Greetings, and welcome to TopBuild Acquisition Overview conference call and webcast. 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 this conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Tabitha Zane, Vice President of Investor Relations. Thank you. You may proceed. Thank you, and good morning. On the call today are Robert Buck, President and Chief Executive Officer, and John Peterson, Chief Financial Officer. We have posted a presentation on our website at www.topbuild.com that will be discussed in conjunction with management's prepared remarks. These prepared remarks will be posted at the conclusion of today's call. Turning to our safe harbor statement on slide two, many of our remarks will include forward-looking statements, which are subject to known and unknown risks and uncertainties, including those set forth in this morning's press release, as well as in the company's filings with the SEC. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. Please note that some of the financial measures to be discussed on this call will be on a non-GAAP basis. The non-GAAP measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Please turn to slide three. I will now turn the call over to Robert Buck. Good morning, and thank you for joining us on such short notice. It's an exciting day for TopBuild and for all of our stakeholders. A few hours ago, we announced that TopBuild has entered into a definitive agreement to acquire Distribution International, or DI, as we'll refer to the company on today's call, from Advent International in an all-cash transaction valued at $1 billion. This significant acquisition provides us with a direct entry and leadership position into a new adjacency and growth platform, the highly attractive $5 billion mechanical insulation market. DI supports our profitable growth strategy and is complementary to our existing business. When this transaction closes, which we expect will be sometime in early fourth quarter of 2021, TopBuild will be the leading supplier of energy-saving insulation solutions in all three critical and expanding end markets: residential, commercial, and industrial. We anticipate $35 million-$40 million of run rate synergies and expect the deal to be accretive to GAAP EPS in the first full year after close. The transaction, which has been approved by our board of directors, is subject to customary closing conditions, including expiration or termination of the waiting period during the regulatory pre-merger review. As you can see on slide four, DI presents a compelling growth opportunity. In addition to being the specialty distribution leader in the $5 billion mechanical insulation market, a new adjacency for TopBuild, DI also enjoys a recurring revenue stream from its maintenance, repair, and operations, or MRO business, and distributes the specialty insulation and related accessory products to multiple industries that TopBuild doesn't serve today. Part of DI's core competency is its industry-leading fabrication capabilities, which I will discuss a little later. We're also excited about the strong M&A opportunities readily apparent in this highly fragmented industry. In fact, over the past six years, DI has successfully completed 11 acquisitions. Equally as important, the DI management team is experienced and talented, and they're excited about bringing their expertise to TopBuild. Having spent a considerable amount of time with Steve Margolius, DI's President and CEO, as well as other members of DI's leadership team over the past few weeks, it is clear that our corporate values and cultures are very similar, with a strong emphasis on people, safety, integrity, and a laser focus on execution. Moving to slide five, TopBuild has built a strong foundation for growth, which has prepared us for this next phase of expansion in our core insulation business and related product adjacencies. Since the spin-off in June 2015, driving operational excellence and great execution throughout our organization has been and remains one of our most important areas of focus. Labor and sales productivity have been significantly enhanced. We've optimized our supply chain and leveraged best practices throughout the company. Through a combination of organic growth and acquisitions, looking at the trailing 12 months ended June 30th, 2021, compared to the same period of 2015, revenue has almost doubled, adjusted EBITDA has increased 412%, and our adjusted EBITDA margin has expanded from 6.4% to 16.9%. As you can see on slide six, the acquisition of DI further enhances our growth opportunities within our core business, insulation, and adds a new platform for adjacent growth. Between TruTeam, Service Partners, and DI, we will be participating in three different insulation-related end markets with a combined market opportunity of over $15 billion and adding over 13,000 new customers. As this chart shows, we expect to continue to be active on the acquisition front in all areas of our business, residential, commercial, and when DI closes, industrial. All three end markets are highly fragmented and present great opportunities to put the strong free cash flow that our business generates to work. John will now provide an overview of the DI transaction. Thanks, Robert. Good morning. Beginning on slide seven, I want to briefly discuss both the economic and financial impact of the transaction. As Robert mentioned earlier, we have agreed to acquire DI in