Officer — Robert Buck
Chief Financial Officer — Robert Kuhns
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Risks
The installation services segment recorded a 10.4% volume decline in the third quarter of 2025 and a 0.5% pricing decrease, with management indicating persistent weakness especially in residential and light commercial markets.
Specialty distribution volumes declined 2.1% in the third quarter of 2025, and segment margin fell 150 basis points versus 2024, with management noting "pricing remained challenged in residential products" according to Robert Kuhns, and margin pressure was greater on the distribution side.
Management confirmed, "Now you do see pricing on installation. We did have negative pricing there," and specifically cited a $30 million insulation price-cost headwind for the full year 2025, with $12 million impacting the third quarter more heavily on the distribution side.
Total debt rose by $1.5 billion over the prior year as of the third quarter of 2025, primarily from refinancing and $750 million in new senior notes, increasing the net debt leverage ratio to 1.6x trailing twelve months' pro forma adjusted EBITDA.
Takeaways
Acquisitions -- Closed Progressive Roofing (roughly $440 million in annual sales as of the third quarter of 2025) and SPI (strategic expansion in mechanical insulation), plus four additional recent deals with combined annual revenue just over $50 million.
Total sales -- Growth driven by 7.9% M&A and 0.3% pricing, offset by a 6.7% volume decline.
Installation services segment -- Sales of $858.3 million for the third quarter of 2025, up 0.2%; M&A added 11% while volume fell 10.4% and pricing declined 0.5%.
Specialty distribution segment -- Sales of $608.9 million for the third quarter of 2025, marking six consecutive quarters of growth; 2.3% growth from M&A in the specialty distribution segment in the third quarter and 1.2% from pricing in specialty distribution, partly offset by a 2.1% volume decline.
Adjusted EBITDA -- Adjusted EBITDA was $275.6 million for the third quarter of 2025, with an adjusted EBITDA margin of 19.8%, down 100 basis points versus the third quarter of last year.
Installation services adjusted EBITDA margin -- 22.5% adjusted EBITDA margin for installation services, an improvement of 20 basis points versus the third quarter of last year.
Specialty distribution adjusted margin -- 9%, a decline of 150 basis points versus 2024.
Adjusted EPS -- Adjusted earnings per diluted share was $5.36 for the third quarter of 2025.
Adjusted SG&A -- 13.6% of sales in the third quarter, up from 12.8% last year, reflecting higher acquisition-related amortization; same-branch SG&A was 13.1%.
Other expenses -- $24.5 million, up from $16.1 million last year, mainly due to higher interest from increased borrowings.
Total liquidity -- $2.1 billion, composed of $1.1 billion in cash and $933.4 million under the revolver.
Net debt and leverage -- Net debt of $1.7 billion, net debt leverage ratio 1.6x trailing twelve months' pro forma adjusted EBITDA.
Free cash flow (TTM) -- $791.2 million, up 13.4% versus last year, mainly due to working capital in the trailing twelve months.
Share repurchases -- 178,000 shares in the third quarter of 2025 valued at $65.5 million; year-to-date total repurchases at $417.1 million or more than 1.3 million shares year to date; $770.9 million remains under authorization.
Full-year guidance -- Sales expected between $5.35 billion-$5.45 billion for the full year 2025.
Segment outlook -- On a same-branch basis, including price, residential sales are expected to decline in the low double digits for the year, commercial and industrial same-branch sales are expected to be flattish for the full year 2025, heavy commercial projects to remain strong, light commercial segment will remain challenged.
Summary
The quarter featured multiple acquisitions, including significant expansion in commercial roofing and mechanical insulation, solidifying TopBuild (BLD 0.87%)'s strategic pivot toward less cyclical revenue streams. Management reported that sales growth in the third quarter of 2025 was almost entirely attributable to M&A, as organic volumes continued to decline notably across segments, particularly in residential and light commercial markets. Margin resilience, especially within installation services, was attributed to early-year cost savings and operational improvements, offsetting some impacts from persistent pricing pressures. Shareholder returns remained a capital priority, with robust share repurchases and liquidity supporting ongoing acquisition strategy and balance sheet flexibility. The updated full-year outlook for the fiscal year ended Dec. 31, 2025, factors in recent acquisitions and maintains a cautious stance on residential markets while highlighting expected stability in commercial and industrial segments.
