Market Overview

TopBuild Reports Strong Second Quarter 2018 Results

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Net Sales Increased 27.7%
$0.76 Income Per Diluted Share
$1.03 Income Per Diluted Share on an Adjusted Basis  

Completed Acquisition of USI on May 1
~$410 million of expected annual incremental revenue from companies acquired in 2018


DAYTONA BEACH, Fla., Aug. 07, 2018 (GLOBE NEWSWIRE) -- TopBuild Corp. (NYSE:BLD), the leading purchaser, installer and distributor of insulation products to the United States construction industry, today reported results for the second quarter ended June 30, 2018. 

Jerry Volas, Chief Executive Officer, stated, "We had another strong quarter with sales benefitting from the continued growth in residential and commercial construction. Our team remains focused on profitable growth which includes successfully managing the multiple supplier cost increases announced this year.  

"As a result of the USI acquisition, our national footprint is even stronger, particularly in many of the fastest growing markets.  With over 10,000 employees, including almost 7,000 installers, we are well-positioned to take advantage of the continued strength in residential new construction."

Second Quarter Financial Highlights

(unless otherwise indicated, comparisons are to the quarter ended June 30, 2017)

  • Net sales increased 27.7% to $606.0 million, primarily driven by acquisitions, sales volume growth and increased selling prices in both operating segments.  Of the 27.7% revenue growth, same branch contributed 10.5%.
     
  • Gross margin, impacted by higher material cost, declined 70 basis points to 23.9%.  On an adjusted basis, gross margin declined 60 basis points to 24.0%.
     
  • Operating profit was $43.7 million, compared to operating profit of $40.8 million.  On an adjusted basis, operating profit was $57.8 million, compared to $42.2 million, a 37.0% improvement.
     
  • Operating margin was 7.2%, down 140 basis points.  Adjusted operating margin improved 60 basis points to 9.5%.
     
  • Adjusted EBITDA was $70.6 million, compared to $48.2 million, a 46.4% increase, and adjusted EBITDA margin improved 140 basis points to 11.6%.  Incremental EBITDA margin was 17.0%.   On a same branch basis, adjusted EBITDA was $59.9 million, a 31.4% increase, and incremental EBITDA margin was 23.6%. 
     
  • Net income was $27.2 million, or $0.76 per diluted share, compared to $23.5 million, or $0.63 per diluted share. Adjusted income was $36.9 million, or $1.03 per diluted share, compared to $25.0 million, or $0.67 per diluted share. 
     
  • The five acquisitions completed over the past 12 months contributed $81.9 million of revenue.  Incremental EBITDA related to acquisitions was 13.0%.
     
  • At June 30, 2018, the Company had cash and cash equivalents of $65.7 million and availability under its revolving credit facility of $190.7 million for total liquidity of $256.4 million.

Six Month Financial Highlights

(unless otherwise indicated, comparisons are to six months ended June 30, 2017)

  • Net sales increased 19.8% to $1,097.4 million. On a same branch basis, revenue increased 12.1% to $994.9 million. 
     
  • On both a reported and adjusted basis, gross margin declined 50 basis points to 23.3%.
     
  • Operating profit was $77.6 million, compared to operating profit of $37.3 million.   On an adjusted basis, operating profit was $96.0 million, compared to $70.8 million, a 35.6% improvement.
     
  • Operating margin was 7.1%.  On an adjusted basis, operating margin improved 100 basis points to 8.7%. 
     
  • Net income was $53.5 million, or $1.49 per diluted share, compared to $21.7 million, or $0.58 per diluted share.  Adjusted income was $63.1 million, or $1.76 per diluted share, compared to $42.0 million, or $1.12 per diluted share. 
     
  • Adjusted EBITDA was $116.6 million, compared to $82.1 million, a 42.0% increase.  Adjusted EBITDA margin was 10.6%, a 160-basis point improvement, and incremental EBITDA margin was 19.0%.  On a same branch basis, adjusted EBITDA grew 32.4% to $104.7 million and incremental EBITDA margin was 28.6%. 

