Good day ladies and gentlemen, and thank you for standing by. Welcome to the TopBuild Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, the call is being recorded, Tuesday, February 28, 2017. I would now like to turn the conference over to Tabitha Zane. Please go ahead maam.

Thank you and good morning. On the call today are Jerry Volas, Chief Executive Officer, Robert Buck, President and Chief Operating Officer, and John Peterson, Chief Financial Officer. Please note, we have posted senior management’s formal remarks on the Investor Relations section of our website at topbuild.com. As shown on Slide 2 of today presentation, many of our remarks will include forward-looking statements concerning the company’s operations and financial condition. These forward-looking statements include known and unknown risks, 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. In addition, we will also discuss non-GAAP financial measures, which can be reconciled to the most comparable GAAP measures in a table included in today’s press release. I will now turn the call over to Jerry Volas.

Welcome and thanks for joining us today. We are very pleased with the successful execution of the various initiatives supporting our long-term growth plan. The final quarter of 2016 and the full year provide clear evidence that the trajectory of this execution is ramping up very quickly. We believe that significant shareholder value is being created by the following five initiatives that are listed on Slide 3. Number one; driving top line growth in our core residential business ahead of the ongoing increase in housing starts, thereby increasing market share. Secondly, increasing market share in our commercial business, a space within which we have been active for many years, but now focusing on the substantial share gains possible in this very large market. Third, improving operational efficiency throughout our entire Company to facilitate strong conversion of top line growth to the bottom line. Number four, utilizing our dedicated M&A resources to acquire quality companies that add market share and value to both our residential and commercial businesses. And number five, returning capital not required to fund organic growth and M&A to shareholders efficiently. So, having just wrapped up another quarter and our first full year as an independent public company, it is a good time to discuss where we are on these initiatives. Turning to Slide 4, regarding the top line, our primary benchmark is 90 day lagged housing starts, which were up 4.5% for the year. TopBuild’s sales increased 7.8%, with the volume component of both TruTeam and Service Partners easily surpassing that benchmark. Also imbedded in those totals are sales in our commercial business, which were up almost 11% for the year. John will comment further on the detail of our sales activity. As a reminder, TruTeam is the industry leading insulation installation company and Service Partners is…

Thanks Jerry, as Jerry pointed out results for the fourth quarter and full year were strong. The operational improvements we’ve made at TopBuild over the past 18 months continue to deliver outstanding results through solid growth, expanding margins and cash generation. Turning to Slide 6, total revenue in the fourth quarter, increased 4.1% to $444 million and grew 7.8% to $1.7 billion for the full year. This was driven primarily by residential and commercial growth at both businesses and improved pricing at TruTeam, partially offset by lower pricing at Service Partners. On a reported basis, fourth quarter gross margin declined 80 basis points to 23.7%. As you may recall, in the fourth quarter of 2015, we had a one-time, favorable reserve adjustment related to an employee benefit policy change at TruTeam, totaling $9.9 million, of which $6 million was included in costs of goods sold. Excluding this one-time adjustment, fourth quarter gross margin increased 60 basis points from fourth quarter 2015. For the full year, adjusted gross margin was 23%, up 120 basis points. Our fourth quarter adjusted operating margin was 8.3%, compared to 7.8% in the fourth quarter of 2015. For the full year, our 2016 adjusted operating margin was 7.2%, a 160 basis point improvement from 2015. Improvements in both gross margin and operating margin were due to improved pricing at TruTeam, lower material costs, improved labor efficiency and volume leverage; partially offset by lower Service Partners pricing, higher insurance costs, higher stock based compensation and higher bonus expense. Adjusted EBITDA for the quarter was $42.1 million, a 10.8% improvement year-over-year. Full year adjusted EBITDA was $144.5 million, a 34.5% improvement from 2015. Incremental EBITDA margin for the quarter was a strong 23.2% and 29.4% for the full year. This significant pull-through is a direct result of the…

