TopBuild Reports Second Quarter 2020 Results

  • 2.1% decrease in net sales
  • 110 bps gross margin expansion, 130 bps on an adjusted basis
  • 12.5% operating margin, 12.9% on an adjusted basis, up 130 bps
  • $1.67 net income per diluted share, $1.68 on an adjusted basis
  • 16.7% adjusted EBITDA margin, up 250 bps

Moving Forward with Capital Allocation Program

DAYTONA BEACH, Fla., Aug. 04, 2020 (GLOBE NEWSWIRE) -- TopBuild Corp. (NYSE:BLD), a leading installer and distributor of insulation and building material products today reported results for the second quarter ended June 30, 2020. 

Jerry Volas, Chief Executive Officer, stated, “We are extremely pleased with our second quarter results.  Our team did an outstanding job flexing our business model and driving further efficiencies throughout our Company as we responded to state shutdowns, project delays and widespread uncertainty related to COVID-19.  The strong performance we achieved at both TruTeam and Service Partners is evidence of this success and demonstrates the strength of our uniquely diversified business platform.

As we move through the second half of the year, we are confident in our ability to successfully meet the challenges and opportunities that may lie ahead.”

Second Quarter Financial Highlights
(unless otherwise indicated, comparisons are to the quarter ended June 30, 2019)

  • Net sales declined 2.1% to $646.1 million, primarily driven by volume declines related to the impact of the COVID-19 pandemic. Same branch contributed 99.0% of total revenue.
     
  • Gross margin increased 110 basis points to 27.6%.  On an adjusted basis, gross margin increased 130 basis points to 27.8%.
     
  • Operating profit was $80.5 million, compared to operating profit of $76.0 million a 5.8% improvement.  On an adjusted basis, operating profit was $83.5 million, compared to $76.4 million, a 9.3% improvement.
     
  • Operating margin was 12.5%, up 100 basis points.  Adjusted operating margin improved 130 basis points to 12.9%.
     
  • Net income was $55.5 million, or $1.67 per diluted share, compared to $52.1 million, or $1.51 per diluted share. Adjusted income was $55.7 million, or $1.68 per diluted share, compared to $49.5 million, or $1.43 per diluted share. 
     
  • Adjusted EBITDA was $107.8 million, compared to $94.0 million, a 14.6% increase, and adjusted EBITDA margin improved 250 basis points to 16.7%. 
     
  • At June 30, 2020, the Company had cash and cash equivalents of $258.8 million and availability under its revolving credit facility of $389.6 million for total liquidity of $648.5 million.

Six Month Financial Highlights
(unless otherwise indicated, comparisons are to six months ended June 30, 2019)

  • Net sales increased 1.6% to $1,299.3 million. On a same branch basis, revenue increased 0.6% to $1,287.7 million. 
     
  • Gross margin expanded 110 basis points to 26.9%. On an adjusted basis, gross margin expanded 130 basis points to 27.1%.
     
  • Operating profit was $150.4 million, compared to operating profit of $132.7 million, a 13.4% improvement.   On an adjusted basis, operating profit was $153.8 million, compared to $135.5 million, a 13.5% improvement.
     
  • Operating margin was 11.6%, a 120-basis point improvement.  On an adjusted basis, operating margin improved 120 basis points to 11.8%. 
     
  • Net income was $106.3 million, or $3.18 per diluted share, compared to $90.0 million, or $2.60 per diluted share.  Adjusted income was $101.6 million, or $3.04 per diluted share, compared to $86.1 million, or $2.49 per diluted share. 
     
  • Adjusted EBITDA was $196.1 million, compared to $168.6 million, a 16.4% increase.  Adjusted EBITDA margin was 15.1%, a 190-basis point improvement.

Operating Segment Highlights ($ in 000s)
(comparisons are to the period ended June 30, 2019)

TruTeam 3 Months Ended 6/30/20 6 Months Ended 6/30/20   Service Partners 3 Months Ended 6/30/20 6 Months Ended 6/30/20
Sales $466,569   $942,442     Sales $216,336   $430,558  
Change       Change    
Volume   (5.5%)     (1.6%)     Volume   1.7%     2.8%  
Price   0.7%     1.4%     Price   (0.4%)     0.3%  
M&A   1.4%     1.2%     M&A   0.0%     0.0%  
Total Change   (3.4%)     1.1%     Total Change   1.3%     3.0%  
Operating Margin   14.9%     13.8%     Operating Margin   11.2%     11.3%  
Change 70 bps 100 bps   Change 130 bps 130 bps
Adj. Operating Margin   15.2%     14.0%     Adj. Operating Margin   11.6%     11.6%  
Change 100 bps 110 bps   Change 170 bps 160 bps


Capital Allocation
“As a result of the uncertainty in early March related to COVID-19, we suspended our acquisition program.  As the second quarter progressed, the outlook for the housing industry improved, and we are now moving forward with a number of the companies in our robust acquisition pipeline,” noted Volas. 

