Welcome to the Installed Building Products Third Quarter 2026 Financial Results 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 Ryan Ricketts, Vice President of Investor Relations. Thank you, Ryan.

You may begin. Good morning. Good morning. and welcome to Installed Building Products Third Quarter 2026 Earnings Conference Call. Earlier today, we issued a press release on our financial results for the 2026 third quarter, which can be found in the investor relations section of our website. On today's call, management's preliminary remarks and answers to your questions may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are based on management's current beliefs and expectations and are subject to factors that could cause actual results to differ materially from those described today. These refer to our SEC filings for cautionary statements and risk factors. We undertake no duty or obligation to update any forward booking statement as a result of new information or future events, except as required by federal securities laws. In addition, management refers to certain non-GAAP and adjusted financial measures on this call. You can find a reconciliation of such non-GAAP measures to the nearest GAAP equivalent in the company's earnings release and investor presentation, both of which are available in the investor relations section of our website. This morning's conference call is hosted by Jeff Edwards, our chairman and chief executive officer, Michael Miller, our chief financial officer, and we are also joined by Jason Niswonger, our chief administrative and sustainability officer, and Brad Wheeler, our chief operating officer.

Jeff, I will now turn the call over to you. Thanks, Ryan, and good morning to everyone joining us today. As usual, I will start the call with some highlights and then turn the call over to Michael, who will discuss our financial results in more detail before we take your questions. Third quarter revenue reached a record $808 million, up 4%, driven by our commercial, multifamily, other segments, and recent acquisitions. That result came in a residential market where single-family demand remained soft and it is direct evidence that the diversification strategy we have built is working as designed. Our residential installation business continues to outperform broader housing market trends, demonstrating the strength of our operating teams, the benefits of our diversified platform, and the multiple avenues available to support growth across varying market conditions. Overall, we believe these results demonstrate the value IDP provides customers across the markets we serve and products we install. throughout the quarter, lower consumer confidence along with affordability concerns and a rise in mortgage rates have made new home sales more challenging. Even with industry-specific headwinds expected to continue to affect our new residential installation segment in the near term, our overall business remains resilient. All the credit goes to the hardworking men and women across our more than 250 branches throughout the United States and those who support them from our office in Columbus, Ohio. To everyone at IDP, Thank you for your hard work and dedication. Looking at our 2026 third quarter performance, consolidated sales increased 4% and same-grant sales were slightly positive. Our commercial end market continued to show strength, delivering double-digit installation sales growth for the sixth consecutive quarter, with heavy commercial sales growth exceeding 13% during the quarter. With respect to our new single-family end market, Activity remains challenged as a result of affordability concerns and lower consumer confidence, with some geographic markets feeling more upbeat than others. In our multifamily end market, sales grew 8% during the quarter, and our contract backlog continues to grow. Our other segment revenue grew 19% net of eliminations, partly due to acquisitions, and is up 33% year to date. We continue to effectively manage both material and labor to meet the needs of our customers remain flexible to adjust to the varying demand across regions. During the 2026 third quarter, we completed four acquisitions representing approximately $22 million in annual revenue. Our pipeline supports our expectation of at least $100 million of acquired annual revenue for the full year. Acquisitions during the quarter included an installer of shower doors, closet shelving, mirrors, and other accessories across residential markets Serving customers throughout Minnesota and surrounding states with annual sales of approximately $7 million An installer of door, bath, and fencing hardware primarily in new residential markets throughout South Carolina and Georgia with annual sales of approximately $7 million An installer of fireplaces primarily in new residential markets throughout Maryland, Virginia, West Virginia, and North Carolina with annual sales of approximately $4 million Finally, an installer of insulation, fireplaces, and gutters, primarily in new residential markets throughout Oklahoma with annual sales of approximately $4 million. I'm proud of our team's continued success and commitment to doing an excellent job for our customers. Once again, to everyone at IDP, thank you. I remain encouraged by the fundamentals of our industry, our competitive positioning, and am optimistic about the prospects ahead for IDP. Thank you, Jeff, and good morning, everyone. Consolidated net revenue for the third quarter was up 4% to a record $808 million, compared to $778 million for the same period last year.

