Installed Building Products, Inc.

Greetings. Welcome to Installed Building Products Fiscal 2020 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow a formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Jason Niswonger, Senior Vice President, Finance and Investor Relations.

Good morning and welcome to installed building products second quarter 2020 conference call. Earlier today we issued a press release on our financial results for the second quarter, which can be found in the investor relations section on our website. On today's call, management prepared remarks and answers to your questions may contain forward-looking statements within the meeting of the federal securities laws. These forward-looking statements include statements with respect to the housing market and industry conditions, our financial and business model, our efforts to manage material inflation, our ability to increase selling prices, the demand for our services and product offering, the impact of COVID-19 crisis will have on our business and end market, expansion of our national footprint, products and end market, our expectations for our end market, our ability to strengthen our market position, our ability to pursue and integrate value-enhancing acquisitions, our diversification efforts, Alpha's revenue and growth, expansion of our commercial business, our growth rates and ability to improve sales and profitability, the impact of the COVID-19 crisis on our financial results and acquisitions, and expectations for demands for our services and our earnings in 2020. Forward-looking statements may generally be identified by the use of words such as anticipate, believe, expect, intend, plan, and will, or in each case, they're negative or other variations or comparable terminologies. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to offense and depend on circumstances that may or may not occur in the future. Any forward-looking statement made by management during this call is not a guarantee of future performance, and actual results may differ materially from those expressed in or suggested by the forward-looking statements as a result of various factors including without limitation the duration, effect, and severity of the COVID-19 crisis, the adverse impact of the COVID-19 crisis on our business and financial results, the economy, and the markets we serve, general economic and industry conditions, the material price environment, the timing of increases in our selling prices, and the factors discussed in the risk factors section of the company's annual report on Form 10-K for the year ended December 31, 2019, as the same may be updated from time to time in subsequent filings with the Securities and Exchange Commission. Any forward-looking statement made by management on this call speaks only as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for the company to predict these events or their effects. The company has no obligation and does not intend to update any forward-looking statements after the date hereof, except as required by federal securities laws. In addition, management uses certain non-GAAP performance measures on this call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and adjusted net income per diluted share, adjusted gross profit, and adjusted selling and administrative expense. You can find a reconciliation of such measures to their nearest GAAP equivalent in the company's earnings release and additional reconciliation for adjusted EBITDA for earlier fiscal years in our investor presentation, which are available on our website. This morning's conference call is hosted by Jeff Edwards, our chairman and chief executive officer, and Michael Miller, our chief financial officer.

