Installed Bldg Products (IBP) Q3 2026 Earnings Call Transcript

DATE

Nov. 5, 2026

CALL PARTICIPANTS

• Vice President of Investor Relations - Ryan Ricketts
• Chairman and Chief Executive Officer - Jeff Edwards
• Chief Financial Officer - Michael Miller
• Chief Administrative and Sustainability Officer - Jason Niswonger
• Chief Operating Officer - Brad Wheeler

TAKEAWAYS

• Revenue -- $808.4 million, representing a record quarterly performance driven by strength in the commercial and multifamily segments alongside recent acquisitions.
• Installation Segment Revenue -- $740.4 million, representing a 2.7% increase compared to the prior year period.
• Other Segment Revenue -- $68.0 million, growing 18.9% net of eliminations due to contributions from manufacturing and distribution operations.
• Consolidated Same-Branch Sales -- 0.6% growth, outperforming underlying residential construction trends despite softness in single-family demand.
• Installation Same-Branch Sales -- 0.3% increase, as growth in commercial and multifamily markets offset a 4.9% decline in the new single-family segment.
• Commercial Same-Branch Sales -- 10.3% growth, marking the sixth consecutive quarter of double-digit installation sales expansion in this end market.
• Multifamily Same-Branch Sales -- 7.5% growth, reflecting market share gains and a growing contract backlog.
• Heavy Commercial Sales -- exceeding 13% growth, supported by record backlog levels in industrial, manufacturing, and lodging sectors.
• Price/Mix Growth -- 2.0% including heavy commercial, or 0.4% excluding heavy commercial, reflecting the impact of larger-scale project contributions.
• Job Volume -- 1.7% decrease including heavy commercial, primarily due to lower residential construction activity.
• Adjusted Gross Profit Margin -- 31.9%, down from 34.0% in the prior year period due to significant cost inflation and segment mix shifts.
• Margin Headwinds -- 100 basis points from aluminum, 40 basis points from fuel, and 20 basis points from freight costs.
• Adjusted EBITDA -- $128.3 million, resulting in an adjusted EBITDA margin of 15.9%.
• Adjusted Net Income Per Diluted Share -- $2.76, compared to $3.18 in the same period last year.
• Acquisitions -- four companies completed during the quarter, contributing approximately $22 million in annual revenue.
• Annual Acquisition Target -- $100 million or more in annual revenue, with approximately $67 million acquired through the first nine months of the year.
• Cash and Cash Equivalents -- $415.9 million, providing liquidity to support the ongoing acquisition pipeline and shareholder returns.
• Net Interest Expense -- $10.4 million for the third quarter, with management expecting approximately $15 million in the fourth quarter.
• Debt and Leverage -- $250 million add-on to the Term Loan B facility, maintaining a pro forma net leverage ratio of 1.3x.
• Share Repurchase Program -- $398 million in remaining authorization as of Sept. 30, with the board intending to maintain opportunistic buybacks.
• Dividend -- $0.39 per share for the fourth quarter, representing an increase of more than 5% over the prior year.
• Spray Foam Pricing -- 20% or higher price increase successfully maintained through the quarter without losing product margin.
• Gutter Sales Growth -- 16.0% increase, though margins were pressured by aluminum prices that remained 15% higher than last year.

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RISKS

• Miller stated, "Clearly fuel and freight are going to continue to be headwinds," noting these costs impacted gross margins by approximately 60 basis points.
• Miller warned that "the rate environment has definitely taken a little bit of the wind out of the sails for multifamily developers," leading to a near-term pullback in development activity.
• Miller indicated that "when single family starts are down mid-single digit, getting price realization is tough, for sure," as management anticipates challenging market conditions in 2027.
• Miller noted management's disappointment regarding gutter margins, stating, "we didn't get on top of the gutter margins as quickly as we should have" following a significant rise in aluminum input costs.

