WEBVTT - Brad Jacobs on His Big Bet on Building Insulation 0:00:02.720 --> 0:00:14.040 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.079 --> 0:00:20.880 Hello and welcome to another episode of the All Thoughts podcast. 0:00:21.000 --> 0:00:22.680 I'm Tracy Allaway and I'm Joe. 0:00:22.680 --> 0:00:24.400 Why isn't thal Joe we like. 0:00:24.440 --> 0:00:26.840 Talking about the old economy on this podcast? 0:00:26.920 --> 0:00:27.040 Right? 0:00:27.080 --> 0:00:29.920 I don't even think when people use that term old economy, 0:00:29.960 --> 0:00:31.040 I think it's kind of unfair. 0:00:31.520 --> 0:00:35.000 It's funny. I was literally about to respond and say that, maybe, 0:00:35.159 --> 0:00:39.000 like this whole old economy new economy distinction, it's a 0:00:39.000 --> 0:00:42.120 little unfair. The old economy is still still here. It's 0:00:42.159 --> 0:00:46.880 not you know, it's not generative AI, but it's arguably 0:00:47.040 --> 0:00:49.279 maybe it's even more important the things that we call 0:00:49.360 --> 0:00:52.400 the old economy. You know, you couldn't have the new 0:00:52.440 --> 0:00:54.960 economy without without cooling a heater. 0:00:55.920 --> 0:00:57.800 This is exactly what I was gonna say, because, like 0:00:57.880 --> 0:01:01.800 the old economy and the actual business of making things 0:01:01.840 --> 0:01:05.679 and moving things, heating and cooling is very much enmeshed 0:01:05.720 --> 0:01:08.160 with the new economy, which is all about generative AI. 0:01:08.480 --> 0:01:12.440 And in order to have generative AI, you need data centers, right, 0:01:12.480 --> 0:01:14.560 And if there's one thing we know about data centers, 0:01:14.600 --> 0:01:18.800 it's that they consume vast amounts of both building material 0:01:18.959 --> 0:01:20.640 and electricity. 0:01:20.160 --> 0:01:24.000 And yeah, heating and cooling. So yes, you're absolutely right, 0:01:24.200 --> 0:01:28.520 we will no longer use the slur old economy. We 0:01:28.560 --> 0:01:31.200 will find some other other word. But yes, we like 0:01:31.280 --> 0:01:35.399 talking about industries in which physical things get built and 0:01:35.440 --> 0:01:38.440 then sold at a higher profit at a higher price 0:01:38.480 --> 0:01:40.800 for which they were built from and how how these 0:01:40.880 --> 0:01:41.679 things actually work. 0:01:42.440 --> 0:01:44.760 Yes, indeed, so we are going to be talking about 0:01:44.800 --> 0:01:45.200 that today. 0:01:45.200 --> 0:01:48.520 We also like occasionally talking about deals, and it's not 0:01:48.600 --> 0:01:50.559 every day that we get to talk about a deal 0:01:50.640 --> 0:01:54.080 that has literally just been announced and is I think, 0:01:54.240 --> 0:01:56.680 you know, one of the biggest deals that we've actually 0:01:56.680 --> 0:01:57.400 seen recently. 0:01:57.640 --> 0:01:59.760 That's right, it's a deal to our let's do it. 0:02:00.520 --> 0:02:02.720 Okay, So we do, in fact have the perfect guest. 0:02:02.840 --> 0:02:05.480 We're going to be speaking with Brad Jacobs. He's been 0:02:05.560 --> 0:02:07.960 on the show before and he is, of course the 0:02:08.000 --> 0:02:12.200 CEO and founder of QXO, which has just announced a 0:02:12.320 --> 0:02:15.200 huge deal to buy a company called top Build in 0:02:15.240 --> 0:02:19.919 the insulation space. They're paying seventeen billion and at the 0:02:20.080 --> 0:02:23.520 end of this acquisition, they expect to be the second 0:02:23.680 --> 0:02:28.000 largest publicly traded building products distributor in North America. So 0:02:28.360 --> 0:02:33.840 truly a melding of mergers and again the old slash 0:02:33.960 --> 0:02:34.800 New economy. 