TopBuild Reports Second Quarter 2019 Results - TopBuild (NYSE:BLD)

8.9% increase in net sales
260 bps gross margin expansion
11.5% operating margin, 11.6% on an adjusted basis, up 210 bps
$1.51 net income per diluted share, $1.43 on an adjusted basis
33.2% increase in adjusted EBITDA
260 basis point increase in adjusted EBITDA margin to 14.2%

DAYTONA BEACH, Fla., Aug. 01, 2019 (GLOBE NEWSWIRE) -- TopBuild Corp. BLD, a leading installer and distributor of insulation and building material products today reported results for the second quarter ended June 30, 2019.

Jerry Volas, Chief Executive Officer, stated, "TopBuild reported another strong quarter, led by TruTeam's growth in both commercial and residential new construction. Operating margins at TruTeam and Service Partners expanded as we continue to drive operational efficiencies throughout our Company.

"Once again, our results demonstrate the strengths of our uniquely diversified business model, along with our focus on profitable growth. We look forward to a solid second half of the year."

Second Quarter Financial Highlights

(unless otherwise indicated, comparisons are to the quarter ended June 30, 2018)

Net sales increased 8.9% to $660.1 million, primarily driven by acquisitions and increased selling prices in both operating segments. Same branch contributed 95.2% of total revenue.
Gross margin increased 260 basis points to 26.5%.
Operating profit was $76.0 million, compared to operating profit of $43.7 million. On an adjusted basis, operating profit was $76.4 million, compared to $57.8 million, a 32.2% improvement.
Operating margin was 11.5%, up 430 basis points. Adjusted operating margin improved 210 basis points to 11.6%.
Net income was $52.1 million, or $1.51 per diluted share, compared to $27.2 million, or $0.76 per diluted share. Adjusted income was $49.5 million, or $1.43 per diluted share, compared to $36.9 million, or $1.03 per diluted share.
Adjusted EBITDA was $94.0 million, compared to $70.6 million, a 33.2% increase, and adjusted EBITDA margin improved 260 basis points to 14.2%.
Incremental EBITDA margin was 43.3%. On a same branch basis, adjusted EBITDA was $87.7 million, a 24.3% increase, and incremental EBITDA margin was 76.3%.
At June 30, 2019, the Company had cash and cash equivalents of $141.8 million and availability under its revolving credit facility of $187.1 million for total liquidity of $328.9 million.

Six Month Financial Highlights

(unless otherwise indicated, comparisons are to six months ended June 30, 2018)

Net sales increased 16.6% to $1,279.4 million. On a same branch basis, revenue increased 5.2% to $1,154.5 million.
Gross margin expanded 250 basis points to 25.8%.
Operating profit was $132.7 million, compared to operating profit of $77.6 million. On an adjusted basis, operating profit was $135.5 million, compared to $96.0 million, a 41.2% improvement.
Operating margin was 10.4%. On an adjusted basis, operating margin improved 190 basis points to 10.6%.
Net income was $90.0 million, or $2.60 per diluted share, compared to $53.5 million, or $1.49 per diluted share. Adjusted income was $86.1 million, or $2.49 per diluted share, compared to $63.1 million, or $1.76 per diluted share.
Adjusted EBITDA was $168.6 million, compared to $116.6 million, a 44.6% increase. Adjusted EBITDA margin was 13.2%, a 260-basis point improvement.
Incremental EBITDA margin was 28.6%. On a same branch basis, adjusted EBITDA grew 24.3% to $144.9 million and incremental EBITDA margin was 49.5%.

Operating Segment Highlights ($ in 000s)
(comparisons are to the period ended June 30, 2018)

TruTeam	3 Months Ended 6/30/19			6 Months Ended 6/30/19			Service Partners	3 Months Ended 6/30/19			6 Months Ended 6/30/19
Sales	$	483,028		$	932,410		Sales	$	213,487		$	417,951
Change							Change
Volume		1.4	%		2.7	%	Volume		(2.6	%)		(2.5	%)
Price		4.3	%		5.1	%	Price		5.1	%		5.9	%
M&A		6.8	%		15.1	%	M&A		1.3	%		2.8	%
Total Change		12.5	%		22.9	%	Total Change		3.8	%		6.2	%
Operating Margin		14.2	%		12.8	%	Operating Margin		9.9	%		10.0	%
Change		260	bps		240	bps	Change		20	bps		40	bps
Adj. Operating Margin		14.2	%		12.9	%	Adj. Operating Margin		9.9	%		10.0	%
Change		260	bps		240	bps	Change		20	bps		40	bps

Capital Allocation
Acquisitions
On July 15, the Company acquired Viking Insulation based in Burbank, California. Viking focuses on fiberglass installation in a wide variety of light commercial and residential projects. For the trailing twelve months ended March 31, 2019, Viking generated approximately $9.0 million in revenue.