While the Company completed no acquisitions in the second quarter, it did repurchase 262,889 shares at an average price of $76.17 per share. 

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 2020 financial results is scheduled for today, Tuesday, August 4, at 9:00 a.m. Eastern time.  The call may be accessed by dialing (888) 225-2706.  The conference call will be webcast simultaneously on the “Investors” section of the Company’s website at www.topbuild.com.  

About TopBuild
TopBuild Corp., a Fortune 1000 Company headquartered in Daytona Beach, Florida, is a leading installer and distributor of insulation and building material products to the U.S. construction industry. We provide insulation and building material services nationwide through TruTeam®, which has approximately 200 branches, and through Service Partners® which distributes insulation and building material products from approximately 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
Adjusted 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
Statements contained herein reflect our views about future periods, including our future plans and performance, constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by 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.  We caution you against unduly relying on any of these forward-looking statements.  Our future performance may be affected by the duration and impact of the COVID-19 pandemic on the United States economy, specifically with respect to residential and commercial construction; our ability to continue operations in markets affected by the COVID-19 pandemic and our ability to collect receivables from our customers; our reliance on residential new construction, residential repair/remodel, and commercial construction; our reliance on third-party suppliers and manufacturers; our ability to attract, develop, and retain talented personnel and our sales and labor force; our ability to maintain consistent practices across our locations; and our ability to maintain our competitive position.  We discuss the material risks we face under the caption entitled “Risk Factors” in our Annual Report for the year ended December 31, 2019, as filed with the SEC on February 25, 2020, as well as under the caption entitled “Risk Factors” in subsequent reports that we file with the SEC.  Our forward-looking statements in this filing speak only as of the date of this filing.  Factors or events that could cause our actual results to differ may emerge from time to time and it is not possible for us to predict all of them.  Unless required by law, we undertake no obligation to update publicly any forward-looking statements as a result of new information, future events, or otherwise.  The Company believes that the non-GAAP performance measures and ratios that are contained herein, which management uses to manage our business, provide users of this financial information with additional meaningful comparisons between current results and results in our prior periods. Non-GAAP performance measures and ratios should be viewed in addition, and not as an alternative, to the Company's reported results under accounting principles generally accepted in the United States. Additional information about the Company is contained in the Company's filings with the SEC and is available on TopBuild's website at www.topbuild.com.

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

                           
                           
TopBuild Corp.                          
Condensed Consolidated Statements of Operations (Unaudited)                    
(in thousands, except share and per common share amounts)                    
                           
    Three Months Ended June 30,    Six Months Ended June 30,   
    2020     2019     2020     2019    
Net sales   $ 646,099     $ 660,112     $ 1,299,327     $ 1,279,442    
Cost of sales     468,045       485,190       949,316       948,824    
Gross profit     178,054       174,922       350,011       330,618    
                           
Selling, general, and administrative expense     97,600       98,883       199,568       197,960    
Operating profit     80,454       76,039       150,443       132,658    
                           
Other income (expense), net:                          
Interest expense     (8,277 )     (9,631 )     (17,018 )     (19,232 )  
Loss on extinguishment of debt                 (233 )        
Other, net     89       526       561       858    
Other expense, net     (8,188 )     (9,105 )     (16,690 )     (18,374 )  
Income before income taxes     72,266       66,934       133,753       114,284    
                           
Income tax expense     (16,770 )     (14,883 )     (27,485 )     (24,249 )  
Net income   $ 55,496     $ 52,051     $ 106,268     $ 90,035    
                           
Net income per common share:                          
Basic   $ 1.69     $ 1.53     $ 3.22     $ 2.64    
Diluted   $ 1.67     $ 1.51     $ 3.18     $ 2.60    
                           
Weighted average shares outstanding:                          
Basic     32,867,842       33,976,169       33,018,148       34,072,314    
Diluted     33,202,423       34,557,664       33,401,135       34,630,048    
                                   


               
TopBuild Corp.              
Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)              
(dollars in thousands)              
    As of  
    June 30,    December 31,   
    2020   2019  
ASSETS              
Current assets:              
Cash and cash equivalents   $ 258,837   $ 184,807  
Receivables, net of an allowance for credit losses of $7,541 at June 30, 2020, and allowance for doubtful accounts of $4,854 at December 31, 2019     423,000     428,844  
Inventories, net     147,304     149,078  
Prepaid expenses and other current assets     7,962     17,098  
Total current assets     837,103     779,827  
               