Operating Segment Highlights ($ in 000s)
(comparisons are to the period ended June 30, 2017)

TruTeam 3 Months Ended 6/30/18 6 Months Ended 6/30/18       Service Partners 3 Months Ended 6/30/18 6 Months Ended 6/30/18
Sales $429,423 $758,817   Sales $205,621 $393,387
Change 33.8% 24.0%   Change 17.5% 13.9%
Operating Margin 11.6% 10.4%   Operating Margin 9.7% 9.6%
Change 70 bps 610 bps   Change 0 bps 20 bps
Adj. Operating Margin 11.6% 10.5%   Adj. Operating Margin 9.7% 9.6%
Change 60 bps 120 bps   Change 0 bps 20 bps


Capital Allocation
Acquisitions
In the second quarter, the Company acquired USI, a leading provider of insulation installation and distribution services to the residential and commercial construction markets, for a purchase price of $475 million.  The transaction was financed with proceeds from a $400 million 5.625% Senior Notes offering which closed on April 25th and a $100 million delayed-draw term loan that was available under the Company's existing secured credit facility.

Volas stated, "The integration of USI is proceeding very well and their operating performance was consistent with our initial expectations.  Our team is focused on making the transition as seamless as possible for our customers, employees and suppliers.  We continue to expect at least $15 million in cost saving synergies and have begun exploring cross selling opportunities. 

"Acquisitions remain our number one capital allocation priority and we continue to look for opportunities that will enhance our customer value proposition, market share and earnings growth."   

Year-to-date, the Company has closed three acquisitions which, combined, are expected to generate approximately $410 million of incremental annual revenue. 

2018 Revenue and Adjusted EBITDA Outlook

     
2018 Low High
Revenue $2,358M  $2,398M 
Adjusted EBITDA $269M  $284M 
     

Assumptions:

  • 2018 housing starts between 1.260k and 1.280k
  • Eight months of revenue from USI with $2M to $4M of cost savings synergies
  • $75 million of incremental revenue for every 50,000 increase in new housing starts

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 2018 results to differ materially from TopBuild's current expectations are discussed below and are also detailed in the Company's 2017 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 2018 financial results is scheduled for today, Tuesday,
August 7, at 9:00 a.m. Eastern Time.  The call may be accessed by dialing (800) 920-2997.  The conference call will be webcast simultaneously on the "Investors" section of the Company's website at www.topbuild.com.  

About TopBuild

TopBuild Corp., headquartered in Daytona Beach, Florida, is the leading purchaser, installer and distributor of insulation products to the U.S. construction industry. We provide insulation services nationwide through TruTeam®, which has over 205 branches, and through Service Partners® which distributes insulation 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, 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 per common share amounts)                      
                       
  Three Months Ended June 30,    Six Months Ended June 30, 
  2018     2017     2018     2017  
Net sales $ 605,969     $ 474,458     $ 1,097,412     $ 915,821  
Cost of sales   460,928       357,849       841,353       697,584  
Gross profit   145,041       116,609       256,059       218,237  
                       
Selling, general, and administrative expense (exclusive of significant legal settlement,
shown separately below)
  101,360       75,813       178,486       150,904  
Significant legal settlement                     30,000  
Operating profit   43,681       40,796       77,573       37,333  
                       
Other income (expense), net:                      
Interest expense   (7,322 )     (1,918 )     (9,645 )     (3,288 )
Loss on extinguishment of debt         (1,086 )           (1,086 )
Other, net   82       105       115       212  
Other expense, net   (7,240 )     (2,899 )     (9,530 )     (4,162 )
Income before income taxes   36,441       37,897       68,043       33,171  
                       
Income tax expense   (9,288 )     (14,437 )     (14,503 )     (11,422 )
Net income $ 27,153     $ 23,460     $ 53,540     $ 21,749  
                       
Net income per common share:                      
Basic $ 0.77     $ 0.64     $ 1.53     $ 0.59  
Diluted $ 0.76     $ 0.63     $ 1.49     $ 0.58  
                       
Weighted average shares outstanding:                      
Basic   35,102,429       36,488,222       35,081,292       36,803,979  
Diluted   35,837,102       37,191,299       35,828,290       37,404,193  
                       
                       
                       


TopBuild Corp.            
Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)            
(dollars in thousands)            
  As of  
  June 30,    December 31,   
  2018   2017  
ASSETS            
Current assets:            
Cash and cash equivalents $   65,737   $   56,521  
Receivables, net of an allowance for doubtful accounts of $3,303 and $3,673 at June 30, 2018, and December 31, 2017, respectively     396,220       308,508  
Inventories, net     158,495       131,342  
Prepaid expenses and other current assets     23,929       15,221  
Total current assets     644,381       511,592  
             