SUMMARY

Installed Building Products, Inc. (NYSE:IBP) reported record revenue during the third quarter as management indicated that its diversification strategy successfully mitigated softness in the new single-family residential market. The company achieved growth in its heavy commercial and multifamily segments, which helped offset volume declines in residential installation. Management reported that the acquisition pipeline remains robust, with a continued focus on complementary products and strategic geographic expansion. To support this growth, the company proactively raised capital through a term loan add-on while maintaining a leverage ratio well below its stated targets. Despite inflationary pressures on aluminum, fuel, and freight, management stated that core insulation margins remained stable through disciplined pricing and labor management.

• Management reported that heavy commercial backlogs reached record levels, with a mid-teens increase at the end of the quarter despite difficult year-over-year comparisons.
• CEO Edwards stated, "What is 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."
• Management tracks public builder revenue closely and indicated that its revenue from these customers fell 7% during the quarter, matching broader market trends.
• Miller noted that private and regional builders outperformed public counterparts, stating the mood in that segment is better because they are less indexed to the challenged entry-level market.
• The company maintained margins in its spray foam business despite a price increase exceeding 20%, which management attributed to the customized nature of the product and advanced customer notification.
• Management indicated that although multifamily starts are expected to decline in the near term, the company intends to prioritize margin maintenance over volume in 2027.

INDUSTRY GLOSSARY

• Complementary products: Building materials installed by the company other than insulation, including gutters, mirrors, closet shelving, and garage doors.
• CQ: A specialized team or brand within the company that dominates the multifamily installation market in the South Census region.
• Heavy commercial: Large-scale, high-value construction projects such as industrial plants, manufacturing facilities, and hospitality buildings.
• Price/mix: A financial metric that measures the combined impact of changes in product pricing and the variety of products sold.
• Same-branch sales: A measure of organic growth comparing sales from branch locations owned for at least 12 months.
• Term Loan B: A form of institutional debt typically used for corporate financing, refinancings, or to fund acquisitions.

Full Conference Call Transcript

Operator: Welcome to the Installed Building Products Third Quarter 2026 Financial Results Conference Call. At this time, all participants are on 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.

Ryan Ricketts: 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 prepared 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. Please refer to our SEC filings for customary statements and risk factors.

We undertake no duty or obligation to update any forward-looking statements 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 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.

Jeff Edwards: 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 segment, and recent acquisitions. That result came in a residential market where single family demand remains soft, and it is direct evidence that the diversification strategy we have built is working as designed.

Our residential installation business continued 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 IBP 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 U.S. and those who support them from our office in Columbus, Ohio. To everyone at IBP, thank you for your hard work and dedication. Looking at our 2026 third quarter performance, consolidated sales increased 4%, and same-branch 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 am proud of our team's continued success and commitment to doing an excellent job for our customers. Once again, to everyone at IBP, thank you. I remain encouraged by the fundamentals of our industry, our competitive positioning, and I am optimistic about the prospects ahead for IBP in the broader installation complementary building product installation business. With this overview, I would like to turn the call over to Michael to provide more detail on our 2026 third quarter financial results.

Michael Miller: 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-branch sales for the installation segment increased 0.3% for the third quarter, as a 5% decline in new single family same-branch sales was offset by a 10% increase in commercial same-branch sales and an 8% increase in multifamily same-branch 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 attributable to specific input costs, aluminum at 100 basis points, fuel at 40 basis points, and freight at 20 basis points, with a further 20 basis points from the faster growth of our other segment. Gross margins were also negatively impacted by a mix 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 insulation gross margin was 35.7% compared to 36.5% in the prior year.

The decline in insulation gross margin was attributable to the higher cost of aluminum and fuel, which were a negative impact of 50 basis points and 40 basis points respectively. Adjusted selling and administrative expenses increased 4% compared to the 2025 third quarter. 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%-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 B 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 1.3x leverage to ensure we can perform on our acquisition strategy. Pro forma leverage remains comfortably below our 2x, and we have no near-term maturities. At September 30, 2026, the company had approximately $398 million available under its stock repurchase program, which expires March 1st, 2027. IBP's board of directors approved the fourth quarter dividend of $0.39 per share, which is payable on December 31st, 2026, to stockholders of record on December 15th, 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 through our dividend policy and opportunistic share repurchases. With this overview, I will now turn the call back to Jeff for closing remarks.

