TopBuild Corp.

gap basis. The non-gap measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with gaps. We have provided a reconciliation of these financial measures to the most comparable gap measures in a table included in today's press release and in our fourth quarter presentation, which can be found on our website. I will now turn the call over to Robert Buck.

Good morning and thank you for joining us today. As you can see from today's press release, we had an outstanding fourth quarter and a record 2022. Our diversified business model and season management team once again delivered strong top line and bottom line growth. Our team successfully balanced expected cost increases with selling price adjustments and did an excellent job managing both material and labor constraints by efficiently moving resources across our network to meet the needs of our customers and grow our business. While Rob will discuss our financial results in detail, I'd like to give a brief overview of our operating results. Compared to fourth quarter 2021, revenue increased 18.9%. Our adjusted gross margin expanded 160 basis points, and our adjusted EBITDA margin increased 170 basis points. Both business segments reported double-digit revenue growth and EBITDA margin expansions. Installation had an outstanding fourth quarter with volume growth of 12.4% and price increasing 8.2%. We are working through the single and multifamily backlog and believe we are getting more than our fair share of this work. Specialty distribution volume did decline in the fourth quarter in part due to the lumpiness of large-scale mechanical installation projects, which we discussed on previous calls. Specialty distributions pricing was strong in the quarter, growing 11.5%. In addition to reporting a record quarter and year of financial growth and profitability, our team realized several other significant accomplishments in 2022. Specifically, we reported our best year ever with regards to our safety and personal injury rate. Successfully integrated Distribution International into our specialty distribution segment and now expect to achieve the high end of our forecasted $35 to $40 million of synergies. Continue to improve labor and sales productivity and drive overall operational improvements as part of our overall strategy to grow our business. Our technology tools have enhanced our installer's efficiency and improve the sales process and our back office technology initiatives have resulted in appreciable cost savings. We completed five strategic residential acquisitions that are expected to generate over $17 million of net annual revenue. Returned capital to our shareholders acquiring 1.4 million shares for approximately $250 million. Enhanced our disclosures related to ESG, including publishing Scope 1 emissions data and added human capital management statistics, including more detailed workforce demographic data and enhanced safety performance information. And we provided you with a better understanding of our long-term growth strategy and the depth and experience of our leadership team at our Investor Day last spring. All in all, a very productive and profitable year for Topfield. We enter 2023 financially strong and well prepared to outperform in any environment. While we cannot predict the direction of the economy, our unique business model differentiates us from our peers and provides multiple avenues for growth. We also have several key competitive advantage that position us well for the future. First and foremost is our experienced and cycle tested leadership team. They understand what it takes to execute our business plan successfully and they're 100% focused on growing our company, driving improvements, and creating value for our shareholders. A second key advantage is having all of our branches roll up to a single, sophisticated ERP system. This allows us to track activity in every branch daily, enabling us to proactively address business changes through real-time data-driven decisions. A third is the command we have of our business coupled with our strong track record of successfully navigating an inflationary environment along with material and labor constraints. We expect fiberglass capacity to remain tight for most of this year and not unexpectedly, the December industry cost increase has had good traction. Our builder customers recognize the supply and labor constraints our industry is operating under and evaluate the quality and service we provide. A fourth competitive advantage is our core competency around identifying, evaluating, and integrating acquisitions which continue to drive shareholder value. While we have market-leading scale, we see lots of white space for growth in all three of the markets we serve, residential building insulation, commercial building insulation, and mechanical insulation. Combined, they represent a $16 billion total addressable market, where we currently have just over 20% market share. In our residential end market, following the pandemic, we saw demand soar and builders forced to limit sales as they raced to obtain permits to start new homes while facing significant supply and labor constraints. Of course, with demand far exceeding supply made worse by years of under-building and material labor shortages, new and existing home prices rose significantly. This created affordability issues for many consumers which has been further impacted by rising mortgage rates. So where are we today? There's still a strong backlog of single and multifamily homes that need to be insulated. This