0:02:34.880 --> 0:02:37.280 Brad, welcome back to Odd Thoughts. Thanks so much for 0:02:37.320 --> 0:02:37.640 coming on. 0:02:37.800 --> 0:02:39.239 Oh my pleasure. Great to be here. 0:02:39.840 --> 0:02:40.960 Congrats on the deal. 0:02:41.040 --> 0:02:42.920 The first question I have to ask is is it 0:02:42.960 --> 0:02:45.640 even accurate to call this an acquisition right now? Because 0:02:45.639 --> 0:02:48.560 if you're paying seventeen billion for Top build looking at 0:02:48.600 --> 0:02:52.600 qxo's market cap, you guys are at like seventeen billion 0:02:52.639 --> 0:02:55.120 as well, This looks like a merger. This is so big, 0:02:55.160 --> 0:02:56.640 This basically looks like a merger. 0:02:57.400 --> 0:03:00.399 Yeah, a merger. I'll go with merger. Mergers fine, put 0:03:00.440 --> 0:03:02.040 in together two great. 0:03:01.720 --> 0:03:04.440 Companies and forming an even greater one. 0:03:04.960 --> 0:03:07.200 You know, it's funny, I hadn't heard of Top Build 0:03:07.639 --> 0:03:10.480 up until you know this morning. We're sorry yesterday when 0:03:10.480 --> 0:03:11.840 the news came out, there you're going to buy it? 0:03:11.919 --> 0:03:15.400 You know what I was thinking about, Like, America is incredible, 0:03:15.480 --> 0:03:18.680 Like this company, so it uh stocked now with the 0:03:18.800 --> 0:03:21.040 premium that's baked in today trading at four hundred and 0:03:21.040 --> 0:03:24.079 eighty four, This was a forty three dollars stock as 0:03:24.120 --> 0:03:27.880 recently is twenty eighteen. America is incredible, like these companies 0:03:28.000 --> 0:03:30.400 that sort of fly under most people's radars, can just do. 0:03:30.639 --> 0:03:32.240 You don't have to be in the videos of the 0:03:32.240 --> 0:03:33.400 world to make a lot of money. 0:03:34.080 --> 0:03:36.400 Well, I agree with that. You have to have a 0:03:36.800 --> 0:03:39.360 service or a product that there's demand for. Yeah, and 0:03:39.400 --> 0:03:41.760 you've got to give a great customer experience. And if 0:03:41.760 --> 0:03:43.920 you have those two things, you'll make a lot of money. 0:03:44.200 --> 0:03:47.200 All right, So walk us through the rationale for doing this, 0:03:47.280 --> 0:03:50.680 because again, like a huge deal, and it seems to 0:03:50.680 --> 0:03:53.240 have caught a few people off guard. They were expecting 0:03:53.280 --> 0:03:56.640 you to maybe buy you know, some smaller companies keep 0:03:56.680 --> 0:04:00.280 the roll up strategy going, but again, this one is 0:04:00.480 --> 0:04:01.160 very large. 0:04:01.560 --> 0:04:02.040 Oh yeah. 0:04:02.560 --> 0:04:07.960 So the acquisition of Beacon, following the acquisition of Kodiak, 0:04:08.400 --> 0:04:10.720 which is followed now by the acquisor to top Build, 0:04:11.240 --> 0:04:15.480 takes us from eleven months ago where we had no 0:04:15.680 --> 0:04:20.640 building products revenue, let alone EBITDAH to the second largest 0:04:21.080 --> 0:04:25.040 publicly traded building products distribute in North America with more 0:04:25.040 --> 0:04:28.480 than eighteen billion dollars in combined company revenue and more 0:04:28.480 --> 0:04:31.520 than two billion dollars of combined to justiba DAH. It's 0:04:31.520 --> 0:04:33.080 a big deal. It's a big deal in the industry, 0:04:33.120 --> 0:04:35.360 it's a big deal in the market as a whole. 0:04:35.600 --> 0:04:39.599 It's very creative to our earnings, meaningfully creative to our earnings. 0:04:40.279 --> 0:04:43.840 And when you look at the multiples, that's reasonable multiples. 0:04:43.839 --> 0:04:48.280 We're paying fourteen point nine times twenty twenty five EBITDA 0:04:48.680 --> 0:04:53.160 pre synergies and about eleven point eight times EBITDAH post synergies, 0:04:53.160 --> 0:04:56.000 and there's tons of synergies we can get. We're targeting 0:04:56.279 --> 0:04:59.800 three hundred million dollars or so of synergies over the 0:04:59.839 --> 0:05:00.960 ne five years. 0:05:01.760 --> 0:05:04.840 Just to zoom out for a little bit. Regular listeners, 0:05:04.920 --> 0:05:07.159 of course, know who Brad is. We've had him on 0:05:07.160 --> 0:05:10.159 the show several times. But just in case you don't, 0:05:10.320 --> 0:05:13.840 he is a serial entrepreneur. If there's ever a company 0:05:14.120 --> 0:05:16.880 and their chicker has XO in the handle, it almost 0:05:16.920 --> 0:05:18.880 certainly was founded by Brad. 0:05:19.800 --> 0:05:22.120 One exception, which one mobile. 