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TopBuild Reports Third Quarter 2017 Results

DAYTONA BEACH, Fla., Nov. 07, 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 continue to demonstrate the efficiency of our operating model through margin expansion and bottom line growth. While there was some negative impact to our top line from weather related issues in the third quarter, this should be recovered in a future period.

“Looking ahead we see continued strength in both the residential and commercial markets. Our national scale should remain a strong competitive advantage for us as both capacity and labor continue to tighten.”

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

  • Net sales increased 7.9% to $489.0 million, primarily driven by sales volume growth and price increases in both operating segments as well as through acquisitions. On a same branch basis, revenue increased 2.7% to $464.6 million.
  • Gross margin expanded 80 basis points to 24.7%.
  • Operating profit was $49.6 million, compared to $39.1 million. On an adjusted basis, operating profit was $50.3 million, compared to $39.6 million, a 27.0% improvement.
  • Operating margin was 10.1%, up 150 basis points. Adjusted operating margin improved 160 basis points to 10.3%.
  • Income from continuing operations was $31.4 million, or $0.88 per diluted share, compared to $24.6 million, or $0.65 per diluted share. Adjusted income from continuing operations was $29.7 million, or $0.83 per diluted share, compared to $23.8 million, or $0.63 per diluted share.
  • Adjusted EBITDA was $57.6 million, compared to $44.6 million, a 28.9% increase. Incremental EBITDA margin was 36.0%. On a same branch basis, adjusted EBITDA was $53.7 million, a 20.3% increase, and incremental EBITDA margin was 74.2%.

Nine Month Financial Highlights
(unless otherwise indicated, comparisons are to nine months ended September 30, 2016)

  • Net sales increased 8.2% to $1,404.9 million. On a same branch basis, revenue increased 4.2% to $1,352.0 million.
  • Gross margin expanded 140 basis points to 24.1%.
  • Operating profit was $86.9 million, compared to operating profit of $85.7 million. On an adjusted basis, operating profit was $121.0 million, compared to $87.8 million, a 37.9% improvement.
  • Operating margin was 6.2%, down 40 basis points. Adjusted operating margin improved 180 basis points to 8.6%.
  • Income from continuing operations was $53.1 million, or $1.44 per diluted share, compared to $51.3 million, or $1.35 per diluted share. Adjusted income from continuing operations was $71.6 million, or $1.94 per diluted share, compared to $51.9 million, or $1.37 per diluted share.
  • Adjusted EBITDA was $139.7 million, compared to $102.5 million, a 36.3% increase. Incremental EBITDA margin was 35.0%. On a same branch basis, adjusted EBITDA grew 29.6% to $132.7 million and incremental EBITDA margin was 56.1%.

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

TruTeam3 Months Ended 9/30/179 Months Ended 9/30/17 Service Partners3 Months Ended 9/30/179 Months Ended 9/30/17
Sales$333,238$945,109 Sales$181,146$526,452
Change11.1%9.8% Change4.0%5.4%
Operating Margin12.3%7.1% Operating Margin10.1%9.7%
Change160 bps(90) bps Change120 bps100 bps
Adj. Operating Margin12.3%10.3% Adj. Operating Margin10.1%9.7%
Change150 bps220 bps Change120 bps100 bps

Capital Allocation

Acquisitions
Year-to-date, the Company has completed 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, “Our plan is to utilize our excess free cash flow to expand our two business segments through strategic acquisitions. We are very encouraged by our robust pipeline of prospects and are pleased with our successful track record of integrating the seven firms we’ve acquired these past 18 months. Incremental EBITDA margin on these acquisitions has improved from 5.7% in the first quarter of 2017 to 16.3% today.”

Share Repurchases
In conjunction with its previously announced accelerated share repurchase program, in the third quarter the Company made a payment of $100.0 million to Bank of America Merrill Lynch, 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. Since January 1, 2016, the Company has repurchased 3.0 million shares of its common stock.

2017 Revenue and Adjusted EBITDA Outlook

2017LowHigh
Revenue$1,890M$1,905M
Adjusted EBITDA$190M$195M

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 2017 results to differ materially from TopBuild’s current expectations are discussed below and are also detailed in the Company’s 2016 Annual Report on Form 10-K and subsequent SEC reports.