Jeff Edwards: Thanks, Michael. I would like to conclude our prepared remarks by once again thanking IBP 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.

Operator: 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.

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

Michael Miller: 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 mid-single digits in the year. I think we know that when single family starts are down 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 this quarter's results reflects that in a very strong, positive way. 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. 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. To answer your question, yes, I think that we can stay within that 32%-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 certainly, as I think everyone on the call realizes, our fourth quarter gross margin last year was a record gross margin that we recorded 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, 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 or 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, while 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, there was a very hard, significant 20%+ price increase in spray foam, and they maintained margin throughout the whole quarter.

We were very pleased with the result there.

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

Michael Miller: Yeah. So, 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. While the comps there, again, as everybody knows, are extremely difficult, particularly in the fourth quarter, but the team there has continued to perform very well. 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 the wind out of the multifamily sales right now. 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, they will continue to. Again, we have confidence around our ability to gain share and perform well.

I mean, when we look at the quarter on the multifamily revenue that we generated in the quarter, I mean, it was across pretty much all regions that we had a pretty solid 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 separately. Just as a level set relative to where we expect that business to do in the fourth quarter and through 2027.

Phil Ng: Can you still grow on that tough comp in fourth quarter with heavy commercial, just given the backlog you're seeing?

Michael Miller: 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.

Phil Ng: Okay. Really helpful color. Appreciate it, guys. Thank you.

Michael Miller: Sure.

Operator: Our next question is from Michael with Melius Research. Please proceed with your question.

Michael Rehaut: Hey, thanks. This is Michael Rehaut from Melius Research. I appreciate you taking my questions. First on the M&A update and the four companies acquired during the third quarter, all on the complementary side. I am just wondering, in terms of what you are seeing out there from an M&A landscape, if it is also a little bit more oriented towards complementary. If so, what might that mean for gross margins over the next two to three years if that shift continues?

Michael Miller: Yeah, this is Mike. I will start and then Jeff can kind of follow up. I would say the pipeline is very robust. We feel great about the deals that are there, and it is a mixture of things, including regular white insulation installers. I would say that your average single-market insulation installer has not delivered the kind of performance that we have delivered, and as a consequence, they are not super excited about selling their business in, for them, what is a pretty tough environment.

I mean, keep in mind, one of the things that we think is most attractive about IBP is not only our broad geographic dispersion and 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 is the diversification of the business and the strength of the multifamily and the strength of the commercial. A traditional insulation installer that we are buying does not have that kind of diversification to offset what are pretty tough conditions in the single-family side.

That being said, we have deals that we expect to close in the near term that are regular white insulation installers, but some that are other products. We feel really good about our ability to continue to execute and perform on the acquisition strategy.

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

Michael Miller: Yeah. It actually is the best time for us to really build out more of the complementary product strategy, which, as you all know, is something we've been working on for a long time.

Michael Rehaut: No, absolutely. Appreciate that. I guess just following up on the comments in the prior question around what you're hoping to do with recovering some of the aluminum headwinds that you saw in the gutters business in 3Q into 4Q. 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 basis points, if that's, broadly speaking, the right way to think about that. Conversely, if there's any other incremental headwinds that you might see sequentially.

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.

Michael Miller: 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 within gutter sales. I mean, the one positive is that aluminum prices on average in the month of October were down about 6.5%. That's still up 15% 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? Is it going to be 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, but there will still be some.

I mean, we just have to be honest about that. We will continue to have, unless something changes very dramatically here, like tomorrow, we are going to continue to have the headwinds associated with fuel and freight. I mean, it is a good thing, but it is 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 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.

Michael Rehaut: Great. Thank you.

Michael Miller: Sure.

Operator: Our next question is from Sam Reid with Wells Fargo. Please proceed with your question.

Sam Reid: 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 is now, let us call it, four or so months into that ownership. So, any sense as to changes in competitive behavior and dynamics that we should be mindful of?

