NYSE: BLD
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TopBuild Reports First Quarter 2018 Results

05/08/2018

DAYTONA BEACH, Fla., May 08, 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 first quarter ended March 31, 2018. 

Jerry Volas, Chief Executive Officer, stated, “TopBuild reported another strong quarter in both sales and earnings.  We are taking full advantage of the ongoing recovery in residential and commercial construction with our national scale as well as our continued focus on improving operational efficiency throughout the Company.  We are confident that 2018 will be another year of profitable growth.”

First Quarter 2018 Financial Highlights

(unless otherwise indicated, comparisons are to the quarter ended March 31, 2017)

  • Net Sales increased 11.3% to $491.4 million, primarily driven by sales volume growth in both operating segments.  Of the 11.3% revenue growth, same branch contributed 6.7%. 
     
  • Gross margin, impacted by higher material costs, declined 40 basis points to 22.6%.
     
  • Operating profit was $33.9 million, compared to an operating loss of $3.5 million.  The first quarter 2017 operating loss was the result of a $30 million legal settlement.  On an adjusted basis, operating profit was $38.2 million, compared to $28.6 million, a 33.6% improvement.
     
  • Operating margin was 6.9% compared to (0.8%).  Adjusted operating margin improved 130 basis points to 7.8%. 
     
  • Net income was $26.4 million, or $0.74 per diluted share, compared to a net loss of $1.7 million, or $0.05 per diluted share.  Adjusted net income was $26.2 million, or $0.73 per diluted share, compared to $16.9 million, or $0.46 per diluted share. 
     
  • Adjusted EBITDA was $46.0 million, compared to $33.9 million, a 35.8% increase and adjusted EBITDA margin was 9.4%, a 170-basis point improvement.  Incremental EBITDA margin was 24.2%.  On a same branch basis, compared with prior year total adjusted EBITDA, adjusted EBITDA grew $10.9 million and incremental EBITDA margin was 36.9%.
     
  • At March 31, 2018, the Company had cash and cash equivalents of $37.3 million, availability under the revolving credit facility of $203.0 million and $100 million under a delayed-draw term loan for total liquidity of $340.3 million.

Operating Segment Highlights ($ in 000s)
(comparisons are to the quarter ended March 31, 2017)

 TruTeam

3 Months
Ended
3/31/18
  Service Partners

3 Months
Ended
3/31/18
Sales$329,394  Sales$187,766 
Change 13.2%  Change 10.3% 
Operating Margin 8.9%  Operating Margin 9.5% 
Change1,200 bps Change40 bps
Adj. Operating Margin 9.0%  Adj. Operating Margin 9.5% 
Change160 bps Change40 bps

Capital Allocation
Acquisitions
Year-to-date, through May 8, 2018, the Company has completed three acquisitions which are listed below.  Combined, they are expected to generate approximately $409 million of incremental revenue on an annual basis.

FirmAcquiredAnnual RevenueBusiness
ADO ProductsJanuary$27.6MDistribution
Santa Rosa Insulation and FireproofingJanuary$6.0MInstallation
USIMay$375.0MInstallation and Distribution

Volas stated, “Since closing on our first acquisition in August 2016, we’ve been consistent with regard to our strategy and the types of acquisitions we are seeking.  We look for profitable, well-managed companies with solid customer bases that expand our market share and revenue quality in high growth regions and are accretive to earnings.  USI, ADO and Santa Rosa check all of these boxes.”

Share Repurchases
The Company completed the $100 million accelerated share repurchase program announced on May 9, 2017.  Under the terms of the program, the Company repurchased a total of approximately 1.5 million shares at an average price of $65.74 per share.

The accelerated share repurchase program was completed as part of the Company’s $200 million share repurchase authorization announced on February 28, 2017 and which expires on February 24, 2019.  As of May 8, 2018, approximately $65 million of the $200 million authorization remained. 