Right of use assets     85,236     87,134  
Property and equipment, net     176,179     178,080  
Goodwill     1,379,821     1,367,918  
Other intangible assets, net     176,871     181,122  
Deferred tax assets, net     4,358     4,259  
Other assets     11,011     5,623  
Total assets   $ 2,670,579   $ 2,603,963  
               
LIABILITIES              
Current liabilities:              
Accounts payable   $ 293,224   $ 307,970  
Current portion of long-term debt     23,168     34,272  
Accrued liabilities     120,689     98,418  
Short-term lease liabilities     34,444     36,094  
Total current liabilities     471,525     476,754  
               
Long-term debt     694,320     697,955  
Deferred tax liabilities, net     174,229     175,263  
Long-term portion of insurance reserves     50,608     45,605  
Long-term lease liabilities     54,798     54,010  
Other liabilities     7,447     1,487  
Total liabilities     1,452,927     1,451,074  
               
EQUITY     1,217,652     1,152,889  
Total liabilities and equity   $ 2,670,579   $ 2,603,963  
               
               
    As of June 30,   
    2020   2019  
Other Financial Data              
Receivable days     49     53  
Inventory days     28     29  
Accounts payable days     83     78  
Receivables, net plus inventories, net less accounts payable   $ 277,080   $ 306,119  
Receivables, net plus inventories, net less accounts payable as a percent of sales (TTM)   10.5 %   11.9 %
               


               
TopBuild Corp.              
Condensed Consolidated Statement of Cash Flows (Unaudited)              
(in thousands)              
               
    Six Months Ended June 30,   
    2020     2019    
Cash Flows Provided by (Used in) Operating Activities:            
Net income   $ 106,268     $ 90,035    
Adjustments to reconcile net income to net cash provided by operating activities:              
Depreciation and amortization     33,311       25,538    
Share-based compensation     9,038       7,485    
Loss on extinguishment of debt     233          
Loss on sale or abandonment of property and equipment     320       561    
Amortization of debt issuance costs     716       779    
Provision for bad debt expense     3,756       3,688    
Loss from inventory obsolescence     1,313       1,251    
Deferred income taxes, net     (38 )     (21 )  
Change in certain assets and liabilities              
Receivables, net     1,894       (41,489 )  
Inventories, net     538       17,391    
Prepaid expenses and other current assets     9,151       14,969    
Accounts payable     (16,390 )     (23,823 )  
Accrued liabilities     28,188       (1,131 )  
Payment of contingent consideration     (413 )        
Other, net     277       1,031    
Net cash provided by operating activities     178,162       96,264    
               
Cash Flows Provided by (Used in) Investing Activities:              
Purchases of property and equipment     (20,937 )     (21,982 )  
Acquisition of businesses     (20,526 )        
Proceeds from sale of property and equipment     763       1,961    
Other, net           22    
Net cash used in investing activities     (40,700 )     (19,999 )  
               
Cash Flows Provided by (Used in) Financing Activities:              
Proceeds from issuance of long-term debt     300,000       4,998    
Repayment of long-term debt     (313,407 )     (11,364 )  
Payment of debt issuance costs     (2,280 )        
Taxes withheld and paid on employees' equity awards     (13,165 )     (8,471 )  
Repurchase of shares of common stock     (34,152 )     (19,499 )  
Payment of contingent consideration     (428 )     (1,091 )  
Net cash used in financing activities     (63,432 )     (35,427 )  
               
Cash and Cash Equivalents              
Increase for the period     74,030       40,838    
Beginning of period     184,807       100,929    
End of period   $ 258,837     $ 141,767    
               
Supplemental disclosure of noncash activities:              
Leased assets obtained in exchange for new operating lease liabilities   $ 19,257     $ 110,192    
Accruals for property and equipment     323       497    
                   


                                       
TopBuild Corp.                                      
Segment Data (Unaudited)                                      
(dollars in thousands)                                      
                                       
    Three Months Ended June 30,          Six Months Ended June 30,         
    2020     2019     Change     2020     2019     Change    
TruTeam                                      
Sales   $ 466,569     $ 483,028     (3.4 )%   $ 942,442     $ 932,410     1.1 %  
                                       
Operating profit, as reported   $ 69,643     $ 68,423           $ 129,994     $ 119,722          
Operating margin, as reported     14.9 %     14.2 %           13.8 %     12.8 %        
                                       