Volas stated, "Viking Insulation is an outstanding addition to TruTeam. Viking has operated in Southern California for 35 years with strong customer relationships throughout the region. Acquisitions remain our top capital allocation priority. Our dedicated M&A team is working with a healthy pipeline of prospects, some of which we expect will become valuable additions to TopBuild over the next several quarters."

Share Repurchases
In the second quarter of 2019, the Company repurchased 196,885 shares at an average price of $75.57 per share. These shares were purchased as part of the Company's $200 million share repurchase authorization announced on February 26, 2019. As of June 30, 2019, approximately $180 million of the $200 million authorization remained.

2019 Revenue and Adjusted EBITDA Outlook
The Company has lowered its outlook for housing starts for 2019 to a range of 1.23 million to 1.27 million from the previous range of 1.26 million to 1.3 million starts. Accordingly, the high end of the Company's revenue outlook has been lowered by $30 million while the low end of its revenue range remains unchanged. The Company has also raised the low and high end of its adjusted EBITDA outlook by $15 million and $5 million, respectively.


2019	Low		High
Revenue	$2,610M		$2,640M
Adjusted EBITDA*	$345M		$355M
*See table below for adjusted EBITDA reconciliation


Assumptions ($ in millions):
2019	Low		High
Housing Starts	1,230K		1,270K
Estimated net income	$	170.5	$	185.6
Interest Expense and other, net	$	38.9	$	35.9
Income tax expense	$	61.5	$	66.9
Depreciation and Amortization	$	54.0	$	50.0
Share based compensation	$	14.6	$	12.1

This outlook reflects management's current view of present and future market conditions and is based on assumptions such as housing starts, general and administrative expenses, weighted average diluted shares outstanding and interest rates. This outlook does not include any effects related to potential acquisitions or divestitures that may occur after the date of this press release. Factors that could cause actual 2019 results to differ materially from TopBuild's current expectations are discussed below and are also detailed in the Company's 2018 Annual Report on Form 10-K and subsequent SEC reports.

Additional Information
Quarterly supplemental materials, including a presentation that will be referenced on today's conference call, are available on the "Investors" section of the Company's website at www.topbuild.com.

Conference Call
A conference call to discuss second quarter 2019 financial results is scheduled for today, Thursday, August 1, at 9:00 a.m. Eastern Time. The call may be accessed by dialing (888) 225-2706. The conference call will be webcast simultaneously on the "Investors" section of the Company's website at www.topbuild.com.

About TopBuild
TopBuild Corp., a Fortune 1000 Company headquartered in Daytona Beach, Florida, is a leading installer and distributor of insulation and building material products to the U.S. construction industry. We provide insulation and building material services nationwide through TruTeam^®, which has close to 200 branches, and through Service Partners^® which distributes insulation and building material products from over 75 branches. We leverage our national footprint to gain economies of scale while capitalizing on our local market presence to forge strong relationships with our customers. To learn more about TopBuild please visit our website at www.topbuild.com.

Use of Non-GAAP Financial Measures
EBITDA, incremental EBITDA margin, adjusted EBITDA margin, the "adjusted" financial measures presented above, and figures presented on a "same branch basis" are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). The Company believes that these non-GAAP financial measures, which are used in managing the business, may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. We define same branch sales as sales from branches in operation for at least 12 full calendar months. Such non-GAAP financial measures are reconciled to their closest GAAP financial measures in tables contained in this press release. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results under GAAP. Additional information may be found in the Company's filings with the Securities and Exchange Commission which are available on TopBuild's website under "Investors" at www.topbuild.com.

Safe Harbor Statement
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements may address, among other things, our expected financial and operational results and the related assumptions underlying our expected results. These forward-looking statements are distinguished by use of words such as "will," "would," "anticipate," "expect," "believe," "designed," "plan," or "intend," the negative of these terms, and similar references to future periods. These views involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forward-looking statements. Our forward-looking statements contained herein speak only as of the date of this press release. Factors or events that we cannot predict, including those described in the risk factors contained in our filings with the Securities and Exchange Commission, may cause our actual results to differ from those expressed in forward-looking statements. Although TopBuild believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be achieved and it undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events, or otherwise, except as required by applicable law.

