Tabitha Zane – Vice President-Investor Relations Jerry Volas – Chief Executive Officer John Peterson – Chief Financial Officer Robert Buck – President and Chief Operating Officer.

Scott Rednor – Zelman Keith Hughes – SunTrust.

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 the industry leading insulation distribution company. Leveraging these two creates significant scale advantage, enables us to reach to a very fragmented builder community and is an important differentiator for TopBuild.

Moving on to the conversion of that strong top line growth to the bottom line, the dropdown to adjusted EBITDA for the quarter was 23.2% bringing the total year in at 29.4%. An important driver of that performance is the operational improvements we’ve implemented throughout our Company.

While these numbers indicate substantial progress in 2016, we believe there is more to come in 2017 and beyond. Robert will talk further about these fundamental operational improvements that are driving this strong margin conversion. M&A is an important aspect of our projected growth and our number one capital allocation priority.

As we have commented on prior calls, we have increased dedicated resources to execute on accretive acquisitions. Our definition of accretive includes not only sound financial fundamentals, but also improved share in targeted regions and management talent, all of which, over time, will have a halo effect on overall Company performance.

With the two acquisitions just announced, we have now acquired four companies that fit these criteria in the last six months. In total, these companies will contribute approximately $41 million of annual revenue and provide some seasoned talent to drive performance. The further good news here is that the acquisition pipeline is full.

That’s very important because, for a variety of reasons, not all of those in the pipeline reach the finish line. But we are confident that a steady stream will be completed as we move forward. Finally, on the important subject of capital allocation, we believe acquisitions are the best use of capital to drive value for our shareholders.

However, we currently have a conservative balance sheet and an expectation of significant cash generation will continue as we improve our operations within the context of a housing recovery that we believe has several years yet to go. That will create additional capital available to return to our shareholders.

Therefore, our Board has authorized a $200 million share repurchase program over the next 24 months that we plan to aggressively execute. Before turning the call over to John and Robert, let me say a few words related to the external environment. In short, we see it as a net positive. The new administration in Washington D.C.

has articulated an agenda, from tax reform to fewer regulations that is generally positive for U.S. business. This agenda would only add to the current tailwinds. More specific to TopBuild, the builder community remains optimistic around the supply/demand fundamentals.

Household formations continue to increase and the pent up demand for new construction may take several years to satisfy. So, this external environment, largely beyond our control, shapes up as a big positive for TopBuild.

In addition, we have the previously discussed top line, bottom line, M&A and capital allocation initiatives that are under our control. We believe the result will be significant top and bottom line growth in 2017 and beyond, and value creation for our shareholders. Let me now turn the call over to John..

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 greater operational efficiencies we continue to deliver across the entire organization. Processes and procedures have been streamlined and optimized, unprofitable branches have been closed and redundant positions eliminated. Now let’s turn to segment results.

As you can see on Slide 7, our TruTeam segment had an outstanding year with revenue growing 8.8%, exceeding lagged housing starts. The increase was driven by volume growth in both Residential and Commercial along with improved selling prices.

Adjusted operating margin for TruTeam in 2016 was 8.6%, compared to 5.1% in 2015, an outstanding 350 basis point improvement. The gains were driven by improved pricing, better labor utilization, lower material cost and volume leverage on our national footprint.

Moving to the next Slide, Service Partners’ 2016 revenue increased 4.7% to $677 million, primarily driven by a 7% increase in volume, partially offset by a 2.3% selling price decline due primarily to lower fiberglass material cost from excess supply in the industry.

2016 adjusted operating margin for Service Partners was 8.9%, a 20 basis point improvement from the prior year. During the fourth quarter, Service Partners was able to balance the relationship between selling price and material cost facilitating a 20 basis point operating margin expansion.

As we’ve previously discussed, the Service Partners’ model is more variable cost driven and does not leverage to the same extent as TruTeam. Despite that, and notwithstanding the challenging industry dynamics driven by excess capacity, Service Partners delivered strong growth and operating margins above an already strong 2015.

TopBuild’s reported fourth quarter SG&A increased $7.6 million, or 12.3%, to $69.1 million primarily as a result of the prior year one-time, favorable reserve adjustment related to an employee benefit policy change at TruTeam of which $3.8 million impacted SG&A, as well as higher stock-based compensation, bonus expense and legal settlements.

As a percentage of sales, SG&A was 15.6% compared to 14.4% a year ago. For the 12 months, SG&A as a percentage of sales were 16% versus 17% a year ago. This decrease is a direct result of lower corporate expenses and cost savings initiatives we’ve implemented over the past year; partially offset by the items I just mentioned.

