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.