Amendment to Corporate Governance Guidelines
The Company’s Board of Directors has amended its Corporate Governance Guidelines to adopt a majority voting policy whereby any nominee for director who receives more “withheld” votes than “for” votes in an uncontested election must submit a written offer to resign as director. Any such resignation will be reviewed by the Board’s Nominating and Corporate Governance Committee and, within 90 days after the election, the independent members of the Board will determine whether to accept, reject or take other appropriate action with respect to, the resignation, in furtherance of the best interests of the Company and its shareholders. The Company’s Corporate Governance Guidelines containing the Majority Voting Policy are available on the Company’s website, at www.topbuild.com on the Investor page under the Corporate Governance section.

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 2017 financial results is scheduled for today, Tuesday, November 7, at 9:00 a.m. Eastern Time. The call may be accessed by dialing (866) 460-4783. 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: 21847871.

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.

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 per common share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net sales $ 489,044 $ 453,102 $ 1,404,865 $ 1,298,715
Cost of sales 368,205 344,963 1,065,789 1,003,433
Gross profit 120,839 108,139 339,076 295,282
Selling, general, and administrative expense (exclusive of significant legal settlement, shown separately below) 71,277 69,038 222,181 209,623
Significant legal settlement 30,000
Operating profit 49,562 39,101 86,895 85,659
Other income (expense), net:
Interest expense (2,479) (1,271) (5,767) (4,315)
Loss on extinguishment of debt (1,086)
Other, net 27 65 239 201
Other expense, net (2,452) (1,206) (6,614) (4,114)
Income from continuing operations before income taxes 47,110 37,895 80,281 81,545
Income tax expense from continuing operations (15,717) (13,329) (27,139) (30,246)
Income from continuing operations 31,393 24,566 53,142 51,299
Net income $ 31,393 $ 24,566 $ 53,142 $ 51,299
Income per common share:
Basic:
Income from continuing operations $ 0.90 $ 0.65 $ 1.47 $ 1.36
Net income $ 0.90 $ 0.65 $ 1.47 $ 1.36
Diluted:
Income from continuing operations $ 0.88 $ 0.65 $ 1.44 $ 1.35
Net income $ 0.88 $ 0.65 $ 1.44 $ 1.35


TopBuild Corp.
Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)
(dollars in thousands)
As of
September 30, December 31,
2017 2016
ASSETS
Current assets:
Cash and cash equivalents $ 18,460 $ 134,375
Receivables, net of an allowance for doubtful accounts of $3,729 and $3,374 at September 30, 2017, and December 31, 2016, respectively 315,382 252,624
Inventories, net 116,781 116,190
Prepaid expenses and other current assets 15,043 23,364
Total current assets 465,666 526,553
Property and equipment, net 98,144 92,760
Goodwill 1,077,102 1,045,058
Other intangible assets, net 34,280 2,656
Deferred tax assets, net 19,469 19,469
Other assets 3,033 3,623
Total assets $ 1,697,694 $ 1,690,119
LIABILITIES
Current liabilities:
Accounts payable $ 242,617 $ 241,534
Revolving credit facility 5,000
Current portion of long-term debt 12,500 20,000
Accrued liabilities 81,199 64,399
Total current liabilities 341,316 325,933
Long-term debt 232,405 158,800
Deferred tax liabilities, net 193,980 193,715
Long-term portion of insurance reserves 37,396 38,691
Other liabilities 3,196 433
Total liabilities 808,293 717,572
EQUITY 889,401 972,547
Total liabilities and equity $ 1,697,694 $ 1,690,119
As of
September 30, September 30,
2017 2016
Other Financial Data
Working Capital Days
Receivable days 49 45
Inventory days 30 29
Accounts payable days 80 76
Working capital $ 189,547 $ 153,553
Working capital as a percent of sales (LTM)‡ 10.0% 8.9%
† 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.
Consolidated Statement of Cash Flows (Unaudited)
(dollars in thousands)
Nine Months Ended September 30,
2017 2016
Net Cash Provided by (Used in) Operating Activities:
Net income $ 53,142 $ 51,299
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 11,753 8,923
Share-based compensation 7,473 5,743
Loss on extinguishment of debt 1,086
Loss on sale or abandonment of property and equipment 614 2,399
Amortization of debt issuance costs 293 257
Amortization of contingent consideration 98
Provision for bad debt expense 2,498 2,696
Loss from inventory obsolescence 1,390 970
Deferred income taxes, net 266 476
Changes in certain assets and liabilities:
Receivables, net (43,931) (32,294)
Inventories, net 249 12,103
Prepaid expenses and other current assets 8,362 (3,162)
Accounts payable (2,280) (35,023)
Long-term portion of insurance reserves (1,599)
Accrued liabilities 13,633 15,159
Other, net (28) (13)
Net cash provided by operating activities 54,618 27,934
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment (13,088) (10,083)
Acquisition of businesses (84,040) (3,476)
Proceeds from sale of property and equipment 453 379
Other, net 178 93
Net cash used in investing activities (96,497) (13,087)
Cash Flows Provided by (Used in) Financing Activities:
Net transfer to Former Parent (153)
Proceeds from issuance of long-term debt 250,000
Repayment of long-term debt (183,125) (10,000)
Payment of debt issuance costs (2,150)
Proceeds from revolving credit facility 170,000
Repayments of revolving credit facility (165,000)
Taxes withheld and paid on employees' equity awards (4,475) (1,668)
Repurchase of shares of common stock (139,286) (11,377)
Net cash used in financing activities (74,036) (23,198)
Cash and Cash Equivalents
Decrease for the period (115,915) (8,351)
Beginning of year 134,375 112,848
End of period $ 18,460 $ 104,497
Supplemental disclosure of noncash investing activities:
Accruals for property and equipment $ 154 $ 110