Property and equipment, net     159,265       107,121  
Goodwill     1,362,861       1,077,186  
Other intangible assets, net     210,345       33,243  
Deferred tax assets, net     17,634       18,129  
Other assets     6,130       2,278  
Total assets $   2,400,616   $   1,749,549  
             
LIABILITIES            
Current liabilities:            
Accounts payable $   283,708   $   263,814  
Current portion of long-term debt - term loan     17,500       12,500  
Current portion of long-term debt - equipment notes     2,800       —  
Accrued liabilities     108,951       75,087  
Total current liabilities     412,959       351,401  
             
Long-term debt - term loan     315,926       229,387  
Long-term debt - equipment notes     11,734       —  
Long-term debt - Senior Notes     393,666       —  
Deferred tax liabilities, net     168,590       132,840  
Long-term portion of insurance reserves     43,925       36,160  
Other liabilities     2,891       3,242  
Total liabilities     1,349,691       753,030  
             
EQUITY     1,050,925       996,519  
Total liabilities and equity $   2,400,616   $   1,749,549  
             
   As of   
  June 30,    June 30,   
  2018   2017  
Other Financial Data            
Receivable days †     45       45  
Inventory days †     31       29  
Accounts payable days †     66       83  
Receivables, net plus inventories, net less accounts payable † $   271,007    $    165,965  
Receivables, net plus inventories, net less accounts payable as a percent of sales (TTM)‡     11.1     8.8 %
             
† 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.          
Consolidated Statement of Cash Flows           
(in thousands)          
           
  Six Months Ended June 30, 
  2018
  2017
Net Cash Provided by (Used in) Operating Activities:                
Net income $ 53,540     $ 21,749  
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   15,185       6,835  
Share-based compensation   5,397       5,101  
Loss on extinguishment of debt         1,086  
Loss on sale or abandonment of property and equipment   487       285  
Amortization of debt issuance costs   422       186  
Change in fair value of contingent consideration   123        
Provision for bad debt expense   1,672       1,750  
Loss from inventory obsolescence   928       826  
Deferred income taxes, net   375        
Change in certain assets and liabilities          
Receivables, net   (22,382 )     (25,123 )
Inventories, net   (11,517 )     5,908  
Prepaid expenses and other current assets   (5,363 )     7  
Accounts payable   220       (3,124 )
Accrued liabilities   2,901       9,787  
Other, net   (595 )     398  
Net cash provided by operating activities   41,393       25,671  
           
Cash Flows Provided by (Used in) Investing Activities:          
Purchases of property and equipment   (27,521 )     (8,571 )
Acquisition of businesses, net of cash acquired of $15,756 in 2018   (499,050 )     (83,932 )
Proceeds from sale of property and equipment   427       126  
Other, net   23       147  
Net cash used in investing activities   (526,121 )     (92,230 )
           
Cash Flows Provided by (Used in) Financing Activities:          
Proceeds from issuance of Senior Notes   400,000        
Proceeds from issuance of term loan   100,000       250,000  
Repayments of term loan   (7,500 )     (180,000 )
Proceeds from equipment notes   15,066        
Repayments of equipment notes   (533 )      
Proceeds from revolving credit facility   90,000        
Repayment of revolving credit facility   (90,000 )      
Payment of debt issuance costs   (7,717 )     (2,150 )
Taxes withheld and paid on employees' equity awards   (4,531 )     (2,147 )
Repurchase of shares of common stock         (39,286 )
Payment of contingent consideration   (841 )      
Net cash provided by financing activities   493,944       26,417  
           
Cash and Cash Equivalents          
Increase (decrease) for the period   9,216       (40,142 )
Beginning of year   56,521       134,375  
End of period $ 65,737     $ 94,233  
           
Supplemental disclosure of noncash investing activities:          
Accruals for property and equipment $ 864     $ 655  
               
               
               


TopBuild Corp.                                  
Segment Data (Unaudited)                                  
(dollars in thousands)                                  
                                   
