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TopBuild Reports Strong Second Quarter 2017 Results

8.6% Operating Margin, 8.9% on an Adjusted Basis
$0.63 Per Diluted Share Income from Continuing Operations
$0.67 Per Diluted Share on an Adjusted Basis

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Completed Two Acquisitions with ~$40 Million of Annual Revenue
$83 million of anticipated annual incremental revenue from companies acquired in 2017

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DAYTONA BEACH, Fla., Aug. 08, 2017 (GLOBE NEWSWIRE) -- TopBuild Corp. (NYSE:BLD), the leading purchaser, installer and distributor of insulation products to the United States construction industry, today reported results for the second quarter ended June 30, 2017.

Jerry Volas, Chief Executive Officer, stated, “We had another outstanding quarter as we continue to grow our two business segments and expand operating margins. Commercial and residential new construction are demonstrating consistent strength and we continue to benefit from our business model and national scale.

“Looking ahead, we have strong momentum going into the second half of the year. Our focus remains on driving top line growth and improving operational efficiencies throughout the Company, generating strong results for our shareholders.”

Second Quarter Financial Highlights
(unless otherwise indicated, comparisons are to the quarter ended June 30, 2016)

  • Net sales increased 9.9% to $474.5 million, primarily driven by sales volume growth in both operating segments as well as acquisitions. On a same branch basis, revenue increased 5.1% to $453.6 million.
  • Gross margin expanded 200 basis points to 24.6%.
  • Operating profit was $40.8 million, compared to operating profit of $26.8 million. On an adjusted basis, operating profit was $42.2 million, compared to $27.4 million, a 53.8% improvement.
  • Operating margin was 8.6%, up 240 basis points. Adjusted operating margin improved 250 basis points to 8.9%.
  • Income from continuing operations was $23.5 million, or $0.63 per diluted share, compared to $15.6 million, or $0.41 per diluted share. Adjusted income from continuing operations was $25.0 million, or $0.67 per diluted share, compared to $16.2 million, or $0.43 per diluted share.
  • Adjusted EBITDA was $48.2 million, compared to $32.6 million, a 48.1% increase. Incremental EBITDA margin was 36.5%. On a same branch basis, adjusted EBITDA was $45.6 million, a 40.1% increase, and incremental EBITDA margin was 59.1%.
  • The seven acquisitions completed over the past 12 months contributed $20.8 million of revenue. Incremental EBITDA related to these acquisitions improved 680 basis points from first quarter 2017 to 12.5%.
  • At June 30, 2017, the Company had cash and cash equivalents of $94.2 million, availability under its revolving credit facility of $201.0 million and $100 million available under a delayed draw term loan for total liquidity of $395.2 million.

Six Month Financial Highlights
(unless otherwise indicated, comparisons are to six months ended June 30, 2016)

  • Net sales increased 8.3% to $915.8 million. On a same branch basis, revenue increased 4.9% to $887.4 million.
  • Gross margin expanded 170 basis points to 23.8%.
  • Operating profit was $37.3 million, compared to operating profit of $46.6 million. In the first quarter of 2017, the Company reported an operating loss of $3.5 million related to a $30 million legal settlement. On an adjusted basis, operating profit was $70.8 million, compared to $48.2 million, a 46.8% improvement.
  • Operating margin was 4.1%, down 140 basis points. Adjusted operating margin improved 200 basis points to 7.7%.
  • Income from continuing operations was $21.7 million, or $0.58 per diluted share, compared to $26.7 million, or $0.70 per diluted share. Adjusted income from continuing operations was $42.0 million, or $1.12 per diluted share, compared to $28.1 million, or $0.74 per diluted share.
  • Adjusted EBITDA was $82.1 million, compared to $57.8 million, a 42.0% increase. Incremental EBITDA margin was 34.6%. On a same branch basis, adjusted EBITDA grew 36.7% to $79.1 million and incremental EBITDA margin was 50.8%.


Operating Segment Highlights ($ in 000s)
(comparisons are to the quarter ended June 30, 2016)

TruTeam3 Months
Ended
6/30/17
6 Months
Ended
6/30/17
Service
Partners
3 Months
Ended
6/30/17
6 Months
Ended
6/30/17
Sales$320,984 $611,870 Sales$175,062 $345,306
Change 11.4% 9.1% Change 6.6% 6.2%
Operating Margin 10.9% 4.3% Operating Margin 9.7% 9.4%
Change300 bps(220) bps Change150 bps80 bps
Adj. Operating Margin 11.0% 9.3% Adj. Operating Margin 9.7% 9.4%
Change310 bps270 bps Change150 bps80 bps

Capital Allocation

Acquisitions

In the second quarter, the Company acquired Superior Insulation Products, a residential insulation company, and Canyon Insulation, a heavy commercial insulation and firestopping company. Combined, these companies generated approximately $40 million in revenue for 2016. Year-to-date, through August 8, 2017, the Company has closed six acquisitions, four concentrating on residential insulation and two on heavy commercial. Combined, these acquisitions are expected to generate approximately $83 million of incremental revenue on an annual basis.

