TopBuild Corp.

Greetings and welcome to the Top Builds fourth quarter and year-end 2023 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, Tapasazane 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 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. We have provided a reconciliation of these financial measures to the most comparable GAAP measures in a table included in today's press release and in our fourth quarter presentation, which can also be found on our website. I will now turn the call over to Robert Buck.

Good morning. We're glad you could join us today. I'd like to begin by thanking all of our top-billed installation, and special distribution teams for their hard work and unrelenting focus on working safely, servicing our customers, and continuing to push for operational excellence every day. We accomplished a lot this past year for our stakeholders, and I'm proud to be part of this talented and very results-driven team. Before reviewing our fourth quarter and year-end results, I want to update you on our SPI transaction. As a reminder, SPI is a specialty distributor and custom fabricator of mechanical insulation and a specialty distributor of building insulation to the three end markets we serve, mechanical, commercial building, and residential. We're in the process of responding to a second request for information from the Antitrust Division of the Department of Justice. In today's environment, these requests have become more common, resulting in a lengthier process. We are complying with their information request and addressing their questions. Now, turning to our financial results, we finished 2023 with a strong fourth quarter, completing another outstanding year for Top Build. For the full year, gross and adjusted EBITDA margins expanded 120 basis points and 140 basis points, respectively, to 30.9% and 20.2%. Our diversified business model and focus on driving operational efficiency led to the successful execution of our overall strategy. We once again delivered on our objectives of achieving profitable growth and outperforming in any operating environment. 2023 was markedly better than we had originally anticipated. When we first issued guidance 12 months ago, we were facing declining single family starts, steady interest rate hikes, and the possibility of a slowing economy. Despite these headwinds, top bills showed positive growth from the outset. exceeding the high end of our initial sales and adjusted EBITDA guidance. There are many factors driving these outstanding results. I'm extremely proud of our installation segment leadership who targeted multiple avenues for growth, successfully expanding our multifamily and commercial business to offset the decline in single-family construction. For the full year and on a same-branch basis, we grew our multifamily business by over 50% and our commercial business by over 11%. This strong growth more than offset the low single-digit decline of our single-family sales. At our special distribution segment, we saw commercial and industrial sales grow 6.3% in the fourth quarter and 4.6% for the year. This revenue includes maintenance and repair work on many commercial and industrial sites, driving ongoing stable revenue. Today, maintenance and repair work accounts for approximately 25% of specialty distribution's revenue. In both business segments, our proprietary lead app tool is providing qualified leads to help our local businesses drive commercial and industrial organic growth. This is a great example of our innovative approach enhancing the sales process. In 2023, we continue to spearhead initiatives to increase labor productivity. Even small improvements leveraged across our installer base of over 8,000 will deliver significant savings to our bottom line. Our common ERP system enables us to easily track productivity and identify future opportunities to drive operational efficiency. This continued focus on improved labor productivity is a distinct advantage for Top Build as labor constraints persist across the construction industry. Another initiative contributing to our profitable growth last year was the expansion of our Special Operations Team, comprised of seasoned leaders whose sole mission is to drive operational efficiencies and to share best practices throughout Topfield. They're also tasked with focusing on the bottom core trial of our installation and specialty distribution branches. Their goal is to understand why these branches are underperforming and to put into place the necessary changes to improve their growth and profitability. This team helped drive some great and sustainable improvements last year that positively impacted our top and bottom lines. Looking ahead? They've already identified multiple opportunities that will enhance our operating performance and organic growth in 2024 and beyond. We were also successful on the capital allocation front, completing four residential installation acquisitions that are expected to contribute approximately $173 million of annual revenue. This included SRI Holdings and Best Installation, which to date are our third and fourth largest residential installation acquisitions. The other two acquisitions completed last year were Rocky Mountain Insulation and Panhandle Insulation, the latter of which closed in October. These four companies complement our growth strategy and bring experience to installers, great management teams, and strong customer relationships to top build. As always, when we evaluate acquisition opportunities, we look for deals that are creative to our existing footprint and current operations, meet our strategic growth initiatives, leverage our scale advantages in a meaningful way, and are a good culture fit with our organization. Now, let's turn to 2024 and how we see the year unfolding. While Rob will provide more details and clarity on our outlook, you can see we expect another strong year of profitable growth for Top Build, led by outstanding execution, a continuous focus on driving operational improvements, and an eye towards innovation throughout the company. As we said on previous calls, we are bullish on the long-term fundamentals of residential new construction. There remains a shortage of housing inventory and strong pent-up demand. In the near term, we are encouraged by the improvement over the past few months of single family starts and the outlook for interest rates. As a result, we are optimistic single family residential new construction could have more upside as the year progresses, and we believe this will be an important source of organic growth. There is also a strong backlog of multifamily work that should keep us busy throughout the year. On the commercial and industrial front, at both installation and specialty distribution, we expect another year of growth based on our bidding activity and strong backlog. Our two-team branches have worked hard to build relationships with general contractors in their respective markets, and they are fostering these relationships to ensure we continue to win more than our fair share of light and heavy commercial work. We also expect solid performance this year for mechanical installation, including new projects and maintenance and repair work. As I mentioned last quarter, we're in the second phase of our growth strategy and operational improvement initiatives relating to our specialty distribution model. We've identified many cross-selling opportunities and see this as another important driver of organic growth. Looking at material and assuming single-family starts maintain their current trajectory, fiberglass will be tight. We are seeing good price realization from the December-January material cost increase. With upcoming maintenance on a number of production lines, we don't see any significant material capacity improvement this year, even with the addition of the Knopf plant, which is expected to be operational sometime mid-2024. Moving to capital allocation, two months into the quarter, we've already inked three deals. pest control insulation, a special distributor generating approximately $24 million of annual revenue, and two residential installers, Bravo Insulation and Morris Black & Sons, which combined are expected to generate approximately $9 million of annual revenue. Looking ahead, our prospect pipeline is robust, and we intend to stay active on the acquisition front. As always, we'll remain focused on acquiring high-quality residential and commercial installation and specialty distribution companies. All three of our brand markets are highly fragmented and present great opportunities to reinvest our strong free cash flow to drive shareholder value. Operationally, our team is focused on driving organic growth and exceeding customer expectations. We will also continue to implement initiatives and maintain an innovative approach to drive operational efficiencies and improve labor and sales productivity. Energy Coach should continue to strengthen, serving as a tailwind for all areas of our business. Rob?