TopBuild Corp.
Segment Data (Unaudited)
(dollars in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 Change 2017 2016 Change
Installation
Sales $ 333,238 $ 300,005 11.1% $ 945,109 $ 860,924 9.8%
Operating profit, as reported $ 40,862 $ 32,196 $ 66,985 $ 68,499
Operating margin, as reported 12.3 % 10.7 % 7.1 % 8.0 %
Significant legal settlement 30,000
Rationalization charges 139 115 720 1,009
Operating profit, as adjusted $ 41,001 $ 32,311 $ 97,705 $ 69,508
Operating margin, as adjusted 12.3 % 10.8 % 10.3 % 8.1 %
Distribution
Sales $ 181,146 $ 174,123 4.0% $ 526,452 $ 499,268 5.4%
Operating profit, as reported $ 18,300 $ 15,536 $ 50,806 $ 43,416
Operating margin, as reported 10.1 % 8.9 %
9.7 % 8.7 %
Rationalization charges 5 23 83
Operating profit, as adjusted $ 18,305 $ 15,536 $ 50,829 $ 43,499
Operating margin, as adjusted 10.1 % 8.9% 9.7 % 8.7 %
Total
Sales before eliminations $ 514,384 $ 474,128 $ 1,471,561 $ 1,360,192
Intercompany eliminations (25,340) (21,026) (66,696) (61,477)
Net sales after eliminations $ 489,044 $ 453,102 7.9% $ 1,404,865 $ 1,298,715 8.2%
Operating profit, as reported - segment $ 59,162 $ 47,732 $ 117,791 $ 111,915
General corporate expense, net (5,187) (4,966) (19,503) (15,716)
Intercompany eliminations and other adjustments (4,413) (3,665) (11,393) (10,540)
Operating profit, as reported $ 49,562 $ 39,101 $ 86,895 $ 85,659
Operating margin, as reported 10.1 % 8.6 % 6.2 % 6.6 %
Significant legal settlement 30,000
Rationalization charges 404 435 3,399 2,090
Acquisition related costs 310 55 748 55
Operating profit, as adjusted $ 50,276 $ 39,591 $ 121,042 $ 87,804
Operating margin, as adjusted 10.3 % 8.7 % 8.6 % 6.8 %
Share-based compensation ‡ 2,372 2,037 6,859 5,743
Depreciation and amortization 4,918 3,015 11,753 8,923
EBITDA, as adjusted $ 57,566 $ 44,643 $ 139,654 $ 102,470
Sales change period over period 35,942 106,150
EBITDA, as adjusted change period over period 12,923 37,184
EBITDA, as adjusted as percentage of sales change 36.0 % 35.0 %
† 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 common share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Gross Profit and Operating Profit Reconciliations
Net sales $ 489,044 $ 453,102 $ 1,404,865 $ 1,298,715
Gross profit, as reported $ 120,839 $ 108,139 $ 339,076 $ 295,282
Gross profit, as adjusted $ 120,839 $ 108,139 $ 339,076 $ 295,282
Gross margin, as reported 24.7% 23.9% 24.1% 22.7%
Gross margin, as adjusted 24.7% 23.9% 24.1% 22.7%
Operating profit, as reported $ 49,562 $ 39,101 $ 86,895 $ 85,659
Significant legal settlement 30,000
Rationalization charges 404 435 3,399 2,090
Acquisition related costs 310 55 748 55
Operating profit, as adjusted $ 50,276 $ 39,591 $ 121,042 $ 87,804
Operating margin, as reported 10.1% 8.6% 6.2% 6.6%
Operating margin, as adjusted 10.3% 8.7% 8.6% 6.8%
Income Per Common Share Reconciliation
Income from continuing operations before income taxes, as reported $ 47,110 $ 37,895 $ 80,281 $ 81,545
Significant legal settlement 30,000
Rationalization charges 404 435 3,399 2,090
Acquisition related costs 310 55 748 55
Loss on extinguishment of debt 1,086
Income from continuing operations before income taxes, as adjusted 47,824 38,385 115,514 83,690
Tax at 38% rate (18,173) (14,586) (43,895) (31,802)
Income from continuing operations, as adjusted $ 29,651 $ 23,799 $ 71,619 $ 51,888
Income per common share, as adjusted $ 0.83 $ 0.63 $ 1.94 $ 1.37
Average diluted common shares outstanding 35,737,629 37,952,333 36,842,144 37,942,540