Same brand sales for the installation segment increased 0.3% for the third quarter, and new single-family same-brand sales was offset by a 10% increase in commercial same-brand sales and an 8% increase in multi-family same-brand sales. Price mix increased 0.4% during the third quarter, or 2%, including heavy commercial. Volume during the 2026 third quarter decreased by 2%, primarily due to lower new single-family volume. Third quarter adjusted gross profit margin was 32%, Roughly 180 basis points of the year-over-year decline is attributed to specific input costs. Aluminum at 100 basis points, fuel at 40, and freight at 20, with a further 20 basis points from the faster growth of our other segment. Gross margins were also negatively impacted by a mixed shift to the complementary products, which have a lower gross margin profile than insulation. Importantly, insulation product margin was essentially flat year-over-year. illustrating that the core business is performing. For the first nine months of this year, adjusted gross margin was 32.4% and installation gross margin was 35.7% compared to 36.5% in the prior year. The decline in installation gross margin was attributable to the higher cost As a percent of third quarter sales, adjusted selling and administrative expense was 18.2%, consistent with the prior year. Adjusted EBITDA for the 2026 third quarter was $128 million, reflecting an adjusted EBITDA margin of 15.9%, and adjusted net income was $73 million, or $2.76 per diluted share. Although we do not provide comprehensive financial guidance based on recent acquisitions, we expect fourth quarter and full year 2026 amortization expense of approximately $10 million and $42 million, respectively. We would expect these estimates to change with any acquisitions we complete in future periods. Also, we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31st, 2026. Our third quarter net interest expense was $10 million compared to $7 million for the 2025 third quarter. We would expect fourth quarter net interest expense of approximately $15 million. At September 30th, 2026, we had $396 million in working capital, excluding cash and cash equivalents. Capital expenditures and total incurred finance leases for the three months ended September 30th, 2026 were approximately $16 million combined which was approximately 2% of revenue. We ended the third quarter with $416 million in cash on the balance sheet, and we will continue to prioritize acquisitions with long-term strategic benefits and attractive returns on invested capital. We expect positive free cash flow will continue to support shareholder returns and stock buybacks based on prevailing market conditions. At the quarter end, we completed a $250 million add-on to our existing term loan fee on identical terms, increasing the total to approximately $740 million, with all rating agencies reaffirming their ratings. We raised this capital proactively from a position of strength at 1.3 times leverage to ensure we can perform on our acquisition strategy. Proforma leverage remains comfortably below our two-times target, and we have no near-term maturities. At September 30th, 2026, The company had approximately $398 million available under its stock repurchase program, which expires March 1, 2027. IVP's Board of Directors approved the fourth quarter dividend of $0.39 per share, which is payable on December 31, 2026, to stockholders of record on December 15, 2026. The fourth quarter dividend represents a more than 5% increase over the prior year period. We are committed to continuing to grow the company while returning excess capital to shareholders for our dividend policy and opportunistic share of the purchases. With this overview, I will now turn the call back to Jeff for closing remarks.

Thanks, Michael. I'd like to conclude our prepared remarks by once again thanking IDP employees for their hard work and commitment to our company. Our success over the years is made possible because of you. Operator, let's open up the call for questions.

Thank you. We will now be conducting a question and answer session. We ask that you please limit yourself to one question and one follow up. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Phil NG with Jefferies. Please proceed with your question.

Hey, guys. You know, tough environment for sure, managing through that reasonably well. And particularly, I appreciate the color, Michael, in terms of the install margins holding up pretty well in this backdrop. But I guess, you know, as we kind of look out the 27 and beyond, you know, there's a view that single-family starts could be down. Can your install business take price? Can it at least offset inflation? Are you in a position where you could maintain that longer-term gross margin framework in that 32% to 34% range in a softer potential environment as we look out to 2027?

Yeah, Phil, thanks for the question. Obviously, a lot depends upon how the single-family market develops in 2027. Our current expectation is that both single-family and multifamily starts are down sort of mid-single digits. I think, you know, we know that when single family starts are down sort of mid-single digit, getting price realization is tough for sure. However, we've continued to do extremely well in terms of gaining market share and performing very well on the multifamily side, which I think, you know, this quarter's results, you know, reflects that in a very strong, positive way. So I think that in the multifamily side, we will be able to offset some of that weakness. We'll feel it. And as everybody knows, the comps are just very, very difficult. You know, coming in, I mean, a little bit weaker, obviously. This is the first quarter in, I don't know, six or seven quarters that multifamily inflected positively. And our backlogs are growing there. Not by much, but they're definitely growing there. So to answer your question, yes, I think that we can stay within that 32 to 34 full-year range, but we're clearly going to be at the low end of the range. We're not going to go at 34 and, you know, and certainly, as I think everyone on the call realizes, our fourth quarter gross margin last year was a record gross margin that we reported as a public company. and we clearly don't expect that to be the case in the fourth quarter of this year because some of the headwinds that we noted in our prepared remarks will continue. I mean, clearly fuel and freight are going to continue to be headwinds. On the aluminum side, you know, if there is one thing we're disappointed about in this quarter is that we didn't get on top of the gutter margins as quickly as we should have. We are very deliberately and actively working with our customers to get that margin back up. And we do not think it'll be the same kind of headwind that it was in the third quarter and the fourth quarter. We do not think we'll recover 100% of the margin, but it definitely won't be as much of a headwind. I would say on the positive side, the team Well, they didn't do a great job on the gutters. They did an amazing job on spray foam. And as we had talked about last quarter, you know, there was a very hard, significant 20% plus price increase in spray foam, and they maintained margin throughout the whole quarter. So we were very pleased with the result there.