2018 Revenue and Adjusted EBITDA Outlook, Assumptions and Three-Year Targets

Annual Guidance
(Assumes housing starts between 1.250k and 1.280k,
includes 8 months of expected revenue from USI with $2M to $4M of cost savings synergies)

$MTopBuildUSIConsolidated
2018LowHighLowHighLowHigh
Revenue$2,065$2,115$273$283$2,338$2,398
Adj. EBITDA$226$242$37$42$263$284

Assumptions
$75 million of incremental revenue for every 50,000 increase in new housing starts

Three-Year Targets

10%Commercial annual growth (organic)
8.5% to 9.5%Working capital as a % of total sales
2% to 2.5%CapEx as a % of total sales
11% to 16%Incremental EBITDA margin from acquisitions in year one
22% to 27%Incremental EBITDA margin (organic)
27%Normalized tax rate

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. 

2018 ENERGY STAR® Partner of the Year Sustained Excellence Award Received
TopBuild Home Services group received the 2018 ENERGY STAR® Partner of the Year Sustained Excellence Award for continued leadership and superior contributions to ENERGY STAR.  TopBuild’s accomplishment was recognized by the U.S. Environmental Protection Agency and the U.S. Department of Energy in Washington, D.C. on April 20, 2018.  The Company’s extensively trained Home Energy Raters provide the evaluation, testing and independent verification required to be considered an ENERGY STAR compliant home. 

“We are honored to once again be recognized for our leadership role in verifying ENERGY STAR compliant homes,” said Volas. “TopBuild Home Services has been an ENERGY STAR partner for 16 years, working closely with home builders and consumers to create homes that are more comfortable and energy efficient.”

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 first quarter 2018 financial results is scheduled for today, Tuesday, May 8, 2018, at 9:30 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 215 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, 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

(tables follow)

TopBuild Corp.      
Condensed Consolidated Statements of Operations (Unaudited)      
(in thousands, except per common share amounts)      
       
  Three Months Ended March 31, 
  2018  2017 
Net sales $491,444  $441,363 
Cost of sales  380,426   339,735 
Gross profit  111,018   101,628 
       
Selling, general, and administrative expense (exclusive of significant legal settlement, shown separately below)  77,125   75,091 
Significant legal settlement     30,000 
Operating profit (loss)  33,893   (3,463)
       
Other income (expense), net:      
Interest expense  (2,324)  (1,370)
Other, net  34   107 
Other expense, net  (2,290)  (1,263)
Income (loss) before income taxes  31,603   (4,726)
       
Income tax (expense) benefit  (5,215)  3,016 
Net income (loss) $26,388  $(1,710)
       
Net income (loss) per common share:      
Basic $0.75  $(0.05)
Diluted $0.74  $(0.05)
       
Weighted average shares outstanding:      
Basic  35,059,920   37,123,245 
Diluted  35,819,242   37,123,245 
       

 

TopBuild Corp.       
Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)      
(dollars in thousands)       
  As of 
  March 31,  December 31, 
  2018 2017 
ASSETS       
Current assets:       
Cash and cash equivalents $37,334 $56,521 
Receivables, net of an allowance for doubtful accounts of $3,008 and $3,673 at March 31, 2018, and December 31, 2017, respectively  313,568  308,508 
Inventories, net  138,447  131,342 
Prepaid expenses and other current assets  11,532  15,221 
Total current assets  500,881  511,592 
        
Property and equipment, net  115,441  107,121 
Goodwill  1,082,815  1,077,186 
Other intangible assets, net  48,437  33,243 
Deferred tax assets, net  18,129  18,129 
Other assets  2,235  2,278 
Total assets $1,767,938 $1,749,549 
        
LIABILITIES       
Current liabilities:       
Accounts payable $254,384 $263,814 
Current portion of long-term debt - term loan  12,500  12,500 
Current portion of long-term debt - equipment notes  1,858   
Accrued liabilities  74,534  75,087 
Total current liabilities  343,276  351,401 
        
Long-term debt - term loan  225,329  229,387 
Long-term debt - equipment notes  8,208   
Deferred tax liabilities, net  132,840  132,840 
Long-term portion of insurance reserves  33,818  36,160 
Other liabilities  3,672  3,242 
Total liabilities  747,143  753,030 
        
