TopBuild Reports Third Quarter 2019 Results

Announces $50 Million Accelerated Share Repurchase


  • 5.4% increase in net sales
  • 130 basis point gross margin expansion to 26.3%
  • 160 basis point operating margin expansion to 11.8%
  • 140 basis point adjusted EBITDA margin expansion to 14.4%
  • $1.60 net income per diluted share, $1.53 on an adjusted basis

DAYTONA BEACH, Fla., Oct. 31, 2019 (GLOBE NEWSWIRE) -- TopBuild Corp. (NYSE:BLD), a leading installer and distributor of insulation and building material products today reported results for the third quarter ended September 30, 2019. 

Jerry Volas, Chief Executive Officer, stated, “We continue to demonstrate the strength of our uniquely diversified operating model and our focus on profitable growth as we once again report a very strong quarter.  Our national scale, strong customer and supplier relationships and operational efficiency initiatives are driving our top line growth and margin expansion. 

“Looking ahead, we believe the residential and commercial markets will continue to grow and TopBuild is well positioned to leverage its existing platform to take advantage of the many opportunities in both of these areas.”

Third Quarter Financial Highlights
(unless otherwise indicated, comparisons are to the quarter ended September 30, 2018)

  • Net sales increased 5.4% to $682.3 million, primarily driven by increased selling prices and volume.
     
  • Gross margin increased 130 basis points to 26.3%. 
     
  • Operating profit was $80.4 million, compared to operating profit of $66.2 million.  On an adjusted basis, operating profit was $80.6 million, compared to $69.5 million, a 16.0% improvement.
     
  • Operating margin was 11.8%, up 160 basis points.  Adjusted operating margin was also 11.8%, up 110 basis points.
     
  • Net income was $55.0 million, or $1.60 per diluted share, compared to $42.7 million, or $1.19 per diluted share. Adjusted income was $52.7 million, or $1.53 per diluted share, compared to $44.0 million, or $1.23 per diluted share. 
     
  • Adjusted EBITDA was $98.0 million, compared to $84.3 million, a 16.3% increase, and adjusted EBITDA margin improved 140 basis points to 14.4%. 
     
  • Incremental EBITDA margin was 39.1%. 
     
  • At September 30, 2019, the Company had cash and cash equivalents of $171.6 million and availability under its revolving credit facility of $188.6 million for total liquidity of $360.2 million.

Nine Month Financial Highlights
(unless otherwise indicated, comparisons are to nine months ended September 30, 2018)

  • Net sales increased 12.4% to $1,961.8 million.
     
  • Gross margin expanded 200 basis points to 26.0%.
     
  • Operating profit was $213.1 million, compared to operating profit of $143.8 million.   On an adjusted basis, operating profit was $216.1 million, compared to $165.5 million, a 30.6% improvement.
     
  • Operating margin was 10.9% a 270-basis point improvement.  On an adjusted basis, operating margin improved 150 basis points to 11.0%. 
     
  • Net income was $145.0 million, or $4.20 per diluted share, compared to $96.2 million, or $2.69 per diluted share.  Adjusted income was $138.8 million, or $4.02 per diluted share, compared to $107.1 million, or $2.99 per diluted share. 
     
  • Adjusted EBITDA was $266.5 million, compared to $200.8 million, a 32.7% increase.  Adjusted EBITDA margin was 13.6%, a 210-basis point improvement.  Incremental EBITDA margin was 30.3%. 
     
  • On a same branch basis, adjusted EBITDA grew 20.7% to $242.4 million and incremental EBITDA margin was 46.1%. 