Thanks John, good morning everyone. I’d like to begin my remarks by thanking all of our TopBuild, TruTeam and Service Partners employees for their hard work, dedication and focus on working safely, servicing our customers and continuing the push for operational excellence throughout our Company. We have accomplished a lot this past year for our shareholders and customers, and I am proud to be part of this energized and very engaged team. Turning to Slide 11, our Company today is more efficient, more focused and more aggressive. We are growing market share, building upon our strong customer relationships, and expanding our commercial capabilities while optimizing our footprint. Operational efficiency has been a key focus since our July 2015 spin-off. We have made great strides in this area. We continually evaluate our footprint across the country to optimize our coverage and operations. As in 2016, at times this leads to branch closures that are either in non-strategic, slow-growth markets or represent some redundancy in our footprint. We are also adding new branch locations either through acquisitions or organic growth. In 2016, we also made decisions to eliminate headcount at our Branch Support Center in Daytona. We continually look for opportunities to drive efficiencies and we recently made the move to combine some of our back office operations. We anticipate incurring approximately $2 to $2.5 million in expenses related to these actions and expect a payback in savings in less than two years. Initiatives to increase labor productivity have also been successful. Even small improvements leveraged across our installer base of over 5,000 can deliver significant savings to our bottom line. This improved productivity is a distinct advantage for our business as the industry faces labor constraints. Our hiring process has improved dramatically, and new installers can be on the job in…

To put a wrap on our opening remarks, we are very confident. The external environment is a positive and should remain that way. We have a business model that includes both installation and distribution as a differentiator, a set of strategic initiatives that are simple and direct, and most importantly a team that is executing well. For all those reasons, we expect 2017 to be another year of significant growth for TopBuild. Operator, we are now ready for questions.

Thank you. [Operator Instructions] And our first question comes from the line of Scott Rednor with Zelman. Please proceed with your question.

Hey, good morning and congrats on a great year.

Thanks, Scott.

Thanks, Scott.

Was just hoping we are clearly two months into the year, I think that there’s a fair amount of concerns across building products based about 1Q comps clearly you guys benefitted last year with really a strong 1Q results, can you just give us a flavor for how the year started to-date?

Hey, good morning, Scott. This is Robert. Obviously a great quarter Q1 of 2016, I would say right now we are very busy across the footprint, spring selling season, as we talk to our builder customers, has been strong and off to a good start for them as well. So the builders in general are optimistic, so we expect absolutely a positive comp to last year, backlogs relative to commercial look good as well. So I’d say we are very positive and very optimistic here as we’re finishing up the second month of the quarter.

Okay, great. And then on the distribution side, I think probably the extent of the sales volume growth excuse me got mere this year amass because of the price declines. Is there anything unusual that if the housing environment has a same kind of backdrop in 2017 that you can grow volume at the same rate that you’re doing distribution as you did in 2016?

Yeah and this is Robert, Scott. I think we feel good about that, we are doing a great job of growing the business on distribution in some of the key strategic areas that Jerry mentioned. If I think about commercial, nice growth in the commercial side on the distribution. If I think about spray foam, key things that we’ve been driving relative to TopBuild, we saw a nice growth in those areas in the distribution business last year as well. So we feel like they are absolutely should be nice volume growth on the distribution side here in 2017 as well.

Scott, one thing I would add to that, this is Jerry talking that is that for the kind of reasons we spoke about Service Partners as a real key element to our overall model. They provide a lot of balance in the full cycle – full housing cycle we know from history that Service Partners is a real important piece to have to our puzzle. But even aside from that I mean we view Service Partners going forward as a growth vehicle, you can look for us to be more aggressive relative to the kinds of things, we may do with that model. Its more – its not just a defensive piece of our portfolio, but we are going to be viewing that as a much more aggressively looking to understand things that we can do. In our M& pipeline could include some aspects of distribution that’s certainly not off the table at all. And there’s lot of things, we can do with that model and Sean Cusak, our new President there, is going to get a lot of attention from – probably more attention than he cares to get from Robert and others here as we chart a fast forward for Service Partners, that we are very optimistic about.