Volas stated, “Acquisitions remain our number one capital allocation priority and the pipeline of prospects our M&A team is currently evaluating is robust. Year-to-date, we’ve completed six acquisitions that are expected to contribute approximately $83 million of incremental annual revenue.”

Share Repurchases
In the second quarter, under the $200 million share repurchase program announced on February 28, 2017, the Company repurchased 461,358 shares at an average price of $47.48 per share. Year-to-date, through June 30, the Company has acquired 858,393 shares at an average share price of $45.77.

In addition, as previously announced, the Company entered into an agreement with Bank of America Merrill Lynch (BofAML) to repurchase $100 million of the Company’s common stock under an accelerated share repurchase program. On July 5th, the Company made a payment of $100.0 million to BofAML, using $30 million of cash on hand and borrowing $70 million under its revolving facility. In exchange, the Company received approximately 1.5 million shares with a value of approximately $80 million. The remaining $20 million balance is expected to settle no later than the end of the first quarter of 2018.

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 2017 financial results is scheduled for today, Tuesday, August 8, at 9:00 a.m. Eastern Time. The call may be accessed by dialing (877) 256-5211. The conference call will be webcast simultaneously on the “Investors” section of the Company’s website at www.topbuild.com. A replay will be available for one week beginning at 11:00 a.m. Eastern Time and may be accessed by dialing (800) 633-8284 and entering the passcode: 21842821.

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 175 branches, and through Service Partners® which distributes insulation from over 70 branches. We leverage our national footprint to gain economies of scale while capitalizing on our local market presence to forge strong relationships with our customers. To learn more about TopBuild please visit our website at www.topbuild.com.

Use of Non-GAAP Financial Measures
EBITDA, incremental EBITDA margin, the “adjusted” financial measures presented above, and figures presented on a “same branch basis” are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company believes that these non-GAAP financial measures, which are used in managing the business, may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. We define same branch sales as sales from branches in operation for at least 12 full calendar months. Such non-GAAP financial measures are reconciled to their closest GAAP financial measures in tables contained in this press release. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results under GAAP. Additional information may be found in the Company’s filings with the Securities and Exchange Commission which are available on TopBuild’s website under “Investors” at www.topbuild.com.

Safe Harbor Statement

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements may address, among other things, our expected financial and operational results and the related assumptions underlying our expected results. These forward-looking statements are distinguished by use of words such as “will,” “would,” “anticipate,” “expect,” “believe,” “designed,” “plan” or “intend,” the negative of these terms, and similar references to future periods. These views involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forward-looking statements. Our forward-looking statements contained herein speak only as of the date of this press release. Factors or events that we cannot predict, including those described in the risk factors contained in our filings with the Securities and Exchange Commission, may cause our actual results to differ from those expressed in forward-looking statements. Although TopBuild believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be achieved and it undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events, or otherwise, except as required by applicable law.

(tables follow)

TopBuild Corp.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per common share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Net sales $ 474,458 $ 431,589 $ 915,821 $ 845,613
Cost of sales 357,849 333,901 697,584 658,470
Gross profit 116,609 97,688 218,237 187,143
Selling, general, and administrative expense (exclusive of significant legal settlement, shown separately below) 75,813 70,898 150,904 140,586
Significant legal settlement 30,000
Operating profit 40,796 26,790 37,333 46,557
Other income (expense), net:
Interest expense (1,918) (1,371) (3,288) (3,044)
Loss on extinguishment of debt (1,086) (1,086)
Other, net 105 61 212 136
Other expense, net (2,899) (1,310) (4,162) (2,908)
Income from continuing operations before income taxes 37,897 25,480 33,171 43,649
Income tax expense from continuing operations (14,437) (9,865) (11,422) (16,918)
Income from continuing operations 23,460 15,615 21,749 26,731
Net income $ 23,460 $ 15,615 $ 21,749 $ 26,731
Income per common share:
Basic:
Income from continuing operations $ 0.64 $ 0.41 $ 0.59 $ 0.71
Net income $ 0.64 $ 0.41 $ 0.59 $ 0.71
Diluted:
Income from continuing operations $ 0.63 $ 0.41 $ 0.58 $ 0.70
Net income $ 0.63 $ 0.41 $ 0.58 $ 0.70

