NYSE: BLD
Price 48.52
Change +0.88 +1.85%
Volume 624,973
Minimum 20 min delay 11/16/2018 04:02 PM

TopBuild Reports Third Quarter 2018 Results

11/06/2018
  • Net Sales increase 32.4%
  • Gross Margin Expands 30 Basis Points
  • 10.2% Operating Margin, 10.7% on an Adjusted Basis, up 40 Basis Points
  • $1.19 Net Income per diluted share, $1.23 on an Adjusted Basis
  • Adjusted EBITDA Increases 46.4%, Margin Expands 120 Basis Points              

Raises 2018 Revenue and EBITDA Outlook
Announces $50 Million Accelerated Share Repurchase

DAYTONA BEACH, Fla., Nov. 06, 2018 (GLOBE NEWSWIRE) -- TopBuild Corp.(NYSE:BLD), the leading installer and distributor of insulation and building material products today reported results for the third quarter ended September 30, 2018. 

Jerry Volas, Chief Executive Officer, stated, “We continue our track record of consistently delivering excellent top and bottom line results.  Profitable growth remains the key focus for TopBuild.  Demand is healthy and we expect a strong finish to 2018.  We are also encouraged by strong housing market fundamentals which should drive growth over the next several years. Our unique operating model and our national scale are significant competitive advantages that enable growth in any environment.”

Third Quarter Financial Highlights

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

  • Net sales increased 32.4% to $647.3 million, primarily driven by acquisitions, sales volume growth and price in both operating segments. On a same branch basis, revenue increased 10.2% to $538.8 million. 
     
  • Gross margin expanded 30 basis points to 25.0%.
     
  • Operating profit was $66.2 million, compared to $49.6 million.  On an adjusted basis, operating profit was $69.5 million, compared to $50.3 million, a 38.2% improvement.
     
  • Operating margin was 10.2%, up 10 basis points.  Adjusted operating margin improved 40 basis points to 10.7%.
     
  • Net income was $42.7 million, or $1.19 per diluted share, compared to $31.4 million, or $0.88 per diluted share. Adjusted net income was $44.0 million, or $1.23 per diluted share, compared to $29.7 million, or $0.83 per diluted share.
     
  • Adjusted EBITDA was $84.3 million, compared to $57.6 million, a 46.4% increase, and adjusted EBITDA margin improved 120 basis points to 13.0%.  Incremental adjusted EBITDA margin was 16.9%.
     
  • On a same branch basis, adjusted EBITDA was $68.2 million, a 18.5% increase, adjusted EBITDA margin was 12.7%, and incremental adjusted EBITDA margin was 21.4%. 
     
  • The three acquisitions completed in 2018 contributed $108.5 million of revenue and adjusted EBITDA margin was 14.8%.
     
  • At September 30, 2018, the Company had cash and cash equivalents of $93.5 million, availability under its revolving credit facility of $190.7 million for total liquidity of $284.2 million.

Nine Month Financial Highlights

(unless otherwise indicated, comparisons are to nine months ended September 30, 2017)

  • Net sales increased 24.2% to $1,744.7 million. On a same branch basis, revenue increased 9.2% to $1,533.7 million. 
     
  • Gross margin declined 10 basis points to 24.0%.
     
  • Operating profit was $143.8 million, compared to operating profit of $86.9 million.  On an adjusted basis, operating profit was $165.5 million, compared to $121.0 million, a 36.7% improvement.
     
  • Operating margin was 8.2%, up 200 basis points.  Adjusted operating margin improved 90 basis points to 9.5%. 
     
  • Net income was $96.2 million, or $2.69 per diluted share, compared to $53.1 million, or $1.44 per diluted share.  Adjusted net income was $107.1 million, or $2.99 per diluted share, compared to $71.6 million, or $1.94 per diluted share. 
     
  • Adjusted EBITDA was $200.8 million, compared to $139.7 million, a 43.8% increase, and adjusted EBITDA margin improved 160 basis points to 11.5%.   Incremental EBITDA margin was 18.0%.
     
  • On a same branch basis, adjusted EBITDA was $172.9 million, a 23.8% increase, adjusted EBITDA margin was 11.3%, and incremental EBITDA margin was 25.8%.