It just brings me to last question. Just on the M&A side, clearly you guys are showing good operational improvement and some of that’s from the way you would argue as very aggressive M&A over the last past cycle that wasn’t optimized from an efficiency standpoint. So recognizing where you are now, and you are adding how do you go about both kind of optimizing the footprint, from a legacy standpoint and when you are adding M&A make sure that you are not adding redundant costs, so it seems like that’s a balancing act you are pursuing, so why don’t you give some more clarity on kind of how do you refine that strategy?

Jerry, here Scott. I would say that one thing I think that’s a bit unique about us – we have a fairly mature national footprint. So not always but generally when we are acquiring a company, we typically have an operation in that geography. So in many cases what we are doing is understanding how we can combine the acquired company with our existing operation there. That’s not always true but I would say more often than not it is. And so what we are doing is finding a way to obtain any synergy that we can from a back office standpoint while at the same time, not disturbing the go-to-market and the customer-facing because one of the things we look at and we look forward with an acquired company is a strong brand and the last thing that we will want to do is to disrupt that customer approaching. So it is looking at ways to synergize with our existing operation and that’s the relationship to the acquisition world. But even aside from that, as Robert spoke to in his prepared comments it has been a huge focus of ours coming out of our previous world with Masco as the parent company, we really did turn ourselves loose on thinking about all kinds of things differently. And as a result of that, we have driven some nice improvements in the efficiency in 2016. Now I will tell you that it is going to be hard to top the trajectory of what we did in 2016 but we still believe we have further improvements to make. And we are all about looking at ourselves and this relates to not only the branches, this also relates to our various corporate centers, which we now call brand support centers because that’s how we view ourselves here in Daytona. Our purpose in life here is to support our branches and help them make money. So it is about an overall Company mindset here relative to how to improve our cost model.

[Operator Instructions] Our next question comes from the line of Keith Hughes with SunTrust. Please proceed with your question.

Thank you. You were mentioning earlier about I think potential M&A around the distribution unit, would you be open to either the acquisition or organically distributing order selection of other products and installation through Service Partners.

We have an open mind relative to what to do with Service Partners going forward and how to grow it. Some key ways of looking at that Keith would be, it would have to be something that we think either from a margin perspective or from a return on assets perspective would be good news for us. So it’s got to be something that is financially sound and typically what leads to making that happen is something that we could be significant on the uplift, where we would have a reasonable purchasing advantage from that perspective. So that’s one thing, but we have a footprint on the Service Partners side that’s broad. So we have over 75 branches in Service Partners and there are situations that even exist today whereby we do something at a particular branch because there is unique set of circumstances with the customer or whatever whereby we could do something effectively. And we’re already doing that and we certainly will be looking forward to continue to do that on a selective basis. And then to answer your question directly, if there is something that we can come up with or something that we are looking at that could be a broader approach to add to our installation world there we’ll certainly be looking at doing that.

Okay. And your commentary on pricing earlier sounds like maybe some modest increases first half of the year, would we see those both in TruTeam as well as Service Partners kind of a opposite to 2016 one going up, one going down.

Keith, this is Robert. Yes, we expect in both businesses to see that as we – as there was growth last year in housing, we expect growth obviously again this year in housing which impacts capacities probably some maintenance going on in the industry relative to furnaces – that type of things so we expect that to be positive on both businesses.

And just a final question on Service Partners, the price mix decline that you saw in 2016, can you give us any indication, how much of that was priced and how was…

Keith, this is John, it was basically all priced for the most part. So I think we reported a 2.3% decline for the year and 2.8% for the quarter and that was basically all priced – most of that in fiberglass pricing.

Okay. Thank you.

You’re welcome.

[Operator Instructions] And we are showing no further questions at this time. I will turn the conference back over to you.

Thank you for your support. Please follow-up with us regarding any remaining questions and we look forward to talking to you in early May when we report our first quarter 2017 results.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a good day everyone.