CFO Kuhns stated, "Assuming we owned SPI and the four most recent acquisitions for the last twelve months, our pro forma net debt leverage would have been 2.4x."
CEO Buck said, "we've expanded our total addressable market to approximately $90 billion in 2025," emphasizing strategic market positioning beyond legacy markets.
Management confirmed the existing $30 million insulation price-cost headwind remains incorporated in full-year 2025 guidance.
CEO Buck described the acquisition pipeline as "very attractive," forecasting continued M&A as the top capital allocation priority.
Industry glossary
M&A: Mergers and acquisitions; transactions in which companies consolidate or acquire other businesses to expand capabilities, geographic reach, or market share.
TTM: Trailing twelve months; a reporting period referring to the most recent year of financial performance.
TAM: Total addressable market; the total revenue opportunity available for a product or service within a specific market.
Full Conference Call Transcript
Robert Buck: Good morning. Thank you for joining us today for our third-quarter earnings call. With more than three quarters of the year behind us, we are proud of what our teams have accomplished thus far in 2025. Let me start by giving you an update on where we are with our acquisitions. In the third quarter, we acquired Progressive Roofing with roughly $440 million in annual sales. We have established an exciting new platform for growth in commercial roofing, which has a large and very fragmented $75 billion TAM. In the first one hundred days following the acquisition, we continue to learn great things about the business and are refining a strategy to build on the platform.
We have established great connection points across the Progressive Roofing organization and our teams are doing a great job coming together and executing for the future.
Robert Kuhns: In October, we closed the SPI transaction. With this strategic deal, we are bringing together two leaders in mechanical insulation and custom fabrication to better serve our commercial and industrial customers across diverse vertical markets. The transaction extended our geographic footprint and expanded our capabilities. Our teams are already hard at work as we leverage our M&A integration expertise to get SPI onto our technology platform and drive synergies. We expect to deliver $35 to $40 million in annual run-rate synergies over the next two years, and we are excited to have the SPI team on board. We also announced yesterday several additional acquisitions.
We closed Insulation Fabrics, Diamond Door Products, and Performance Insulation Fabricators over the last few weeks, and we will soon close on a fourth acquisition, L&L Insulation. Together, these acquisitions add just over $50 million in annual revenue. Diamond Door Products is a very attractive complement to our specialty distribution business. Diamond Door fabricates and assembles insulated steel doors, which gives us the opportunity to provide metal building insulation customers with a value-added bundle of products that they have requested. Insulation Fabrics and Performance Insulation Fabricators expand our distribution offerings of insulation accessories and mechanical insulation, while L&L Insulation grows our residential insulation installation in Colorado. Our M&A team is doing a great job.
We continue to have a very attractive pipeline of acquisition candidates, and there is no shortage of opportunities to consider. Let me transition to discuss our results for the quarter. Results were in line with expectations and similar to the prior quarter. Our performance was solid even as the macro environment remains uncertain. We posted total sales growth in the quarter of 1.4% to $1.4 billion. Although the residential new construction market continues to be weak, it was partially offset by ongoing growth in heavy commercial and industrial sectors. We are also benefiting from the contribution of our commercial roofing acquisition. Fundamentally, housing in the US is still underbuilt, and our long-term opportunity is intact.
In the near term, the downward movement of interest rates is encouraging. However, mixed economic signals and affordability concerns linger, impacting consumer confidence and home-buying decisions. Profitability in the third quarter was again solid. We reported an adjusted EBITDA margin of 19.8% as we continue to focus on operational excellence across the business and supply chain. Turning to capital allocation, our priorities have not changed. We continue to believe we can drive the greatest shareholder returns through M&A. We are always evaluating opportunities and will remain disciplined around valuation. In the third quarter, we repurchased nearly 178,000 shares, returning $65.5 million in capital to shareholders.