Operating Segment Highlights ($ in 000s)
(comparisons are to the period ended September 30, 2018)

TruTeam 3 Months
Ended
9/30/19
9 Months
Ended
9/30/19
 Service Partners 3 Months
Ended
9/30/19
9 Months
Ended
9/30/19

 
Sales$498,390$1,430,800 Sales$220,947$638,899 
Change   Change   
Volume3.8%3.1% Volume-0.7%-1.8% 
Price3.0%4.3% Price4.4%5.4% 
M&A0.4%9.5% M&A0.0%1.8% 
Total Change7.3%17.0% Total Change3.8%5.4% 
Operating Margin14.0%13.2% Operating Margin10.6%10.2% 
Change90 bps180 bps Change160 bps80 bps 
Adj. Operating Margin14.0%13.3% Adj. Operating Margin10.6%10.2% 
Change80 bps180 bps Change150 bps70 bps 
        

Capital Allocation
Acquisitions
The Company completed the acquisition of Viking Insulation in the third quarter.  Viking focuses on fiberglass installation in a wide variety of light commercial and residential projects and is based in Southern California. 

Volas stated, “We are evaluating a robust pipeline of acquisition candidates.  The deliberate approach taken by our seasoned M&A team helps to ensure our strategic goals are met and only the best opportunities are pursued.

“We are also committed to optimizing the efficiency of our capital structure and while acquisitions remain our top capital allocation priority, our strategy also includes a return of excess capital to our shareholders through our share repurchase program.”

Share Repurchases
In the third quarter of 2019, the Company repurchased 364,074 shares at an average price of $89.76 per share.  These shares were purchased as part of the Company’s $200 million share repurchase authorization announced on February 26, 2019.  As of September 30, 2019, $147.8 million of the $200 million authorization remained.

Additionally, under the above-mentioned share repurchase authorization, the Company intends to enter into an agreement to repurchase $50 million of its common stock under an accelerated share repurchase (ASR) program.  This will be the third ASR the Company has undertaken since first quarter 2017. 

2019 Revenue and Adjusted EBITDA Outlook
The Company has raised its outlook for housing starts for 2019 to a range of 1.245 million to 1.275 million starts from the previous range of 1.23 million to 1.27 million starts.  Accordingly, the low end of the Company’s revenue outlook has been raised by $15 million while the high end of its revenue range has been raised by $5 million.  The Company has also raised the low and high end of its adjusted EBITDA outlook by $9 million and $5 million, respectively.  

($ in millions)

    
2019LowHigh
 
Sales$2,625.0$2,645.0 
Adjusted EBITDA*$354.0$360.0 

*See table for adjusted EBITDA reconciliation

Assumptions ($ in millions):

2019LowHigh
 
Housing Starts1,245K1,275K 
Estimated net income$179.7$188.5 
Interest Expense and other, net$37.0$35.0 
Income tax expense$64.8$68.0 
Depreciation and Amortization$54.0$52.0 
Share based compensation$14.0$13.0 
      

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 2019 results to differ materially from TopBuild’s current expectations are discussed below and are also detailed in the Company’s 2018 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 third quarter 2019 financial results is scheduled for today, Thursday, October 31, 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 close to 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
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
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, the related assumptions underlying our expected results, and our plan to repurchase our common stock under the proposed accelerated stock repurchase transaction.  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 ability to repurchase our common stock is subject to the execution of a definitive agreement with respect to the share repurchase.  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

(tables follow)

             
TopBuild Corp. 
Condensed Consolidated Statements of Operations (Unaudited) 
(in thousands, except share and per common share amounts) 
             
  Three Months Ended
September 30, 
 Nine Months Ended
September 30, 
  2019  2018  2019  2018 
Net sales $682,330  $647,289  $1,961,771  $1,744,702 
Cost of sales  502,999   485,424   1,451,822   1,326,777 
Gross profit  179,331   161,865   509,949   417,925 
             
Selling, general, and administrative expense  98,886   95,648   296,846   274,134 
Operating profit  80,445   66,217   213,103   143,791 
             
Other income (expense), net:            
Interest expense  (9,507)  (9,381)  (28,740)  (19,026)
Other, net  653   178   1,512   292 
Other expense, net  (8,854)  (9,203)  (27,228)  (18,734)
Income before income taxes  71,591   57,014   185,875   125,057 
             
Income tax expense  (16,615)  (14,356)  (40,864)  (28,859)
Net income $54,976  $42,658  $145,011  $96,198 
             