EQUITY  1,020,795  996,519 
Total liabilities and equity $1,767,938 $1,749,549 
        
   As of  
  March 31,  March 31,  
  2018 2017 
Other Financial Data       
Working Capital Days†       
Receivable days  49  45 
Inventory days  34  30 
Accounts payable days  80  84 
Working capital $197,631 $155,018 
Working capital as a percent of sales (LTM))‡  10.0% 8.8%
        
† Adjusted for remaining acquisition day one balance sheet items       
‡ Last 12 months sales have been adjusted for the pro forma effect of acquired branches       
        

 

TopBuild Corp.      
Condensed Consolidated Statements of Cash Flows (Unaudited)      
(in thousands)      
       
  Three Months Ended March 31, 
  2018  2017 
Net Cash Provided by (Used in) Operating Activities:        
Net income (loss) $26,388  $(1,710)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Depreciation and amortization  5,442   3,231 
Share-based compensation  2,402   2,084 
Loss on sale or abandonment of property and equipment  200   88 
Amortization of debt issuance costs  107   86 
Change in fair value of contingent consideration  70    
Provision for bad debt expense  760   995 
Loss from inventory obsolescence  468   360 
Changes in certain assets and liabilities:      
Receivables, net  (1,092)  (6,568)
Inventories, net  (5,143)  4,531 
Prepaid expenses and other current assets  3,912   (4,195)
Accounts payable  (11,429)  (17,842)
Accrued liabilities  (3,923)  33,656 
Other, net  (597)  118 
Net cash provided by operating activities  17,565   14,834 
       
Cash Flows Provided by (Used in) Investing Activities:      
Purchases of property and equipment  (11,266)  (3,800)
Acquisition of businesses  (26,956)  (41,242)
Proceeds from sale of property and equipment  70   133 
Other, net  13   32 
Net cash used in investing activities  (38,139)  (44,877)
       
Cash Flows Provided by (Used in) Financing Activities:      
Repayment of long-term debt  (3,125)  (5,000)
Proceeds from equipment notes  10,066    
Proceeds from revolving credit facility  55,000    
Repayment of revolving credit facility  (55,000)   
Payment of debt issuance costs  (1,040)   
Taxes withheld and paid on employees' equity awards  (4,514)  (1,583)
Repurchase of shares of common stock     (17,379)
Net cash provided by (used in) financing activities  1,387   (23,962)
       
Cash and Cash Equivalents      
Decrease for the year  (19,187)  (54,005)
Beginning of year  56,521   134,375 
End of year $37,334  $80,370 
       
Supplemental disclosure of noncash investing activities:      
Accruals for property and equipment $1,116  $237 
       

 

TopBuild Corp.          
Segment Data (Unaudited)          
(dollars in thousands)          
           
  Three Months Ended March 31,     
   2018   2017  Change  
Installation          
Sales $  329,394  $  290,887   13.2%
           
Operating profit (loss), as reported $  29,330  $  (8,964)    
Operating margin, as reported    8.9  %   (3.1)%   
           
Significant legal settlement    —     30,000     
Rationalization charges    217     411     
Operating profit, as adjusted $  29,547  $  21,447     
Operating margin, as adjusted    9.0  %   7.4  %   
           
Distribution           
Sales $  187,766  $  170,244   10.3%
           
Operating profit, as reported $  17,902  $  15,484     
Operating margin, as reported    9.5  %   9.1  %   
           
Rationalization charges    25     —     
Operating profit, as adjusted $  17,927  $  15,484     
Operating margin, as adjusted    9.5  %   9.1  %   
           
Total          
Sales before eliminations $  517,160  $  461,131     
Intercompany eliminations    (25,716)    (19,768)    
Net sales after eliminations $  491,444  $  441,363   11.3%
           
Operating profit, as reported - segment $  47,232  $  6,520     
General corporate expense, net    (8,893)    (6,682)    
Intercompany eliminations and other adjustments    (4,446)    (3,301)    
Operating profit (loss), as reported $  33,893  $  (3,463)    
Operating margin, as reported    6.9  %   (0.8)%   
           
Significant legal settlement    —     30,000     
Rationalization charges    797     1,738     
Acquisition related costs    3,482     292     
Operating profit, as adjusted $  38,172  $  28,567     
Operating margin, as adjusted    7.8  %   6.5  %   
           
Share-based compensation    2,402     2,084     
Depreciation and amortization    5,442     3,231     
EBITDA, as adjusted $  46,016  $  33,882     
EBITDA margin, as adjusted    9.4  %   7.7  %   
           
Sales change period over period    50,081         
EBITDA, as adjusted, change period over period    12,134         
EBITDA, as adjusted, as percentage of sales change    24.2  %      
           
† Rationalization charges include corporate level adjustments as well as segment operating adjustments.
           