Michael Miller: This is Michael. I will start that and then let Brad sort of follow up. Our general sense, and obviously it is different market to market, and I think as everyone can appreciate that particularly the production builders, the public builders, are definitely under considerable margin pressure themselves. It has necessitated significant dialogue and conversation with all of their trades. I would say during that process, we have been very disciplined, and I think our largest competitor has been very disciplined as well.

Brad Wheeler: This is Brad. I would agree. Our largest competitor, they have always been a good competitor, and they still are. Nothing has really changed. We have not noticed anything in the field that is contrary to that.

Sam Reid: Really helpful. Maybe switching gears here, I wanted to dig a little deeper on spray foam. 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 was good. It is quite interesting because the messaging around that on the Q2 call was a lot more cautious. 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.

Michael Miller: It was pretty much across the board. I mean, I think as we have indicated or certainly have talked to investors about, the spray foam product is a semi-custom, custom home product for the most part, and that customer set is the most willing to accept price increases. I would say unlike with gutters and aluminum, we had a lot of advanced knowledge about the price increase coming, and it was very well telegraphed to our customers and to our employees, so that people were ready for it. As a consequence, particularly because with a custom home, the bid to install time can be quite long, just given the nature of the length of those projects.

I think the team did a better job than we expected them to do, quite honestly, in forward pricing, the 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. I do not know, Brad, if you want to add to that, but

Brad Wheeler: No, you covered it.

Sam Reid: Really appreciate it, guys. Thanks so much.

Michael Miller: Sure.

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

Aatish Shah: Hi, this is Aatish for Stephen. 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 consistent in terms of that growth contribution versus ones that may be a little bit more lumpy or volatile?

Michael Miller: 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 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.

Aatish Shah: Great. That's super helpful. I just wanted to 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 any context there would be helpful.

Michael Miller: 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 is 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. We are 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. 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, or the other census regions. So there is a lot of runway there. It is a runway in a market that is admittedly very challenged. As I think pretty much everyone on this call would know, is that in the third quarter, multifamily starts, which had been growing, were down almost 10% in the third quarter. So, that I think is indicative of the rate increases and the headwinds that multifamily developers and owners are seeing. There definitely appears to be a near-term pullback in multifamily development, which I think everybody understands the dynamics around rates and that.

Aatish Shah: Great. Thanks a lot.

Michael Miller: Sure.

Operator: Our next question is from Susan Maklari with Goldman Sachs. Please proceed with your question.

Susan Maklari: Thank you. Good morning, everyone.

Michael Miller: Hey, Sue.

Susan Maklari: 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 2027?

Michael Miller: Yeah. I mean, I'll call out some states that we had a lot of headwinds in. I'm only talking about the big states for us, not some of the smaller states. But Colorado, Indiana, Texas, Virginia, Washington were a little challenged. We were very pleased that California and Florida stabilized in the quarter, which was nice to see, particularly Florida stabilizing. 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 it felt like they hit bottom, which is good.

Susan Maklari: Yeah. Okay. That's encouraging to hear. 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?

Michael Miller: 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 2027, based upon our expectations for the market. One of the things that we mentioned last quarter and for several quarters, 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, I believe 7% or so, and our revenue with them was down about 7%. So we track pretty closely with them.

Based upon their current guidance/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 we were talking about, and I get it, we're 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. With single family completions down 12% and multifamily completions down 27%, our performance relative to that in the quarter highlights the strength of our team and of our business model.

While it's not a perfect correlation on a quarterly basis, it is a good indication of the performance that we had in what was and what continues to be a very tough environment, so.

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

Michael Miller: Thanks.

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

Adam Baumgarten: Hey, guys. Good morning. Noticed that you guys didn't buy back stock in the quarter and had recently raised some debt, as you guys mentioned at the top of the call. Can you talk through your appetite for maybe some larger, chunkier acquisitions, perhaps in tangential parts of the business, like mechanical insulation, install?