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

 TruTeam 3 Months
Ended
9/30/18
9 Months
Ended
9/30/18
   Service Partners 3 Months
Ended
9/30/18
9 Months
Ended
9/30/18
Sales $464,540  $1,223,357    Sales $212,948  $606,335 
Change  39.4%  29.4%   Change  17.6%  15.2%
Operating Margin  13.1%  11.4%   Operating Margin  9.0%  9.4%
Change 80 bps 430 bps   Change (110 bps) (30 bps)
Adj. Oper ating Margin  13.2%  11.5%   Adj. Oper ating Margin  9.1%  9.5%
Change 90 bps 120 bps   Change (100 bps) (20 bps)

Capital Allocation
Acquisitions
Year-to-date, the Company has completed three acquisitions, two concentrating on residential insulation as well as a distributor of insulation accessories.  Combined, these acquisitions are expected to generate approximately $410 million of incremental revenue on an annual basis.

Volas stated, “The integration of USI is proceeding extremely well. Having successfully combined our supply chains, corporate groups and back office operations, we will now turn our attention to maximizing the scale and effectiveness of our national footprint.”

Share Repurchases
In the third quarter, the Company spent approximately $9.5 million to repurchase 142,780 shares of its common stock.  In October 2018, the Company spent approximately $5.1 million to repurchase 100,412 shares of its common stock.

Additionally, the Company intends to enter into an agreement to repurchase $50 million of its common stock under an accelerated share repurchase (ASR) program. This ASR is part of TopBuild’s $200 million share repurchase authorization announced on February 28, 2017. Since January 1, 2016, through September 30, 2018, the Company has repurchased approximately 3.2 million shares of its common stock. 

“We are also pleased to initiate our second accelerated share repurchase, demonstrating our Board’s confidence in TopBuild’s present and future growth,” added Volas.

2018 Revenue and Adjusted EBITDA Outlook
The Company has raised the low end of revenue and adjusted EBITDA by $25 million and $9 million, respectively, and the high end of revenue and adjusted EBITDA by $5 million and $2 million, respectively.

2018 Low High
Revenue $2,383M $2,403M
Adjusted EBITDA $278M $286M

This outlook reflects management’s current view of present and future market conditions and is based on additional assumptions such as general and administrative expenses, weighted average diluted shares outstanding and interest rates.  It 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 third quarter 2018 financial results is scheduled for today, Tuesday, November 6, 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 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 over 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, 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 the Company’s 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 statements 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 September 30,    Nine Months Ended September 30, 
    2018     2017     2018     2017  
Net sales   $ 647,289     $ 489,044     $ 1,744,702     $ 1,404,865  
Cost of sales     485,424       368,205       1,326,777       1,065,789  
Gross profit     161,865       120,839       417,925       339,076  
                         
Selling, general, and administrative expense (exclusive of significant legal settlement, shown separately below)     95,648       71,277       274,134       222,181  
Significant legal settlement      —        —        —       30,000  
Operating profit     66,217       49,562       143,791       86,895  
                         
Other income (expense), net:                        
Interest expense       (9,381 )       (2,479 )       (19,026 )       (5,767 )
Loss on extinguishment of debt      —        —        —         (1,086 )
Other, net      178       27       292       239  
Other expense, net       (9,203 )       (2,452 )       (18,734 )       (6,614 )
Income before income taxes     57,014       47,110       125,057       80,281  
                         
Income tax expense       (14,356 )       (15,717 )       (28,859 )       (27,139 )
Net income   $ 42,658     $ 31,393     $ 96,198     $ 53,142  
                         
Income per common share:                        
Basic   $ 1.22     $ 0.90     $ 2.74     $ 1.47  
Diluted   $ 1.19     $ 0.88     $ 2.69     $ 1.44  
                         
Weighted average shares outstanding:                        
Basic     35,091,388       35,022,113       35,084,694       36,203,497  
Diluted     35,789,383       35,737,629       35,815,357       36,842,144  
 

 

TopBuild Corp.              
Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)  
(dollars in thousands)  
   