0:05:24.680 --> 0:05:25.760 You didn't found out way. 0:05:25.600 --> 0:05:28.360 You didn't know. I wish I had had I got away, 0:05:28.640 --> 0:05:29.080 got away. 0:05:29.600 --> 0:05:33.600 But it's always these again, I hate words like real 0:05:33.640 --> 0:05:36.520 economy and old economy, but we can see physical economy, 0:05:36.960 --> 0:05:40.880 and it's like warehouses and trucking and freight brokerage and 0:05:41.360 --> 0:05:46.279 construction equipment rental and garbage stuff, like anything real and physical. 0:05:46.880 --> 0:05:49.320 That's what Brad's into He's found in numerous companies. He 0:05:49.360 --> 0:05:51.560 also wrote a book came out in twenty twenty four, 0:05:51.600 --> 0:05:54.039 How to Make a few billion dollars. And the reason 0:05:54.120 --> 0:05:55.960 I still have this job today is because I haven't 0:05:56.000 --> 0:05:58.440 gotten around to reading the book yet. Had I gotten 0:05:58.480 --> 0:06:00.960 around to reading the book yet, probably be a billionaire 0:06:00.960 --> 0:06:03.040 by now and I would be doing something different. But 0:06:03.240 --> 0:06:06.159 I'll get around to doing that eventually. One thing that's 0:06:06.160 --> 0:06:08.800 interesting though to me just learning about Top Build today. 0:06:08.839 --> 0:06:11.360 In addition to seeing their stock, they had also been 0:06:11.400 --> 0:06:13.960 a serial acquirer and in fact, it said like in 0:06:14.080 --> 0:06:16.640 one of their recent presentations, this has been one of 0:06:16.680 --> 0:06:18.920 their main strategies. So why don't you like talk about, 0:06:19.000 --> 0:06:22.240 like who is this company, Top Build? What do they do? 0:06:22.640 --> 0:06:25.039 Tell us a little bit about the history and the 0:06:25.080 --> 0:06:26.679 footprint of this company that you're buying. 0:06:26.880 --> 0:06:31.520 Top Build is the largest installer and distributor of insulation. 0:06:32.279 --> 0:06:35.680 And as you were just saying that, everybody needs insulation, 0:06:36.800 --> 0:06:40.280 Every house needs insulation in the walls, every office building 0:06:40.320 --> 0:06:44.120 needs insulation everywhere. It's a needed product and it's not 0:06:44.200 --> 0:06:47.520 going anywhere. It's not going to be disrupted by AI 0:06:47.680 --> 0:06:49.680 or l lams. It's just not going to go away. Yeah, 0:06:49.920 --> 0:06:53.440 So when we complete the merger, will be number one 0:06:53.440 --> 0:06:59.560 in insulation, will be the second biggest in roofing, will 0:06:59.600 --> 0:07:03.360 be number one in waterproofing, and we'll hold number one 0:07:03.520 --> 0:07:07.080 or number two positions in certain geographies within lumber and 0:07:07.080 --> 0:07:10.320 building materials. So we'll have a huge addressable market several 0:07:10.400 --> 0:07:11.280 hundred billion dollars. 0:07:12.000 --> 0:07:15.080 So I take the point that everyone needs insulation. This 0:07:15.200 --> 0:07:18.240 is definitely true, but we allude it to this in 0:07:18.280 --> 0:07:22.440 the intro. Data centers in particular need insulation. How much 0:07:22.480 --> 0:07:25.400 of this deal is the expectation that you're going to 0:07:25.440 --> 0:07:27.720 be getting a lot of business from the data center 0:07:27.760 --> 0:07:28.600 build out as well. 0:07:28.760 --> 0:07:30.640 Oh, we will get a lot of business from data centers, 0:07:30.720 --> 0:07:33.640 but not just on the insallation. Data centers need roofs too. 0:07:34.680 --> 0:07:39.280 Data centers need waterproofing very much. So data centers often 0:07:39.320 --> 0:07:43.680 need lumber related products. So data centers are big consumers 0:07:43.680 --> 0:07:47.840 of building products. Now, Top Build itself has single digit 0:07:47.880 --> 0:07:51.760 percentage exposure to data centers, but it's very fast growing. 