Michael Miller: Yeah. Thanks for the question. A couple things there. The primary weakness in the share price during the quarter was during a closed window, and 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 the acquisition strategy and buying accretive acquisitions that continue to diversify the business.

I think we've demonstrated over the past several years, and I think this quarter is even a highlight to that having a well-diversified business has improved and helps maintain a strong financial condition even in a weaker environment. We did the $250 million add-on, 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 that capital is extremely flexible. Our leverage is still well below our 2x stated net leverage. The rating agencies reconfirmed our ratings, including the investment grade rating on our senior secured debt. 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 it provides us tremendous amount of flexibility. I will say, right now, we have over $1 billion of liquidity, given our cash position and the availability under our ABL facility. 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.

Adam Baumgarten: Okay, got it. Thanks. That's helpful. 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.

Michael Miller: Yeah, let me start that, and I'll let Jeff sort of finish it up. 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. We don't expect to see pricing moving one way or the other. Even if there is pricing, it's going to be very modest. 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.

Jeff Edwards: No. That would be my opinion also.

Michael Miller: Yeah.

Adam Baumgarten: Okay, great. Very helpful. Thanks a lot, guys. Best of luck.

Michael Miller: Sure.

Operator: Our next question is from Trey Grooms with Stephens Inc. Please proceed with your question.

Ethan: 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. The growth here has obviously been pretty impressive, backlog up mid-teens. While the backlog doesn't suggest this to be the case, I'm just curious that with the uptick in rates intra-quarter, if you're seeing any signs of some moderation in appetite here based on what you're hearing from your customers. Any color on that would be great.

Michael Miller: I will start that, and Brad can add some color to that. I would say no, and the fact that the backlog at the end of the quarter was up mid-teens suggests that there really has not been any falloff. Keep in mind that backlog is up mid-teens against record upon record quarterly revenue.

Brad Wheeler: Yeah, this is Brad. Our backlog is confirmed backlog as well, so most of it is funded. Our pipeline is as robust as it has ever been on the commercial side. We have plenty of opportunity ahead of us.

Speaker 11: Okay, great. Yeah, that is encouraging. Building on the prior question on the fiberglass side of things, we know that there is a lot of supply out there, and these OEM increases appear to continue to be pushed. 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. 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.

Michael Miller: 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. 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.

Brad Wheeler: Yeah.

Michael Miller: They are getting price appreciation there. Typically, that is 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 will 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. But on the mechanical industrial side, it is definitely a hard market. There is 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 insulation space, and that part of the business is doing well.

Speaker 11: All right, got it. That is very helpful. Thank you.

Michael Miller: Sure.

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

Andrew Carter: Hey, thank you. Good morning. I want to focus back on something you said earlier about the competition from the home builders, or just the kind of what they are 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 home builders trying to take more of an approach in terms of negotiating, whether it be RFPs or whatever, between you and QXO?

The second thing I would ask is, to build on the point, with all the kind of labor challenges in the specialty, the mechanical trades that come right before you in the cycle, I am guessing that makes your life harder to try to figure this out. Maybe the softer volume outlook you 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? Is there any recognition of that value? Thank you.

Michael Miller: Yeah, that's a great question. I'll start that and let Brad provide some more color. 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 rebid everything. The results of that, I think, were pretty reasonable from our perspective. So, 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.

It does help us because we have the install labor, and they're our 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?

Brad Wheeler: Yeah, this is Brad. On the RFP question, first, it's not just between us and QXO. When builders and customers go out to bid, it's all the independents as well, so just want to be clear on that. Yeah, we've seen some, like Michael said, on some of the publics, but mainly it's one or two. 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. On the second, on the labor, 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.

Andrew Carter: 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 in your 2026 margin, just assuming this week's rates hold through the fourth quarter? Then if you took the current rates, what would be the annualized kind of impact versus 2025, just using kind of the fuel rates? Thanks.

Michael Miller: Yeah, it's 40 basis points-60 basis points easily.

Andrew Carter: Perfect. Thanks. I'll pass it on.

Michael Miller: I should—

Andrew Carter: Yeah.

