TopBuild Corp.

Greetings, and welcome to the Top Build second quarter 2024 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, P.I. Aquino, Vice President of Investor Relations. Thank you. You may begin.

Good morning, and thanks for joining us. On our call today are Robert Buck, President and Chief Executive Officer, and Rob Coons, Chief Financial Officer. We have posted our earnings release, senior management's formal remarks, and a presentation that summarizes our comments on our website at topbills.com. Many of our remarks today 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 any forward-looking statements because of new information, future events, or otherwise. Please note that some of the financial measures to be discussed during 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 reconciliation of these financial measures to the most comparable gap measures in a table included in today's press release and in our presentation, both of which are available on our website. I'll now turn the call over to President and CEO Robert Buck.

Good morning and thank you for joining us today. Top Bill delivered a solid second quarter with both segments growing top line sales and bottom line profits. Our team has stayed focused on driving profitable growth and operational improvements across all of our businesses, even considering uneven housing demand and various commercial project delays, both the result of higher interest rates for longer than originally anticipated. I'm proud of the strength of our team and the diversification of our business model, which positions us well to deliver long-term growth. Today's underbuilt housing landscape, rising household formations, potential for interest rate moderation, and escalating demand for energy-efficient building code support for long-term demand for top builds, products, and services. Premature results, sales grew 3.7% to $1.37 billion as both of our segments realized pricing, increased volumes, and benefited from acquisitions. While volumes across both segments improved, they were softer than we anticipated in the quarters. We reported adjusted EBITDA of $277.7 million and an adjusted EBITDA margin of 20.3%. Excluding last year's estimated $10 million margin benefit in Q2 related to our multifamily and commercial business, our same branch incremental EBITDA margin was 41.2%, which is a result of the continued excellent work by our special operations team. When adjusting, For this margin benefit last year, we delivered both the highest quarterly sales in our history and the highest adjusted EBITDA margin in our history. This demonstrates the fundamentals of our business are performing well. On the material side, fiberglass and certain commercial products are still in tight supply. Our teams are doing a great job managing through the supply situation. And while we saw volume growth in both segments this quarter, our growth was constrained by material supply. Turning to our end markets, our residential business grew 5.4% in the quarter. The single-family environment continues to improve, and although housing demand has been choppy in certain regions, our teams continue to do a nice job balancing price and volume given current local business conditions. We continue to see year-over-year growth in multifamily work, although bidding has slowed. Our backlog remains strong, and we fully expect the backlog to carry into 2025. The commercial industrial end markets are also feeling the impact of the higher interest rates environment as the timing of some projects have been pushed out to 2025. But the good news is that we are not seeing project cancellations. We see these projects as future demand and this is more of a timing issue. As we've noted before, we participate across numerous verticals in commercial industrial. Let me spend a minute talking about one such commercial and industrial vertical that is growing rapidly. Data centers store and manage digital data for organizations in highly regulated and controlled environments. Today, there are over 150 active projects in various stages under construction in the United States. On the installation side, our teams participate in applications such as fireproofing and fire stopping, fiberglass insulation, spray foam, acoustics, and various types of rigid board applications on the interior and exterior walls. On the specialty distribution side of the business, our services range from distributing standard mechanical insulation products to custom fabricated and engineered insulation solutions. For example, on the exterior of the building, we will distribute insulation for the piping of air chillers, We custom fabricate aluminum jacket coverings as well as provide calcium silicate inserts to both insulate and provide structural integrity in long runs of critical piping. We also provide insulation for interior ductwork and other mechanical systems. Just to give you an idea of some of the work we are doing. In the Pacific Northwest, we are working on a 27-acre data center project that has six data halls planned. We started work about a month ago, although we originally planned to be on site earlier in Q2. Given the delay, we now anticipate our work on this project will continue into early 2025. In the Southwest, we have been awarded six buildings within a large data center business park. For just one of these buildings, we'll be providing over 55,000 linear feet of insulation. In short, Our total top-billed revenue for our data center project can be as much as $7 to $8 million. Our backlog of work related to data centers continues to grow with projects secured well into 2026. Moving to capital allocation, acquisitions continue to be our number one priority. In the last 18 months, we've made acquisitions totaling approximately $280 million in annual revenue. Emanated as a core competency of top-billed, We have a strong track record of execution and generating great returns for shareholders. One recent acquisition that closed at the end of May was Texas Installation with $39 million in annual sales. With three locations, Texas Installation's talented team expands our spray foam capabilities into an important and rapidly growing geography, demonstrating our ability to make acquisitions in our core installation business. Today, Our M&A pipeline is as strong as ever, and our team is busy evaluating numerous potential acquisition candidates across all three markets we serve. While we remain focused on our core of insulation, we're always evaluating opportunities to leverage our core competencies and have the potential to expand our total addressable market. As we announced last quarter, our board approved a new $1 billion share repurchase program. In the second quarter, we returned approximately $505 million to shareholders, which demonstrates management's and our board's confidence in the business outlook. As you saw in our press release this morning, we are revising our outlook for 2024. Rob will speak to the guidance in more detail, but the revision is, in large part, a reflection on timing of demand rather than any underlying changes in the business. In summary, We posted another quarter of solid growth and our business performed very well as we navigated uneven demand, project delays, and supply tightness. We are confident we will deliver another year of strong profitable growth and increased shareholder value. Rob?