0:07:52.240 --> 0:07:54.400 Wait, sorry say that how much exposure? 0:07:54.520 --> 0:07:57.560 Single digit percentage of the revenue, got it? But in 0:07:57.640 --> 0:07:59.800 terms of growth it's growing very very fast. 0:08:00.000 --> 0:08:04.160 Okay, So when we think about the installation market in general. 0:08:04.600 --> 0:08:07.560 How much is it residential, how much is it commercial? 0:08:07.880 --> 0:08:10.400 And is there a lot of overlap where do companies 0:08:10.440 --> 0:08:11.800 tend to specialize in one or the other. 0:08:12.560 --> 0:08:15.760 It's fairly evenly split. They have a little more residential 0:08:15.880 --> 0:08:18.120 than commercial, but they have both. Okay, they have both, 0:08:18.160 --> 0:08:20.400 and we have that as well, by the way, in 0:08:20.440 --> 0:08:24.760 the two companies we bought before this, Beacon and Codiac, 0:08:25.200 --> 0:08:27.680 we have residential customers, we have commercial customers, we have 0:08:27.720 --> 0:08:31.760 industrial customers, these municipal customers. Everybody needs building products. If 0:08:31.760 --> 0:08:34.240 there's a building, it's made of building products. 0:08:34.600 --> 0:08:36.720 And just to be clear on the nature of the 0:08:36.760 --> 0:08:42.800 business they do installation within the insulation supply chain, where 0:08:42.840 --> 0:08:45.720 do they sit exactly? Do they manufacture it or is 0:08:45.720 --> 0:08:47.320 it just distribution and installation? 0:08:47.440 --> 0:08:50.400 Like what do they do? They don't manufacture, Okay, they 0:08:50.440 --> 0:08:54.600 buy it and then they either resell it at high 0:08:54.640 --> 0:08:57.439 price to a contractor or they actually install it. They 0:08:57.440 --> 0:09:00.480 sell it and install it and to various cuss cotomercial. 0:09:01.360 --> 0:09:04.040 Okay, well, now I have a dumb question, but is 0:09:04.040 --> 0:09:07.520 there a quality differential when it comes to insulation, Like 0:09:07.679 --> 0:09:10.800 is there a particular type of insulation that a data 0:09:10.800 --> 0:09:13.559 center would need versus your run of the mill house. 0:09:14.440 --> 0:09:17.280 There's not too many different types of insallation, but there 0:09:17.280 --> 0:09:20.880 are different types, and the big manufacturers are ones like 0:09:21.080 --> 0:09:25.600 Owen's Corning or john Mansville or canalf Is another big one, 0:09:25.640 --> 0:09:28.680 So you know, big companies and very high quality stuff. 0:09:28.800 --> 0:09:31.000 So insulation has been around for a long time, but 0:09:31.280 --> 0:09:33.720 technology makes it better and better every decade. 0:09:34.200 --> 0:09:35.719 Where's it made insallation? 0:09:36.000 --> 0:09:37.920 It's mostly made in the United States, is it? Yeah? 0:09:38.000 --> 0:09:39.800 This seems to me. I was surprised. I remember the 0:09:39.880 --> 0:09:41.920 last time we talked to you about like roofing, and 0:09:41.960 --> 0:09:44.240 you mentioned how much shingle is still made in the US. 0:09:44.480 --> 0:09:47.040 Talk to us about like why is that? Why is 0:09:47.080 --> 0:09:52.040 this a particular type of good that is still largely 0:09:52.360 --> 0:09:55.200 What are the economics of it such that it still 0:09:55.240 --> 0:09:56.800 makes sense to manufacture it in United State? 0:09:56.840 --> 0:10:00.680 It's more about regulations, okay, So the types of building products, 0:10:00.720 --> 0:10:04.200 the regulations, the codes are different country to countries. So 0:10:04.280 --> 0:10:07.920 insallation in Europe is not quite the same as installation here. 0:10:08.160 --> 0:10:11.360 Roofing products in Europe not quite the same as it 0:10:11.400 --> 0:10:14.600 is over here. So waterproofing same thing, so slightly different 0:10:14.679 --> 0:10:17.800 rags and that makes it better to manufacture closer to 0:10:17.840 --> 0:10:19.120 where it's being used. 0:10:21.240 --> 0:10:24.360 So how did Top Build actually get on your radar? 