an all-cash transaction valued at $1 billion on a cash-free, debt-free basis. Using the purchase price of $1 billion, less approximately $30 million of tax attributes that come along with the acquisition, the transaction's LTM multiple on a pre-synergy basis is 12.9x and 8.6x post full run rate synergies. We'll talk about synergies in more detail in an upcoming slide. In addition, the acquisition is expected to be accretive to GAAP EPS and cash flow positive in the first full year after closing. We intend to fund this transaction with cash on hand and long-term debt. The current capital raising environment is very attractive, and we have multiple options available to us, including the issuance of unsecured bonds, secured bank debt, and drawings under our existing secured revolving credit facility. Once the transaction is completed, our net debt to pro forma adjusted EBITDA as of June 30th, 2021, implies a leverage ratio of approximately 2.5x within our previously stated comfort zone. We would expect to delever within our historical run rate of 1x-2x within 12 months. To give you a little bit more background on DI, as detailed on Slide eight, the company has a 35-year operating history and is headquartered in Houston. They are currently owned by Advent International, a private equity firm. Like TopBuild, DI has strong and long-standing relationships with major insulation manufacturers, and also like TopBuild, is national in scope with 101 locations, 84 in the US and 17 in Canada, giving us an entry into a new and growing market. Like TopBuild, the company has been acquisitive and brings with it strong business development team and a robust pipeline of acquisition candidates. You can see from the financial profile that DI did experience a decline in revenue in 2020, primarily due to the impact of the COVID-19 pandemic. Commercial and industrial construction slowed considerably during this period, in large part due to social distancing protocols enforced on job sites, which blunted product demand. In addition, the industrial end market saw some customers reassess and postpone planned projects, and in some cases, defer some MRO spending as a cautionary step. Since that time, DI has recovered nicely with both strong revenue growth and EBITDA margin expansion, which we expect to continue. Breaking down DI's revenue mix, 45% is generated from the distribution of core insulation products and an additional 15% from the distribution of custom insulation materials. Insulation-related accessories represent another 20% of sales and metal building insulation, the remaining 20%. Slide nine illustrates the diversity of DI's customer base, 45% of which is industrial and includes power and chemical plants, companies involved in the oil and gas industry, and companies involved in the construction and maintenance of vehicles in the marine industry, none of which TopBuild currently services. In addition to acquiring a new customer base, DI, through its MRO business, offers a new recurring revenue stream for TopBuild, driven by a mix of new and fabricated products with short replacement cycles. This accounts for about half the company's overall revenue. Robert will now talk more about DI's position in the insulation value chain and its fabrication business. Looking at slide 10, distribution is a critical part of the insulation value chain, and DI plays a significant role as a specialty distributor in the industrial and commercial end markets, offering a full solution of products and fabrication capabilities. Its customer profile consists of mechanical, commercial, and MBI contractors. Target customers also include designers or installers of systems for large industrial commercial projects and buildings, either for new construction or for the previously mentioned maintenance and repair operations business. In addition, energy code changes and emission reduction targets, as well as the expanding focus on ESG, are providing additional opportunities for growth. When we undertook our comprehensive due diligence of DI, we closely examined why DI is the leading specialty distributor in the industrial and commercial insulation end markets. What did it offer to significantly enhance its value and distinguish its position among its competitors? It soon became clear that DI is the most successful specialty distributor of mechanical insulation solutions because of its comprehensive footprint, extensive industry expertise, broad product offering, fabrication capabilities and services, professional knowledge, sales team, outstanding customer service, and industry-leading e-commerce options. Moving to slide 11, I'll pick up with a few more details of the types of products DI distributes. DI has relationships with all the leading manufacturers of insulation products. About 60% of sales are related to core and custom insulation products applicable to a wide variety of industries. These products range from fiberglass and mineral wool to ceramic fiber, aerogel, and foam glass, to name just a few. DI also custom fabricates a number of the products, which I'll discuss in a minute. The remaining 40% of sales is generated equally between metal building insulation and related insulation accessories. I just mentioned, DI provides mechanical insulation fabrication services to customers from 28 strategically located sites across the U.S. and Canada. These services primarily involve the cutting, kitting, packaging, and