TopBuild Reports First Quarter 2018 Results

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%
Change	1,200 bps		Change	40 bps
Adj. Operating Margin		9.0%	Adj. Operating Margin		9.5%
Change	160 bps		Change	40 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.

Firm	Acquired	Annual Revenue	Business
ADO Products	January	$27.6M	Distribution
Santa Rosa Insulation and Fireproofing	January	$6.0M	Installation
USI	May	$375.0M	Installation 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)

$M	TopBuild				USI				Consolidated
2018	Low		High		Low		High		Low		High
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

Source: TopBuild Corp.

Released May 8, 2018

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