 

TopBuild Corp.       
Non-GAAP Reconciliations (Unaudited)       
(in thousands, except common share amounts)       
        
  Three Months Ended March 31,  
  2017  2016  
Gross Profit and Operating Profit Reconciliations       
        
Net sales $  491,444   $  441,363   
        
Gross profit, as reported $  111,018   $  101,628   
        
Gross profit, as adjusted $  111,018   $  101,628   
        
Gross margin, as reported  22.6 % 23.0 %
Gross margin, as adjusted  22.6 % 23.0 %
        
Operating profit (loss), as reported $  33,893   $  (3,463) 
        
Significant legal settlement     30,000  
Rationalization charges  797   1,738  
Acquisition related costs  3,482   292  
Operating profit, as adjusted $  38,172   $  28,567   
        
Operating margin, as reported  6.9 % (0.8)%
Operating margin, as adjusted  7.8 % 6.5 %
        
Income Per Common Share Reconciliation       
        
Income (loss) before income taxes, as reported $31,603  $(4,726) 
        
Significant legal settlement     30,000  
Rationalization charges  797   1,738  
Acquisition related costs  3,482   292  
Income before income taxes, as adjusted    35,882      27,304   
        
Tax rate at 27% and 38% for 2018 and 2017, respectively  (9,688)  (10,376) 
Income, as adjusted $  26,194   $  16,928   
        
Income per common share, as adjusted $  0.73   $  0.46   
        
Weighted average diluted common shares outstanding  35,819,242   37,123,245  
        

 

TopBuild Corp.       
Same Branch Net Sales and Adjusted EBITDA (Unaudited)       
(in thousands)       
        
  Three Months Ended March 31,  
  2018 2017 
Net sales       
Same branch $470,876 $433,777 
Acquired  20,568  7,586 
Total $491,444 $441,363 
        
EBITDA, as adjusted       
Same branch  44,758  33,453 
Acquired  1,258  429 
Total $46,016 $33,882 
        
Total EBITDA, as adjusted, as percentage of total sales change  24.2%   
        
Same branch EBITDA, as adjusted, as percentage of sales change  30.5% 41.4%
Acquired EBITDA, as adjusted, as percentage of sales change  6.4% 5.7%
        
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)  36.9% 41.4%
Acquired EBITDA, as adjusted, as a percentage of acquired sales  6.1% 5.7%

 

TopBuild Corp.      
Reconciliation of EBITDA to Net Income (Unaudited)      
(in thousands)      
       
  Three Months Ended March 31, 
  2018 2017 
Net income (loss), as reported $26,388 $(1,710)
Adjustments to arrive at EBITDA, as adjusted:      
Other expense, net  2,290  1,263 
Income tax  expense (benefit)  5,215  (3,016)
Depreciation and amortization  5,442  3,231 
Share-based compensation  2,402  2,084 
Significant legal settlement    30,000 
Rationalization charges  797  1,738 
Acquisition related costs  3,482  292 
EBITDA, as adjusted $46,016 $33,882 
       

 

TopBuild Corp.      
2018 Estimated Adjusted EBITDA Range (Unaudited)      
(dollars in millions)      
       
  Twelve Months Ending December 31, 2018 
  Low High
Estimated net income $120.9 $142.8
Adjustments to arrive at estimated EBITDA, as adjusted:      
Interest expense and other, net  29.7  28.1
Income tax expense  44.7  52.8
Depreciation and amortization  39.5  36.3
Share-based compensation  13.9  11.7
Rationalization charges  0.8  0.8
Acquisition related costs  3.5  3.5
Estimated costs to realize synergies  10.0  8.0
Estimated EBITDA, as adjusted $263.0 $284.0
       

 

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