shipping of custom products. Unlike the commercial residential industries, custom fabrication is essential to the insulation value chain in the industrial and commercial end markets. Manufacturers rely on DI's fabrication and distribution capabilities to effectively distribute their products to end users, installers depend on DI's dependable, high-quality fabrication capabilities to complete their projects on time. DI has established an outstanding reputation in this area, the products it fabricates typically generate higher margins. The map on Slide 12 will give you a good visual of how our footprint will be enhanced, especially in the markets we've identified as high growth, where we have very little geographic overlap. There will be a big focus on leveraging TopBuild scale, operational improvements, and best practices across the supply chain in all back-office operations, which are part of the $35 million-$40 million of run rate cost savings we expect to achieve. As it stands today, at the close of this transaction, TopBuild will add over 100 branches, including 84 in the U.S. and 17 in Canada, a new geographic expansion for us. John will discuss the synergies we expect to achieve through this transaction, as outlined on Slide 13. Thanks, Robert. As outlined in today's press release, we expect to achieve synergies of between $35 million and $40 million within 24 months after the close of this transaction, which should occur sometime early in the fourth quarter of this year. Breaking this out further, by the end of the first full year, we expect run rate cost savings of between $17 million and $20 million. The synergies will be from a combination of supply chain savings and back-office and field efficiencies, as well as the leveraging of technologies and best practices across the entire organization. We anticipate updating both our annual guidance and long-term modeling assumptions with the addition of DI on our third quarter earnings call in early November. Before turning the call back over to Robert, I want to reiterate how strongly we believe this transaction provides significant value for our shareholders and is a great use of capital for TopBuild. We're acquiring a well-run company, complementary to TopBuild's business, entering a new insulation end market, industrial, which we believe represents an attractive platform for growth. As you've seen from our strong Service Partners' results, we understand specialty distribution and are effective at leveraging our core capabilities to deliver strong returns on invested capital. DI is expected to be accretive to GAAP EPS in the 12-month period after close, enhances our scale, allows for further efficiencies in our supply chain. Finally, financing the transaction, as currently planned, will take leverage to a very manageable level that we'd expect to delever from over time. We're very excited to execute this transaction and deliver strong returns to our shareholders. Robert? Thanks, John. Moving to Slide 14, those who know the TopBuild story recognize that M&A has been and remains our number one capital allocation priority. Since August 2016, we've completed 26 acquisitions, which are contributing over $820 million of annual revenue. We have developed a disciplined approach to our acquisition strategy and put together a dedicated team to source and integrate deals. We're very confident in stating that acquisitions, and specifically the integration of acquisitions onto our systems and platforms, is a core competency at TopBuild. We've also been very clear regarding the type of acquisitions we seek. We look for leading companies operating in our core business of insulation or related adjacencies. They must be strategic in their business approach and provide value, accretive growth opportunities. A solid customer base is important, as is an engaged, talented management team. Finally, especially in the case of larger acquisitions, a corporate culture complementary to ours is key. DI checks all of these boxes and will clearly be a great addition to TopBuild. Slide 15 illustrates an additional benefit of this transaction. It is another important step for TopBuild as a leader in supplying energy-saving insulation solutions. Insulation is critical for the reduction of a company's carbon footprint, and we will be expanding our energy efficiency solutions to a third and extremely important end market. We also believe energy codes will continue to strengthen, providing additional growth opportunities for all areas of TopBuild's business. Looking within our own organization, be assured that TopBuild is committed to expanding its initiatives, particularly in the ESG target areas of environmental, sustainability, and human capital. We are committed to operating in a manner which conserves our natural resources for future generations. We also recognize that our people are the foundation of our success, and we strive to foster a diverse and inclusive culture, one of collaboration, support, and innovation, where every voice is welcome, heard, and respected. As Slide 16 lays out, the compelling acquisition of DI provides an entry point into a high-value mechanical insulation market, a $5 billion expansion opportunity, expands our footprint, and increases our penetration and capabilities within key markets, including recurring revenue from the MRO business, adds industry-leading fabrication capabilities, positions TopBuild as