TopBuild Corp.

Greetings and welcome to the Top Builds Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Tabitha Dane, Vice President, Investor Relations. Thank you, Tabitha. You may begin.

Thank you, and good morning. On the call today are Robert Buck, President and Chief Executive Officer, and Rob Coons, Chief Financial Officer. We have posted senior management's formal remarks and a PowerPoint presentation that summarizes our comments on our website at topbill.com. 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 FDC. 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. 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 third quarter presentation, which can also be found on our website. I will now turn the call over to Robert Buck.

Good morning, and thank you for joining us today. With one quarter left in 2023, this year has exceeded our expectations with solid, profitable growth. Our strong results are testament to our team's hard work, perseverance, and strategic focus on growing our multifamily and commercial work, as well as our continuing emphasis on operational excellence and driving improvements throughout all areas of our business. Total sales for the nine months are up 4.4%. Our gross margin has expanded 130 basis points to 31%, and our adjusted EBITDA margin has expanded 160 basis points to 20.4%. We're bringing our third quarter results. Our installation segment was able to drive efficiencies and grow revenue 4.9% despite volume contracting from the slowdown in single family starts earlier in the year. To offset the single family decline, our branches have actively and successfully targeted multifamily and light commercial work. On the commercial installation front, Our dedicated heavy commercial branches are reporting strong bidding activity and are winning their fair share of projects, building up our already solid backlog. As a reminder, we are agnostic as to the types of projects we work on and are not over-indexed to office or any other type of heavy commercial job. Current projects we are working on include renovation of the SeaTac Airport in Washington the new Hard Rock Casino in Virginia, and several large medical projects. In total, our commercial installation business grew 9.4% in the third quarter compared to the third quarter of 2022, and year-to-date, it is up 13%. Turning to our specialty distribution business, overall sales in the second quarter declined 2.1%, primarily as a result of a 1.9% decline in price. The greater availability of fiberglass and spray foam in the quarter put pressure on market pricing. As residential distribution volumes continue to normalize, our teams are doing a nice job of identifying and building attractive new areas of growth, as our overall results demonstrate. We are pleased to see a 1.7% increase in sales from our commercial and industrial channels. Our specialty distribution segment continues to support many major commercial and industrial projects, including the Salt Lake City International Airport and the new Intel chip factory in Arizona. We're also seeing quite a few major projects being planned across several diverse industries fueling the demand for mechanical insulation. Maintenance and repair work on many commercial and industrial sites is also being scheduled, and this revenue stream should serve as a continued stabilizing revenue driver. We remain very optimistic about their opportunities for growth in both the commercial and industrial end markets in the U.S. and Canada. We've also entered in the second phase of our growth strategy and operational improvement initiatives relating to our specialty distribution model. Over the past two years, we've identified many cross-selling opportunities, including areas of the country where either DI or service partners does not have a presence, but where there is demand for their respective products and services. In 2024, we plan to co-locate some DI and service partners' operations, effectively expanding our footprint where we already have existing operations and established customer bases. without the investment generally associated with opening a greenfield location. More details to come next year as we continue this process to drive organic growth. Moving to material in the quarter, fiberglass is more readily available than it had been earlier in the year. As a result, some of the manufacturers have pushed the September price increase out until later in the year. Over the past month, however, material has started to tighten. bellwether for the industry as a whole as they move through 2024. Also, as a reminder, maintenance on production lines has an impact on product availability, and we work closely with our suppliers to effectively manage our inventory. On the capital allocation front, year to date, we've completed four acquisitions, which are expected to generate almost $173 million of revenue on a pro forma four-year basis. One of these acquisitions was completed this month, Panhandle Insulation, a residential installer generating approximately $5.3 million of annual revenue. In July, we also announced our intention to acquire Specialty Products and Insulation, or SPI, a North American special distributor and custom fabricator of mechanical insulation and a special distributor of building insulation to the industrial, commercial, and residential end markets. generating approximately $700 million in annual revenue. This transaction is currently going through regulatory review and we expect to close in 2024. We are working closely with the SPI folks to ensure the integration process is smooth once the transaction closes. As we've gotten to know the SPI team even better, our confidence about the potential of this transaction has only increased. This well-run company has a strong operations team and a culture that aligns well with Topville. In the first 12 months, our focus will be integrating SPI onto our systems and supply chain and to further identify operational efficiencies and improvements across our entire organization. We are very confident we will achieve the $35 million to $40 million of run rate cost synergies we've targeted over the first 24 months. Looking ahead, our M&A prospect pipeline remains robust for residential and commercial installation companies and for mechanical insulation specialty distributors. We expect to remain very active on all three fronts going forward. Acquisitions remain our number one capital allocation priority, generating by far the greatest return for our shareholders as evidenced by our return on invested capital, which increased from 8.6% in 2017 to 18.5% at year end 2022. In summary, We had a great third quarter, and we're on track to report another solid year as evidenced by our increased 2023 guidance, which Rob will discuss. Our team continues to execute well, and our diversified model positions Topville to outperform in any environment. Rob?