0:10:24.480 --> 0:10:27.760 Did you initially approach them? Did they approach you? 0:10:27.920 --> 0:10:30.079 We approached them? How did that actually we approach them first? 0:10:30.160 --> 0:10:31.040 Yeah? 0:10:31.120 --> 0:10:34.400 Okay, So now I'm very curious because I know you 0:10:34.400 --> 0:10:37.280 have a lot of experience in M and A, and 0:10:37.360 --> 0:10:39.200 you know, a lot of people would describe your business 0:10:39.280 --> 0:10:42.480 as basically a roll up for building materials. But I 0:10:42.520 --> 0:10:45.440 also know from reading your book, and by the way, Joe, 0:10:45.440 --> 0:10:47.120 I am not yet a billionaire, but I did read 0:10:47.160 --> 0:10:51.920 the book. You have a very a very specialized process 0:10:52.440 --> 0:10:56.600 when you target a company to acquire them, including having 0:10:56.800 --> 0:11:00.440 a former CIA intelligence officer, one of the guy who 0:11:00.640 --> 0:11:03.120 I think like worked with live. 0:11:03.840 --> 0:11:04.679 He was on your podcast. 0:11:04.800 --> 0:11:07.880 Yeah, yeah, yes, yes, so did he did? 0:11:07.880 --> 0:11:10.520 He interview all the CEOs and they all went through 0:11:10.520 --> 0:11:11.959 background checks and that sort of thing. 0:11:12.120 --> 0:11:15.520 So so we do background checks. But we spent two 0:11:15.600 --> 0:11:18.280 days in our lawyer's offices here in New York and 0:11:18.520 --> 0:11:21.520 about fifteen members of the senior management team of Top 0:11:21.520 --> 0:11:24.600 Build came up, including the CEO and CFO, And yeah, 0:11:24.679 --> 0:11:26.199 we interviewed each one for like an hour and a 0:11:26.240 --> 0:11:28.800 half and got to know him and it checked out. 0:11:28.840 --> 0:11:30.119 Everything they said was true. 0:11:30.320 --> 0:11:32.200 I love that interview to you guys for an hour 0:11:32.240 --> 0:11:34.760 and a half, it's like, here's seventeen billion dollars. Sounds good. 0:11:34.840 --> 0:11:36.840 Now there's a I'm sure it's a little more complicated 0:11:36.840 --> 0:11:39.560 than that. What else goes in in the due diligence process. 0:11:39.640 --> 0:11:41.839 Do you go around and talk to customers? 0:11:42.080 --> 0:11:43.840 Oh? Yeah, so talk to us about that. Well, we 0:11:43.880 --> 0:11:45.840 have a lot of the same customers, have a lot 0:11:45.880 --> 0:11:49.280 of the same vendorsk big, big overlap. So top Bill 0:11:49.320 --> 0:11:51.400 is a very well known company. It's the number one 0:11:51.559 --> 0:11:53.800 company in its field, so it's pretty easy to check 0:11:53.840 --> 0:11:56.480 them out. So we knew what we were getting before 0:11:56.559 --> 0:11:59.480 we did those interviews over two days. But still you 0:11:59.520 --> 0:12:01.400 want to talk to the people. You want to find 0:12:01.440 --> 0:12:04.199 out where are the skeletons, and what are the risks, 0:12:04.280 --> 0:12:07.120 and what are the good things, and where's the opportunities 0:12:07.160 --> 0:12:09.240 and where's the upside and what are some things you 0:12:09.280 --> 0:12:11.600 can bring to the table, particularly in terms of technology, 0:12:11.640 --> 0:12:14.000 that could turbo charge the growth of the company. So 0:12:14.280 --> 0:12:16.240 those in person meetings are very important. It's not the 0:12:16.240 --> 0:12:18.840 only part of due diligence. Do a lot of stuff online. 0:12:18.920 --> 0:12:21.040 You do a lot of stuff with third party channel checks, 0:12:21.360 --> 0:12:23.920 but those in person meetings with the management team are 0:12:24.160 --> 0:12:27.400 absolutely crucial. I would never buy a company, any company 0:12:27.600 --> 0:12:31.160 without doing management interviews. That's the most important part of 0:12:31.240 --> 0:12:31.880 due diligence. 0:12:33.120 --> 0:12:33.680 It's funny. 