a leading supplier of energy-saving insulation solutions in 3 critical and expanding end markets: residential, commercial, and industrial. is accretive to GAAP EPS and cash flow positive in the first full year after close, enhances our already robust M&A pipeline with new roll-up opportunities in the fragmented industrial insulation market, aligns with our strategy and our TopBuild culture, and brings a strong talent on board who will help us drive future growth and create value. While we have much to do from an integration standpoint, we're already in the planning stages so that when the deal closes, we can hit the ground running. I assure you, the leadership teams of both companies are committed to helping ensure a smooth transition, and we are confident we can achieve the synergies we published within the time frame outlined. We will leverage our track record of strong execution to make this combination a great success. In summary, with this strategic transaction, TopBuild will have a leadership position in three key insulation end markets with an expanded platform for growth. We see this acquisition as a winning combination that will drive value for our stakeholders, and our successful track record absolutely supports this confidence. Operator, we are now ready to take questions. Thank you. At this time, we will conduct a question-and-answer session. 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. Once again, that's star one at this time. One moment while we pose for our first question. Our first question comes from Philip Ng with Jefferies. Please proceed. Hey, guys. DI seems like a nice growth avenue going forward. You know, why does it make more sense to be owned by TopBuild? Does this open the door to kinda accelerate your ability to gain share in your install business? Can you bucket the synergies you've identified? I just want to better understand your ability to leverage procurement savings, potentially from your existing suppliers on mechanical insulation, if you do buy any from them. Hi, Phil. Good morning. It's Robert. I'll start with the first part, then John will take the synergy question. Look, we think about DI, I mean, the specialty distribution business, which is, you know, we love specialty distribution. You've seen what we've been able to do with our Service Partners business. This DI business really positions us as the leading supplier of these energy-saving and solutions and insulation solutions, really across the three key end markets. Residential and commercial, which we know we're the leading installer in that space, this mechanical insulation takes us into what we call and consider a very complementary, very good adjacency of that industrial market. You know, it's really going to allow us, one, to leverage our capabilities, our core competencies, those best practices. If you think about our supply chain, you think about a back office, you think about, you know, what we've done from an operational excellence perspective. We think we can apply that with DI. The DI management team is very talented, a lot of expertise in this space. You know, we're putting together the best of two companies here in a very complementary space. At the same time, no lack of opportunity to continue to grow in our other core areas of, you know, the TruTeam installation business, as well as our Service Partners, specialty distribution business as well. We're excited. We think this is a great fit. We think it's the right time. We've been cultivating this relationship for over a year with DI, and, it really is a good fit for TopBuild and for the DI combination. Phil, this is John. In terms of the synergies, obviously, we spent a lot of time during due diligence, teeing up and trying to understand the opportunities. We broke it down on the call into three buckets. One would be supply chain, next would be back office, and then some operational improvements. Generally, in terms of how we've had kind of bucket those, around 40% of that would be supply chain, roughly 35% back office, and about 25% operational improvement. The only other thing to add is again, as we said in our prepared remarks, about half of that run rate, we expect to be running full run rate at the end of the first year, and by the end of year two, the full $35 million-$40 million in our run rate. Got it. The value add of the business, you know, with the technical nature and fabrication component, margins are very solid at 10%. Is there more runway to go? Just because, I would expect maybe potential upside going forward, just given the value add component of it. Is it a lack of scale, and does that open the door going forward? Can you give us a little color on the cash flow generation and capital intensity of the business? Yeah. Phil, absolutely, there's upside. We talked a little bit about in the prepared marks, the fact that 2020 was a bit of a bump in the road for DI. When you think about our business, right, you know, commercial certainly slowed us down in 20 because of that social distancing impact we had. I think the DI business went through the same impact, but they also had on top of that, the impact of industrial customers delaying their projects at their plants, and even in some cases, MRO spending. The good news is, you know, as of, like, mid-1st quarter, that's kind of behind us. We have seen a nice trajectory of both top line and bottom line to the point where we have the LTM at 