               
     As of    
    September 30,    December 31,   
    2018   2017  
ASSETS              
Current assets:              
Cash and cash equivalents   $ 93,463   $ 56,521  
Receivables, net of an allowance for doubtful accounts of $4,929 and $3,673 at September 30, 2018, and December 31, 2017, respectively     419,706     308,508  
Inventories, net     161,875     131,342  
Prepaid expenses and other current assets     24,074     15,221  
Total current assets     699,118     511,592  
               
Property and equipment, net     166,748     107,121  
Goodwill     1,362,747     1,077,186  
Other intangible assets, net     205,103     33,243  
Deferred tax assets, net     17,634     18,129  
Other assets     5,476     2,278  
Total assets   $ 2,456,826   $ 1,749,549  
               
LIABILITIES              
Current liabilities:              
Accounts payable   $ 300,938   $ 263,814  
Current portion of long-term debt - term loan     19,688     12,500  
Current portion of long-term debt - equipment notes     3,754      —  
Accrued liabilities     116,243     75,087  
Total current liabilities     440,623     351,401  
               
Long-term debt - term loan     309,548     229,387  
Long-term debt - equipment notes     15,128      —  
Long-term debt - Senior Notes     393,769      —  
Deferred tax liabilities, net     167,508     132,840  
Long-term portion of insurance reserves     42,347     36,160  
Other liabilities     1,868     3,242  
Total liabilities     1,370,791     753,030  
               
EQUITY     1,086,035     996,519  
Total liabilities and equity   $ 2,456,826   $ 1,749,549  
   
               
    As of September 30,   
    2018   2017  
Other Financial Data              
Receivable days †     49     49  
Inventory days †     34     30  
Accounts payable days †     75     80  
Receivables, net plus inventories, net less accounts payable †   $ 280,643   $ 189,547  
Receivables, net plus inventories, net less accounts payable as a percent of sales (TTM)‡     11.3 % 10 %
   
† 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)  
(dollars in thousands)  
   
             
    Nine Months Ended September 30, 
    2018     2017  
Cash Flows Provided by (Used in) Operating Activities:            
Net income   $ 96,198     $ 53,142  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization     27,133       11,753  
Share-based compensation     8,244       7,473  
Loss on extinguishment of debt      —       1,086  
Loss on sale or abandonment of property and equipment     764       614  
Amortization of debt issuance costs     812       293  
Change in fair value of contingent consideration       (373 )     98  
Provision for bad debt expense     3,003       2,498  
Loss from inventory obsolescence     1,375       1,390  
Deferred income taxes, net       (708 )     266  
Change in certain assets and liabilities            
Receivables, net       (46,993 )       (43,931 )
Inventories, net       (15,333 )     249  
Prepaid expenses and other current assets       (5,560 )     8,362  
Accounts payable     17,768         (2,280 )
Accrued liabilities     10,304       13,633  
Other, net       (601 )       (28 )
Net cash provided by operating activities     96,033       54,618  
             
Cash Flows Provided by (Used in) Investing Activities:            
Purchases of property and equipment       (42,379 )       (13,088 )
Acquisition of businesses, net of cash acquired of $15,756 in 2018       (500,666 )       (84,040 )
Proceeds from sale of property and equipment     502       453  
Other, net     31       178  
Net cash used in investing activities       (542,512 )       (96,497 )
             
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  
Repayment of term loan       (11,875 )       (183,125 )
Proceeds from equipment notes     20,104        —  
Repayment of equipment notes       (1,222 )      —  
Proceeds from revolving credit facility     90,000       170,000  
Repayment of revolving credit facility       (90,000 )       (165,000 )
Payment of debt issuance costs       (7,819 )       (2,150 )
Taxes withheld and paid on employees' equity awards       (5,433 )       (4,475 )
Repurchase of shares of common stock       (9,493 )       (139,286 )
Payment of contingent consideration       (841 )      —  
Net cash provided by (used in) financing activities     483,421         (74,036 )
             
Cash and Cash Equivalents            
Increase (decrease) for the period     36,942         (115,915 )
Beginning of year     56,521       134,375  
End of period   $ 93,463     $ 18,460  
             
Supplemental disclosure of noncash investing activities:            
Accruals for property and equipment   $ 546     $ 154  
   