0:12:33.720 --> 0:12:36.000 I was hanging out with some people over the weekend 0:12:36.120 --> 0:12:38.080 and I was hearing about some deals that they were 0:12:38.160 --> 0:12:41.080 doing in the AI space, including a pretty large deal 0:12:41.120 --> 0:12:45.679 that apparently they completed in an afternoon. And you can 0:12:45.760 --> 0:12:49.720 imagine what the due diligence process is on a deal 0:12:49.840 --> 0:12:52.240 that's completed in a single afternoon. 0:12:52.400 --> 0:12:53.520 I don't know how to do that yet. 0:12:53.559 --> 0:12:58.480 That's over my capabilities, but it doesn't take a long time. 0:12:58.559 --> 0:13:02.200 We're surgical and not overly intrusive in the due diligence, 0:13:02.200 --> 0:13:04.160 but the afternoons a little tighter. 0:13:19.880 --> 0:13:22.920 So what made you comfortable with the premium? Because again, 0:13:23.080 --> 0:13:26.520 twenty three percent on the existing share price of Top Build, 0:13:26.640 --> 0:13:29.480 that's a pretty you know, that's a pretty nice amount 0:13:29.520 --> 0:13:29.880 of money. 0:13:30.720 --> 0:13:32.959 It's a fair price. It's not a terribly high price. 0:13:33.000 --> 0:13:36.240 It's not terribly low price. When you look at multiples 0:13:36.240 --> 0:13:40.400 of EBIDAH, it's fourteen point nine times twenty twenty five 0:13:41.000 --> 0:13:46.080 EBITDAH pre synergies and about eleven point eight times EBITDAH 0:13:46.600 --> 0:13:50.199 post synergies the expected synergies. So now it's reasonably priced. 0:13:50.240 --> 0:13:52.319 It's a lower multiple than we trade at, which is 0:13:52.400 --> 0:13:55.280 very important because that's where you get the accretion, the 0:13:55.280 --> 0:13:57.360 accretion to earnings per share. This is going to be 0:13:57.360 --> 0:14:00.240 a massively accreative transaction for us. 0:14:00.960 --> 0:14:04.599 Talk to us about setting aside, like setting aside this aquigition, 0:14:04.760 --> 0:14:07.559 which we'll come back to. How does business feel over 0:14:07.600 --> 0:14:10.760 the last year, you know, just general economic conditions in 0:14:10.800 --> 0:14:15.800 the building materials distribution world. What's been the last year? 0:14:15.920 --> 0:14:19.960 Like super soft? Super super soft? Now super soft? Because 0:14:20.000 --> 0:14:24.120 demand in general in building and construction is soft as weak, 0:14:24.160 --> 0:14:26.960 and we're not immune to that. But we've mostly been 0:14:27.000 --> 0:14:30.280 in roofing up until recently. Now, roofing is a special 0:14:30.320 --> 0:14:35.880 animal because it's extremely affected by weather, meaning bad weather. 0:14:36.200 --> 0:14:38.720 You want to have. Bad weather is good weather for roofing, 0:14:38.760 --> 0:14:40.920 so you want to have you want to have this 0:14:41.280 --> 0:14:45.120 sleet and a lot of hailstorms and hurricanes and tornadoes. 0:14:45.320 --> 0:14:47.480 And I gotta tell you there's a lot of cognitive 0:14:47.480 --> 0:14:50.720 dissonance about that because all my life. I've watched television. 0:14:50.760 --> 0:14:53.680 You see a hurricane, like normal people, unless you're a sociopath, 0:14:54.120 --> 0:14:56.680 you feel bad. You feel, wow, it's too bad that 0:14:56.960 --> 0:14:57.840 these people are getting there. 0:14:58.000 --> 0:14:59.880 Wait, have you become a sociopath for you? 0:15:00.040 --> 0:15:01.840 No, no, no, no, definitely not becoming a. 0:15:01.720 --> 0:15:04.760 Social no, hell no, hell no. 0:15:04.800 --> 0:15:08.000 But my point is this, if a normal person watches 0:15:08.040 --> 0:15:11.520 television and sees a people's houses getting the roofs being 0:15:11.560 --> 0:15:14.960 blown off, usually you feel bad about that, You feel compassionate, 0:15:14.960 --> 0:15:16.760 you feel, oh, wow, it's too bad for them. Yeah, 0:15:17.040 --> 0:15:19.040 so there's a dissonance here because that's really good for 0:15:19.080 --> 0:15:22.560 the roofing business. One half of your brain is still 0:15:22.600 --> 0:15:25.320 a human and compassion and feeling bad for this on 0:15:25.320 --> 0:15:28.080 the other side of your Yeah, great, I gotta storm, 0:15:28.080 --> 0:15:30.920 gonna hail storm is not fantastic. These people's roofs are 0:15:30.920 --> 0:15:33.120 all go flying off, We're gonna get more business. So 0:15:33.280 --> 0:15:35.720 that the good or bad news, depending on your perspective, 0:15:35.760 --> 0:15:39.440 is in twenty twenty five, there really weren't any big storms. 