Investor Relations and Media Contact
Tabitha Zane
tabitha.zane@topbuild.com
386-763-8801

TopBuild Corp.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per common share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net sales	$	660,112		$	605,969		$	1,279,442		$	1,097,412
Cost of sales		485,190			460,928			948,824			841,353
Gross profit		174,922			145,041			330,618			256,059

Selling, general, and administrative expense		98,883			101,360			197,960			178,486
Operating profit		76,039			43,681			132,658			77,573

Other income (expense), net:
Interest expense		(9,631	)		(7,322	)		(19,232	)		(9,645	)
Other, net		526			82			858			115
Other expense, net		(9,105	)		(7,240	)		(18,374	)		(9,530	)
Income before income taxes		66,934			36,441			114,284			68,043

Income tax expense		(14,883	)		(9,288	)		(24,249	)		(14,503	)
Net income	$	52,051		$	27,153		$	90,035		$	53,540

Net income per common share:
Basic	$	1.53		$	0.77		$	2.64		$	1.53
Diluted	$	1.51		$	0.76		$	2.60		$	1.49

Weighted average shares outstanding:
Basic		33,976,169			35,102,429			34,072,314			35,081,292
Diluted		34,557,664			35,837,102			34,630,048			35,828,290


TopBuild Corp.
Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)
(dollars in thousands)

	As of
	June 30,			December 31,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	141,767		$	100,929
Receivables, net of an allowance for doubtful accounts of $5,199 and $3,676 at June 30, 2019, and December 31, 2018, respectively		444,823			407,106
Inventories, net		150,282			168,977
Prepaid expenses and other current assets		11,416			27,685
Total current assets		748,288			704,697

Right of use assets		90,735			—
Property and equipment, net		172,719			167,961
Goodwill		1,363,738			1,364,016
Other intangible assets, net		189,041			199,387
Deferred tax assets, net		12,033			13,176
Other assets		4,569			5,294
Total assets	$	2,581,123		$	2,454,531

LIABILITIES
Current liabilities:
Accounts payable	$	288,985		$	313,172
Current portion of long-term debt		32,261			26,852
Accrued liabilities		100,282			104,236
Short-term lease liabilities		36,527			—
Total current liabilities		458,055			444,260

Long-term debt		705,626			716,622
Deferred tax liabilities, net		174,269			176,212
Long-term portion of insurance reserves		43,856			43,434
Long-term lease liabilities		57,312			—
Other liabilities		359			1,905
Total liabilities		1,439,477			1,382,433

EQUITY		1,141,646			1,072,098
Total liabilities and equity	$	2,581,123		$	2,454,531


	As of
	June 30,			June 30,
	2019			2018
Other Financial Data
Receivable days †		53			45
Inventory days †		29			31
Accounts payable days †		78			66
Receivables, net plus inventories, net less accounts payable †	$	306,119		$	271,007
Receivables, net plus inventories, net less accounts payable as a percent of sales (TTM)‡		11.9	%		11.1	%

† Adjusted for remaining acquisition day one balance sheet items
‡ Trailing 12 months sales have been adjusted for the pro forma effect of acquired branches


TopBuild Corp.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)


	Six Months Ended June 30,
		2019			2018
Cash Flows Provided by (Used in) Operating Activities:
Net income	$	90,035		$	53,540
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		25,538			15,185
Share-based compensation		7,485			5,397
Loss on sale or abandonment of property and equipment		561			487
Amortization of debt issuance costs		779			422
Change in fair value of contingent consideration		(50	)		123
Provision for bad debt expense		3,688			1,672
Loss from inventory obsolescence		1,251			928
Deferred income taxes, net		(21	)		375
Change in certain assets and liabilities
Receivables, net		(41,489	)		(22,382	)
Inventories, net		17,391			(11,517	)
Prepaid expenses and other current assets		14,969			(5,363	)
Accounts payable		(23,823	)		220
Accrued liabilities		(1,131	)		2,901
Other, net		1,081			(595	)
Net cash provided by operating activities		96,264			41,393

Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(21,982	)		(27,521	)
Acquisition of businesses, net of cash acquired of $15,756 in 2018		—			(499,050	)
Proceeds from sale of property and equipment		1,961			427
Other, net		22			23
Net cash used in investing activities		(19,999	)		(526,121	)