 

TopBuild Corp.                                        
Segment Data (Unaudited)                                        
(dollars in thousands)                                        
                                         
                                         
    Three Months Ended September 30,            Nine Months Ended September 30,         
    2018     2017     Change     2018     2017     Change  
Installation                                        
Sales   $ 464,540     $ 333,238       39.4 %   $ 1,223,357     $ 945,109       29.4 %
                                         
Operating profit, as reported   $ 61,004     $ 40,862             $ 139,969     $ 66,985          
Operating margin, as reported     13.1 %      12.3 %              11.4 %      7.1 %        
                                         
Significant legal settlement      —        —                —       30,000          
Rationalization charges     177       139               629       720          
Operating profit, as adjusted   $ 61,181     $ 41,001             $ 140,598     $ 97,705          
Operating margin, as adjusted     13.2 %      12.3 %              11.5     10.3 %         
                                         
Distribution                                          
Sales   $ 212,948     $ 181,146       17.6 %   $ 606,335     $ 526,452       15.2 %
                                         
Operating profit, as reported   $ 19,229     $ 18,300             $ 57,141     $ 50,806          
Operating margin, as reported     9.0 %      10.1 %             9.4 %      9.7 %         
                                         
Rationalization charges     134       5               159       23          
Operating profit, as adjusted   $ 19,363     $ 18,305             $ 57,300     $ 50,829          
Operating margin, as adjusted     9.1 %      10.1 %              9.5 %      9.7 %         
                                         
Total                                        
Sales before eliminations   $ 677,488     $ 514,384             $ 1,829,692     $ 1,471,561          
Intercompany eliminations        (30,199 )       (25,340 )               (84,990 )       (66,696 )        
Net sales after eliminations   $ 647,289     $ 489,044       32.4 %   $ 1,744,702     $ 1,404,865       24.2 %
                                         
Operating profit, as reported - segment   $ 80,233     $ 59,162             $ 197,110     $ 117,791          
General corporate expense, net       (8,358 )       (5,187 )               (37,937 )       (19,503 )        
Intercompany eliminations and other adjustments       (5,658 )       (4,413 )               (15,382 )       (11,393 )        
Operating profit, as reported   $ 66,217     $ 49,562             $ 143,791     $ 86,895          
Operating margin, as reported     10.2     10.1 %              8.2 %      6.2 %         
                                         
Significant legal settlement      —        —                —       30,000          
Rationalization charges †     1,668       404               6,807       3,399          
Acquisition related costs     1,578       310               14,859       748          
Operating profit, as adjusted   $ 69,463     $ 50,276             $ 165,457     $ 121,042          
Operating margin, as adjusted     10.7 %      10.3             9.5 %      8.6 %         
                                         
Share-based compensation ‡     2,848       2,372               8,244       6,859          
Depreciation and amortization     11,948       4,918               27,133       11,753          
EBITDA, as adjusted   $ 84,259     $ 57,566             $ 200,834     $ 139,654          
EBITDA margin, as adjusted     13.0     11.8 %              11.5 %      9.9        
                                         
Sales change period over period     158,245                     339,837                
EBITDA, as adjusted, change period over period     26,693                     61,180                
EBITDA, as adjusted, as percentage of sales change     16.9 %                    18              
                                         
† Rationalization charges include corporate level adjustments as well as segment operating adjustments.                      
‡ Amounts for the nine month period ending September 30, 2017, excludes $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 September 30,    Nine Months Ended September 30, 
    2018     2017     2018     2017  
Gross Profit and Operating Profit Reconciliations                        
                         
Net sales   $ 647,289     $ 489,044     $ 1,744,702     $ 1,404,865  
                         
Gross profit, as reported   $ 161,865     $ 120,839     $ 417,925     $ 339,076  
                         
Rationalization charges     21        —       176        —  
Gross profit, as adjusted   $ 161,886     $ 120,839     $ 418,101     $ 339,076  
                         
Gross margin, as reported     25.0     24.7     24.0     24.1
Gross margin, as adjusted     25.0     24.7     24.0     24.1
                         