As you know, we plan to host an Investor Day in New York on December 9. So before I turn it over to Rob, let me give you a bit of a preview of the day so you have an idea of what to expect. TopBuild has a differentiated business model and a clear profitable growth strategy, which drives compounded returns. Our strong track record of value creation would not be possible without our great team of leaders, many of whom you will meet, including some folks from our recent acquisitions.
You have heard us talk a lot about being a people business; one of our core strengths is our culture and our ability to attract and retain great talent, both of which we'll cover in more detail. This year, we've expanded our total addressable market to approximately $90 billion. So we'll spend some time discussing our strategy for continued growth in the space, both organically and through M&A. We have the advantage of having a single technology platform that enables us to drive operational excellence and efficiency. As we look ahead, we'll share more on our digital roadmap to support continued operational excellence and solutions that improve the customer experience.
Finally, we will share our thoughts on TopBuild Corp.'s long-term financial outlook. We encourage you to join us in person. If you do not already have the details and would like to attend, please reach out to P.I. Aquino. With that, let me close by thanking our teams as we continue our focus on safety, driving profitable growth, and operational excellence. I also want to welcome our most recent acquisitions to our team. We look forward to working together and are delighted to have you join the TopBuild family. Rob?
Robert Kuhns: Thanks, Robert. Let me start by thanking our teams for continuing to drive solid results. Despite some challenging macro headwinds, our business continues to generate healthy margins and strong free cash flows, proving the strength and resiliency of our model. Turning to the third-quarter results, our performance was in line with our expectations. Total sales grew 1.4% to $1.4 billion, driven by M&A of 7.9% and pricing of 0.3%, which were partially offset by a 6.7% decline in volume. Sales in our installation services segment totaled $858.3 million, up 0.2%. As M&A added 11%, which was offset by a decline of 10.4% in volume and a 0.5% pricing decrease.
As a reminder, our installation services segment includes Progressive Roofing, and they drove the majority of the $95 million of M&A revenue for the segment in the quarter. During the third quarter, the demand for our legacy insulation installation services remained challenged in both residential and light commercial markets, but was in line with our expectations. Specialty distribution sales grew 1.4% to $608.9 million in the third quarter. Our sixth consecutive quarter of year-over-year sales growth in specialty distribution was driven by acquisitions of 2.3% and pricing of 1.2%, which were partially offset by a 2.1% volume decline.
During the third quarter, specialty distributions volumes and pricing remained challenged in residential products, but continued to be strong for commercial products, especially mechanical insulation. Adjusted gross profit in the third quarter was 30.1%, compared to 30.7% last year. Adjusted SG&A as a percentage of sales in the third quarter was 13.6% versus 12.8% last year. The increase in SG&A percentage was primarily driven by incremental amortization from acquisitions. On a same-branch basis, excluding acquisitions, SG&A was 13.1% in the third quarter. Third-quarter adjusted EBITDA for TopBuild totaled $275.6 million, and adjusted EBITDA margin was 19.8%, down 100 basis points versus the third quarter of last year.
Our margins continue to be very resilient primarily due to actions we took earlier this year in supply chain improvements. These cost savings are helping to offset price pressure on residential insulation products. Installation services adjusted EBITDA margin was 22.5%, an improvement of 20 basis points versus the third quarter of last year. Specialty distribution adjusted margin of point 9% was down 150 basis points versus 2024. Other expenses for the quarter were $24.5 million, compared to $16.1 million last year. The increase is due to higher interest expenses resulting from the increased borrowing on our credit facility that occurred in May. Third-quarter adjusted earnings per diluted share was $5.36 and compares to $5 and $16.08 cents last year.
Turning to the balance sheet and cash flows, we ended the third quarter with total liquidity of $2.1 billion, of which $1.1 billion was cash, and $933.4 million was available under our revolver. Total debt at the end of the quarter was $2.9 billion, $1.5 billion higher than last year due to the refinancing and expansion of our credit facility, and $750 million in senior notes issued in September. Third-quarter net debt was $1.7 billion, and our net debt leverage ratio was 1.6 times trailing twelve months' pro forma adjusted EBITDA. Our TTM free cash flow as of Q3 was $791.2 million, up 13.4% versus last year, primarily due to working capital.
