×

TopBuild Reports Strong Fourth Quarter and Full Year 2017 Results

DAYTONA BEACH, Fla., Feb. 27, 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 fourth quarter ended December 31, 2017.

Jerry Volas, Chief Executive Officer, stated, “2017 was a year of profitable growth for TopBuild. We remain focused on generating top line growth, identifying additional opportunities that complement our core residential insulation businesses and improving operational efficiencies.

“Looking ahead, we are very optimistic the housing recovery will continue to strengthen. Housing supply is tight, demand is strong and household formations are increasing. TopBuild is ideally situated to take advantage of this positive environment through both our TruTeam and Service Partners segments which, combined, are exposed to 95% of all housing starts.”

Fourth Quarter Financial Highlights

(unless otherwise indicated, comparisons are to the quarter ended December 31, 2016)

  • Net sales increased 12.9% to $501.4 million, driven by sales volume growth and price increases in both operating segments as well as through acquisitions. On a same branch basis, net sales increased 8.3% to $479.6 million.
  • Gross margin expanded 60 basis points to 24.3%.
  • Operating profit was $50.0 million, compared to $35.9 million. On an adjusted basis, operating profit was $50.8 million, compared to $37.1 million, a 37.2% improvement.
  • Operating margin was 10.0%, up 190 basis points. Adjusted operating margin improved 180 basis points to 10.1%.
  • Income from continuing operations was $47.8 million, or $2.93 per diluted share, compared to $34.7 million, or $0.57 per diluted share. The Company noted that in the fourth quarter of 2017 it recorded a one-time tax benefit of $74.1 million related to the passage of the 2017 Tax Reform Bill.
  • Adjusted income from continuing operations was $30.1 million, or $0.84 per diluted share, compared to $22.2 million, or $0.59 per diluted share.
  • Adjusted EBITDA was $57.9 million, compared to $42.1 million, a 37.7% increase. Incremental EBITDA margin was 27.7%. On a same branch basis, adjusted EBITDA was $55.0 million, a 31.3% increase, and incremental EBITDA margin was 35.5%.
  • The six acquisitions completed in 2017 contributed $21.8 million of revenue. Incremental EBITDA related to these acquisitions was 13.6%.
  • A one-time benefit of $74.1 million from the adjustment of the Company’s deferred assets and liabilities was taken to reflect the change in the federal tax rate.
  • At December 31, 2017, the Company had cash and cash equivalents of $56.5 million, availability under its revolving credit facility of $203.0 million and $100.0 million available under a delayed draw term loan for total liquidity of $359.5 million.

Full Year 2017 Financial Highlights

(unless otherwise indicated, comparisons are to twelve months ended December 31, 2016)

  • Net sales increased 9.4% to $1,906.3 million. On a same branch basis, revenue increased 5.2% to $1,831.6 million.
  • Gross margin expanded 120 basis points to 24.2%.
  • Operating profit was $136.9 million, compared to operating profit of $121.6 million. On an adjusted basis, operating profit was $171.9 million, compared to $124.9 million, a 37.6% improvement.
  • Operating margin was 7.2%, up 20 basis points. Adjusted operating margin improved 180 basis points to 9.0%.
  • Income from continuing operations was $128.0 million, or $4.32 per diluted share, compared to $116.3 million, or $1.92 per diluted share. Adjusted income from continuing operations was $164.1 million, or $2.78 per diluted share, compared to $119.5 million, or $1.96 per diluted share.
  • Adjusted EBITDA was $197.6 million, compared to $144.5 million, a 36.7% increase. Incremental EBITDA margin was 32.5%. On a same branch basis, adjusted EBITDA grew 30.1% to $187.7 million and incremental EBITDA margin was 47.7%.
  • The six acquisitions completed in 2017 contributed $74.6 million of revenue. Incremental EBITDA related to these acquisitions was 13.3%.

Operating Segment Highlights ($ in 000s)
(comparisons are to the period ended December 31, 2016)

TruTeam3 Months Ended 12/31/1712 Months Ended 12/31/17 Service Partners3 Months Ended 12/31/1712 Months Ended 12/31/17
Sales$336,188$1,281,296 Sales$193,306$719,759
Change16.2%11.4% Change9.0%6.4%
Operating Margin12.6%8.5% Operating Margin9.3%9.5%
Change270 bps10 bps Change10 bps70 bps
Adj. Operating Margin12.7%11.0% Adj. Operating Margin9.3%9.6%
Change270 bps240 bps Change0 bps70 bps

Capital Allocation

Acquisitions
In 2017, the Company completed six acquisitions that are expected to generate approximately $83 million of net annual revenue. The companies acquired included two heavy commercial and four residential installation firms.