TopBuild Corp.
Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)
(dollars in thousands)
As of
June 30, December 31,
2017 2016
ASSETS
Current assets:
Cash and cash equivalents $ 94,233 $ 134,375
Receivables, net of an allowance for doubtful accounts of $3,566 and $3,374 at June 30, 2017, and December 31, 2016, respectively 297,325 252,624
Inventories, net 111,640 116,190
Prepaid expenses and other current assets 23,391 23,364
Total current assets 526,589 526,553
Property and equipment, net 98,185 92,760
Goodwill 1,084,833 1,045,058
Other intangible assets, net 28,786 2,656
Deferred tax assets, net 19,469 19,469
Other assets 3,197 3,623
Total assets $ 1,761,059 $ 1,690,119
LIABILITIES
Current liabilities:
Accounts payable $ 243,000 $ 241,534
Current portion of long-term debt 12,500 20,000
Accrued liabilities 77,175 64,399
Total current liabilities 332,675 325,933
Long-term debt 235,422 158,800
Deferred tax liabilities, net 193,715 193,715
Long-term portion of insurance reserves 38,132 38,691
Other liabilities 3,151 433
Total liabilities 803,095 717,572
EQUITY 957,964 972,547
Total liabilities and equity $ 1,761,059 $ 1,690,119
As of
June 30, June 30,
2017 2016
Other Financial Data
Working Capital Days†
Receivable days 45 46
Inventory days 29 28
Accounts payable days 83 82
Working capital $ 165,965 $ 143,202
Working capital as a percent of sales (LTM)‡ 8.8% 8.4%
† Amounts adjusted for acquisitions for comparability purposes
‡ 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)
Six Months Ended June 30,
2017 2016
Net Cash Provided by (Used in) Operating Activities:
Net income $ 21,749 $ 26,731
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 6,835 5,908
Share-based compensation 5,101 3,705
Loss on extinguishment of debt 1,086
Loss on sale or abandonment of property and equipment 285 1,477
Amortization of debt issuance costs 186 171
Provision for bad debt expense 1,750 1,986
Loss from inventory obsolescence 826 667
Deferred income taxes, net (3)
Changes in certain assets and liabilities:
Receivables, net (25,123) (21,436)
Inventories, net 5,908 15,819
Prepaid expenses and other current assets 7 (3,266)
Accounts payable (3,124) (39,237)
Accrued liabilities 9,787 13,642
Other, net 398 (18)
Net cash provided by operating activities 25,671 6,146
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment (8,571) (6,023)
Acquisition of businesses (83,932)
Proceeds from sale of property and equipment 126 219
Other, net 147 147
Net cash used in investing activities (92,230) (5,657)
Cash Flows Provided by (Used in) Financing Activities:
Proceeds from issuance of long-term debt 250,000
Repayment of long-term debt (180,000) (5,000)
Payment of debt issuance costs (2,150)
Taxes withheld and paid on employees' equity awards (2,147) (1,285)
Repurchase of shares of common stock (39,286) (4,962)
Net cash provided by (used in) financing activities 26,417 (11,247)
Cash and Cash Equivalents
Decrease for the period (40,142) (10,758)
Beginning of year 134,375 112,848
End of year $ 94,233 $ 102,090
Supplemental disclosure of noncash investing activities:
Accruals for property and equipment $ 655 $ 521

TopBuild Corp.
Segment Data (Unaudited)
(dollars in thousands)
Three Months Ended June 30, Six Months Ended June 30,
2017 2016 Change 2017 2016 Change
Installation
Sales $ 320,984 $ 288,042 11.4% $ 611,870 $ 560,920 9.1%
Operating profit, as reported $ 35,086 $ 22,797 $ 26,123 $ 36,303
Operating margin, as reported 10.9 % 7.9 % 4.3 % 6.5 %
Significant legal settlement 30,000
Rationalization charges 171 66 582 894
Operating profit, as adjusted $ 35,257 $ 22,863 $ 56,705 $ 37,197
Operating margin, as adjusted 11.0 % 7.9 % 9.3 % 6.6 %
Distribution
Sales $ 175,062 $ 164,257 6.6% $ 345,306 $ 325,145 6.2%
Operating profit, as reported $ 17,022 $ 13,547 $ 32,506 $ 27,880
Operating margin, as reported 9.7 % 8.2 % 9.4 % 8.6 %
Rationalization charges 17 17 83
Operating profit, as adjusted $ 17,039 $ 13,547 $ 32,523 $ 27,963
Operating margin, as adjusted 9.7 % 8.2 % 9.4 % 8.6 %
Total
Sales before eliminations $ 496,046 $ 452,299 $ 957,176 $ 886,065
Intercompany eliminations (21,588) (20,710) (41,355) (40,452)
Net sales after eliminations $ 474,458 $ 431,589 9.9% $ 915,821 $ 845,613 8.3%
Operating profit, as reported - segment $ 52,108 $ 36,344 $ 58,629 $ 64,183
General corporate expense, net (7,632) (6,030) (14,316) (10,750)
Intercompany eliminations and other adjustments (3,680) (3,524) (6,980) (6,876)
Operating profit, as reported $ 40,796 $ 26,790 $ 37,333 $ 46,557
Operating margin, as reported 8.6 % 6.2 % 4.1 % 5.5 %
Significant legal settlement 30,000
Rationalization charges 1,258 647 2,995 1,655
Acquisition related costs 145 437
Operating profit, as adjusted $ 42,199 $ 27,437 $ 70,765 $ 48,212
Operating margin, as adjusted 8.9 % 6.4 % 7.7 % 5.7 %
Share-based compensation ‡ 2,403 2,105 4,487 3,705
Depreciation and amortization 3,605 3,013 6,835 5,908
EBITDA, as adjusted $ 48,207 $ 32,555 $ 82,087 $ 57,825
Sales change period over period 42,869 70,208
EBITDA, as adjusted change period over period 15,652 24,262
EBITDA, as adjusted as percentage of sales change 36.5 % 34.6 %
† Rationalization charges include corporate level adjustments as well as segment operating adjustments.
‡ Amounts for the three and six month periods ending June 30, 2017, exclude $0.6 million of share-based compensation included in the line item, rationalization charges.