10%. Actually, the business is performing a little bit better than that, as we enter the third quarter. If you throw on top the synergies that we've teed up here, we would have this business at the end of 2 years in that mid-teens type of profile from an EBITDA standpoint. Yeah, very, very optimistic in terms of profitability on a go-forward basis. Then from an investment standpoint, we'll give you more data in the future, but if you think about it. CapEx is in that 1% type of range, similar to our Service Partners business, and working capital is probably in the mid-teens as a percent of LTM revenue. Again, that's an area we think over time, there's some opportunity also to improve. Minimal investment on a go-forward basis, same as TopBuild. Super. Appreciate the color. Thanks a lot, guys. Thank you. Our next question comes from Reuben Garner with The Benchmark Company. Please proceed. Thanks. Good morning. Congrats on the deal, guys. First question, I guess, is around top-line synergies. I don't think I heard that mentioned a lot, and I know this is a new market, but longer term, are there, or is there the possibility that you guys will be able to kind of leverage your relationships on, you know, the, in the commercial world, and expand, I guess, both avenues? Would there be cross-selling opportunities or anything like that to think of? Hey, good morning, Reuben, it's Robert. Yeah, I think as you think about that, it is, you know, 13,000 new customers. That industrial space is new, in that commercial space of mechanical, you know, that's a new area as well. You know, there's definitely some bundled solutions, some bundled products that probably having access to our supply chain will give the DI team a few more items to add or a few more things to add to the breadth of products that they offer. We think there is some there, but, you know, we just think it's a great growth platform into the new areas for TopBuild. Again, just think about what we would to do over the supply chain piece to back office side as well. I think it's really good, from that perspective. There'll be some cross-selling, but, we look at it as really new space, new area that's very complementary for us. Okay. The second question's a two-parter. Just to clarify, the pro forma last twelve months versus 2019, were there any acquisitions in there, or is that on a like-for-like basis in terms of revenue and EBITDA? I guess as a part of that, you know, revenue is still sort of below the peak with assuming some of that being late in 2020, still an impact from social distancing and et cetera. What exactly drove the margin improvement on that much lower of a revenue base? Sorry for the long-winded question, but thanks, guys, and congrats again. Thanks, Reuben. This is John. We provided in the press release, the pro forma sales as of 6/30 at $3.931 billion, and the pro forma EBITDA at $647 million. That includes in both businesses, you know, annualized impact of acquisitions made since July 2020. That probably answers your first question, I think. The second one, if it's tied to the improvement that DI has seen since 2020, I mean, really, that's a combination of a couple things. One is obviously additional volume as the business has recovered, as I said, especially the past five or six months. On top of that, they took full advantage of COVID-19 to make some, you know, significant structural changes. Some good restructuring activities, you know, some good improvement around, you know, managing the pricing tied to inflationary costs right now, 'cause that business also is seeing inflationary material impacts. I think, you know, the business did some nice changes back in 2020 that are paying off now as they enter 2021, and you're seeing that in the margin enhancement. Yeah. Thanks, John. I was talking about the last 12 months EBITDA margin is actually better than it was in 2019, despite the revenue still being below that. Yeah. You definitely answered the question. Thank you. You got it. Our next question comes from Keith Hughes with Truist. Please proceed. Thank you. You talked about in the slides, the market they participate, the mechanical market being $5 billion, as companies, $750 million in sales. Is that apples to apples when I think about their percentage market share? If we look at acquisition opportunities, can you sort of size what kind of opportunities are out there and the rough size of competitors in the industry? Yeah, Keith, this is John. In terms of that, included in their numbers are commercial. You know, we would place their market share in the industrial somewhere, probably close to the 10% range. Keep in mind, again, part of that $5 billion is industrial only. You know, in the commercial space we sell into, they also sell into, so part of the revenue tied to that. Yeah, if you think about the commercial space, Keith, you know, we play in that building insulation kind of Spec 7 side of the commercial side. They're more in this mechanical side of the commercial space, definitely a difference there. On the M&A side, yeah, there's, you know, we love this space because there's some larger companies out there, many private, it's very fragmented after that. I would say, you know, there's probably 5 to 10, well, I'd say, larger sized companies across the country in the space, very fragmented. We like that. We think it's a great opportunity for what we can do from an M&A acquisition perspective, we