Okay. Helpful, Michael. You know, I think a weaker single family backdrop is well appreciated. But with rates going higher, have you seen an air pocket in your commercial business, particularly light commercial? And then on the multifamily side, I mean, you said you're expecting multifamily starts to be down mid-single digits, but on the flip side, I mean, your business turned positive and contractor backlogs remain good. Is that a backdrop where, one, given your share gains in multifamily, you can grow a multifamily next year? And just any color in terms of what you're seeing on the commercial side of things?

Yeah, I mean, you're absolutely right. On the light commercial side, it's definitely getting tougher because of the rate environment. I would say on the heavy commercial side, we continue to literally knock the cover off the ball, quite frankly. At the end of the quarter, their backlogs were up mid-teens from what was already high record levels. So while the comps there that began, as everybody knows, are extremely difficult, particularly in the fourth quarter. But the team there has continued to perform very well. And we feel good about the progress that they're continuing to make on that side. On the multifamily side, the rate environment has definitely taken a little bit of the wind out of the sails for multifamily developers. I mean, what you're seeing is a lot of equity is trapped in existing multifamily projects that are actually doing better from a rent growth and occupancy perspective. But the developers can't get the equity out because cap rates have gone up and the value of the buildings have gone down. So that's definitely taking wind out of the multifamily sales right now. Well, we have a lot of confidence about our ability to outperform relative to the market. We just think it's a tough market, quite frankly. So, you know, they will continue to, you know, again, we have confidence around our ability to gain share and perform well. And when we look at the quarter on, you know, the multifamily revenue that we generated in the quarter, I mean, it was across pretty much all regions that we had a pretty solid, you know, multifamily number. I would, just bouncing back to the heavy commercial, just kind of remind people that the fourth quarter revenue for both total revenue and same branch revenue is 38.5% in the fourth quarter. That is the toughest comp we're going to face as a company since we've been reporting heavy commercial business separately. You know, level set relative to where we expect that business to do in the fourth quarter and through 27.

Can you still grow on that, Tupcom, in fourth quarter with heavy commercials given the backlog you're seeing year-over-year?

Yeah, I mean, obviously we don't provide guidance, but the portion of the business that we are most excited about clearly is the heavy commercial business and the opportunities that are there.

Okay.

Really helpful caller.

Appreciate it, guys.

Thank you.

Sure.

Our next question is from Michael Rehart with Mylas. Please proceed with your question.

Hey, thanks. It's Mike Rehart from Melius Research. Appreciate you taking my question. First, on the M&A update and the four companies acquired, during the third quarter, all in the complementary side. And I'm just wondering, in terms of what you're seeing out there from an M&A landscape, if it's also a little bit more oriented towards complementary, and if so, what might that mean for gross margins over the next two to three years if that shift continues?

Yeah, this is my last story, then Jeff can kind of follow it up. But I would say the pipeline is very robust. We feel great about the deals that are there. And it's a mixture of things, including regular way insulation installers. I would say that, you know, your average single market insulation installer has not delivered the kind of performance that we have delivered. And as a consequence, you know, they're not super excited about selling their business in, you know, for them what is a pretty tough environment. I mean, keep in mind, you know, one of the things that we think is most attractive about IVP is not only our broad geographic dispersion and our, you know, the geography that we have and our overweight towards the top half of the country, which continues to do better than the bottom half of the country, but it's the diversification of the business and the strength of the multi-family and the strength of the commercial. And, you know, a traditional installation installer that we're buying doesn't have that kind of diversification to offset, you know, what are pretty tough conditions in the single-family side. Now, that being said, we have deals that, you know, we expect to close in the near term that are regular way installation installers, but some that are, you know, other products. We feel, you know, really good about our ability to continue to execute and perform on the acquisition strategy.

This is Jeff. I agree with Michael in terms of just kind of the way the chips came in, per se, and the mix is normal. But the other thing that happens is when the market's a little tougher like this, some of our leads come from the field and come from the branch managers. And to the extent that they're trying to get into other products to bolster, you know, sales volume in their locations, there's, you know, sometimes a tendency to kind of surface more of the other products. It's an intentional move on our part.

It actually is. Thank you for joining us today.