0:15:39.440 --> 0:15:43.360 There weren't any name storm, big hurricanes, tornadoes, so that 0:15:43.480 --> 0:15:45.680 was bad. And compounding on that in the first quarter 0:15:45.760 --> 0:15:48.880 here you had the bad kind of bad weather which 0:15:48.920 --> 0:15:53.600 is snow and other bad weather that just slowed everything down, 0:15:53.680 --> 0:15:57.760 just stop business, but didn't create any demand from roof 0:15:57.840 --> 0:16:01.920 damage exactly. So the external conditions haven't been great. Now 0:16:01.960 --> 0:16:04.280 that said, I don't care because I'm not building a 0:16:04.320 --> 0:16:07.120 business for one year or two years or three years 0:16:07.520 --> 0:16:12.760 like I did in my previous companies. I'm building a strong, durable, 0:16:13.200 --> 0:16:15.680 iconic company that's going to be around for decades. And 0:16:15.720 --> 0:16:18.600 that's what I think. We're always thinking about long term. 0:16:18.640 --> 0:16:20.920 We're thinking five ten years. We're not thinking about a 0:16:21.000 --> 0:16:23.240 quarter or the year. If we have a choice on 0:16:23.320 --> 0:16:27.880 a decision for capital allocation or m and A or investments. 0:16:28.520 --> 0:16:30.960 We barely think about how's it going to affect this 0:16:31.040 --> 0:16:33.280 quarter this year. It's really how's it going to affect 0:16:33.280 --> 0:16:34.920 the long term? 0:16:35.240 --> 0:16:37.960 Were you impacted by the tariffs at all? Did that 0:16:38.080 --> 0:16:39.560 complicate the existing business? 0:16:39.840 --> 0:16:43.440 Not too much, because in roofing, which is what we've 0:16:43.440 --> 0:16:47.560 been up until Kodiak and our top Build, almost all 0:16:47.600 --> 0:16:49.840 of it is manufacturing in the United States, sold in 0:16:49.840 --> 0:16:53.400 the United States, or manufacturing Canada or sold in Canada, 0:16:53.520 --> 0:16:56.080 and we really don't have business overseas, so the terriffs 0:16:56.200 --> 0:16:59.680 didn't really affect us. Now it might have affected demand, 0:16:59.720 --> 0:17:03.680 distry production overall, it might have affected how much construction 0:17:03.800 --> 0:17:07.280 was happening, But directly we were not clauborate by the tariffs. 0:17:08.040 --> 0:17:11.159 The weather collaborate is a lot more than the terraffs. 0:17:11.600 --> 0:17:14.400 What is the main commodity input for an insallation? 0:17:15.840 --> 0:17:21.399 Oh, it's chemical. It's chemically created and it's refined in 0:17:21.440 --> 0:17:24.840 a manufacture with a lot of people looking like chemists. 0:17:25.080 --> 0:17:28.320 So like, is it petrochemical? Like if like oil prices 0:17:28.560 --> 0:17:30.919 were to surge, would that be a sort of like 0:17:31.040 --> 0:17:35.000 margin crimping factor for insulation prices. 0:17:35.080 --> 0:17:38.560 Well, I think we're better off with oil prices lower 0:17:39.080 --> 0:17:41.679 for demand, not so much for the cost of the goods, 0:17:42.000 --> 0:17:45.600 but lower oil prices there's more confidence and more demand. 0:17:45.840 --> 0:17:48.800 But the real factor for building products is mortgage rates. 0:17:49.000 --> 0:17:51.280 So mortgage rates when they were seven and a half 0:17:51.320 --> 0:17:55.000 percent was really bad because people had three percent mortgages 0:17:55.400 --> 0:17:57.840 or three and a quarter percent mortgages, and people just 0:17:57.880 --> 0:18:00.800 have a problem paying off at three percent mortgage and 0:18:00.840 --> 0:18:03.439 taking out a seven percent mortgage. They're now down a 0:18:03.440 --> 0:18:06.680 bit six and a half percent, but they got to 0:18:06.680 --> 0:18:09.560 come down more so when the Iran war finally ends 0:18:09.600 --> 0:18:12.720 and it'll end someday and interest rates come down, which 0:18:12.760 --> 0:18:16.199 they will under this administration. It's pretty good odds that 0:18:16.320 --> 0:18:18.680 mortgage rates will come down and business will start booming. 