TopBuild Corp.
Same Branch Net Sales and Adjusted EBITDA (Unaudited)
(dollars in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net sales
Same branch $ 464,622 $ 452,430 $ 1,352,048 $ 1,298,043
Acquired 24,422 672 52,817 672
Total $ 489,044 $ 453,102 $ 1,404,865 $ 1,298,715
EBITDA, as adjusted
Same branch 53,652 44,602 132,703 102,429
Acquired 3,914 41 6,951 41
Total $ 57,566 $ 44,643 $ 139,654 $ 102,470
Same branch EBITDA, as adjusted as percentage of sales change 74.2% 36.4% 56.1% 30.5%
Acquired EBITDA, as adjusted as percentage of sales change 16.3% 6.1% 13.3% 6.1%

TopBuild Corp.
Reconciliation of EBITDA to Net Income (Unaudited)
(dollars in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income, as reported $ 31,393 $ 24,566 $ 53,142 $ 51,299
Adjustments to arrive at EBITDA, as adjusted:
Interest expense and other, net 2,452 1,206 5,528 4,114
Income tax expense from continuing operations 15,717 13,329 27,139 30,246
Depreciation and amortization 4,918 3,015 11,753 8,923
Share-based compensation † 2,372 2,037 6,859 5,743
Significant legal settlement 30,000
Rationalization charges 404 435 3,399 2,090
Loss on extinguishment of debt 1,086
Acquisition related costs 310 55 748 55
EBITDA, as adjusted $ 57,566 $ 44,643 $ 139,654 $ 102,470
† 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.
2017 Estimated Adjusted EBITDA Range (Unaudited)
(dollars in millions)
Twelve Months Ending December 31, 2017
Low High
Estimated net income$ 75.1 $ 78.8
Adjustments to arrive at estimated EBITDA, as adjusted:
Interest expense and other, net 8.0 7.7
Income tax expense from continuing operations 46.0 48.3
Depreciation and amortization 16.1 15.7
Share-based compensation † 9.5 9.2
Significant legal settlement 30.0 30.0
Rationalization charges 3.4 3.4
Loss on extinguishment of debt 1.1 1.1
Acquisition related costs 0.8 0.8
Estimated EBITDA, as adjusted$ 190.0 $ 195.0
† Amounts for the twelve month period ending December 31, 2017, excludes $0.6 million of share-based compensation included in the line item, rationalization charges.


Source:TopBuild Corp.