I just want to try and make sure that I'm appreciating the dynamics there in terms of, A, I would assume you'd be able to only recover, let's say, a portion of that, maybe on the 50% type of range of that 100 bps, if that's, broadly speaking, the right way to think about that. And conversely, if there's any other incremental headwinds that you might see sequentially in Specifically, I'm thinking about fuel or freight, but if there's any others, just trying to think about the sequential progression here, aluminum maybe being less of a headwind, but if there are any other incremental headwinds relative to 3Q into 4Q, that would be helpful.

Yeah, I mean, I think, again, obviously we don't give guidance, but we're working very hard to offset that 100 basis points headwind We then got ourselves. I mean, you know, the one positive is that aluminum prices on average in the month of October were down about six and a half percent. And that's still up 15 percent from last year. But that will help us offset some of the headwinds that we experienced in the third quarter. I mean, is it going to be 50 basis points, 100 basis points? Again, we don't provide guidance, but the team's working very hard to make it be as little of an impact as possible. have to be honest about that. And we will continue to have, unless something changes very dramatically here, like tomorrow, we're going to continue to have the headwinds associated with fuel and freight. And then, I mean, it's a good thing, but it's a bad thing for gross margin is the continued strong growth of the other segment. The one thing that I will comment around the other segment is the overall growth rate there. will come down in the fourth quarter because something that is driving that growth rate as high as it is is the fact that in the fourth quarter of last year, we did two acquisitions that were in the other segment. So we would expect that other segment revenue growth is going to be more similar to what the other segment same branch sales growth was in the third quarter, which is mid single digits.

Great.

Thank you. Sure.

Our next question is from Sam Reed with Wells Fargo. Please proceed with your question.

Awesome. Thanks so much, guys. I wanted to touch on competitive dynamics in install more broadly. Obviously, there is a competitor that is under new ownership, and it's now, let's call it, four or so months into that ownership. So any senses to changes in competitive behavior and dynamics that we should be mindful of?

Yeah, this is Michael. I'll start that and then let Brad sort of follow up. But I, you know, our general sense, you know, obviously it's different market to market. And I think as everyone can appreciate that particularly the production builders, the public builders, you know, are definitely under considerable margin pressure themselves. And, you know, it's desensitized significant dialogue and conversation with all of their trades. And I would say during that process, we've been very disciplined. And I think our competitor, our largest competitor, has been very disciplined as well.

Yes, this is Brad. I would agree. I mean, our largest competitors, they've always been a good competitor, and they still are. Nothing's really changed. We haven't noticed anything in the field that's contrary to that.

Really helpful. Maybe switching gears here, I wanted to dig a little deeper on spray foam. You know, it sounds like based on some of the earlier answers that you guys really did a good job of recovering some of those cost increases, which is good. It's quite interesting because the messaging around that on the Q2 call was a lot more cautious. So just curious maybe how that changed throughout the quarter with respect to some of these spray foam price pass-through initiatives. and sort of areas where the team really excelled. Thanks.

Yeah, it was pretty much across the board. I mean, I think as we've indicated or certainly have talked to investors about, you know, the spray foam product is a semi-custom, custom foam product for the most part. And that customer set is the most willing to accept price increases. And, you know, I would say unlike with gutters and aluminum products, you know we had a lot of advanced knowledge about the price increase coming and it was very well telegraphed to the certainly our customers and to our employees so that people were ready for it and as a consequence particularly because with the custom home the bid to install time can be quite long just given the nature of the length of those projects so I think the team did a better job than we expected them to do, quite honestly, in forward pricing, price increases, the material price increases to maintain the margin. And quite frankly, it also helps that there is pretty good discipline within the spray foam contractor base to maintain margin. Brad, do you want to add to that? No.

You've covered it.

Really appreciate it, guys. Thanks so much. Sure.

As a reminder, we ask you to please limit yourself to one question and one follow-up. Our next question is from Stefan Kim with Evercore ISI. Please proceed with your question.

Hi, this is Steve. This is a for Steve. I just want to touch on the commercial side, specific heavy commercial. Can you give us an idea of which verticals specifically are supporting growth, which are a little bit more are all consistent in terms of that growth contribution versus ones that may be a little bit more lumpy or volatile?

Sure. I mean, the big drivers of growth in the backlog, which is then comparable for what the reported results are, but recreational and entertainment has been strong. Industrial and manufacturing has been very strong. Actually, retail has been solid for us. It's not a big portion of the overall revenue. But it has been growing significantly from a backlog perspective. And then lodging and hotel has been pretty solid. The areas of weakness, maybe not surprising, multifamily, a little bit of education, and a little bit of transportation. Part of the transportation weakness, though, is that those projects tend to be pretty high dollar value. So when some of them roll off, it takes a while to get to build back up the backlog in those. But I mean, as we look at it overall, as I mentioned, a mid-teens increase in their backlog is phenomenal. The only thing disappointing about it is that they're only like 10, 11% of revenue.