think DI is the start of that. By the way, DI has a great dedicated business development team. As we talk about our pipeline quite a bit, they have a very similar pipeline, but they've been working on that business as well. I think the other aspect, as we think about, you know, M&A, we also think about the core business of DI. You know, we talked about it in our remarks, we talked about it on the slide. This is a great business relative to this MRO, maintenance, repair, and operations business. As you think about, you know, half of their business is generated from that, and it's ongoing recurring because of, you know, changing codes, it can be because of wear and tear, it can be because, you know, people are shooting for hitting new emission standards, those types of things. That MRO business is great business, new area for TopBuild, but it's a driver of the DI business that they know very, very well, and they have great relationships in that space. All right, thank you. Our next question comes from Stephen Kim with Evercore ISI. Please proceed. Hi, this is Joe. I'm for Steve. On slide 10, the value chain, it's sort of unclear to me how active you'll be in the actual installation. Is that an opportunity, given that you already install other types of installation already? Does your current commercial labor force have the capability for that type of installation? Then within the MRO business, should we think of that as entirely recurring, or is there a portion of that that is sort of new within the MRO business? Thank you Joe, it's Robert. On the first part, no, I do not see us, if you think about that mechanical insulation space, going into that installation side of the business. It's a very different skill set. You know, we're absolutely leader in residential and commercial building insulation in that, in that space, but on the mechanical insulation, do not see us getting into that space from an installation perspective. Different, different competencies, different model from that standpoint. I think that answers the first question from that standpoint. If I think about, you know, relative to the second question, to MRO. You know, a lot of it is the maintenance repair side, but if you think about, you know, a company maybe doing an expansion of a, of a facility or something like that, you know, it's going to be some similar applications, some similar products, some similar specs, if you will, to those expansions. We would play in that space as well, from a maybe what you call maybe a repair, remodel, or expansion perspective of an existing site. Okay, great. Yeah. I actually have one more. Following on Reuben's question, you mentioned the bundling of the product offering. Could you quantify the overlap and sort of the project volume between mechanical insulation and your existing commercial insulation offerings? Maybe more specifically, like, what% of the commercial sales you already service have a mechanical demand component as well? We would say very, very little. Very little overlap in what we service in that, what I'll call kind of building insulation, envelope perspective of building insulation versus the space of mechanical insulation. Very little overlap. Could there be some foam or some foam board or some mineral wool or some of those types of products that would be over in a potential mechanical project? Could be, but it's very, very low overlap compared to what we do in that commercial space today. That's why we say great new growth platform, very complementary, great adjacency, but this is all about a very exciting growth platform for us in this space. If I could. It's Steve Kim. Could I follow up on that then just a bit? When you think about the synergies that you've laid out, I think you indicated that 60% was going to be coming from supply chain, no, sorry, 40% from supply chain leverage. I would assume that a lot of that is purchasing. Can you give us a sense for how you have arrived at the supply chain savings that you've laid out? How did you arrive at that number? Were you thinking about, like, how much that DI was already buying of materials that you actually are, you know, the 800 pound gorilla in purchasing? Maybe you just sort of, you know, assumed that they would get your costing, or was there something else that you used to arrive at the number for the supply chain portion? Yeah. Morning, Steve, this is Robert. Some of those items that we talked about in that other 40% of business around insulation accessories, around MBI, metal building insulation, there's some nice crossover there, and some of that's outside that industrial, you know, commercial mechanical insulation space. There's some nice crossover there in products. You know, from a supply chain- Mm-hmm. We think there's logistics opportunities as well as we think about that, if you think about freight and some other parts of the supply chain. That's some of the build up, some good insights that we had there as we're thinking about the synergies, and that's what drives our confidence from that perspective. Great. Thanks, guys. Once again, to ask a question, please press star one on your telephone keypad. Our next question comes from Ken Zener with KeyBanc Capital. Please proceed. Good morning, everybody. Morning, Ken. Morning. Gonna be interesting. The commercial market, which talked about $5 billion, you know, and before it had been kind of labeled $5 billion. How much of that $5 