0:18:19.320 --> 0:18:21.000 Yeah, this is what I wanted to ask, which is 0:18:21.359 --> 0:18:25.080 I guess financing availability at the moment, because clearly we 0:18:25.119 --> 0:18:28.639 are in the midst of this Iran situation and we 0:18:28.720 --> 0:18:31.840 have seen some very volatile markets out there. We've seen 0:18:32.200 --> 0:18:35.919 traders start to ratchet down I guess their expectations for 0:18:35.960 --> 0:18:39.720 a rate cut later this year. What's financing been like 0:18:39.960 --> 0:18:41.360 for you at QXO. 0:18:41.560 --> 0:18:44.800 We have no problem getting access to capital. That's not 0:18:44.840 --> 0:18:47.800 been an issue for us. We've raised since I started 0:18:47.800 --> 0:18:50.800 the company almost a couple of years ago. We've raised 0:18:50.840 --> 0:18:54.160 something like fifteen billion dollars and fairly easily on this 0:18:54.200 --> 0:18:58.520 transaction here. In addition to that, we've got seventeen billion 0:18:58.560 --> 0:19:02.600 dollars now. Part of that but roughly about fifty five 0:19:02.640 --> 0:19:03.840 percent of it is going to be in the form 0:19:03.840 --> 0:19:06.840 of stock, but the other's cash and raise it. We 0:19:06.880 --> 0:19:10.600 got debt commitments from Morgan Stanley and from Wells Fargo 0:19:10.680 --> 0:19:13.640 and from Barclay's and pull that all together about a week. 0:19:15.640 --> 0:19:18.920 Is synergies when you talk about the future cost savings. 0:19:19.000 --> 0:19:20.639 Is that a euphemism for layoffs? 0:19:20.840 --> 0:19:24.399 No, just the opposite is to grow the business, is 0:19:24.440 --> 0:19:28.320 to figure out ways that you can cross sell customers. 0:19:29.119 --> 0:19:32.760 A contractor who is selling roofing is used is buying 0:19:32.800 --> 0:19:35.959 roofing and putting that into their construction. Pretty good chance 0:19:36.040 --> 0:19:38.800 they're going to want insulation in what they're building too. 0:19:39.200 --> 0:19:42.080 So we also sell windows and doors, for example, and 0:19:42.400 --> 0:19:46.240 all of our customers have some issue, some exposure to 0:19:46.280 --> 0:19:49.680 windows and doors and will be number one in insulation, 0:19:50.160 --> 0:19:53.600 number two in roofing, number one in waterproofing, and number 0:19:53.640 --> 0:19:56.320 one or number two in the key geography served within 0:19:56.680 --> 0:20:02.320 lumber building materials. There's a lot of cross selling between insul, roofing, waterproofing, 0:20:02.359 --> 0:20:02.800 and lumber. 0:20:03.359 --> 0:20:06.040 We'd say more about that because you know, we hear 0:20:06.080 --> 0:20:08.480 from executives all the time when they talk about synergies 0:20:08.640 --> 0:20:12.480 and kind of general terms. But what exactly is I guess, 0:20:12.640 --> 0:20:16.000 the low hanging fruit in this particular deal, Like, what 0:20:16.119 --> 0:20:19.080 is it that you're able to do from day one 0:20:19.480 --> 0:20:21.560 versus what you're able to do in like a year 0:20:21.680 --> 0:20:22.000 or two. 0:20:23.200 --> 0:20:25.280 Well, the first thing that we do when we go 0:20:25.359 --> 0:20:27.520 into buy a company, whether it's Top Build or anybody 0:20:27.560 --> 0:20:30.320 else is. We meet with as many people as we 0:20:30.400 --> 0:20:34.160 can and we ask them to just step back, get 0:20:34.160 --> 0:20:37.520 out of their normal comfort zone and think about what 0:20:37.560 --> 0:20:41.800 would be the perfect circumstances and tools and techniques and 0:20:41.840 --> 0:20:45.840 repositioning the company to growing faster. Where are their pain points? 0:20:46.080 --> 0:20:48.240