Operating profit, as reported   $ 66,217     $ 49,562     $ 143,791     $ 86,895  
                         
Significant legal settlement      —        —        —       30,000  
Rationalization charges     1,668       404       6,807       3,399  
Acquisition related costs     1,578       310       14,859       748  
Operating profit, as adjusted   $ 69,463     $ 50,276     $ 165,457     $ 121,042  
                         
Operating margin, as reported     10.2     10.1     8.2     6.2
Operating margin, as adjusted     10.7     10.3     9.5     8.6
                         
Income Per Common Share Reconciliation                        
                         
Income before income taxes, as reported   $ 57,014     $ 47,110     $ 125,057     $ 80,281  
                         
Significant legal settlement      —        —        —       30,000  
Rationalization charges     1,668       404       6,807       3,399  
Acquisition related costs     1,578       310       14,859       748  
Loss on extinguishment of debt      —        —        —       1,086  
Income before income taxes, as adjusted     60,260       47,824       146,723       115,514  
                         
Tax rate at 27% and 38% for 2018 and 2017, respectively       (16,270 )       (18,173 )       (39,615 )       (43,895 )
Income, as adjusted   $ 43,990     $ 29,651     $ 107,108     $ 71,619  
                         
Income per common share, as adjusted   $ 1.23     $ 0.83     $ 2.99     $ 1.94  
                         
Weighted average diluted common shares outstanding     35,789,383       35,737,629       35,815,357       36,842,144  
   

 

TopBuild Corp.                        
  Same Branch Net Sales and Adjusted EBITDA (Unaudited)    
(dollars in thousands)  
   
                         
    Three Months Ended September 30,    Nine Months Ended September 30, 
    2018   2017   2018   2017
Net sales                        
Same branch   $ 538,776   $ 489,044   $ 1,533,719   $ 1,404,865
Acquisitions †     108,513      —     210,983      —
Total   $ 647,289   $ 489,044   $ 1,744,702   $ 1,404,865
                         
EBITDA, as adjusted                        
Same branch   $ 68,187   $ 57,566   $ 172,878   $ 139,654
Acquisitions †     16,072      —     27,956      —
Total   $ 84,259   $ 57,566   $ 200,834   $ 139,654
                         
Change in total EBITDA, as adjusted, as a percentage of total sales change     16.9 %       18.0 %  
                         
Change in same branch EBITDA, as adjusted, as a percentage of same branch sales change     21.4 %       25.8 %  
                         
Same branch EBITDA, as adjusted, as a percentage of same branch sales     12.7 %       11.3 %  
                         
Acquired EBITDA, as adjusted, as a percentage of acquired sales     14.8 %       13.3 %  
   
† Represents current year impact of acquisitions in their first twelve months.  

 

TopBuild Corp.                        
Reconciliation of EBITDA to Net Income (Unaudited)    
(dollars in thousands)  
   
                         
    Three Months Ended September 30,    Nine Months Ended September 30, 
    2018   2017   2018   2017
Net income, as reported   $ 42,658   $ 31,393   $ 96,198   $ 53,142
Adjustments to arrive at EBITDA, as adjusted:                        
Interest expense and other, net     9,203     2,452     18,734     5,528
Income tax expense     14,356     15,717     28,859     27,139
Depreciation and amortization     11,948     4,918     27,133     11,753
Share-based compensation †     2,848     2,372     8,244     6,859
Significant legal settlement      —      —      —     30,000
Rationalization charges     1,668     404     6,807     3,399
Loss on extinguishment of debt      —      —      —     1,086
Acquisition related costs     1,578     310     14,859     748
EBITDA, as adjusted   $ 84,259   $ 57,566   $ 200,834   $ 139,654
   
† Amounts for the nine month period ending September 30, 2017, excludes $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 $ 125.4   $ 135.2
Adjustments to arrive at estimated EBITDA, as adjusted:          
Interest expense and other, net   28.6     27.6
Income tax expense   46.4     50.0
Depreciation and amortization   39.7     38.6
Share-based compensation    12.4     11.6
Rationalization charges   9.1     7.6
Acquisition related costs   16.4     15.4
Estimated EBITDA, as adjusted $ 278.0   $ 286.0
   

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Source: TopBuild Corp.

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