Cash Flows Provided by (Used in) Financing Activities:
Proceeds from issuance of long-term debt		4,998			515,066
Repayment of long-term debt		(11,364	)		(8,033	)
Payment of debt issuance costs		—			(7,717	)
Proceeds from revolving credit facility		—			90,000
Repayment of revolving credit facility		—			(90,000	)
Taxes withheld and paid on employees' equity awards		(8,471	)		(4,531	)
Repurchase of shares of common stock		(19,499	)		—
Payment of contingent consideration		(1,091	)		(841	)
Net cash (used in) provided by financing activities		(35,427	)		493,944

Cash and Cash Equivalents
Increase for the period		40,838			9,216
Beginning of period		100,929			56,521
End of period	$	141,767		$	65,737

Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	$	110,192		$	—
Accruals for property and equipment		497			864


TopBuild Corp.
Segment Data (Unaudited)
(dollars in thousands)


	Three Months Ended June 30,											Six Months Ended June 30,
	2019				2018				Change			2019				2018				Change
TruTeam
Sales	$	483,028			$	429,423				12.5	%	$	932,410			$	758,817			22.9	%

Operating profit, as reported	$	68,423			$	49,635						$	119,722			$	78,965
Operating margin, as reported		14.2		%		11.6		%					12.8		%		10.4		%

Rationalization charges		81				236							199				453
Acquisition related costs		277				—							403				—
Operating profit, as adjusted	$	68,781			$	49,871						$	120,324			$	79,418
Operating margin, as adjusted		14.2		%		11.6		%					12.9		%		10.5		%

Service Partners
Sales	$	213,487			$	205,621				3.8	%	$	417,951			$	393,387			6.2	%

Operating profit, as reported	$	21,151			$	20,009						$	41,748			$	37,912
Operating margin, as reported		9.9		%		9.7		%					10.0		%		9.6		%

Rationalization charges		—				—							109				25
Operating profit, as adjusted	$	21,151			$	20,009						$	41,857			$	37,937
Operating margin, as adjusted		9.9		%		9.7		%					10.0		%		9.6		%

Total
Sales before eliminations	$	696,515			$	635,044						$	1,350,361			$	1,152,204
Intercompany eliminations		(36,403	)			(29,075	)						(70,919	)			(54,792	)
Net sales after eliminations	$	660,112			$	605,969				8.9	%	$	1,279,442			$	1,097,412			16.6	%

Operating profit, as reported - segments	$	89,574			$	69,644						$	161,470			$	116,877
General corporate expense, net		(7,130	)			(20,686	)						(16,734	)			(29,579	)
Intercompany eliminations and other adjustments		(6,405	)			(5,277	)						(12,078	)			(9,725	)
Operating profit, as reported	$	76,039			$	43,681						$	132,658			$	77,573
Operating margin, as reported		11.5		%		7.2		%					10.4		%		7.1		%

Rationalization charges †		142				4,341							1,969				5,138
Acquisition related costs		251				9,799							903				13,281
Operating profit, as adjusted	$	76,432			$	57,821						$	135,530			$	95,992
Operating margin, as adjusted		11.6		%		9.5		%					10.6		%		8.7		%

Share-based compensation		4,513				2,995							7,485				5,397
Depreciation and amortization		13,062				9,743							25,538				15,185
EBITDA, as adjusted	$	94,007			$	70,559						$	168,553			$	116,574
EBITDA margin, as adjusted		14.2		%		11.6		%					13.2		%		10.6		%

Sales change period over period		54,143											182,030
EBITDA, as adjusted, change period over period		23,448											51,979
EBITDA, as adjusted, as percentage of sales change		43.3		%									28.6		%

† Rationalization charges include corporate level adjustments as well as segment operating adjustments.


TopBuild Corp.
Non-GAAP Reconciliations (Unaudited)
(in thousands, except share and per common share amounts)


	Three Months Ended June 30,								Six Months Ended June 30,
		2019				2018				2019				2018
Gross Profit and Operating Profit Reconciliations

Net sales	$	660,112			$	605,969			$	1,279,442			$	1,097,412

Gross profit, as reported	$	174,922			$	145,041			$	330,618			$	256,059

Rationalization charges		—				155				—				155
Gross profit, as adjusted	$	174,922			$	145,196			$	330,618			$	256,214

Gross margin, as reported		26.5		%		23.9		%		25.8		%		23.3		%
Gross margin, as adjusted		26.5		%		24.0		%		25.8		%		23.3		%