All right. That's super helpful. And then I just wanted Come back to the multifamily conversation, a lot of detail there and kind of the challenges that you're expecting. But I guess in terms of the kind of the outperformance versus the market, can you kind of touch on how the CQ team is kind of contributing to that? And, you know, any context there would be helpful.

Yeah, I mean, CQ is helping drive that. for sure, although the teams, the non-CQ teams, if you will, actually did a really nice job on the multifamily side in the quarter as well. What's really starting to happen is the success of CQ in the South Census region is starting to expand into the other regions, particularly the West and the Mid-Atlantic. And we're starting to see the fruits of that effort and that work and we believe we have tremendous potential, particularly in those two regions, to increase our market share. You know, we estimate that in the South Census region, where CQ is dominant, that we have over 50% market share in multifamily, which is phenomenal. But our market share in those other markets is considerably lower. So, or the other Census regions. So, there's a lot of runway there. You know, it's a runway in a market that is admittedly, you know, very challenged. You know, as I think pretty much everyone on this call would know is that in the third quarter, multifamily starts, you know, which had been growing, were down almost 10% in the third quarter. So that I think is indicative of, you know, the rate increases and You know, the headwinds that multifamily developers and owners are seeing. And there definitely appears to be a near-term pullback in multifamily development, which I think everybody understands the dynamics around rates and that.

Great. Thanks a lot.

Sure.

Our next question is from Susan McCleary with Goldman Sachs. Please proceed with your question.

Thank you. Good morning, everyone. Good morning. My first question is, in your prepared remarks, you mentioned that there were some markets that had outperformed other markets. Can you talk a bit about what you're seeing geographically, and did that have any implications in terms of this quarter's results or how we should think about the end of the year or even early 2017?

Yeah, I mean, I'll call out some states that, you know, states that we had a lot of headwinds in, you know, like, and I'm only talking about the big states for us, not some of the smaller states, but Colorado, Indiana, Texas, Virginia, Washington, you know, were a little challenged. We were very pleased that California and Florida stabilized in the quarter, which was nice to see, particularly Florida stabilizing. You know, North Carolina was pretty good for us. We had some incredible performances in some of our states, like Georgia, Minnesota, our hometown, Ohio, South Carolina, Wisconsin. Some of those states were actually up double digits, believe it or not. So, yeah, we felt like it was balanced. But when we look at state-by-state performance, two things that really stood out for us was the Performance in California and Florida, and that felt like they hit bottom, which is good.

Yeah, okay, that's encouraging to hear. And then switching to the volume versus price mix, it's been nice to see how price mix has been flat, excluding heavy commercial, even with the volume pressures that are coming in, right? Your volumes have been down, call it low to mid-single digits. Can you talk about The ability to sustain that going forward and how we should think about the different moves coming through as perhaps single family starts further moderate.

Yeah, thanks for that question, Sue. I do think that price mix is going to continue to get more challenged as we progress through the fourth quarter and going into 27 based upon our expectations You know, for the market. So, you know, one of the things that we mentioned, you know, last quarter and for several quarters, you know, one of the things that we do is we track when the public builders report their numbers and their home building revenue was down in the third quarter, like 7% or so, and our revenue with them was down about 7%. So we track pretty closely with them based upon their current guidance slash consensus for the fourth quarter. It would imply that our fourth quarter revenue with them is going to be down roughly 6%. So we think that's going to be tough both from a volume and a price mix perspective. I would say in the quarter that the private builders were basically flat in Q3. This has been a trend now for multiple quarters that the private builders continue to outperform with us anyway relative to the public builders. I think everybody appreciates this on the call that the toughest part of the single family market right now is the entry level, which the public builders have very, very high market share in. So it is going to continue to be a challenge. But fortunately, we do have the benefits and the diversification with the commercial business and our ability to continue to take share on the multifamily side. And, you know, we were talking about, and I get it, focusing on starts because that's a much more forward-looking metric versus the backward-looking metric. But I think we really need to highlight the company's performance relative to completions in the quarter. You know, with single-family completions down 12% and multifamily completions down 27%, our performance relative to that in the quarter Highlights the strengths of our team and of our business model. And while it's not a perfect correlation on a quarterly basis, it is a good indication of the performance that we had and what was and what continues to be a very tough environment.

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

Thanks. Our next question is from Adam Baumgarten with Vertical Research Partners. Please proceed with your question.

Hey, guys. Good morning. I noticed that you guys didn't buy back stock in the quarter and had, you know, recently raised some debt, as you guys mentioned at the top of the call. I guess, can you talk to your appetite for maybe some larger, chunkier acquisitions perhaps in, you know, tangential parts of the business like mechanical installation, install?

Yeah. Thanks for the question.