backlog provides us with visibility on the single family market through the first half of the year and into late 2023, early 2024 for the multifamily market. While there's still uncertainty around the second half of the year, we are encouraged by the recent optimism from several builder customers. However, if Alpinestars continues to slow or remain at current levels, given our strong track record of execution, we still have opportunities to grow both organically and through acquisitions. Moving to our commercial building installation and market, we see multiple avenues for growth including heavy and light installation and product distribution. As we noted on past calls, most of our residential installation branches also perform light commercial work. With the help of our proprietary lead generation application, which we highlighted at our May Investor Day, we are hitting these projects and prospects hard in all markets with solid resulting growth. As a reminder, light commercial follows residential expansion as new home communities require businesses to support them, including retail, restaurants, and healthcare facilities. For heavy commercial installation, we're looking at a solid backlog and strong bidding activity. We have roughly 20 branches focused on this business, and the projects in which we work run the gamut from distribution centers, warehouses, and hospitals to airports, arenas, and hotels, providing significant diversity in in-market exposure. While we're the biggest player in the commercial building installation space, we estimate we have approximately 11% share of this $5.5 billion end market, so there's clearly significant incremental room for growth. Organically, our expansion will be driven through existing and new relationships with general contractors, from market intelligence and the new project leads gained from our proprietary technology tools, and from the hard work of our local teams bidding and winning more projects. Moving to the distribution of mechanical insulation in the commercial and industrial end markets, once again, we have a long runway for growth. While we're the biggest player in this space in both US and Canada, we estimate our share of this $5 billion end market is only 10%. Half of our mechanical insulation revenue is derived from maintenance and repair work, and the other half from new projects, including both the types of heavy commercial projects I've discussed earlier and major industrial projects such as liquid natural gas facilities, food and beverage plants, chemical refiners, and manufacturing plants. We believe we'll see another year of solid growth in our mechanical insulation business, both organically and through targeted acquisitions. As far as capital allocation, our strategy remains intact. Our number one priority after internal investments in technology, innovation, and equipment remains focused on acquiring high-quality residential commercial installation contractors and specialty distribution companies. Our team has the experience and proven ability to realize meaningful synergies from these transactions, which drive by far the greatest returns for our shareholders. We have substantial liquidity and expect to continue to generate strong free cash flow, enabling us to target the right deals that meet our specific criteria. Since 2018, we've acquired and successfully integrated 24 companies, which are contributing over $1.6 billion of annual revenue. This includes SRI Holdings, a $62 million residential installation company we acquired in January. This well-managed, high-quality company brings with it a strong customer base in markets in the Southeast and Midwest, and its focus on its employees and safety fits well with Top Build's culture. Looking ahead, our pipeline of prospects is strong. We remain focused on our core of insulation and are targeting companies that will enhance our scale, expand our customer base, and generate strong returns for our shareholders. As I've mentioned, we have multiple avenues for growth, and you can expect us to remain active on the acquisition front. In addition, we will continue to evaluate returning cash to shareholders through share repurchases. Our share repurchase program reflects management's and our director's confidence in the long-term potential top build, our strong cash flow position, and our firm commitment to optimizing the efficiency of our capital structure. Rob will now discuss our financial results and 2023 outlook.

Thanks, Robert, and good morning, everyone. As Robert noted, our operational teams throughout the U.S. and Canada delivered another stellar performance, producing record results for both the fourth quarter and the full year. This is a direct result of our continued focus on driving top line growth and bottom line profitability, coupled with an emphasis on operational excellence at every level of the organization. Our track record points to the success of our operating model. Over the past four years, we have more than doubled our revenue, more than tripled our adjusted EBITDA, and expanded our adjusted EBITDA margins by 690 basis points. Moving to the financials, I'll start with an overview of the fourth quarter results, update you on our balance sheet, and provide our full year guidance for 2023. Fourth quarter net sales increased 18.9% to $1.3 billion and 14.2% on a same branch basis. Breaking that down, our installation segments fourth quarter net sales were $761.3 million, an increase of 21.4%, driven by strong volume growth and higher selling prices. Specialty