I will now turn the call over to Jeff. Thanks, Jason, and good morning to everyone joining us on today's call. As usual, I will start today's call with some highlights on the quarter and then turn the call over to Michael Miller, IBP's CFO, who will discuss our results and capital position in more detail before we take your questions. I'm very pleased with our 2020 second quarter financial and operating results as IDP achieved multiple milestones, including record second quarter sales and profitability, despite the unprecedented challenges caused by the COVID-19 crisis. These record results demonstrate the success of our ongoing geographic end market and end product diversification strategies, the benefits of our pricing strategies and the hard work and dedication of our employees. As an organization, we remain focused on supporting our employees, customers, and suppliers across the country, while ensuring our business is well positioned to withstand the impacts of the COVID-19 crisis. Across our national footprint, our branches continue to follow federal, state, and local requirements in response to COVID-19. At the start of the second quarter, several of our branches where construction was not deemed essential were closed, while these locations reopened at various points during the quarter We estimate revenue this quarter was negatively impacted by approximately $10 million to $12 million. Operations have resumed across all IBT branches, but some recently reopened locations were not at full capacity during the month of June. We continue to closely monitor the evolving COVID-19 crisis, and we will make the necessary adjustments to protect and support our employees and customers across the country. Overall, IBP's success in the second quarter and during the early stages of COVID-19 crisis highlights the strength of our business plan, the power of our financial model, and our core operating values focused on supporting our employees and customers. I'll use my time today to review these items and why we believe IBP is extremely well positioned for the current market environment as well as the long-term opportunities we have to create sustained growth and value for our shareholders. I'm pleased to report that our geographic end product and end market diversification strategies continue to produce above market growth. IBP grew total revenue by 6% during the second quarter. Adjusting for branches closed in markets where construction was not deemed essential, we estimate second quarter sales growth was approximately 9% compared to the same period last year, and adjusted same branch sales growth was approximately 5%. Our second quarter performance is a direct result of our focus on strong U.S. housing markets, our sales of complementary building products, and the successful expansion of our multifamily and large commercial construction and markets. IBP's current geographic footprint continues to provide us access to nearly 70% of total residential permits. Our diverse national footprint helped us navigate the market volatility caused by the pandemic. The strong growth we are achieving in our multifamily and large commercial end markets is encouraging, as sales in these end markets increased in the second quarter 45.4% and 7.5% respectively. Compared to the overall size of the multifamily and commercial end markets, IBP is a relatively small installer, and our geographic footprint is not as widespread as our single-family exposure. As a result, we have significant opportunities to gain scale in these end markets through our existing branch footprint and acquisitions. We believe overall industry dynamics remain strong and support the continued need for our services. At the end of June, there remains more than 500,000 single family units under construction based on U.S. Census Bureau data, which we believe represents approximately seven months of industry backlog. While this includes homes at various stages of completion, we believe IBP will continue to benefit from a significant proportion of the backlog in the markets where we operate. Longer term, we believe the pandemic will likely increase the demand for single-family housing, increase the need for more affordable homes, and potentially continue to support the quick recovery the industry is experiencing, which is not typical of a housing downturn. Over the near term, however, our single-family market demand may be temporarily impacted by the normal lag between starts and completions, as a result of the market disruptions that occurred during the early stages of the pandemic. We currently anticipate any impact to our revenues will likely occur during the third and fourth quarters, but we believe the full impact of the second quarter decline in housing starts will be partially offset by the strong industry backlog and the quick recovery in housing demand we saw in the second quarter. In addition, backlogs in our commercial end market at June 30, 2020 remain strong. Requirements for social distancing on construction sites has recently been more restrictive to IBP in the commercial end market than in our residential end market. The general contractors on our commercial projects have done an excellent job managing the multiple trades on each job site to ensure everyone's safety. However, this has resulted in scheduling disruptions in some of our markets delaying our work. While the impacts have been manageable to IBP, we might experience further isolated disruptions as state and local responses to COVID-19 cases are occurring at various degrees across our footprint. We believe our strong backlog and growing presence within the large commercial end market should help us navigate any near-term softness. I am pleased to announce we resume closing transactions from our strong acquisition pipeline as markets across the country reopen and the economic environment for our industry has stabilized. In June, we announced the acquisition of Nationwide Gutter, a Texas-based provider of gutter installation and repair services primarily to multifamily and commercial customers with annual revenue of approximately $5 million. Our acquisition pipeline remains robust, and we anticipate we will continue to deliver on our acquisition strategy in the coming months. We continue to actively pursue acquisitions of well-run residential, multifamily, and commercial installers that support our geographic product and end market diversification strategies. Before I turn the call over to Michael, I want to highlight the record profits we achieved this quarter. Higher revenue, continued improvements in price mix, the benefits of our end product and end market diversification strategies, and lower fuel costs all contributed to record profitability. Adjusted gross profit as a percent of revenue was 32.4% during the second quarter, the highest we have reported as a public company, while our same branch incremental adjusted EBITDA margin was nearly 130%, helping drive a 27% increase in second quarter adjusted EBITDA. Over the trailing 12-month period, our adjusted EBITDA margins expanded to 14.1%, a result of lapping the impact of the material inflation environment in 2018 and our pricing strategies that carried over into 2019. In addition, with nearly $270 million of cash, cash equivalents, and investments, nothing drawn on our existing $200 million revolving line of credit, no significant near-term debt maturities, and limited financial covenants, Our liquidity and capital position is extremely strong and provides us with a significant amount of flexibility to pursue our long-term growth strategy. So to conclude my prepared remarks, I am extremely pleased with how our team is responding to the COVID-19 crisis and the success we were able to achieve during the second quarter. Our strong balance sheet combined with our experienced team, long-standing customer relationships, and asset-light, highly variable business and diversified business model will support the current and future needs of our business while creating value for our shareholders. Finally, I'd like to use this opportunity to thank our installers who are hard at work every day representing IBP and serving our customers. On behalf of the entire leadership team, we recognize your efforts, and I want to personally thank you for your dedication. With this overview, I'd like to turn the call over to Michael to provide more details on our second quarter results.