In 2018, through February 26, the Company has completed two acquisitions that are expected to generate approximately $31.6 million of net revenue.

Volas stated, “Strategic acquisitions remain a top priority and we are encouraged by our robust pipeline of prospects. Since implementing our acquisition program in 2016, we have acquired six residential insulation firms, two heavy commercial insulation companies and an insulation products distributor. Combined, these nine acquisitions are expected to contribute over $120 million of annual revenue.”

Share Repurchases
In 2017 the Company repurchased a total of 2.4 million shares of its common stock for approximately $139.3 million. This includes the receipt of approximately 1.5 million shares from Bank of America Merrill Lynch related to its previously announced $100 million accelerated share repurchase (“ASR”) program. The ASR is expected to settle no later than the end of the first quarter of 2018.

2017 Revenue and Adjusted EBITDA Outlook

2018LowHigh
Revenue$2,050M$2,115M
Adjusted EBITDA$222M$242M

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.

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 fourth quarter 2017 financial results is scheduled for today, Tuesday, February 27, 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 and other building 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.
Consolidated Statements of Operations
(in thousands, except common share amounts)
Three Months Ended December 31, Year Ended December 31,
2017 2016 2017 2016
Net sales $ 501,401 $ 444,135 $ 1,906,266 $ 1,742,850
Cost of sales 379,368 339,073 1,445,157 1,342,506
Gross profit 122,033 105,062 461,109 400,344
Selling, general, and administrative expense (exclusive of significant legal settlement, shown separately below) 72,063 69,118 294,245 278,740
Significant legal settlement 30,000
Operating profit 49,970 35,944 136,864 121,604
Other income (expense), net:
Interest expense (2,252) (1,293) (8,019) (5,608)
Loss on extinguishment of debt (1,086)
Other, net 42 77 281 277
Other expense, net (2,210) (1,216) (8,824) (5,331)
Income from continuing operations before income taxes 47,760 34,728 128,040 116,273
Income tax benefit (expense) from continuing operations 57,231 (13,421) 30,093 (43,667)
Income from continuing operations 104,991 21,307 158,133 72,606
Net income $ 104,991 $ 21,307 $ 158,133 $ 72,606
Income per common share:
Basic:
Income from continuing operations $ 3.00 $ 0.57 $ 4.41 $ 1.93
Net income $ 3.00 $ 0.57 $ 4.41 $ 1.93
Diluted:
Income from continuing operations $ 2.93 $ 0.57 $ 4.32 $ 1.92
Net income $ 2.93 $ 0.57 $ 4.32 $ 1.92

TopBuild Corp.
Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)
(dollars in thousands)
As of
December 31, December 31,
2017 2016
ASSETS
Current assets:
Cash and cash equivalents $ 56,521 $ 134,375
Receivables, net of an allowance for doubtful accounts of $3,673 and $3,374 at December 31, 2017, and December 31, 2016, respectively 308,508 252,624
Inventories, net 131,342 116,190
Prepaid expenses and other current assets 15,221 23,364
Total current assets 511,592 526,553
Property and equipment, net 107,121 92,760
Goodwill 1,077,186 1,045,058
Other intangible assets, net 33,243 2,656
Deferred tax assets, net 18,129 19,469
Other assets 2,278 3,623
Total assets $ 1,749,549 $ 1,690,119
LIABILITIES
Current liabilities:
Accounts payable $ 263,814 $ 241,534
Current portion of long-term debt 12,500 20,000
Accrued liabilities 75,087 64,399
Total current liabilities 351,401 325,933
Long-term debt 229,387 158,800
Deferred tax liabilities, net 132,840 193,715
Long-term portion of insurance reserves 36,160 38,691
Other liabilities 3,242 433
Total liabilities 753,030 717,572
EQUITY 996,519 972,547
Total liabilities and equity $ 1,749,549 $ 1,690,119
As of
December 31, December 31,
2017 2016
Other Financial Data
Working Capital Days†
Receivable days 50 46
Inventory days 33 31
Accounts payable days 79 82
Working capital $ 176,036 $ 127,280
Working capital as a percent of sales (LTM)‡ 9.1% 7.3%
† 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)
Year Ended December 31,
2017 2016
Net Cash Provided by (Used in) Operating Activities:
Net income $ 158,133 $ 72,606
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 16,453 12,011
Share-based compensation 9,889 7,669
Loss on extinguishment of debt 1,086
Loss on sale or abandonment of property and equipment 998 2,737
Amortization of debt issuance costs 401 343
Amortization of contingent consideration 149
Provision for bad debt expense 3,231 3,292
Loss from inventory obsolescence 1,979 1,343
Deferred income taxes, net (59,535) 13,540
Changes in certain assets and liabilities:
Receivables, net (37,943) (19,953)
Inventories, net (14,901) 1,370
Prepaid expenses and other current assets 8,184 (10,102)
Accounts payable 17,936 (11,698)
Accrued liabilities 7,160 3,633
Other, net (28) (6)
Net cash provided by operating activities 113,192 76,785
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment (25,308) (14,156)
Acquisition of businesses (84,090) (3,476)
Proceeds from sale of property and equipment 603 718
Other, net 199 113
Net cash used in investing activities (108,596) (16,801)
Cash Flows Provided by (Used in) Financing Activities:
Net transfer from Former Parent 664
Proceeds from issuance of long-term debt 250,000
Repayment of long-term debt (186,250) (15,000)
Payment of debt issuance costs (2,150)
Proceeds from revolving credit facility 225,000
Repayments of revolving credit facility (225,000)
Taxes withheld and paid on employees' equity awards (4,764) (1,825)
Repurchase of shares of common stock (139,286) (22,296)
Net cash (used in) provided by financing activities (82,450) (38,457)
Cash and Cash Equivalents
(Decrease) increase for the period (77,854) 21,527
Beginning of year 134,375 112,848
End of year $ 56,521 $ 134,375
Supplemental disclosure of noncash investing activities:
Accruals for property and equipment $ 1,123 $ 387