And a couple things there. You know, the primary weakness in the share price during the quarter was during a closed window. And, you know, we are restricted from buying shares during closed windows. So the lack of purchases in the quarter isn't really a reflection of us not wanting to buy shares because that still is definitely one of our capital priorities. But our number one capital priority has been and will continue to be You know, the acquisition strategy and buying creative acquisitions that continue to diversify the business. I mean, I think we've demonstrated over the past several years, and I think this quarter is even a highlight to that, that having a well-diversified business has improved and helps maintain a strong financial condition even in a weaker environment. You know, we did the $250 million add-on. You know, recognizing that we have some larger things that are in the pipeline. Now, because they're in the pipeline doesn't mean they're going to close. But, you know, that capital is extremely flexible. Our leverage is still well below our two times data net leverage. The rating agencies reconfirmed our ratings, including the investment grading, investment grade rating on our senior secure debt. You know, for us, it was very opportunistic. It makes a lot of sense. The nice thing about the way that deal is structured, if we decide that we want to pay it off, we can pay it off without penalty. And, you know, it provides us tremendous amount of flexibility. But I will say, you know, right now we have over a billion dollars in liquidity, given our cash position and the availability under our ABL facility. You know, we feel very good about where we are and we feel very disciplined about both the acquisition strategy and that being priority number one, certainly share repurchases and then the dividend.

Okay, got it. Thanks. That's helpful. And then just maybe switching gears to insulation prices. kind of what you're seeing out there. It seems like based on one of your large suppliers that maybe prices softened a bit in the third quarter sequentially. Maybe what your outlook is there and if maybe you can capture some kind of price cost spread as price mix is still kind of flattish to up a little bit.

Yeah, let me start that and I'll let Jeff sort of finish it up. But I mean, I would say really across now coming into the fourth quarter, We expect there to continue to be stability in fiberglass pricing and stability in spray foam pricing at this point. So we don't expect to see pricing moving one way or the other. And even if there is pricing, it's going to be very modest. So nothing that I think kind of moves the needle for us or for the industry. I don't know if you want to add anything to that.

It's my opinion also, yeah.

Okay, great. Very helpful. Thanks a lot, guys. Best of luck. Sure.

Our next question is from Trey Grooms with Steffens, Inc. Please proceed with your question.

Yeah, hey, guys. This is Ethan on for Trey. Thanks for taking the question. I wanted to start off with commercial sales. Organically, those were up double digits again this quarter. and as you mentioned against a more difficult prior year comp. And the growth here has obviously been pretty impressive, backlog up mid-teens. And so while the backlog doesn't suggest this to be the case, I'm just curious that with the uptick in rates inter-quarter, if you're seeing any signs of some moderation in appetite here based on what you're hearing from your customers. So any color on that would be great.

I'll start that, and Brad can add some color to that, but I would say no. And the fact that the backlog at the end of the quarter is up mid-teens suggests that there really hasn't been any fall-off. And keep in mind that backlog is up mid-teens against record upon record quarterly revenue.

This is Brad. So our backlog is confirmed backlog as well. So it's already most of it is funded. And then our pipeline is as robust as it has ever been on a commercial.

So we have plenty of opportunities.

Okay, great. Yeah, that's encouraging. And then, you know, building on the prior question on the fiberglass side of things, you know, we know that there's a lot of supply out there and these OEM increases appear to continue to be pushed. And, you know, it sounds like you guys were expecting mid-single-digit type declines in single-family and multifamily next year that Any increases would probably not be accepted by the market, but just curious your thoughts here and if maybe an increasing industry cost curve could potentially support some degree of pricing all else equal despite lower demand.

Yeah, we would expect that to be a pretty difficult thing to realize just given our expectation. I think everyone's expectation for a pretty muted environment next year. You know, one thing that could offset that a little bit, quite honestly, is, and I think OC talked a lot about this, or not talked a lot, but talked about this in their insulation segment, is the mechanical industrial side of the insulation business is pretty much on allocation. And, you know, they are getting price appreciation there. Well, typically, that's not going to impact the residential side. I think it could cause a little bit of pressure from a pricing perspective. But at this point, our belief is that we'll have stability in both fiberglass and spray foam pricing, certainly for the next couple of quarters, unless the on-the-ground macro condition for new residential construction changes. On the mechanical industrial side, it's definitely a hard market. There's a lot of activity there, as pretty much everyone on the call would know. We do have about $50 million of revenue in the mechanical industrial installation space, and that part of the business is doing well.

All right, got it. That's very helpful. Thank you.

Sure.

Our next question is from Andrew Carter with Stifel. Please proceed with your question.

