TopBuild Reports Third Quarter 2020 Results

2.2% increase in net sales
210 basis point gross margin expansion to 28.4%
280 basis point operating margin expansion to 14.6%
270 basis point adjusted EBITDA margin expansion to 17.1%
$2.11 net income per diluted share

DAYTONA BEACH, Fla., Nov. 03, 2020 (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, 2020.

Jerry Volas, Chief Executive Officer, stated, “We are pleased with our overall results that included strong adjusted operating and EBITDA margins. Our team continues to do an outstanding job of generating profitable growth. Sales at TruTeam were adversely impacted by our commercial business where some projects have been delayed due to COVID-19 safety protocols.

“Looking ahead, we are bullish on the overall fundamentals of our end markets and our ability to leverage our size and scale to drive market share.”

Third Quarter Financial Highlights
(unless otherwise indicated, comparisons are to the quarter ended September 30, 2019)

Net sales increased 2.2% to $697.2 million, driven by increased volume and sales from acquisitions.
Gross margin increased 210 basis points to 28.4%.
Operating profit was $101.5 million, compared to operating profit of $80.4 million. On an adjusted basis, operating profit was $101.7 million, compared to $80.6 million, a 26.2% improvement.
Operating margin, both reported and adjusted, was 14.6%, up 280 basis points.
Net income was $70.0 million, or $2.11 per diluted share, compared to $55.0 million, or $1.60 per diluted share. Adjusted income was $69.6 million, or $2.10 per diluted share, compared to $52.7 million, or $1.53 per diluted share.
Adjusted EBITDA was $119.2 million, compared to $98.0 million, a 21.6% increase, and adjusted EBITDA margin improved 270 basis points to 17.1%.
At September 30, 2020, the Company had cash and cash equivalents of $315.3 million and availability under its revolving credit facility of $389.6 million for total liquidity of $704.9 million.

Nine Month Financial Highlights
(unless otherwise indicated, comparisons are to nine months ended September 30, 2019)

Net sales increased 1.8% to $1,996.6 million.
Gross margin expanded 150 basis points to 27.5%.
Operating profit was $252.0 million, compared to operating profit of $213.1 million. On an adjusted basis, operating profit was $255.5 million, compared to $216.1 million, a 18.2% improvement.
Operating margin was 12.6% a 170-basis point improvement. On an adjusted basis, operating margin improved 180 basis points to 12.8%.
Net income was $176.3 million, or $5.29 per diluted share, compared to $145.0 million, or $4.20 per diluted share. Adjusted income was $171.2 million, or $5.14 per diluted share, compared to $138.8 million, or $4.02 per diluted share.
Adjusted EBITDA was $315.3 million, compared to $266.5 million, a 18.3% increase. Adjusted EBITDA margin was 15.8%, a 220-basis point improvement.

Operating Segment Highlights ($ in 000s)
(comparisons are to the period ended September 30, 2019)

TruTeam	3 Months Ended 9/30/20			9 Months Ended 9/30/20			Service Partners	3 Months Ended 9/30/20			9 Months Ended 9/30/20
Sales	$	492,206		$	1,434,648		Sales	$	244,113		$	674,672
Change							Change
Volume		-3.4	%		-2.2	%	Volume		12.2	%		6.0	%
Price		1.2	%		1.3	%	Price		-1.7	%		-0.4	%
M&A		0.9	%		1.1	%	M&A		0.0	%		0.0	%
Total Change		-1.2	%		0.3	%	Total Change		10.5	%		5.6	%
Operating Margin		16.9	%		14.9	%	Operating Margin		13.4	%		12.1	%
Change		290 bps			170 bps		Change		280 bps			190 bps
Adj. Operating Margin		17.0	%		15.0	%	Adj. Operating Margin		13.4	%		12.2	%
Change		300 bps			170 bps		Change		280 bps			200 bps

Capital Allocation
Acquisitions
On October 1, 2020, the Company completed the acquisition of Garland Insulating, one of the largest locally owned and operated insulation installation companies in Texas. Garland generated approximately $60 million in revenue for the trailing twelve months ended June 30, 2020.

“Acquisitions continue to be our number one capital allocation priority. Garland Insulating, which has a great reputation, strong customer base and outstanding leadership, is a good example of the type of quality companies we have in our pipeline,” noted Volas.

Year-to-date, the Company has announced three acquisitions, which combined, are expected to generate approximately $79 million in annual revenue.

Share repurchases
In the third quarter of 2020, the Company repurchased 57,810 shares at an average price of $155.63 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, 2020, $46 million of the $200 million authorization remained.