Net income per common share:            
Basic $1.63  $1.22  $4.27  $2.74 
Diluted $1.60  $1.19  $4.20  $2.69 
             
Weighted average shares outstanding:            
Basic  33,790,857   35,091,388   33,977,464   35,084,694 
Diluted  34,367,902   35,789,383   34,541,635   35,815,357 
             



TopBuild Corp.  
Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)  
(dollars in thousands)  
        
  As of 
  September 30,  December 31,  
  2019 2018 
ASSETS       
Current assets:       
Cash and cash equivalents $171,591 $100,929 
Receivables, net of an allowance for doubtful accounts of $5,423 and $3,676 at September 30, 2019, and December 31, 2018, respectively  454,640  407,106 
Inventories, net  146,702  168,977 
Prepaid expenses and other current assets  16,457  27,685 
Total current assets  789,390  704,697 
        
Right of use assets  89,178   
Property and equipment, net  175,274  167,961 
Goodwill  1,367,918  1,364,016 
Other intangible assets, net  185,844  199,387 
Deferred tax assets, net  11,758  13,176 
Other assets  4,760  5,294 
Total assets $2,624,122 $2,454,531 
        
LIABILITIES       
Current liabilities:       
Accounts payable $300,125 $313,172 
Current portion of long-term debt  33,262  26,852 
Accrued liabilities  112,286  104,236 
Short-term lease liabilities  36,860   
Total current liabilities  482,533  444,260 
        
Long-term debt  701,955  716,622 
Deferred tax liabilities, net  173,493  176,212 
Long-term portion of insurance reserves  44,405  43,434 
Long-term lease liabilities  55,362   
Other liabilities  1,167  1,905 
Total liabilities  1,458,915  1,382,433 
        
EQUITY  1,165,207  1,072,098 
Total liabilities and equity $2,624,122 $2,454,531 
        
        
  As of
September 30,
 
  2019 2018 
Other Financial Data       
Receivable days †  51  49 
Inventory days †  28  34 
Accounts payable days †  77  75 
Receivables, net plus inventories, net less accounts payable † $301,217 $280,643 
Receivables, net plus inventories, net less accounts payable as a percent of sales (TTM)‡ 11.6% 11.3%
        
† Adjusted for remaining acquisition day one balance sheet items.       
‡ Trailing 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) 
       
       
  Nine Months Ended
September 30, 
  2019  2018 
Cash Flows Provided by (Used in) Operating Activities:     
Net income $145,011  $96,198 
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization  39,005   27,133 
Share-based compensation  11,411   8,244 
Loss on sale or abandonment of property and equipment  885   764 
Amortization of debt issuance costs  1,169   812 
Change in fair value of contingent consideration  (119)  (373)
Provision for bad debt expense  5,697   3,003 
Loss from inventory obsolescence  1,794   1,375 
Deferred income taxes, net  (381)  (708)
Change in certain assets and liabilities      
Receivables, net  (51,585)  (46,993)
Inventories, net  20,637   (15,333)
Prepaid expenses and other current assets  10,003   (5,560)
Accounts payable  (12,529)  17,768 
Accrued liabilities  10,758   10,304 
Other, net  1,023   (601)
Net cash provided by operating activities  182,779   96,033 
       
Cash Flows Provided by (Used in) Investing Activities:      
Purchases of property and equipment  (34,100)  (42,379)
Acquisition of businesses, net of cash acquired of $15,756 in 2018  (6,452)  (500,666)
Proceeds from sale of property and equipment  2,239   502 
Other, net  25   31 
Net cash used in investing activities  (38,288)  (542,512)
       
Cash Flows Provided by (Used in) Financing Activities:      
Proceeds from issuance of long-term debt  9,998   520,104 
Repayment of long-term debt  (19,424)  (13,097)
Payment of debt issuance costs     (7,819)
Proceeds from revolving credit facility     90,000 
Repayment of revolving credit facility     (90,000)
Taxes withheld and paid on employees' equity awards  (11,135)  (5,433)
Repurchase of shares of common stock  (52,177)  (9,493)
Payment of contingent consideration  (1,091)  (841)
Net cash (used in) provided by financing activities  (73,829)  483,421 
       