billion is incremental to the business you had before in your definition of, you know, the white space that you were, you know, going at? I assume it's just a little of it or a lot, or how would you kind of quantify that? Is this a whole new $5 billion to your white space that you had before? Yeah. Hi, Ken, this is Robert. It is the full $5 billion is incremental. As I was mentioning a while ago with a question, if you think about the space that we TopBuild or played in that commercial area before, it's more in that kind of what I'll call building insulation space- Right. -that, you know, envelope space, if you will, of a building. This, on the other hand, is mechanical insulation. If you think about- Got it. ... pipes, boiler systems, those types of things. It's a very different commercial space there, but very complementary to the core of insulation. But it's an incremental $5 billion to our current, you know, residential, commercial. That's why we sized the total opportunity for TopBuild at $15 billion. John, I think, obviously, one of the hallmark traits of TopBuild is that you've been growing profitably, which I think investors measure as your steady incremental EBIT, EBITDA in that, you know, 25% plus range. Can you talk about how these 101 sites, of which it looks like 28 are fabrication, can affect the total company incrementals? Can you be specific to what incrementals you think exist in this business? Are you guys gonna be reporting it as, you know, a separate segment? How do you think you guys are gonna be kind of relaying this to us next year? We'll start with the incrementals. I think, as you know, we typically talk about on long-term modeling, that 22%-27%. As we've said, Ken, and you're aware, that our distribution model is at the lower end of that scale, and our install model is at the upper end, you know, largely a lot of it because of the fixed overhead differences in both businesses. I think DI certainly fits the, call it the Service Partners site model. We'd expect it to be at the low end. We'll come back to you know, early November on our earnings call with any type of adjustment to our, you know, long-term modeling and obviously our guidance. I wouldn't anticipate a big change to what we've given historically. That was the first one. The second question was around segment reporting. Initially, we plan to roll this up in our distribution segment. You know, we'll see over time if that's still appropriate and makes sense. Yeah, initially, you'll see that in our distribution segment. If when we're modeling it sounds like you're saying it's gonna be similar to distribution, the margins, right, LTM are about 10%, and we should be assuming be slightly at the lower end of that 22%-27% incremental from a modeling perspective, if we were to do that at the segment level. More to come, [crosstalk] Ken, as we said, early November, but, you know, it's kind of a, you know, a look ahead there. It's gonna be on that lower, certainly the lower end of that range and maybe a little bit lower than the lower end, but we'll, again, nothing significant in the offer we provided and what we've typically had from Service Partners. As I said in the remarks, too, you know, when you throw in the synergies, you know, this will be, you know, in a couple of years, a business we expect to be in the mid-teens from an EBITDA standpoint, so. I guess, you know, was this a difficult space to go into? I mean, you guys, you know, in the past, people were worried about the white space or what market share was like, and, you know, there was some confusion around there, is what I would say. Now you've kind of introduced a whole new vertical. How did this come to you? How did you guys get comfortable with it? Is it just that you see it as a distribution business, you're already in commercial, and it's that simple, or? You don't seem to have the purchasing power that you would necessarily have in the [guess] story, that was your, you know, your history. How did you kind of get over that hurdle? Sure. Hi, Ken, it's Robert. You know, a few things. One, we've been studying this space for a while. I think we've talked about, for a while now, you know, we've had this process, a pretty detailed process, where we look at adjacencies, and we say, you know, we look closer to our core. Whenever we think about this, we think about it, this is core. It's a related adjacency from that perspective. We've been studying the space for a while. Number two is, you know, we've forged a relationship here from a DI perspective, what's been well over a year. As far as getting comfortable with the story, with the team, understanding the business, you know, even discussions with Advent, that's been something that's been forged over a while. This wasn't quick, so we definitely did our diligence, understanding the space. You know, I think about the supply chain, right? Same relationships with the same manufacturing partners. The same manufacturing partners play in this space as play in our current space, so same relationships. I think there is, you know, definitely opportunity there. I think, by the way, we've spoken to some of our suppliers, they like this. They see two best-in-class companies come together, and just as TopBuild's number one in our two spaces, DI is number one in their space. If you're a supplier, this is who you want to be partnering with for sure. Last piece, which I think answers your question, is