Working capital as a percentage of sales totaled 14.2%, which compares to 14.1% last year. We have been talking about our active M&A pipeline, and we are very excited to announce some results on that front. As we closed the SPI transaction in October, and as you saw in our press release yesterday, we have signed and/or closed four additional deals across our M&A remains our top capital allocation priority. Assuming we owned SPI and the four most recent acquisitions for the last twelve months, our pro forma net debt leverage would have been 2.4 times.
In the third quarter, we also repurchased shares totaling $5.5 million, which brings our year-to-date total to $417.1 million or more than 1.3 million shares. $770.9 million remains under the current authorization. As you saw in our release, we are updating our guidance today to incorporate the impact of our recent acquisitions. In the release and presentation, we formatted our guidance table to make your modeling more straightforward. We expect full-year sales to be between $5.35 to $5.45 billion, with the following assumptions at the midpoint. On a same-branch basis, including price, we continue to expect residential sales will be down low double digits for the year driven by continued weakness in both single-family and multi-family.
Commercial and industrial same-branch sales are expected to be flattish. We expect heavy commercial projects to remain strong while light commercial will continue to be challenged. The full-year impact of M&A on sales is expected to be approximately $450 million. We are raising our adjusted EBITDA guidance for the year to be between $1.01 to $1.06 billion, which represents an adjusted EBITDA margin of 19.2% at the midpoint. Depreciation and amortization are expected to be in the range of $106.66 to $171 million, and interest expense and other will be between $88 to $91 million for the year. We continue to expect our tax rate to be approximately 26%.
In closing, I would like to welcome the employees from our recent acquisitions to the TopBuild family. These recent acquisitions have strengthened our legacy installation and distribution businesses. They have made our revenue streams less cyclical, and they have broadened our opportunities for growth. We are looking forward to sharing our excitement about the future at our Investor Day in New York next month. Let me now turn it back over to Robert.
Robert Buck: Thanks, Rob. The underlying fundamentals for our business are solid. We have a uniquely positioned, diversified business model across the residential, commercial, and industrial construction end market. Our leadership has great control over our business, as demonstrated by our ability to navigate successfully in a challenging environment. As always, we are focused on driving profitable growth and increased shareholder value. We look forward to seeing you at our Investor Day on Tuesday, December 9. With that, operator, let's open up the line for questions.
Operator: Thank you. We will now be conducting a question and answer session. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question is from Stephen Kim with Evercore ISI.
Stephen Kim: Hi. This is Atish on for Steve. Thanks for taking the question. I just want to touch on Progressive. Can you talk about the sales contribution for Progressive in the quarter and if you are still on track for the, I think, the incremental $215 million for the full year? If you could touch on that, it would be helpful.
Robert Kuhns: Yeah, Atish, this is Rob. So their total contribution in the quarter was about $92 million of sales. For the quarter, they're probably closer to about a $205 number now than the $215 we had previously. There's been a handful of projects pushed out, a big data center in Iowa, some school funding in Arizona that was a little bit slower than originally anticipated. I'd say despite that, we're still looking at, you know, the back half of the year up low single digits for them. So, nothing that we're concerned about at this point.
Stephen Kim: Great. Thanks for that. Appreciate that. You also announced these four acquisitions yesterday. And one of them was a manufacturer, and it seemed like an interesting move on your part. So I was curious. Frankly, also the fabric distributor. Can you just provide a little bit more color on those and why those were particularly intriguing for you? For example, the fabric distribution, why not just add the bags, netting, and suits to your existing facilities? I assume there's something they value-add they bring, and that would be helpful to understand. And then the doors, the insulated doors, is your intent to move deeper into manufacturing of specialty products like that? Those are the questions I had around those acquisitions.