Rationalization charges     857       81             857       199          
Acquisition related costs           277             4       403          
COVID-19 pay     638                   638                
Operating profit, as adjusted   $ 71,138     $ 68,781           $ 131,493     $ 120,324          
Operating margin, as adjusted     15.2 %     14.2 %           14.0 %     12.9 %        
                                       
Service Partners                                      
Sales   $ 216,336     $ 213,487     1.3 %   $ 430,558     $ 417,951     3.0 %  
                                       
Operating profit, as reported   $ 24,155     $ 21,151           $ 48,825     $ 41,748          
Operating margin, as reported     11.2 %     9.9 %           11.3 %     10.0 %        
                                       
Rationalization charges     944                   944       109          
COVID-19 pay     54                   54                
Operating profit, as adjusted   $ 25,153     $ 21,151           $ 49,823     $ 41,857          
Operating margin, as adjusted     11.6 %     9.9 %           11.6 %     10.0 %        
                                       
Total                                      
Sales before eliminations   $ 682,905     $ 696,515           $ 1,373,000     $ 1,350,361          
Intercompany eliminations     (36,806 )     (36,403 )           (73,673 )     (70,919 )        
Net sales after eliminations   $ 646,099     $ 660,112     (2.1 )%   $ 1,299,327     $ 1,279,442     1.6 %  
                                       
Operating profit, as reported - segments   $ 93,798     $ 89,574           $ 178,819     $ 161,470          
General corporate expense, net     (7,383 )     (7,130 )           (16,581 )     (16,734 )        
Intercompany eliminations     (5,961 )     (6,405 )           (11,795 )     (12,078 )        
Operating profit, as reported   $ 80,454     $ 76,039           $ 150,443     $ 132,658          
Operating margin, as reported     12.5 %     11.5 %           11.6 %     10.4 %        
                                       
Rationalization charges †     2,376       142             2,376       1,969          
Acquisition related costs     (40 )     251             196       903          
Refinancing costs     20                   57                
COVID-19 pay     692                   692                
Operating profit, as adjusted   $ 83,502     $ 76,432           $ 153,764     $ 135,530          
Operating margin, as adjusted     12.9 %     11.6 %           11.8 %     10.6 %        
                                       
Share-based compensation     5,130       4,513             9,038       7,485          
Depreciation and amortization     19,121       13,062             33,311       25,538          
EBITDA, as adjusted   $ 107,753     $ 94,007           $ 196,113     $ 168,553          
EBITDA margin, as adjusted     16.7 %     14.2 %           15.1 %     13.2 %        
                                       
Sales change period over period     (14,013
                19,885                  
EBITDA, as adjusted, change period over period     13,746                   27,560                  
EBITDA, as adjusted, as percentage of sales change     N/A                   138.6 %                
                                       
† Rationalization charges include corporate level adjustments as well as segment operating adjustments.                          
                                       


                             
TopBuild Corp.                            
Non-GAAP Reconciliations (Unaudited)                            
(in thousands, except share and per common share amounts)                          
                             
    Three Months Ended June 30,    Six Months Ended June 30,     
    2020     2019     2020     2019      
Gross Profit and Operating Profit Reconciliations                            
                             
Net sales   $ 646,099     $ 660,112     $ 1,299,327     $ 1,279,442      
                             
Gross profit, as reported   $ 178,054     $ 174,922     $ 350,011     $ 330,618      
                             
Rationalization charges     1,079             1,079            
COVID-19 pay     482             482            
Gross profit, as adjusted   $ 179,615     $ 174,922     $ 351,572     $ 330,618      
                             
Gross margin, as reported     27.6 %     26.5 %     26.9 %     25.8 %    
Gross margin, as adjusted     27.8 %     26.5 %     27.1 %     25.8 %    
                             
Operating profit, as reported   $ 80,454     $ 76,039     $ 150,443     $ 132,658      
                             
Rationalization charges     2,376       142       2,376       1,969      
Acquisition related costs     (40 )     251       196       903      
Refinancing costs     20             57            
COVID-19 pay     692             692            
Operating profit, as adjusted   $ 83,502     $ 76,432     $ 153,764     $ 135,530      
                             
Operating margin, as reported     12.5 %     11.5 %     11.6 %     10.4 %    
Operating margin, as adjusted     12.9 %     11.6 %     11.8 %     10.6 %    
                             
Income Per Common Share Reconciliation                            
                             
Income before income taxes, as reported   $ 72,266     $ 66,934     $ 133,753     $ 114,284      
                             
