Installed Building Products, Inc.

Greetings and welcome to Installed Building Products Fiscal 2020 Fourth Quarter Financial Results Conference Call. At this time, all participants are on a listen-only mode. A 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 call is being recorded. I would now like to turn the conference over to your host, Jason Neiswanger. Thank you. You may begin.

Good morning, and welcome to Installed Building Products' fourth quarter 2020 conference call. Earlier today, we issued a press release on our financial results for the fourth quarter, which can be found in the investor relations section on our website. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include statements with respect to the housing market and the commercial market, industry conditions and trends, our financial and business model, payments of a quarterly cash dividend, the possibility of an annual variable dividend in 2022, our stock repurchase program, our efforts to manage material inflation, our ability to increase selling prices, the demand for our services and product offerings, the impact the COVID-19 crisis will have on our business and end markets, expansion of our national footprint, products and end markets, our expectations for our end markets, including our large commercial business and multifamily, our ability to strengthen our market position, our ability to pursue and integrate value-enhancing acquisitions in the expected amount of acquired revenue, our diversification efforts, our growth rates and ability to improve sales and profitability, the impact of COVID-19 crisis on our financial results, and expectations for demand for our services and our earnings in 2021. Forward-looking statements may generally be defined by the use of words such as anticipate, believe, expect, intend, plan, and will, or in each case their negative or other variations or comparable terminology. 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 events 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, the risk that the company may reduce, suspend, or eliminate dividend payments in the future, 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 effect. 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, adjusted gross profit margin, 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 the 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. IBP produced another strong year of record operating and financial performance. For 2020, revenue increased 9.4% to a record $1.7 billion, Earnings increased 43.4% to a record $3.27 per diluted share, and adjusted EBITDA increased 24.8% to a record $245.6 million. I am proud and humbled by our performance as we achieved these record results despite the unprecedented effects of the COVID-19 pandemic, which demonstrates the hard work, dedication, and commitment of our nearly 9,000 team members nationwide. Throughout 2020, we maintained our commitment to quality and dedication to providing our customers unparalleled service while protecting the health, safety, and well-being of our employees, customers, partners, and communities. The most important part of our business is the men and women working in our locations throughout the U.S. We strive to provide an environment where people want to work and succeed, focusing our resources on attracting, retaining, and developing talent. I'm pleased to report that we've continued to maintain employee turnover well below industry averages, a direct result of the employee programs we've introduced since 2017 and the culture we value. Our record results also demonstrate the success and the resiliency of our proven business model, our strong position within compelling geographies and end markets, the strength of our balance sheet and capital position, and the experience of our senior leadership team. In addition, since our IPO in 2014, the compound annual growth rates of revenue, net income from continuing operations, and adjusted EBITDA have grown at 21%, 38%, and 33%, respectively. Our consistently strong performance is encouraging, and we believe we are well positioned for the future as we continue to focus on creating sustainable value for our shareholders. Before discussing our operating performance and outlook in more detail, I want to review this week's announcement outlining our capital allocation priorities. The strong free cash flow of our business model and our strong balance sheet provide us with considerable flexibility to pursue our growth-oriented acquisition strategy while also returning capital to shareholders and supporting the long-term capital needs of our business. As a result, I am pleased to announce IBP's Board of Directors approved the initiation of a quarterly cash dividend. The first quarterly dividend of 30 cents per share is payable on March 31st, 2021 to shareholders of record on March 15th, 2021. In addition to the quarterly cash dividend, the Board of Directors will consider an annual variable dividend to be paid during the first quarter of each year commencing in 2022. The variable dividend will be determined based on the cash flow generated by operations with consideration for planned and expected cash obligations for acquisitions and other factors as determined by the Board. The Board of Directors has also increased the existing share repurchase program to $100 million and extended the program to March 1, 2022. It is important to note we will continue to prioritize capital investments on profitable growth through our proven acquisition strategy. Acquisitions typically contribute to profitability immediately and generate strong returns on investment. In addition, we have been able to self-fund our acquisition strategy through IVP's strong free cash flow while simultaneously strengthening our balance sheet. We believe we can support these capital priorities while targeting a net debt leverage ratio under two times trailing 12-month adjusted EBITDA. As you can see, we have come a long way since our IPO, and I'm extremely pleased with our ability to support our growth plan while simultaneously returning capital to our shareholders. With this update, let's review 2020 performance and favorable outlook in more detail. Looking at our end markets, 2020 was another strong year of residential, multifamily, and commercial growth across many of our geographies despite the impacts of the COVID-19 crisis. Total residential completions in the United States increased 2.5% in 2020, which included a nine-tenths of 1% increase in single-family completions. Single-family housing demand continues to benefit from low mortgage rates and favorable demographics have driven an increase in demand for entry-level housing. In response, homebuilders' land positions improved throughout the year, and many adjusted their communities to develop more affordably-priced entry-level homes. We believe these trends will