Hey, thank you. Good morning. I want to focus back on something you said earlier about the competition from the homebuilders or just kind of what they're looking to their suppliers. First thing, as I understand it, negotiations for your business on the install side go down to the house level. Has there been any change in terms of the national homebuilders trying to take more of an approach in terms of kind of negotiating, whether it be RFPs or whatever, between you and QXO? And then the second thing I would ask is kind of to build on the pot with all the kind of labor challenges in the specialty kind of the mechanical trades that come right before you in the cycle. I'm guessing that makes your life harder to try to figure this out. Maybe the softer volume outlook you've kind of set out there maybe assuages some of that. But I guess that would make your life harder. Does that show up in the margin? Can you manage to that? And is there any recognition of that value? Thank you.

Yeah, that's a great question. Let me, I'll start that and let Brad provide some more color. But I would say that the bidding process and negotiating process really hasn't changed much. I mean, one of the large home builders very aggressively went out to all of their trades to kind of re-bid everything. You know, the results of that I think were, you know, pretty reasonable from our perspective. I would say there's not that much change. On the second part of your question, the scarcity of labor for the trades that come before us does extend cycle times. But given how soft the environment is right now, we're not seeing any significant cycle time extensions. But it does help us because we have the installed labor and there are employees and we become more important to the builder as somebody that can show up on time, get the job done right the first time, and pass inspection. Now, does that mean we can get a 10% price increase? No. But it means we don't have to take a 10% price decrease, right, because they know and value the fact that we have the consistency of the labor. Do you want to add to that?

Yeah, this is Brad. So on the RSA question, first, it's not just between us and QXO. Builders and customers go out to get all the independents as well. So I just want to be clear on that. Yeah, we've seen some, like Michael said, on some of the publics, but maybe it's one or two. But you mentioned it, the custom and smaller builder, it comes down to the price per house. And a lot of times that depends on the community that you're in, the county, and the requirements for that area. And on the second, on the labor side, You know, when you really break it down, that's what we do. We're a labor company and also logistics, and we just happen to install products along with it. So this isn't really too much of a different story than what we've had in the past. Now, labor's a little tighter, but this is what we do.

Second question. Just in terms of where fuel prices are today, well, I guess number one, what is the kind of fuel price kind of headwind here? in your 26 margin, just assuming this week's rates hold through the fourth quarter. And then if you took the current rates, what would be the annualized kind of impact versus 25 just using kind of the fuel rates? Thanks.

Yeah, it's 40 to 60 basis points easily. Perfect. Thanks. I'll pass it on.

And I should point out, and this is maybe too much of a nuance, but The impact of fuel is really primarily felt at the installation segment, which has been the way for decades and decades, is that the installation segment does not do fuel surcharges with our customers. We'd love to be able to do that, but we don't. And the industry doesn't, I should say. But in the other segments, distribution and manufacturing segment, They do do fuel surcharges, so there's less impact to the margin on the other segment, the distribution manufacturing business. But obviously the installation segment is, you know, really the driver of the business.

Thanks. Pass it on.

Sure.

Our next question is from Keith Hughes with Curious Securities. Please proceed with your question.

Thank you. I'm just going to go back to the multifamily comments. It's been tough to track that market. Some of the government data doesn't seem to be tracking what's better than it is on the field. Whatever this wheat patch is, when do you think it'll start showing up in terms of your install? And is there any comments for your customer of what their outlook is for next year on multifamily?

Yeah, I would say that the current rate environment has really muted expectations within the multifamily market. And I think that softness for the industry is definitely going to start showing up in the fourth quarter and in certainly the first half of 27, unless there's a meaningful change in kind of the rate outlook or rate environment. I mean, one thing that we try to make this point in answering an earlier question is But I think it is super relevant to understand or appreciate is that although the multifamily market is probably performing better than people expected from a rent profile and an occupancy profile, the equity for so many developers is trapped in the value of those buildings because of the higher cap rates. and those projects just don't sell because people don't want to sell them at a loss, right? So it definitely puts a damper, if you will, on expectations for future starts and growth, you know, in 27 for sure.

Thank you. Sure.

Our next question is from Jeffrey Stevenson with Loop Capital.

Please proceed with your question.

Hey, thanks for taking my questions today. I wanted to follow up on your comment, Michael, on the private builders outperforming in the third quarter. What have you been hearing from your regional and custom builder customers regarding 2027 expectations compared with their public counterpart? And do you think being under indexed to the large production builders will continue to be a mixed tailwind next year?

