TopBuild Corp.

Greetings, and welcome to the Top Build Third Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Tabitha Zane.

Thank you and good morning. On the call today are Jerry Bolus, Chief Executive Officer, Robert Buck, President and Chief Operating Officer, and John Peterson, Chief Financial Officer. We have posted senior management's formal remarks on the investor relations section of our website at topfield.com. As shown on slide two of today's presentation, many of our remarks will include forward-looking statements concerning the company's operations and financial conditions. These forward-looking statements include known and unknown risks, 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, other than as otherwise specifically stated, 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. We have provided a reconciliation of these financial measures to the most comfortable GAAP measures in a table included in today's press release and in the presentation accompanying this call. Please turn to slide three. I will now turn the call over to Jerry Bolas.

Good morning, everyone, and thanks for joining us today. We're pleased to report another strong quarter as the Topville team continues to perform very well in this environment. Despite the ongoing negative impact of COVID-19 on the overall economy, the housing industry remains a positive story. Our builder customers are reporting very strong traffic and record order growth. In his October Home Builder Analysis and Forecast Report, John Burns cited the environment as the, quote, strongest current housing market conditions ever. And one of our builder customers on their third quarter conference call a few weeks ago stated that, quote, demand is through the roof. We recognize that part of this trend is driven by COVID-19 impacts, such as buyers looking to escape dense urban environments, work from home policies driving demand for more space, and active adults seeking to avoid senior residential facilities. And while all of this is currently having a positive impact on our industry, the long-term fundamentals of the housing industry also continue to remain strong. Most notably, historically low interest rates, increasing household formations, and very low inventory. These short and long-term factors are translating into strong housing starts, and our expectation is that this will continue, and we will benefit from this growth. We acknowledge that labor and material will likely be gating factors, elongating the build cycle, which we did see in the third quarter, but our team has demonstrated its expertise in navigating these waters, as Robert will discuss in a few minutes. Turning to slide four, our third quarter results again reflect the strength of our diversified model and the ability of the top-billed team to perform well at all points in any cycle. Net sales increased 2.2% to $697.2 million despite delays in some of our commercial projects due to social distancing protocols. We're particularly pleased with the expansion of our adjusted operating and EBITDA margins of 280 basis points and 270 basis points, respectively, which drove adjusted net income to $2.10 per diluted share, an increase of 37.3% over the same quarter last year. Regarding capital allocation on slide five, our acquisition team is backed to executing on our top priority as we closed Garland Insulating on October the 1st. Garland was one of the largest locally owned and operated insulation companies in Texas, having built a strong reputation through 70 years of outstanding customer service. We're very pleased to have this company and their excellent management team as part of the Top Build organization. Looking ahead, our pipeline is filled with outstanding potential partners, several of which we expect to join us over the next few quarters. In addition to acquisitions, we return capital to our shareholders through the repurchase of almost 58,000 shares and an average price of $155.63 per share. Before turning the call over to Robert, I want to remind you that this will be my last analyst conference call, as I'll be retiring as CEO and member of the board effective December the 31st. I'm very proud of what Topfield has accomplished since becoming a public company on July the 1st, 2015, the result of a well-timed spinoff from Masco, our previous parent company. We have significantly increased our national scale with 14 acquisitions and have demonstrated the strength of our diversified business model with both installation and distribution serving both the residential and commercial markets. A culture built around safety, operational improvement, and customer service have become fully ingrained in everything we do every day. As a result, We have performed well in many different economic environments and have increased our market cap from approximately $1 billion to over $5 billion today. In fact, on Friday, we were pleased to learn that Top Bill placed 47th on Fortune Magazine's list of the 100 fastest-growing companies. Most exceptional is the team that will be taking Top Bill forward. Robert Buck will be assuming the role of CEO and director. Since the spin, Robert has been the COO the primary architect of the numerous operational improvements that have driven our outstanding financial results. Having worked closely with Robert for many years at different stops throughout our careers, I'm fully confident that Robert will be an outstanding CEO and drive further value. Surrounding Robert will be not only John and Tabitha, who you know well from their investor-related activities, but also many other excellent professionals in all areas of the company. Top build is in very good hands.