continue, supporting further growth as the industry approaches stabilization in the years to come. In the 2020 fourth quarter, our model family revenue increased approximately 34% compared to the prior year quarter and increased nearly 38% over the full 2019. We continue to perform well in the model family end market as a direct result of our enhanced sales strategy as we are growing the end market in locations that had previously been over indexed to single family construction. As expected, 2020 also benefited from a pricing environment more in line with historical trends. For the year, our price mix improved 2.8%, and on a two-year stack basis, price mix was up over 8%. The 4.5% decline in fourth quarter price mix was not a result of pricing deflation, but reflects a mixed shift in the single-family end market. During the fourth quarter, we experienced a higher volume of sales to production builders compared to last year, and overall same branch volume was up 7%. This shift within the single-family end market impacted price mix as the average insulation selling price for entry-level production builder jobs is typically lower than a move-up or custom home. Given consumer demand for entry-level homes, we believe this trend in mix may continue over the near term. Even with the decline in fourth quarter price mix, fourth quarter gross margin increased 70 basis points, as profitability benefited from higher volumes, increased efficiencies, and the contribution from sales of complementary building products. Early into 2021, we are experiencing inflation in many of the products we install. The January 2021 price increase for fiberglass insulation materials was in line with our expectations and was followed with another price increase effective in April of 2021. While the timing of the fiberglass increase is similar to what the industry experienced in 2018, the current housing demand environment is considerably different. With our availability of labor and our strong position with our customers and suppliers, we believe we are well positioned to navigate the inflationary environment in 2021. Furthermore, we believe single-family industry dynamics remain strong and support the continued demand for our services. According to the U.S. Census Bureau, single-family starts in the fourth quarter were up over 12%, and single-family homes under construction increased to 590,000 units, the highest level since November of 2007. We also believe we are well positioned for continued multifamily growth as a result of our suburban market focus and success of our expanding multifamily sales strategy. COVID-related safety protocols on large commercial construction sites affected our commercial operations throughout the year. Despite these unique challenges, Large commercial sales growth increased 15.3% for the year, and on a same branch basis increased 2.8%. Our total pipeline and bid activity within the large commercial market has improved over the past three months, and based on the long lead time nature of our project, we believe this trend will benefit our large commercial end market in the second half of 2021. We also believe our solid pipeline and growing presence within the large commercial end market will help us navigate any near-term softness in the commercial market. Long-term fundamentals are expected to remain intact, and diversifying our end market exposure continues to be an important component of our growth strategy. In addition, we continue to pursue additional opportunistic commercial acquisitions that increase our scale and competitiveness. 2020 was another strong year of acquisition growth, and we completed nine acquisitions representing over $107 million of annual revenues. During the fourth quarter alone, we completed four acquisitions representing nearly $50 million of annual revenues. Acquisitions included a Georgia-based installer of complimentary building products to residential and multifamily customers, a Virginia-based installer of insulation services to residential customers, a Washington-based provider of insulation, waterproofing, and fire-stopping installation services to commercial and multifamily customers. and a Washington-based installer of specialty coatings for fire protection, insulation, and acoustics in commercial and industrial applications. Our acquisition pipeline remains robust, and we continue to actively pursue acquisitions of well-run residential, multifamily, and commercial installers that support our geographic, end-product, and end-market diversification strategies. Our acquisition strategy is supported by our solid and flexible capital structure and we are targeting approximately $100 million of acquired revenue in 2021. We may exceed this target depending on the timing of acquisitions within our large and growing pipeline. Before I turn the call over to Michael, I want to provide additional information on our expectations for 2021 in our longer-term outlook, which was included in our investor deck and is available on the investor relations section of our website. We believe most of our markets will remain strong in 2021 and we expect 2021 will be another good year of growth and profitability for IVP despite the continued effects of the COVID-19 pandemic. For 2021, we expect single family completions to increase in the mid to high single digit range. The increased lag between starts and completions combined with the dramatically increased order volumes from our builder customers are expected to continue throughout the year, which may positively impact the seasonal trends in our business that we historically encounter. We believe our multifamily end markets will remain strong during 2021, and while near-term demand remains uncertain within the commercial end market, we expect a rebound to occur in the second half of the year. Gross margins are anticipated to remain favorable despite the impacts of material inflation and higher mix of sales to entry-level single-family homes. We continue to proactively manage our expenses anticipate higher sales will continue to leverage administrative expenses throughout the year. As a result, we believe 2021 will be another strong year of profitable growth with annual adjusted EBITDA margins expected to be in line with our long-term mid-teens expectations. So to conclude my prepared remarks, I am extremely pleased with how our team has responded to the unique challenges that have occurred throughout the year. Our continued success reflects the power of our business model, the experience of our management team, the longstanding customer relationships we have developed, and the strength of our balance sheet in operating cash flow. We are off to a strong start to the year, and 2021 is expected to be another great year for IBP. As always, I'd like to thank all those in the field 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 fourth quarter results.