Turning to Slide 9, on an adjusted basis, income per diluted share from continuing operations was $0.59 for the fourth quarter compared to $0.52 for the prior year. For the full year, on an adjusted basis, income per diluted share from continuing operations was $1.96 compared to $1.33 for full year 2015, a very healthy 47.4% improvement.

Our actual tax rate for fourth quarter 2016 was 38.6% and the full year finished at 37.6%. We continue to believe the normalized tax rate for the business is 38%. As you can see on Slide 10, reinvestment to support our growth remains very moderate.

We reinvested $14.2 million in capital spending, below our investment guidance of approximately 1% of sales. Working capital as a percent of sales at the end of the fourth quarter was 7.3%, compared to 6.2% a year ago.

The 110 basis point increase is the result of a combination of higher accounts receivable due to an increase in our commercial business and a change in supplier and material mix which has led to some reductions versus our historical AP balances. We would advise on a year-end target of approximately 7% of sales when modeling working capital in 2017.

At the end of December, we had cash and cash equivalents of $134.4 million and availability under our revolving credit facility of $75.9 million for total liquidity of $210.3 million. Our total debt to adjusted EBITDA was 1.25.

Before turning the call over to Robert, I want to briefly discuss the $200 million, two year share repurchase program we announced today. We remain committed to a blended capital allocation approach emphasizing accretive acquisitions first and share repurchase second.

As our recent M&A activity demonstrates, we have an active program with a good pipeline that we expect will deliver strong results now and in the future. That said, our ample liquidity, moderate leverage and the ability to generate strong free cash flow led the Board to authorize the $200 million share repurchase.

We view this as an effective vehicle to return capital to our shareholders while at the same time optimizing and resetting our capital structure and we expect to be aggressive in utilizing the Board authorization. We’re excited about delivering strong shareholder returns through our blended approach.

Robert?.

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 24 hours instead of the four to five days it used to take.

And, it should be noted, we are still performing the extensive background checks required of all employees prior to joining our team. In this tight labor market, we feel that we are taking proactive steps that are allowing us to grow our business and provide great local service to our customers.

All of these initiatives, as well as others, are in large part responsible for the significant improvement we’ve seen in our incremental EBITDA and adjusted operating margins. We continue to be relentless in the area of operational excellence.

We’ve made some changes at Service Partners, including the appointment of Sean Cusak as President of this business. Sean served in a number of senior roles with Service Partners for 15 years prior to his brief departure in 2015 and we are thrilled to have him back on our team.

Sean is well on his way to driving positive change within Service Partners that will deliver both short-term and long-term results. The enhancements to our management team continue to yield solid results.

We believe we have the best operators leading our business and driving the strategy to deliver growth in both the residential and commercial businesses. Our energized regional and branch leadership teams helped increase 2016 sales at TruTeam by 8.8%, well ahead of lagged starts. Volume growth at Service Partners last year was a healthy 7%.

Moving to the next slide. In 2017, our TruTeam results will be bolstered by the addition of four acquisitions, three of which were completed in the past 60 days. Midwest Fireproofing, EcoFoam and MR Insulfoam. Combined, these four acquisitions are expected to contribute almost $41 million of revenue this year.

These companies complement our growth strategy with experienced management teams and strong customer relationships. We are confident they will significantly enhance our footprint and market share in their respective regions.

As both Jerry and John have mentioned, we have significantly ramped up our M&A capabilities and are pleased with our robust pipeline of acquisition targets and the progress being made to close deals.

I think it is important to point out that as we evaluate our acquisition opportunities we are particularly focused on deals that are appropriately accretive to our existing footprint and current operations, our strategic growth initiatives and deals that leverage our scale advantages in a meaningful way.

We have a team of industry veterans now dedicated 100% to executing our M&A strategy, our number one capital allocation priority. On the commercial front, TruTeam achieved solid revenue growth of 13% for 2016 with this business now accounting for approximately 18% of our total TruTeam revenue.

Midwest Fireproofing, acquired in January, expands our product offerings and opens the door to a broad array of well-established contractor relationships. Looking at 2017, we are extremely excited about our prospects for profitable growth at both TruTeam and Service Partners.

During our last call, I talked about the price increases announced by the fiber glass manufacturers that were to take effect in January. While the increases have not been to the manufacturers’ announced thresholds, we have seen some traction with the increase in our local markets.

Assuming positive housing trends continue and the labor market remains tight, we expect both businesses will see stronger selling prices this year. We also believe that we will see a good uptick in our single family business as the single-family starts growth is strong.

Our team is focused on continuing to grow market share, including custom builder business, increasing our share of spray foam with our installation and distribution businesses, as well as identifying additional areas that will continue to enhance our operational efficiencies. I will now turn the call back over to Jerry for some summary comments..

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..