TopBuild Corp.
Non-GAAP Reconciliations (Unaudited)
(in thousands, except common share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Gross Profit and Operating Profit Reconciliations
Net sales $ 474,458 $ 431,589 $ 915,821 $ 845,613
Gross profit, as reported $ 116,609 $ 97,688 $ 218,237 $ 187,143
Gross profit, as adjusted $ 116,609 $ 97,688 $ 218,237 $ 187,143
Gross margin, as reported 24.6 % 22.6 % 23.8 % 22.1 %
Gross margin, as adjusted 24.6 % 22.6 % 23.8 % 22.1 %
Operating profit, as reported $ 40,796 $ 26,790 $ 37,333 $ 46,557
Significant legal settlement 30,000
Rationalization charges 1,258 647 2,995 1,655
Acquisition related costs 145 437
Operating profit, as adjusted $ 42,199 $ 27,437 $ 70,765 $ 48,212
Operating margin, as reported 8.6 % 6.2 % 4.1 % 5.5 %
Operating margin, as adjusted 8.9 % 6.4 % 7.7 % 5.7 %
Income Per Common Share Reconciliation
Income from continuing operations before income taxes, as reported $ 37,897 $ 25,480 $ 33,171 $ 43,649
Significant legal settlement 30,000
Rationalization charges 1,258 647 2,995 1,655
Acquisition related costs 145 437
Loss on extinguishment of debt 1,086 1,086
Income from continuing operations before income taxes, as adjusted 40,386 26,127 67,689 45,304
Tax at 38% rate (15,347) (9,928) (25,722) (17,216)
Income from continuing operations, as adjusted $ 25,039 $ 16,199 $ 41,967 $ 28,088
Income per common share, as adjusted $ 0.67 $ 0.43 $ 1.12 $ 0.74
Average diluted common shares outstanding 37,191,299 37,976,703 37,404,193 37,938,108

TopBuild Corp.
Same Branch Net Sales and Adjusted EBITDA (Unaudited)
(in thousands)
Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Net sales
Same branch $ 453,648 $ 431,589 $ 887,425 $ 845,613
Acquired 20,810 28,396
Total $ 474,458 $ 431,589 $ 915,821 $ 845,613
EBITDA, as adjusted
Same branch 45,599 32,555 79,050 57,825
Acquired 2,608 3,037
Total $ 48,207 $ 32,555 $ 82,087 $ 57,825
Same branch EBITDA, as adjusted as percentage of sales change 59.1% 33.3% 50.8% 28.8%
Acquired EBITDA, as adjusted as percentage of sales change 12.5%% 10.7%%

TopBuild Corp.
Reconciliation of EBITDA to Net Income (Unaudited)
(in thousands)
Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Net income, as reported $ 23,460 $ 15,615 $ 21,749 $ 26,731
Adjustments to arrive at EBITDA, as adjusted:
Interest expense and other, net 1,813 1,310 3,076 2,908
Income tax expense from continuing operations 14,437 9,865 11,422 16,918
Depreciation and amortization 3,605 3,013 6,835 5,908
Share-based compensation † 2,403 2,105 4,487 3,705
Significant legal settlement 30,000
Rationalization charges 1,258 647 2,995 1,655
Loss on extinguishment of debt 1,086 1,086
Acquisition related costs 145 437
EBITDA, as adjusted $ 48,207 $ 32,555 $ 82,087 $ 57,825
† Amounts for the three and six month periods ending June 30, 2017, exclude $0.6 million of share-based compensation included in the line item, rationalization charges.


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

Source:TopBuild Corp.