Robert Buck: Hey, Stephen. Good morning. It's Robert. So let's start with Diamond Doors. Not a manufacturer, they just do assortment and some fabrication, assembling those doors. So I would definitely not call it manufacturing. It's really just a bundle that goes with the metal building and metal building products. Where our customers have been asking for it is doors would typically get delivered at the beginning of the project. You would have damage to doors when they were sitting on job sites. So given our relationships now, we're able to bundle it with the installation, so the doors and door systems both get in at the same time.
This synergy represents a great adjacency, enabling our sales force to drive some great cross-selling opportunities. Considering that, it's right down the fairway from that perspective. Insulation fabric, from that perspective, is some of the products we sold and the new products, but it's all really installation accessories. They have a great reputation in the industry, as well as some great customer relationships. So it was really a good add-on there given some of the talent relationships, and it just adds to the installation accessories. We would consider that right down the fairway from a distribution perspective.
Stephen Kim: Okay. So were you already selling those nettings and suits in your existing facilities?
Robert Buck: Some of those products like the suits and the netting because we were already in some of those products as well. Yes. Absolutely.
Stephen Kim: Gotcha. Alright. Thanks a lot, guys. Appreciate the color.
Operator: Absolutely. Our next question is from Michael Rehaut with JPMorgan.
Michael Rehaut: Great. Good morning. Thanks, everyone. First question, I wanted to zero in and apologize if I missed this in your prepared remarks. But a quarter ago, you baked in some price-cost headwind into the back half of the year based on the potential for maybe pricing on the margin to weaken. Insulation pricing, that is. Is this headwind still baked in? I believe it was a $30 million headwind. And more broadly, how has insulation pricing trended during the quarter?
Robert Kuhns: Yeah, Michael. This is Rob. So that is still baked into our guidance, about $30 million for the full year. We got impacted by roughly $12 million, I'd say, in the third quarter. More heavily on the distribution side of the business than on the installation side of the business. Now you do see pricing on installation. We did have negative pricing there. But we're kind of seeing the product mix play out between the two segments. When you look at the installation segment, where we are having price pressure is on residential products, fiberglass, and spray foam. It's a much larger percentage of our revenue on the installation side of the business.
Now, we're doing a good job of maintaining margins there and working closely with our supply chain partners. On the distribution side, I'd say those pressures in residential products are even stronger and having greater margin impact, but it's a much smaller percentage of the product mix on that side of the business because of all the commercial products. And then the other thing you have that's driving pricing, not actually positive on the distribution side, is the inclusion of gutters and mechanical insulation, which make up a larger percentage of the product mix on that side that have positive pricing going on this year.
And that's helping to drive that number up to the 1.2% you saw in the quarter.
Michael Rehaut: Great. That's very helpful, Rob. I appreciate all the detail there. Maybe secondly, you reiterated, I believe, your end-market assumption for the year for residential will be down low double digits. Commercial and industrial, flattish. If we kind of took the trend line where it is today, the level of activity, I'm more interested in residential, but if you have any comments on commercial and industrial as well. I'm trying to think about 2026, and recognizing that guidance is a little premature, but if we think about the fact that just mathematically, if residential did have softness that progressed throughout 2025, would this still point to some level of year-over-year decline in the 2026 year?
Just trying to understand the trajectory of 2025 and how it might impact at least one half of 2026.
Robert Kuhns: Yeah, Michael. This is Rob. So I'd say, you know, what we're seeing out there right now is single-family is weak throughout most of the country. There are some pockets of strength in the Midwest and Northeast, but for the most part, it's weak across the country. As we anticipated, it definitely got a little bit worse in Q3. Our projections would indicate Q4 is probably a little softer as well. So to answer your question, you roll that into next year. I think you're looking at probably flat to potentially slightly down into the first half of the year on single-family. The other side of the equation, multifamily, sales remain weak there.
The little bit of bright side we see is we are seeing some backlogs starting to improve in certain markets across this country. So there could be some potential upside on the multifamily next year.