Operating profit, as reported	$	76,039			$	43,681			$	132,658			$	77,573

Rationalization charges		142				4,341				1,969				5,138
Acquisition related costs		251				9,799				903				13,281
Operating profit, as adjusted	$	76,432			$	57,821			$	135,530			$	95,992

Operating margin, as reported		11.5		%		7.2		%		10.4		%		7.1		%
Operating margin, as adjusted		11.6		%		9.5		%		10.6		%		8.7		%

Income Per Common Share Reconciliation

Income before income taxes, as reported	$	66,934			$	36,441			$	114,284			$	68,043

Rationalization charges		142				4,341				1,969				5,138
Acquisition related costs		251				9,799				903				13,281
Income before income taxes, as adjusted		67,327				50,581				117,156				86,462

Tax rate at 26.5% and 27.0% for 2019 and 2018, respectively		(17,842	)			(13,657	)			(31,046	)			(23,345	)
Income, as adjusted	$	49,485			$	36,924			$	86,110			$	63,117

Income per common share, as adjusted	$	1.43			$	1.03			$	2.49			$	1.76

Weighted average diluted common shares outstanding		34,557,664				35,837,102				34,630,048				35,828,290


TopBuild Corp.
Same Branch and Acquisition Net Sales and Adjusted EBITDA (Unaudited)
(dollars in thousands)


	Three Months Ended June 30,								Six Months Ended June 30,
		2019				2018				2019				2018
Net sales
Same branch:
Installation segment	$	453,820			$	429,423			$	817,717			$	758,817
Distribution segment		210,805				205,621				406,881				393,387
Eliminations		(36,241	)			(29,075	)			(70,057	)			(54,792	)
Total same branch		628,384				605,969				1,154,541				1,097,412

Acquisitions (a):
Installation segment	$	29,208			$	—			$	114,693			$	—
Distribution segment		2,682				—				11,070				—
Eliminations		(162	)			—				(862	)			—
Total acquisitions		31,728				—				124,901				—
Total	$	660,112			$	605,969			$	1,279,442			$	1,097,412

EBITDA, as adjusted
Same branch	$	87,671			$	70,559			$	144,875			$	116,574
Acquisitions (a)		6,336				—				23,678				—
Total	$	94,007			$	70,559			$	168,553			$	116,574

EBITDA, as adjusted, as a percentage of sales
Same branch (b)		14.0		%						12.5		%
Acquisitions (c)		20.0		%						19.0		%
Total (d)		14.2		%		11.6		%		13.2		%		10.6		%

As Adjusted Incremental EBITDA, as a percentage of incremental sales
Same branch (e)		76.3		%						49.5		%
Acquisitions (c)		20.0		%						19.0		%
Total (f)		43.3		%						28.6		%

(a) Represents current year impact of acquisitions in their first twevle months
(b) Same branch EBITDA, as adjusted, as a percentage of same branch sales
(c) Acquired EBITDA, as adjusted, as a percentage of acquired sales
(d) Total EBITDA, as adjusted, as a percentage of total sales
(e) Change in same branch EBITDA, as adjusted, as a percentage of change in same branch sales
(f) Change in total EBITDA, as adjusted, as a percentage of change in total sales


TopBuild Corp.
Reconciliation of Adjusted EBITDA to Net Income (Unaudited)
(dollars in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Net income, as reported	$	52,051	$	27,153	$	90,035	$	53,540
Adjustments to arrive at EBITDA, as adjusted:
Interest expense and other, net		9,105		7,240		18,374		9,530
Income tax expense		14,883		9,288		24,249		14,503
Depreciation and amortization		13,062		9,743		25,538		15,185
Share-based compensation		4,513		2,995		7,485		5,397
Rationalization charges		142		4,341		1,969		5,138
Acquisition related costs		251		9,799		903		13,281
EBITDA, as adjusted	$	94,007	$	70,559	$	168,553	$	116,574


TopBuild Corp.
2019 Estimated Adjusted EBITDA Range (Unaudited)
(dollars in millions)


	Twelve Months Ending December 31, 2019
		Low		High
Estimated net income	$	170.5	$	185.6
Adjustments to arrive at estimated EBITDA, as adjusted:
Interest expense and other, net		38.9		35.9
Income tax expense		61.5		66.9
Depreciation and amortization		54.0		50.0
Share-based compensation		14.6		12.1
Rationalization charges		4.0		2.5
Acquisition related costs		1.5		2.0
Estimated EBITDA, as adjusted	$	345.0	$	355.0

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