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 2020 financial results is scheduled for today, Tuesday, November 3, at 9:00 a.m. Eastern Time. The call may be accessed by dialing (877) 407-9037. 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 over 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
Adjusted 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
Statements contained herein reflect our views about future periods, including our future plans and performance, constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by 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. We caution you against unduly relying on any of these forward-looking statements. Our future performance may be affected by the duration and impact of the COVID-19 pandemic on the United States economy, specifically with respect to residential and commercial construction; our ability to continue operations in markets affected by the COVID-19 pandemic and our ability to collect receivables from our customers; our reliance on residential new construction, residential repair/remodel, and commercial construction; our reliance on third-party suppliers and manufacturers; our ability to attract, develop, and retain talented personnel and our sales and labor force; our ability to maintain consistent practices across our locations; and our ability to maintain our competitive position. We discuss the material risks we face under the caption entitled “Risk Factors” in our Annual Report for the year ended December 31, 2019, as filed with the SEC on February 25, 2020, as well as under the caption entitled “Risk Factors” in subsequent reports that we file with the SEC. Our forward-looking statements in this filing speak only as of the date of this filing. Factors or events that could cause our actual results to differ may emerge from time to time and it is not possible for us to predict all of them. Unless required by law, we undertake no obligation to update publicly any forward-looking statements as a result of new information, future events, or otherwise. The Company believes that the non-GAAP performance measures and ratios that are contained herein, which management uses to manage our business, provide users of this financial information with additional meaningful comparisons between current results and results in our prior periods. Non-GAAP performance measures and ratios should be viewed in addition, and not as an alternative, to the Company's reported results under accounting principles generally accepted in the United States. Additional information about the Company is contained in the Company's filings with the SEC and is available on TopBuild's website at www.topbuild.com.

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 share and per common share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net sales	$	697,223		$	682,330		$	1,996,551		$	1,961,771
Cost of sales		498,895			502,999			1,448,210			1,451,822
Gross profit		198,328			179,331			548,341			509,949

Selling, general, and administrative expense		96,805			98,886			296,372			296,846
Operating profit		101,523			80,445			251,969			213,103

Other income (expense), net:
Interest expense		(7,692	)		(9,507	)		(24,711	)		(28,740	)
Loss on extinguishment of debt		—			—			(233	)		—
Other, net		86			653			648			1,512
Other expense, net		(7,606	)		(8,854	)		(24,296	)		(27,228	)
Income before income taxes		93,917			71,591			227,673			185,875

Income tax expense		(23,921	)		(16,615	)		(51,407	)		(40,864	)
Net income	$	69,996		$	54,976		$	176,266		$	145,011

Net income per common share:
Basic	$	2.13		$	1.63		$	5.35		$	4.27
Diluted	$	2.11		$	1.60		$	5.29		$	4.20

Weighted average shares outstanding:
Basic		32,847,652			33,790,857			32,960,969			33,977,464
Diluted		33,210,545			34,367,902			33,337,259			34,541,635

TopBuild Corp.
Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)
(dollars in thousands)
	As of
	September 30,			December 31,
	2020			2019
ASSETS
Current assets:
Cash and cash equivalents	$	315,338		$	184,807
Receivables, net of an allowance for credit losses of $8,122 at September 30, 2020 and allowance for doubtful accounts of $4,854 at December 31, 2019		436,548			428,844
Inventories, net		142,517			149,078
Prepaid expenses and other current assets		32,101			17,098
Total current assets		926,504			779,827

Right of use assets		81,692			87,134
Property and equipment, net		172,099			178,080
Goodwill		1,379,721			1,367,918
Other intangible assets, net		172,390			181,122
Deferred tax assets, net		4,397			4,259
Other assets		10,998			5,623
Total assets	$	2,747,801		$	2,603,963

LIABILITIES
Current liabilities:
Accounts payable	$	311,696		$	307,970
Current portion of long-term debt		23,247			34,272
Accrued liabilities		117,456			98,418
Short-term lease liabilities		32,747			36,094
Total current liabilities		485,146			476,754

Long-term debt		688,870			697,955
Deferred tax liabilities, net		173,597			175,263
Long-term portion of insurance reserves		49,927			45,605
Long-term lease liabilities		52,672			54,010
Other liabilities		15,995			1,487
Total liabilities		1,466,207			1,451,074

EQUITY		1,281,594			1,152,889
Total liabilities and equity	$	2,747,801		$	2,603,963


	As of September 30,
	2020			2019
Other Financial Data
Receivable days		48			51
Inventory days		27			28
Accounts payable days		81			77
Receivables, net plus inventories, net less accounts payable	$	267,369		$	301,217
Receivables, net plus inventories, net less accounts payable as a percent of sales (TTM)		10.1	%		11.6	%

TopBuild Corp.
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)