M&A roll-up? Absolutely, opportunity here. Very, very fragmented. Some big players, but then very fragmented across the country, and we like what DI's done from a business development perspective and building a pipeline, visibility of that pipeline and stuff as well. There's a lot of things to like about this, including the complementary piece to our business and how compelling this is. Nothing quick and something that, you know, we got very comfortable with and did a lot of work on. I think [crosstalk] the only thing I'd add to that, I think, is that 55% of DI's business is commercial and MBI. You know, those are certainly things that we play in and do today. This is not a big step off the fairway at all for us in terms of the business and understanding it, including the customer base. Certainly, the mechanical side is new for us, but, you know, we're bringing along great expertise from DI as part of that business, so. Thanks, everybody. Thank you. Our next question comes from Ryan Gilbert with BTIG. Please proceed. Hi. Thanks. Good morning, guys. First question, you know, just looking at DI's, you know, margin improvement compared to Service Partners, I think over the past couple of years, we've seen, some, you know, really nice improvement in Service Partners margins, which I think has been driven by a combination of, you know, operational efficiencies on your part, as well as some, you know, market dynamics. Whereas DI's been kind of flat margins over, you know, comparing, you know, looking at the LTM compared to 2019. Obviously, there's some COVID impact there. I guess given that commercial has lagged, residential in terms of coming off the bottom from the spring of 2020, are you seeing some of the, you know, the market dynamics that have helped Service Partners margins developing in the commercial space? Is that incorporated in your synergies expectations for DI, or would that be incremental? Hey, good morning, Ryan. This is Robert. I think if you think about how you talked about COVID from a perspective, so you're right. You know, you had residential, commercial lagged residential, but then industrial lagged the commercial piece. There's been an extended lag from that perspective that was felt, and you saw some of that in the kind of historical look from a DI perspective. As John mentioned in earlier, you know, they did a great job of taking, you know, the opportunity that was in front of them, did some restructuring, did some changes in the business. Similar to what we did and some things in Service Partners. That's absolutely, you know, driving some and going to drive more improvement in the business there. We think if you take that and then the environment of inflationary environment, what they're doing from a pricing perspective, they've got good disciplines in place in there, something they continue to mature over their time. Going back to how we kind of followed the story and gotten to know the company. They've matured their pricing practices as well over that time. If you put on top of that, the synergy piece of it, what we can do from a, you know, best practices perspective, the operational efficiencies that we'll work together on to leverage some of our best practices in the operation side. Then, you know, we're comfortable in the supply chain, what we can do there, you know, both we talked about it earlier, but there's a lot of things from a logistics perspective as we think about that. Last but not least, is back office. I think we've shown before that, you know, whenever we think about continuous improvement and driving improvements in the business, that includes back office side of the business as well. We've got a high level of confidence as to what we can do on that piece of the business. Okay, got it. Appreciate that. Second question is just a follow-up on a, I guess, mechanical installation. I guess, why are you not considering adding an installation? Maybe this is a dumb question, but why not, go into mechanical installation install? I think on the residential side, on being, you know, I guess install has been a really important component of the value proposition. I'd say two or three things. Number one is that's the customer base we service from a DI perspective. That's our key customer base and the base that we're continuing to grow and that will continue to grow from a DI perspective. Number two is it is a different skill set. Doing mechanical installation is a very different skill set than doing residential, commercial building installation, so it's a very different skill set. Labor, it's not the same labor force across those types of businesses, not even the same model. If you think about a lot of things done off hours, holidays, those types of things, and you know, what can be high temperature, volatile type of environments and stuff also. Very different model. We're not looking to get into that installation space of the mechanical side, but, there's a great growth opportunity at being a specialty distributor there, and we're going to build on that competency. Okay, great. Thanks very much. Ladies and gentlemen, at this time, there are no further questions in queue. I would like to turn the call back over to management for closing comments. Thank you for your time this morning, and we look forward to talking with you on our next earnings release. Thank you. This does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a great day.