  Three Months Ended June 30,          Six Months Ended  June 30,       
    2018     2017   Change        2018     2017   Change   
Installation                                  
Sales $ 429,423   $ 320,984   33.8 %   $ 758,817   $ 611,870   24.0 %
                                   
Operating profit, as reported $ 49,635   $ 35,086         $ 78,965   $ 26,123      
Operating margin, as reported     11.6     10.9 %           10.4 %          4.3 %    
                                   
Significant legal settlement                     30,000      
Rationalization charges   236     171           453     582      
Operating profit, as adjusted $ 49,871   $ 35,257         $ 79,418   $ 56,705      
Operating margin, as adjusted     11.6 %     11.0 %           10.5 %     9.3 %    
                                   
Distribution                                   
Sales $ 205,621   $ 175,062   17.5 %   $ 393,387   $ 345,306   13.9 %
                                   
Operating profit, as reported $ 20,009   $ 17,022         $ 37,912   $ 32,506      
Operating margin, as reported     9.7 %     9.7 %           9.6 %     9.4 %    
                                   
Rationalization charges       17           25     17      
Operating profit, as adjusted $ 20,009   $ 17,039         $ 37,937   $ 32,523      
Operating margin, as adjusted     9.7 %     9.7 %           9.6 %     9.4 %    
                                   
Total                                  
Sales before eliminations $ 635,044   $ 496,046         $ 1,152,204   $ 957,176      
Intercompany eliminations   (29,075 )   (21,588         (54,792   (41,355    
Net sales after eliminations $ 605,969   $ 474,458   27.7 %   $ 1,097,412   $ 915,821   19.8 %
                                   
Operating profit, as reported - segment $ 69,644   $ 52,108         $ 116,877   $ 58,629      
General corporate expense, net   (20,686   (7,632         (29,579   (14,316 )    
Intercompany eliminations and other adjustments   (5,277 )   (3,680         (9,725   (6,980    
Operating profit, as reported $ 43,681   $ 40,796         $ 77,573   $ 37,333      
Operating margin, as reported     7.2 %     8.6 %           7.1 %     4.1 %    
                                   
Significant legal settlement                     30,000      
Rationalization charges   4,341     1,258           5,138     2,995      
Acquisition related costs   9,799     145           13,281     437      
Operating profit, as adjusted $ 57,821   $ 42,199         $ 95,992   $ 70,765      
Operating margin, as adjusted     9.5 %     8.9 %           8.7 %     7.7 %    
                                   
Share-based compensation ‡   2,995     2,403           5,397     4,487      
Depreciation and amortization   9,743     3,605           15,185     6,835      
EBITDA, as adjusted $ 70,559   $ 48,207         $ 116,574   $ 82,087      
EBITDA margin, as adjusted     11.6 %     10.2 %           10.6 %     9.0 %    
                                   
Sales change period over period     131,511                   181,591            
EBITDA, as adjusted, change period over period     22,352                   34,487            
EBITDA, as adjusted, as percentage of sales change     17.0 %                 19.0 %          
                                   
† Rationalization charges include corporate level adjustments as well as segment operating adjustments.                  
‡ Amounts for the three and six month periods ending June 30, 2017, exclude $0.6 million of share-based compensation included in the line item, rationalization charges. 
             
             
             


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,   
  2018   2017   2018   2017  
Gross Profit and Operating Profit Reconciliations                        
                         
Net sales $   605,969   $   474,458   $   1,097,412   $   915,821  
                         
Gross profit, as reported $   145,041   $   116,609   $   256,059   $   218,237  
                         
Rationalization charges   155         155      
Gross profit, as adjusted $   145,196   $   116,609   $   256,214   $   218,237  
                         
Gross margin, as reported   23.9 %   24.6 %   23.3 %   23.8 %
Gross margin, as adjusted   24.0 %   24.6 %   23.3 %   23.8 %
                         
Operating profit, as reported $   43,681   $   40,796   $   77,573   $   37,333  
                         
Significant legal settlement               30,000  
Rationalization charges   4,341     1,258     5,138     2,995  
Acquisition related costs   9,799     145     13,281     437  
Operating profit, as adjusted $   57,821   $   42,199   $   95,992   $   70,765  
                         
Operating margin, as reported   7.2 %   8.6 %   7.1 %   4.1 %
Operating margin, as adjusted   9.5 %   8.9 %   8.7 %   7.7 %
                         