	Nine Months Ended September 30,
	2020			2019
Cash Flows Provided by (Used in) Operating Activities:
Net income	$	176,266		$	145,011
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		47,527			39,005
Share-based compensation		12,159			11,411
Loss on extinguishment of debt		233			—
Loss on sale or abandonment of property and equipment		290			885
Amortization of debt issuance costs		1,103			1,169
Provision for bad debt expense		5,625			5,697
Loss from inventory obsolescence		1,908			1,794
Deferred income taxes, net		(709	)		(381	)
Change in certain assets and liabilities
Receivables, net		(13,645	)		(51,585	)
Inventories, net		4,759			20,637
Prepaid expenses and other current assets		(14,989	)		10,003
Accounts payable		2,152			(12,529	)
Accrued liabilities		33,436			10,758
Payment of contingent consideration		(413	)		—
Other, net		21			904
Net cash provided by operating activities		255,723			182,779

Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(27,206	)		(34,100	)
Acquisition of businesses		(21,450	)		(6,452	)
Proceeds from sale of property and equipment		2,332			2,239
Other, net		—			25
Net cash used in investing activities		(46,324	)		(38,288	)

Cash Flows Provided by (Used in) Financing Activities:
Proceeds from issuance of long-term debt		300,000			9,998
Repayment of long-term debt		(319,168	)		(19,424	)
Payment of debt issuance costs		(2,280	)		—
Taxes withheld and paid on employees' equity awards		(14,781	)		(11,135	)
Exercise of stock options		1,438			—
Repurchase of shares of common stock		(43,149	)		(52,177	)
Payment of contingent consideration		(928	)		(1,091	)
Net cash used in financing activities		(78,868	)		(73,829	)

Cash and Cash Equivalents
Increase for the period		130,531			70,662
Beginning of period		184,807			100,929
End of period	$	315,338		$	171,591

Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	$	27,098		$	120,726
Accruals for property and equipment		278			102

TopBuild Corp.
Segment Data (Unaudited)
(dollars in thousands)

	Three Months Ended September 30,												Nine Months Ended September 30,
	2020				2019				Change				2020				2019				Change
TruTeam
Sales	$	492,206			$	498,390				(1.2	)	%	$	1,434,648			$	1,430,800			0.3	%

Operating profit, as reported	$	83,142			$	69,846							$	213,136			$	189,568
Operating margin, as reported		16.9		%		14.0		%						14.9		%		13.2		%

Rationalization charges		9				(16	)							866				183
Acquisition related costs		—				56								4				459
COVID-19 pay		278				—								916				—
Operating profit, as adjusted	$	83,429			$	69,886							$	214,922			$	190,210
Operating margin, as adjusted		17.0		%		14.0		%						15.0		%		13.3		%

Service Partners
Sales	$	244,113			$	220,947				10.5		%	$	674,672			$	638,899			5.6	%

Operating profit, as reported	$	32,787			$	23,406							$	81,612			$	65,154
Operating margin, as reported		13.4		%		10.6		%						12.1		%		10.2		%

Rationalization charges		(161	)			—								783				109
COVID-19 pay		15				—								70				—
Operating profit, as adjusted	$	32,641			$	23,406							$	82,464			$	65,263
Operating margin, as adjusted		13.4		%		10.6		%						12.2		%		10.2		%

Total
Sales before eliminations	$	736,319			$	719,337							$	2,109,320			$	2,069,699
Intercompany eliminations		(39,096	)			(37,007	)							(112,769	)			(107,928	)
Net sales after eliminations	$	697,223			$	682,330				2.2		%	$	1,996,551			$	1,961,771			1.8	%

Operating profit, as reported - segments	$	115,929			$	93,252							$	294,748			$	254,722
General corporate expense, net		(8,032	)			(6,872	)							(24,610	)			(23,606	)
Intercompany eliminations		(6,374	)			(5,935	)							(18,169	)			(18,013	)
Operating profit, as reported	$	101,523			$	80,445							$	251,969			$	213,103
Operating margin, as reported		14.6		%		11.8		%						12.6		%		10.9		%

Rationalization charges †		(274	)			8								2,102				1,977
Acquisition related costs †		142				131								338				1,034
Refinancing costs		—				—								57				—
COVID-19 pay		293				—								984				—
Operating profit, as adjusted	$	101,684			$	80,584							$	255,450			$	216,114
Operating margin, as adjusted		14.6		%		11.8		%						12.8		%		11.0		%

Share-based compensation		3,280				3,926								12,317				11,411
Depreciation and amortization		14,216				13,467								47,527				39,005
EBITDA, as adjusted	$	119,180			$	97,977							$	315,294			$	266,530
EBITDA margin, as adjusted		17.1		%		14.4		%						15.8		%		13.6		%

Sales change period over period		14,893												34,780
EBITDA, as adjusted, change period over period		21,203												48,764
Incremental EBITDA, as adjusted, as a percentage of change in sales		142.4		%										140.2		%

† Rationalization charges and acquisition related costs 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,
	2020			2019			2020			2019
Gross Profit and Operating Profit Reconciliations