Rationalization charges     2,376       142       2,376       1,969      
Acquisition related costs     (40 )     251       196       903      
Refinancing costs and loss on extinguishment of debt     20             290            
COVID-19 pay     692             692            
Income before income taxes, as adjusted     75,314       67,327       137,307       117,156      
                             
Tax rate at 26.0% and 26.5% for 2020 and 2019, respectively     (19,582 )     (17,842 )     (35,700 )     (31,046 )    
Income, as adjusted   $ 55,732     $ 49,485     $ 101,607     $ 86,110      
                             
Income per common share, as adjusted   $ 1.68     $ 1.43     $ 3.04     $ 2.49      
                             
Weighted average diluted common shares outstanding     33,202,423       34,577,664       33,401,135       34,630,048      
                                     


                           
TopBuild Corp.                          
Same Branch and Acquisition Net Sales and Adjusted EBITDA (Unaudited)                          
(dollars in thousands)                          
                           
    Three Months Ended June 30,    Six Months Ended June 30,   
    2020     2019     2020     2019    
Net sales                          
Same branch:                          
Installation segment   $ 459,820     $ 483,028     $ 930,828     $ 932,410    
Distribution segment     216,336       213,487       430,558       417,951    
Eliminations     (36,806 )     (36,403 )     (73,673 )     (70,919 )  
Total same branch     639,350       660,112       1,287,713       1,279,442    
                           
Acquisitions (a):                          
Installation segment   $ 6,749     $     $ 11,614     $    
Distribution segment                          
Eliminations                          
Total acquisitions     6,749             11,614          
Total   $ 646,099     $ 660,112     $ 1,299,327     $ 1,279,442    
                           
EBITDA, as adjusted                          
Same branch   $ 106,325     $ 94,007     $ 193,592     $ 168,553    
Acquisitions (a)     1,428             2,521          
Total   $ 107,753     $ 94,007     $ 196,113     $ 168,553    
                           
EBITDA, as adjusted, as a percentage of sales                          
Same branch (b)     16.6 %           15.0 %        
Acquisitions (c)     21.2 %           21.7 %        
Total (d)     16.7 %     14.2 %     15.1 %     13.2 %  
                           
As Adjusted Incremental EBITDA, as a percentage of change in sales                          
Same branch (e)     N/A             302.7 %        
Acquisitions (c)     21.2 %           21.7 %        
Total (f)     N/A             138.6 %        
                           
(a) Represents current year impact of acquisitions in their first twelve months                          
(b) Same branch EBITDA, as adjusted, as a percentage of same branch sales                          
(c) Acquired EBITDA, as adjusted, as a percentage of acquired sales                          
(d) Total EBITDA, as adjusted, as a percentage of total sales                          
(e) Change in same branch EBITDA, as adjusted, as a percentage of change in same branch sales                    
(f) Change in total EBITDA, as adjusted, as a percentage of change in total sales                          
                           


                         
TopBuild Corp.                        
 Same Branch and Acquisition Net Sales by Market (Unaudited)              
(dollars in thousands)                        
                         
  Three Months Ended June 30,    Six Months Ended June 30,   
  2020   2019   2020   2019  
Same branch:                        
Residential $ 503,928   $ 504,659   $ 1,009,615   $ 980,794  
Commercial   135,422     155,453     278,098     298,648  
Same branch net sales   639,350     660,112     1,287,713     1,279,442  
                         
Acquisitions (a):                        
Residential $ 1,606   $   $ 2,651   $  
Commercial   5,143         8,963      
Acquisitions net sales   6,749         11,614      
Total net sales $ 646,099   $ 660,112   $ 1,299,327   $ 1,279,442  
                         
(a) Represents current year impact of acquisitions in their first twelve months              
                         


                         
TopBuild Corp.                        
Reconciliation of Adjusted EBITDA to Net Income (Unaudited)                  
(in thousands)                        
                         
    Three Months Ended June 30,    Six Months Ended June 30, 
    2020     2019   2020   2019
Net income, as reported   $ 55,496     $ 52,051   $ 106,268   $ 90,035
Adjustments to arrive at EBITDA, as adjusted:                        
Interest expense and other, net     8,188       9,105     16,457     18,374
Income tax expense     16,770       14,883     27,485     24,249
Depreciation and amortization     19,121       13,062     33,311     25,538
Share-based compensation     5,130       4,513     9,038     7,485
Rationalization charges     2,376       142     2,376     1,969
Acquisition related costs     (40 )     251     196     903
Refinancing costs and loss on extinguishment of debt     20           290    
COVID-19 pay     692           692    
EBITDA, as adjusted   $ 107,753     $ 94,007   $ 196,113   $ 168,553
                         

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Source: TopBuild Corp.