Cash and Cash Equivalents      
Increase for the period  70,662   36,942 
Beginning of period  100,929   56,521 
End of period $171,591  $93,463 
       
Supplemental disclosure of noncash activities:      
Leased assets obtained in exchange for new operating lease liabilities $120,726  $ 
Accruals for property and equipment  102   546 



                   
TopBuild Corp.  
Segment Data (Unaudited)  
(dollars in thousands)  
                   
                   
  Three Months Ended
September 30, 
    Nine Months Ended
September 30, 
   
  2019  2018  Change   2019  2018  Change  
TruTeam                  
Sales $498,390  $464,540  7.3% $1,430,800  $1,223,357  17.0%
                   
Operating profit, as reported $69,846  $61,004     $189,568  $139,969    
Operating margin, as reported  14.0% 13.1%     13.2% 11.4%   
                   
Rationalization charges  (16)  177      183   629    
Acquisition related costs  56         459       
Operating profit, as adjusted $69,886  $61,181     $190,210  $140,598    
Operating margin, as adjusted  14.0% 13.2%     13.3% 11.5%   
                   
Service Partners                  
Sales $220,947  $212,948  3.8% $638,899  $606,335  5.4%
                   
Operating profit, as reported $23,406  $19,229     $65,154  $57,141    
Operating margin, as reported  10.6% 9.0%     10.2% 9.4%   
                   
Rationalization charges     134      109   159    
Operating profit, as adjusted $23,406  $19,363     $65,263  $57,300    
Operating margin, as adjusted  10.6% 9.1%     10.2% 9.5%   
                   
Total                  
Sales before eliminations $719,337  $677,488     $2,069,699  $1,829,692    
Intercompany eliminations  (37,007)  (30,199)     (107,928)  (84,990)   
Net sales after eliminations $682,330  $647,289  5.4% $1,961,771  $1,744,702  12.4%
                   
Operating profit, as reported - segments $93,252  $80,233     $254,722  $197,110    
General corporate expense, net  (6,872)  (8,358)     (23,606)  (37,937)   
Intercompany eliminations and other adjustments  (5,935)  (5,658)     (18,013)  (15,382)   
Operating profit, as reported $80,445  $66,217     $213,103  $143,791    
Operating margin, as reported  11.8% 10.2%     10.9% 8.2%   
                   
Rationalization charges †  8   1,668      1,977   6,807    
Acquisition related costs  131   1,578      1,034   14,859    
Operating profit, as adjusted $80,584  $69,463     $216,114  $165,457    
Operating margin, as adjusted  11.8% 10.7%     11.0% 9.5%   
                   
Share-based compensation  3,926   2,848      11,411   8,244    
Depreciation and amortization  13,467   11,948      39,005   27,133    
EBITDA, as adjusted $97,977  $84,259     $266,530  $200,834    
EBITDA margin, as adjusted  14.4% 13.0%     13.6% 11.5%   
                   
Sales change period over period  35,041         217,069       
EBITDA, as adjusted, change period over period  13,718         65,696       
EBITDA, as adjusted, as percentage of sales change  39.1%       30.3%     
                   
† 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
September 30, 
 Nine Months Ended
September 30, 
  2019  2018  2019  2018 
Gross Profit and Operating Profit Reconciliations            
             
Net sales $682,330  $647,289  $1,961,771  $1,744,702 
             
Gross profit, as reported $179,331  $161,865  $509,949  $417,925 
             
Rationalization charges     21      176 
Gross profit, as adjusted $179,331  $161,886  $509,949  $418,101 
             
Gross margin, as reported  26.3% 25.0% 26.0% 24.0%
Gross margin, as adjusted  26.3% 25.0% 26.0% 24.0%
             
Operating profit, as reported $80,445  $66,217  $213,103  $143,791 
             
Rationalization charges  8   1,668   1,977   6,807 
Acquisition related costs  131   1,578   1,034   14,859 
Operating profit, as adjusted $80,584  $69,463  $216,114  $165,457 
             