TopBuild Corp.
Segment Data (Unaudited)
(dollars in thousands)
Three Months Ended December 31, Year Ended December 31,
2017 2016 Change 2017 2016 Change
Installation
Sales $ 336,188 $ 289,244 16.2% $ 1,281,296 $ 1,150,168 11.4%
Operating profit, as reported $ 42,331 $ 28,641 $ 109,316 $ 97,140
Operating margin, as reported 12.6 % 9.9 % 8.5 % 8.4 %
Significant legal settlement 30,000
Rationalization charges 336 202 1,056 1,211
Operating profit, as adjusted $ 42,667 $ 28,843 $ 140,372 $ 98,351
Operating margin, as adjusted 12.7 % 10.0 % 11.0 % 8.6 %
Distribution
Sales $ 193,306 $ 177,404 9.0% $ 719,759 $ 676,672 6.4%
Operating profit, as reported $ 17,927 $ 16,238 $ 68,733 $ 59,654
Operating margin, as reported 9.3 % 9.2 % 9.5 % 8.8 %
Rationalization charges 173 23 256
Operating profit, as adjusted $ 17,927 $ 16,411 $ 68,756 $ 59,910
Operating margin, as adjusted 9.3 % 9.3 % 9.6 % 8.9 %
Total
Sales before eliminations $ 529,494 $ 466,648 $ 2,001,055 $ 1,826,840
Intercompany eliminations (28,093) (22,513) (94,789) (83,990)
Net sales after eliminations $ 501,401 $ 444,135 12.9% $ 1,906,266 $ 1,742,850 9.4%
Operating profit, as reported - segment $ 60,258 $ 44,879 $ 178,049 $ 156,794
General corporate expense, net (5,218) (5,084) (24,722) (20,802)
Intercompany eliminations and other adjustments (5,070) (3,851) (16,463) (14,388)
Operating profit, as reported $ 49,970 $ 35,944 $ 136,864 $ 121,604
Operating margin, as reported 10.0 % 8.1 % 7.2 % 7.0 %
Significant legal settlement 30,000
Rationalization charges 356 1,049 3,755 3,139
Acquisition related costs 508 69 1,256 124
Operating profit, as adjusted $ 50,834 $ 37,062 $ 171,875 $ 124,867
Operating margin, as adjusted 10.1 % 8.3 % 9.0 % 7.2 %
Share-based compensation ‡ 2,415 1,926 9,274 7,669
Depreciation and amortization 4,700 3,088 16,453 12,011
EBITDA, as adjusted $ 57,949 $ 42,076 $ 197,602 $ 144,547
Sales change period over period 57,266 163,416
EBITDA, as adjusted change period over period 15,873 53,055
EBITDA, as adjusted as percentage of sales change 27.7 % 32.5 %
† Rationalization charges include corporate level adjustments as well as segment operating adjustments.
‡ 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.