distributions net sales were $563.1 million, an increase of 15.9%, primarily driven by price and M&A. Specialty distributions volume declined in the fourth quarter as project-related volumes for mechanical insulation were lower than prior year. As I've noted on previous calls, volumes on the mechanical insulation side can be a little choppy due to the project nature of the business. For the full year, total sales increased 43.7% to $5 billion and 18.8% on the same branch basis. Installations revenue grew 24.9%, primarily driven by increased prices and volume. Specialty distributions full year revenue increased 77%, primarily driven by contributions from M&A and improved pricing. Our adjusted gross margin for both the fourth quarter and the full year was 29.7%, which equates to a 160 basis point expansion in the fourth quarter and 130 basis points for the full year. This was driven by operational efficiencies, fixed cost leverage, and our continued success in managing inflation. Fourth quarter adjusted EBITDA increased 30.4% to $237.4 million, and our adjusted EBITDA margin was 18.8%, a 170 basis point improvement compared to 2021. Full year adjusted EBITDA increased 55.2% to 940.6 million, and our adjusted EBITDA margin was 18.8%, a 140 basis point improvement. On a same branch basis, our EBITDA margins improved by 210 basis points for the full year 2022. Our fourth quarter and full year same branch incremental EBITDA margins were both 30.8%. Fourth quarter adjusted EBITDA margin for our installation segment was 20.8% and 16.7% for our specialty distribution segment, an improvement of 140 basis points and 170 basis points respectively. For the full year, adjusted EBITDA margin for installation expanded by 190 basis points to 20.6%. Specialty distributions full year adjusted EBITDA margin expanded 90 basis points to 16.9%. Interest expense increased from $10.9 million to $16.8 million in the fourth quarter and from $29.1 million to $56.7 million for the full year, primarily as a result of additional borrowings from our acquisition of DI in the fourth quarter of 2021 and higher variable interest rates. Our current debt is approximately 60% fixed and 40% variable, with no upcoming maturities until 2026. In the fourth quarter, adjustments to net income were $1.4 million and $7.8 million for the full year, primarily related to acquisition integration-related costs. Fourth quarter adjusted earnings per diluted share were $4.40, a 41% increase from prior years. Full year adjusted earnings per diluted share were $17.11, a 57.7% increase. Moving to our balance sheet and cash flows, our 2022 operating cash flow was $495.8 million compared to $403 million in the prior year. This was driven by our 71.6% increase in net income, partially offset by growth in working capital. The increase in working capital was driven by continued price inflation, higher fourth quarter sales volumes, and normal Q4 seasonality. This is an area where we see opportunities for improvement, and we are targeting a long-term range of 12% to 14% of sales. CapEx in 2022 was $76.4 million, approximately 1.5% of revenue, and consistent with our long-term guidance. Regarding capital allocation, for the full year, we spent approximately $15 million on acquisitions and approximately $250 million on share repurchases. Over the long term, we will continue to prioritize a healthy balance sheet, internal investments, synergistic acquisitions, and opportunistic share repurchases. In terms of acquisitions, we have opportunities for growth in all three end markets we serve, as well as a healthy pipeline of acquisition targets. There were no significant changes to our debt structure and our outstanding short-term and long-term debt balances remained at just under $1.5 billion. We ended the fourth quarter with net debt leverage of 1.31 times trailing 12 months adjusted EBITDA. This is down from 1.49 times at the end of the third quarter and down from our pro forma leverage of 2.2 times after we acquired DI in October of 2021. Total liquidity on December 31, 2022 was $672.4 million, including cash of $240.1 million and an accessible revolver of $432.3 million. Moving to annual guidance, the backlog of single-family units under construction should continue to support our residential sales into the second quarter of 2023, while the backlog of multifamily units is stronger and should support our residential sales for the full year. This time, given this current backlog and the recent trend on housing starts we're expecting our residential sales to decline mid to upper single digits in 2023 as we expect single family activity to be slower in the back half of the year. However, we believe the long term fundamentals of the housing industry are solid and we were very pleased to hear some of the recent optimism expressed by a number of the public builders. Moreover, we are confident our leadership team, technology tools, and flexible cost structure will ensure that Top Build will continue to outperform in any environment. Our expectation for our commercial and industrial end markets, which is now 35% of our total revenues, is more optimistic. We have a strong backlog and bidding activity on new projects is very active. As a result, we are expecting sales in these end markets to expand by low to mid-single digits. Putting all that together, we are projecting total 2023 sales to be between 4.7 billion and 4.9 billion, and adjusted EBITDA to be in the range of 820 million to 910 million. I'll now turn the call over to Robert for closing remarks.