Michael Miller: —point out, and this is maybe too much of a nuance, but the impact of fuel is really primarily felt at the installation segment, because, which has been the way for decades and decades, is that the installation segment does not do fuel surcharges with our customers. We would love to be able to do that, but we do not. The industry does not, I should say. But in the other segments, distribution and the manufacturing segment, they do fuel surcharges, so there is less impact to the margin on the other segment, the distribution manufacturing business. But obviously, the installation segment is really the driver of the business.

Andrew Carter: Thanks. Pass it on.

Michael Miller: Sure.

Operator: Our next question is from Keith Hughes with Truist Securities. Please proceed with your question.

Keith Hughes: Thank you. I am just going back to the multifamily comments. It has been tough to track that market. Some of the government data does not seem to be tracking what is better than it is on the field. Whatever this weak patch is, when do you think it will start showing up in terms of your install? Is there any comments from your customer of what their outlook is for next year on multifamily?

Michael Miller: Yeah, I would say that the current rate environment has really muted expectations within the multifamily market. I think that softness for the industry is definitely going to start showing up in the fourth quarter and certainly the first half of 2027, unless there is a meaningful change in kind of the rate outlook or rate environment.

I mean, one thing that, we tried to make this point in answering an earlier question, 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. Those projects just do not sell because people do not want to sell them at a loss, right? It definitely puts a damper, if you will, on expectations for future starts and growth in 2027, for sure.

Keith Hughes: Okay. Thank you.

Michael Miller: Sure.

Operator: Our next question is from Jeffrey Stevenson with Loop Capital. Please proceed with your question.

Jeffrey Stevenson: Hi. Thanks for taking my questions today. I wanted to follow up on your comment, Mike, 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?

Michael Miller: 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 private and regional builders, obviously it's different market to market, but I think the mood there is better than it is with the publics, because I think we continue to see better strength in the semi-custom, custom, and move-up market, which the private builders, that's where they build basically.

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. 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 so we feel very good about that.

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

Michael Miller: 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. As we said earlier, the team is working very deliberately to get the margin back up and to get price. 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 and 2027 with the mindset that margin is number one, volume is number two.

Jeffrey Stevenson: Great. Thank you.

Michael Miller: Sure.

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

Mike Dahl: Hi. Thanks for taking my questions. Just a couple follow-ups. On the heavy commercial side, I know it is really difficult to parse this out, but the disclosures you do make suggest that, and obviously it has a significant positive impact on overall price mix. That is 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?

Michael Miller: Quite a bit of it is price mix. Part of that is that we are doing larger, on average, larger jobs than we historically have done.

Mike Dahl: Okay, got it. 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, 2026 versus 2027, but when you are talking about the mid-single-digit declines, and 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?

Michael Miller: It was definitely in answer to the question about 2027 gross margins. I would say when it comes to, and again, we do not provide guidance, and that is 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 are going against the most difficult gross margin comp we have ever had.

Given the gross margin performance, quite frankly, that we have had year to date and in this most recent quarter, we are definitely going to be challenged at the 32%-34% for this year, given some of the dynamics around, and it is really around fuel, freight, and aluminum. As we have talked, we are working hard to offset that aluminum piece. We will not fully offset it in the fourth quarter, but we will make improvement. The fuel, it is just until fuel prices, particularly diesel, stabilize and come back down, it is going to be a headwind.

Mike Dahl: Okay. Yeah, that makes sense. Just wanted to make sure. Thank you.

Michael Miller: Sure.

Operator: Our next question is from Reuben Garner with StoneX. Please proceed with your question.

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

Michael Miller: 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 there's definitely the manufacturers are getting price in those 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.

Brad Wheeler: Yeah, this is Brad. You pretty much nailed it. The only thing I would add, on the commercial insulation side, some of the manufacturers have increases out there, and 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've looked at it, we're working with our manufacturers to make sure we have the product so we can sufficiently supply that to our customers.

Reuben Garner: Great. Very helpful. Thanks, guys, and good luck.

Michael Miller: Thank you.

Operator: 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.

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

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

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