Net sales	$	697,223		$	682,330		$	1,996,551		$	1,961,771

Gross profit, as reported	$	198,328		$	179,331		$	548,341		$	509,949

Rationalization charges		(63	)		—			1,016			—
COVID-19 pay		273			—			755			—
Gross profit, as adjusted	$	198,538		$	179,331		$	550,111		$	509,949

Gross margin, as reported		28.4	%		26.3	%		27.5	%		26.0	%
Gross margin, as adjusted		28.5	%		26.3	%		27.6	%		26.0	%

Operating profit, as reported	$	101,523		$	80,445		$	251,969		$	213,103

Rationalization charges		(274	)		8			2,102			1,977
Acquisition related costs		142			131			338			1,034
Refinancing costs		—			—			57			—
COVID-19 pay		293			—			984			—
Operating profit, as adjusted	$	101,684		$	80,584		$	255,450		$	216,114

Operating margin, as reported		14.6	%		11.8	%		12.6	%		10.9	%
Operating margin, as adjusted		14.6	%		11.8	%		12.8	%		11.0	%

Income Per Common Share Reconciliation

Income before income taxes, as reported	$	93,917		$	71,591		$	227,673		$	185,875

Rationalization charges		(274	)		8			2,102			1,977
Acquisition related costs		142			131			338			1,034
Refinancing costs and loss on extinguishment of debt		—			—			290			—
COVID-19 pay		293			—			984			—
Income before income taxes, as adjusted		94,078			71,730			231,387			188,886

Tax rate at 26.0% and 26.5% for 2020 and 2019, respectively		(24,460	)		(19,008	)		(60,161	)		(50,055	)
Income, as adjusted	$	69,618		$	52,722		$	171,226		$	138,831

Income per common share, as adjusted	$	2.10		$	1.53		$	5.14		$	4.02

Weighted average diluted common shares outstanding		33,210,545			34,367,902			33,337,259			34,541,635

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,
	2020			2019			2020			2019
Net sales
Same branch:
TruTeam	$	487,590		$	498,390		$	1,418,418		$	1,430,800
Service Partners		244,113			220,947			674,672			638,899
Eliminations		(39,096	)		(37,007	)		(112,769	)		(107,928	)
Total same branch		692,607			682,330			1,980,321			1,961,771

Acquisitions (a):
TruTeam	$	4,616		$	—		$	16,230		$	—
Service Partners		—			—			—			—
Eliminations		—			—			—			—
Total acquisitions		4,616			—			16,230			—
Total	$	697,223		$	682,330		$	1,996,551		$	1,961,771

EBITDA, as adjusted
Same branch	$	118,506		$	97,977		$	312,099		$	266,530
Acquisitions (a)		674			—			3,195			—
Total	$	119,180		$	97,977		$	315,294		$	266,530

EBITDA, as adjusted, as a percentage of sales
Same branch (b)		17.1	%					15.8	%
Acquisitions (c)		14.6	%					19.7	%
Total (d)		17.1	%		14.4	%		15.8	%		13.6	%

As Adjusted Incremental EBITDA, as a percentage of change in sales
Same branch (e)		199.8	%					245.7	%
Acquisitions (c)		14.6	%					19.7	%
Total (f)		142.4	%					140.2	%


(a) Represents current year impact of acquisitions in their first twelve 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.
Same Branch and Acquisition Net Sales by Market (Unaudited)
(in thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Same branch:
Residential	$	543,658	$	522,506	$	1,553,273	$	1,503,300
Commercial		148,949		159,824		427,048		458,471
Same branch net sales		692,607		682,330		1,980,321		1,961,771

Acquisitions (a):
Residential	$	2,030	$	—	$	4,681	$	—
Commercial		2,586		—		11,549		—
Acquisitions net sales		4,616		—		16,230		—
Total net sales	$	697,223	$	682,330	$	1,996,551	$	1,961,771

(a) Represents current year impact of acquisitions in their first twelve months

TopBuild Corp.
Reconciliation of Adjusted EBITDA to Net Income (Unaudited)
(in thousands)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020		2019
Net income, as reported	$	69,996		$	54,976	$	176,266	$	145,011
Adjustments to arrive at EBITDA, as adjusted:
Interest expense and other, net		7,606			8,854		24,063		27,228
Income tax expense		23,921			16,615		51,407		40,864
Depreciation and amortization		14,216			13,467		47,527		39,005
Share-based compensation		3,280			3,926		12,317		11,411
Rationalization charges		(274	)		8		2,102		1,977
Acquisition related costs		142			131		338		1,034
Refinancing costs and loss on extinguishment of debt		—			—		290		—
COVID-19 pay		293			—		984		—
EBITDA, as adjusted	$	119,180		$	97,977	$	315,294	$	266,530