Yeah, I mean,

I would just say, just to clarify, we don't really think of ourselves as under-indexed. To the public builders, I mean, the reality is that they need our scale and volume, particularly in their high-volume subdivisions. It's just that they're weaker now, given the market segment, the entry-level segment that they're heavily indexed to. In terms of the expectations that we have from our, you know, private and regional builders, obviously, it's different market to market. but I think the move there is better than it is with the Publix because I think we continue to see better strength in the semi-custom custom and move up market, which the private builders, that's really built basically. And us being over indexed at the top half of the country, we've talked about this several times, definitely helps us for sure. I mean, the Midwest has been great for us. and the Northeast. Minnesota, which is our largest state by revenue, has just knocked the cover off the ball. I mean, they're just doing extremely well. And, you know, so we feel very good about that.

I appreciate that. And I was wondering if you could dive deeper into, you know, complementary products demand during the quarter. are you seeing any products outperforming and are you seeing stronger demand and better single family markets like Minnesota you just mentioned?

Yeah, I mean the complementary products had a better growth profile certainly than insulation did in the quarter. Bad news, good news is that gutter sales were up 16% in the quarter which normally would be great but In this quarter, it wasn't so great because of the margin pressure that they experienced due to the very significant increase in aluminum pricing. But as we said earlier, the team is working very deliberately to get the margin back up and to get price. And I would say that there is a strong commitment to forego volume to get price. The reality is that gutter install work is some of the easiest to lose and some of the easiest to get back of all the things we install. So we're definitely approaching the fourth quarter N27 with the mindset that margin is number one, volume is number two.

Great. Thank you.

Sure.

Our next question is from Mike Dahl with RBC Capital Markets. Please proceed with your question.

Hi, thanks for taking my questions. Just a couple follow-ups.

On the heavy commercial side, I know it's really difficult to parse this out, but the disclosures you do make suggest that, you know, and obviously has a significant positive impact on on overall price mix. That's just kind of the nature of it. But on a like for like basis, I was wondering if you could help us understand within the heavy commercial growth, how much you think is kind of more volume driven versus price mix.

Quite a bit of it is price mix.

And part of that is that we're doing larger, on average, larger jobs than we historically have done. Okay, got it.

And then just a follow-up to, I think, Phil's earlier question. I want to make sure I understand, because the numbers may end up being similar, 26 versus 27, but when you're talking about the mid-single-digit declines, and then I think you also said you expect to be at the lower end of your gross margin range in terms of full-year dynamic, was that a reference to Your 2027 initial expectations, or was that a comment on just looking at how you expect to wind up this year?

It was definitely an answer to the question about 27 gross margins. You know, I would say when it comes to, and again, we don't provide guidance, and that's on a full year basis, keeping in mind that the first quarter of every year is always our weakest margin quarter and our weakest sales quarter. In the fourth quarter of this year, again, we're going against the most difficult gross margin comp we have ever had. And given the gross margin, quite frankly, that we've had year to date, and in this most recent quarter, you know, we're definitely going to be challenged at the 32 to 34 for this year, given some of the dynamics around, and it's really around fuel, freight, and aluminum. You know, as we've talked, we're working hard to offset that aluminum piece. We will not fully offset it in the fourth quarter, but we will make improvement. And the fuel, it's just until fuel prices, particularly diesel, stabilize and come back down, it's going to be a headwind. Okay.

Yeah, that makes sense. Just wanted to make sure. Thank you. Sure.

Our next question is from Ruben Garner with StoneX. Please proceed with your question.

Thank you. Good morning, guys. Just one for me. I was wondering if you could talk about product availability on the commercial side, whether it's mechanical, industrial, heavy light, just across the board. Has that kind of slowed the pace of growth a little bit? I know you've been growing and taking share, but has it kind of limited The speed at which you can grow and kind of what's the outlook there from a pricing standpoint on the commercial side if that kind of remains or gets tighter as growth continues?

Yeah, I'll start that and let Brad answer it correctly. On the light commercial side, the products there are the same as they are on the residential side. So there is free availability, generally speaking, of material there. On the mechanical and industrial side and on the heavy commercial side, I would say that we are benefiting from the strength of our relationships with the manufacturers to support us. And that's helping us to get sufficient material to meet our needs and requirements. But, you know, there's definitely the manufacturers are getting Price in their products. And the team, given the strength of those markets, is working hard to pass that on. I would also say that in the heavy commercial business, as I think everybody knows, it's not as insulation intensive as it is fireproofing, fire stopping, waterproofing intensive. And that material is pretty readily available.

This is Brad. You pretty much nailed it. The only thing I would add on the commercial installations, some of the manufacturers have increases out there and there. They are getting price on those. And the availability of that product has gotten a little tougher over the last month or two, let's call it. But as we're working with our manufacturers to make sure we have a product that we can sufficiently supply that to our customers.

Great. Very helpful. Thanks, guys, and good luck. Thank you.

We have reached the end of the question and answer session. I would like to turn the floor back over to Jeff Edwards for closing comments.

I just want to thank you for your questions. I look forward to our next quarterly call. Thank you.

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