TopBuild Corp.
Non-GAAP Reconciliations (Unaudited)
(in thousands, except common share amounts)
Three Months Ended December 31, Year Ended December 31,
2017 2016 2017 2016
Gross Profit and Operating Profit Reconciliations
Net sales $ 501,401 $ 444,135 $ 1,906,266 $ 1,742,850
Gross profit, as reported $ 122,033 $ 105,062 $ 461,109 $ 400,344
Gross profit, as adjusted $ 122,033 $ 105,062 $ 461,109 $ 400,344
Gross margin, as reported 24.3 % 23.7 % 24.2 % 23.0 %
Gross margin, as adjusted 24.3 % 23.7 % 24.2 % 23.0 %
Operating profit, as reported $ 49,970 $ 35,944 $ 136,864 $ 121,604
Significant legal settlement 30,000
Rationalization charges 356 1,049 3,755 3,139
Acquisition related costs 508 69 1,256 124
Operating profit, as adjusted $ 50,834 $ 37,062 $ 171,875 $ 124,867
Operating margin, as reported 10.0 % 8.1 % 7.2 % 7.0 %
Operating margin, as adjusted 10.1 % 8.3 % 9.0 % 7.2 %
Income Per Common Share Reconciliation
Income from continuing operations before income taxes, as reported $ 47,760 $ 34,728 $ 128,040 $ 116,273
Significant legal settlement 30,000
Rationalization charges 356 1,049 3,755 3,139
Acquisition related costs 508 69 1,256 124
Loss on extinguishment of debt 1,086
Income from continuing operations before income taxes, as adjusted 48,624 35,846 164,137 119,536
Tax at 38% rate (18,477) (13,621) (62,372) (45,424)
Income from continuing operations, as adjusted $ 30,147 $ 22,225 $ 101,765 $ 74,112
Income per common share, as adjusted $ 0.84 $ 0.59 $ 2.78 $ 1.96
Average diluted common shares outstanding 35,772,124 37,644,065 36,572,146 37,867,212

TopBuild Corp.
Same Branch Net Sales and Adjusted EBITDA (Unaudited)
(dollars in thousands)
Three Months Ended December 31, Year Ended December 31,
2017 2016 2017 2016
Net sales
Same branch $ 479,593 $ 442,688 $ 1,831,641 $ 1,740,731
Acquired 21,808 1,447 74,625 2,119
Total $ 501,401 $ 444,135 $ 1,906,266 $ 1,742,850
EBITDA, as adjusted
Same branch $ 55,006 $ 41,900 $ 187,708 $ 144,330
Acquired 2,943 176 9,894 217
Total $ 57,949 $ 42,076 $ 197,602 $ 144,547
Same branch EBITDA, as adjusted as percentage of sales change 35.5% 24.2% 47.7% 29.7%
Acquired EBITDA, as adjusted as percentage of sales change 13.6% 12.2% 13.3% 10.2%

TopBuild Corp.
Reconciliation of EBITDA to Net Income (Unaudited)
(dollars in thousands)
Three Months Ended December 31, Year Ended December 31,
2017 2016 2017 2016
Net income, as reported $ 104,991 $ 21,307 $ 158,133 $ 72,606
Adjustments to arrive at EBITDA, as adjusted:
Interest expense and other, net 2,210 1,216 7,738 5,331
Income tax (benefit) expense from continuing operations (57,231) 13,421 (30,093) 43,667
Depreciation and amortization 4,700 3,088 16,453 12,011
Share-based compensation † 2,415 1,926 9,274 7,669
Significant legal settlement 30,000
Rationalization charges 356 1,049 3,755 3,139
Loss on extinguishment of debt 1,086
Acquisition related costs 508 69 1,256 124
EBITDA, as adjusted $ 57,949 $ 42,076 $ 197,602 $ 144,547
† 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.

TopBuild Corp.
2018 Estimated Adjusted EBITDA Range (Unaudited)
(dollars in millions)
Twelve Months Ending December 31, 2018
Low High
Estimated net income$ 126.0 $ 145.6
Adjustments to arrive at estimated EBITDA, as adjusted:
Interest expense and other, net 13.6 12.0
Income tax expense from continuing operations 46.6 53.8
Depreciation and amortization 21.7 18.5
Share-based compensation 14.1 12.1
Estimated EBITDA, as adjusted$ 222.0 $ 242.0



Source:TopBuild Corp.