Robert Buck: Yeah, Michael, I'll add on to that. Rob's absolutely right on single-family showing some sluggishness. We have to see how that bears out at the start of the year. But he's correct. Multifamily backlogs, bidding is building there. If you look across the regions, it's building pretty consistently. And I think this also shows if you look at the quarter here, our plan around commercial and industrial is intact, evidenced by the backlogs they're building. We see continued momentum, whether it be in mechanical or roofing and various other segments. This adds positivity to the outlook and prospects as we've adjusted the mix of the business as well.
Michael Rehaut: Great. Thank you. Our next question is from Susan Maklari with Goldman Sachs.
Susan Maklari: Thank you. Good morning, everyone. My first question is on the margin. It's really nice to see how well, especially in installation, the operating margin has held up. Can you talk about your efforts to support that and how we should be thinking about the path there for the fourth quarter and anything looking out from that?
Robert Kuhns: Susan, this is Rob. So yeah, the profitability on the install side of the equation has been a strong suit all year long, something we're really happy with. The biggest driver there, I'd say, is the cost savings actions we took in the first quarter of this year that we've talked about in the past. This includes consolidation of facilities, some headcount reductions across back office and support functions, as well as some direct labor to really align our cost structure with the current environment. Like I mentioned earlier, there is some pressure on price there, but we've done a really good job of maintaining the impact overall on our margins.
It's just a terrific story this year in terms of the margin resiliency of the installation segment.
Susan Maklari: Yeah. Okay. Thank you for that. And then turning to Progressive and given the weakness that we've seen on the new construction side in some of the end markets there. Can you talk about what you're seeing on the reroofing side of that business? Is there any change in the competition and your ability to come up against that and continue to see the level of growth that you expect?
Robert Buck: Yeah. Good morning, it's Robert. So I think we feel very confident and comfortable with what's going on with roofing as we look at their mix of reroofs and new construction. As we look at their backlog, what's being bid, what's being won even into Q4 and definitely very strong for 2026. Margins are doing a nice job there, given the mix of business as well. So highly confident. I'd say some people ask us questions about, hey, you've owned the business here for, call it, a hundred days or so. What have you learned or what have you seen?
That team and the backlog that they're building, especially across that Southwest into Texas where they have strong presence, has been bright spots. We think it will continue to be a bright spot for the future, so very confident in what's going on there and what we see in the fundamentals of the business.
Susan Maklari: Thank you both for the color. Good luck with the quarter.
Robert Buck: Thank you.
Operator: Our next question is from Kenneth Robinson Zener with Seaport Research.
Kenneth Robinson Zener: Good morning, everyone. Robert, great investor summary. Saved me a trip. I'm just kidding. Alright. So, Rob, the question about public builder inventories and inventory units. They're down 15% to 20%. I mean, you can pick a range in there, but call it mid-teens. To what extent that correction ties to demand, what they consider too many spec homes, accelerating cycle time, you know the routine, suggests they could have fewer inventory units. What gives you confidence that the kind of bogey of mid-teens, which we're seeing broadly, can translate to having benign results in the residential sector's first half? It kind of reminds me of the concerns around multifamily we had at the end of last year.
Could you expand on that a little bit given your insight and view inside the actual bids in the absence of consistent government data? I'd really appreciate that.
Robert Kuhns: Yeah. I'd say we're not giving specific guidance for 2026 at this point.
Kenneth Robinson Zener: Right.
Robert Kuhns: I mean, I think just given what we're what we're seeing, we're not anticipating the market to dramatically improve from here, right? But we will be comping pretty tough first and second quarters from last year. So that's really the thinking there around the comment to flattish to slightly down. But obviously, there's a long way to go. Most of what we'll be working on in the first and second quarters of next year hasn't even been started yet by the builders. So we obviously have to see what activity happens there, and that'll really ultimately end up driving our sales.
Kenneth Robinson Zener: And if I can ask you to expand on that then, given your substitution for the census data in many ways, you know we've seen builders really the margin pressure really coming out of, you know, places like Florida, select parts of Texas. But are you seeing them really slamming on the brakes in those areas? And could you kinda contrast that with...