Operating margin, as reported  11.8% 10.2% 10.9% 8.2%
Operating margin, as adjusted  11.8% 10.7% 11.0% 9.5%
             
Income Per Common Share Reconciliation            
             
Income before income taxes, as reported $71,591  $57,014  $185,875  $125,057 
             
Rationalization charges  8   1,668   1,977   6,807 
Acquisition related costs  131   1,578   1,034   14,859 
Income before income taxes, as adjusted  71,730   60,260   188,886   146,723 
             
Tax rate at 26.5% and 27.0% for 2019 and 2018, respectively  (19,008)  (16,270)  (50,055)  (39,615)
Income, as adjusted $52,722  $43,990  $138,831  $107,108 
             
Income per common share, as adjusted $1.53  $1.23  $4.02  $2.99 
             
Weighted average diluted common shares outstanding  34,367,902   35,789,383   34,541,635   35,815,357 
             



TopBuild Corp. 
 Same Branch and Acquisition Net Sales and Adjusted EBITDA (Unaudited)  
(dollars in thousands) 
             
  Three Months Ended
September 30, 
 Nine Months Ended
September 30, 
  2019  2018  2019  2018 
Net sales            
Same branch:            
Installation segment $496,341  $464,540  $1,314,059  $1,223,357 
Distribution segment  220,947   212,948   627,829   606,335 
Eliminations  (37,007)  (30,199)  (107,066)  (84,990)
Total same branch  680,281   647,289   1,834,822   1,744,702 
             
Acquisitions (a):            
Installation segment $2,049  $  $116,741  $ 
Distribution segment        11,070    
Eliminations        (862)   
Total acquisitions  2,049      126,949    
Total $682,330  $647,289  $1,961,771  $1,744,702 
             
EBITDA, as adjusted            
Same branch $97,492  $84,259  $242,366  $200,834 
Acquisitions (a)  485      24,164    
Total $97,977  $84,259  $266,530  $200,834 
             
EBITDA, as adjusted, as a percentage of sales            
Same branch (b)  14.3%    13.2%  
Acquisitions (c)  23.7%    19.0%  
Total (d)  14.4% 13.0% 13.6% 11.5%
             
As Adjusted Incremental EBITDA, as a percentage of incremental sales            
Same branch (e)  40.1%    46.1%  
Acquisitions (c)  23.7%    19.0%  
Total (f)  39.1%    30.3%  
             
(a) Represents current year impact of acquisitions in their first twevle 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. 
Reconciliation of Adjusted EBITDA to Net Income (Unaudited)  
(dollars in thousands) 
             
             
  Three Months Ended
September 30, 
 Nine Months Ended
September 30, 
  2019 2018 2019 2018
Net income, as reported $54,976 $42,658 $145,011 $96,198
Adjustments to arrive at EBITDA, as adjusted:            
Interest expense and other, net  8,854  9,203  27,228  18,734
Income tax expense  16,615  14,356  40,864  28,859
Depreciation and amortization  13,467  11,948  39,005  27,133
Share-based compensation  3,926  2,848  11,411  8,244
Rationalization charges  8  1,668  1,977  6,807
Acquisition related costs  131  1,578  1,034  14,859
EBITDA, as adjusted $97,977 $84,259 $266,530 $200,834
             



TopBuild Corp. 
2019 Estimated Adjusted EBITDA Range (Unaudited) 
(dollars in millions) 
      
 Twelve Months Ending
December 31, 2019
  Low  High
Estimated net income$179.7 $188.5
Adjustments to arrive at estimated EBITDA, as adjusted:     
Interest expense and other, net 37.0  35.0
Income tax expense 64.8  68.0
Depreciation and amortization 54.0  52.0
Share-based compensation 14.0  13.0
Rationalization charges 3.0  2.5
Acquisition related costs 1.5  1.0
Estimated EBITDA, as adjusted$354.0 $360.0