Income Per Common Share Reconciliation                        
                         
Income before income taxes, as reported $ 36,441   $ 37,897   $ 68,043   $ 33,171  
                         
Significant legal settlement               30,000  
Rationalization charges   4,341     1,258     5,138     2,995  
Acquisition related costs   9,799     145     13,281     437  
Loss on extinguishment of debt       1,086         1,086  
Income before income taxes, as adjusted     50,581       40,386       86,462       67,689  
                         
Tax rate at 27% and 38% for 2018 and 2017, respectively   (13,657 )   (15,347 )   (23,345 )   (25,722 )
Income, as adjusted $   36,924   $   25,039   $   63,117   $   41,967  
                         
Income per common share, as adjusted $   1.03   $   0.67   $   1.76   $   1.12  
                         
Weighted average diluted common shares outstanding   35,837,102     37,191,299     35,828,290     37,404,193  
                         
                         
                         


TopBuild Corp.                        
Same Branch Net Sales and Adjusted EBITDA (Unaudited)                        
(dollars in thousands)                        
                         
  Three Months Ended June 30,    Six Months Ended June 30,   
  2018   2017   2018   2017  
Net sales                        
Same branch $ 524,067   $ 453,648   $ 994,942   $ 887,425  
Acquired   81,902     20,810     102,470     28,396  
Total $ 605,969   $ 474,458   $ 1,097,412   $ 915,821  
                         
EBITDA, as adjusted                        
Same branch $ 59,933   $ 45,599   $ 104,690   $ 79,050  
Acquired   10,626     2,608     11,884     3,037  
Total $ 70,559   $ 48,207   $ 116,574   $ 82,087  
                         
Change in total EBITDA, as adjusted, as percentage of total sales change   17.0 %   36.5 %   19.0 %   34.6 %
                         
Change in same branch EBITDA, as adjusted, as percentage of same branch sales change   20.4 %   59.1 %   23.8 %   50.8 %
Change in acquired EBITDA, as adjusted, as percentage of acquired sales change   13.1 %   12.5 %   11.9 %   10.7 %
                         
Same branch change in EBITDA, as adjusted, and total prior year EBITDA (inclusive of prior
year acquired EBITDA), as adjusted, as a percentage of the change in current period same
branch sales and total prior year sales (inclusive of prior year acquired sales)
  23.6 %   59.1 %   28.6 %   50.8 %
Acquired EBITDA, as adjusted, as a percentage of acquired sales   13.0 %   12.5 %   11.6 %   10.7 %
     
     
     


TopBuild Corp.                      
Reconciliation of EBITDA to Net Income (Unaudited)                      
(in thousands)                          
                             
  Three Months Ended June 30,    Six Months Ended June 30, 
  2018   2017   2018   2017
Net income, as reported $   27,153   $   23,460   $   53,540   $   21,749
Adjustments to arrive at EBITDA, as adjusted:                                                                                     
Interest expense and other, net   7,240     1,813     9,530     3,076
Income tax expense   9,288     14,437     14,503     11,422
Depreciation and amortization   9,743     3,605     15,185     6,835
Share-based compensation †   2,995     2,403     5,397     4,487
Significant legal settlement               30,000
Rationalization charges   4,341     1,258     5,138     2,995
Loss on extinguishment of debt       1,086         1,086
Acquisition related costs   9,799     145     13,281     437
EBITDA, as adjusted $   70,559   $   48,207   $   116,574   $   82,087
                       
† Amounts for the three and six month periods ending June 30, 2017, exclude $0.6 million of share-based compensation included in the line item, rationalization charges.
                       
                       
                       


TopBuild Corp.          
2018 Estimated Adjusted EBITDA Range (Unaudited)          
(dollars in millions)          
           
  Twelve Months Ending December 31, 2018
  Low    High
Estimated net income $ 117.7   $ 134.7
Adjustments to arrive at estimated EBITDA, as adjusted:                                                                                                                                             
Interest expense and other, net   29.7     28.1
Income tax expense   43.5     49.9
Depreciation and amortization   39.5     36.3
Share-based compensation   12.8     11.7
Rationalization charges   11.5     9.5
Acquisition related costs   14.3     13.8
Estimated EBITDA, as adjusted $ 269.0   $ 284.0
           

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