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CST: 19/11/2019 08:57:50   

TopBuild Reports Second Quarter 2019 Results

110 Days ago

  • 8.9% increase in net sales
  • 260 bps gross margin expansion
  • 11.5% operating margin, 11.6% on an adjusted basis, up 210 bps
  • $1.51 net income per diluted share, $1.43 on an adjusted basis
  • 33.2% increase in adjusted EBITDA
  • 260 basis point increase in adjusted EBITDA margin to 14.2%

DAYTONA BEACH, Fla., Aug. 01, 2019 (GLOBE NEWSWIRE) -- TopBuild Corp.(NYSE:BLD), a leading installer and distributor of insulation and building material products today reported results for the second quarter ended June 30, 2019. 

Jerry Volas, Chief Executive Officer, stated, TopBuild reported another strong quarter, led by TruTeam’s growth in both commercial and residential new construction.  Operating margins at TruTeam and Service Partners expanded as we continue to drive operational efficiencies throughout our Company. 

“Once again, our results demonstrate the strengths of our uniquely diversified business model, along with our focus on profitable growth.  We look forward to a solid second half of the year.”

Second Quarter Financial Highlights

(unless otherwise indicated, comparisons are to the quarter ended June 30, 2018)

  • Net sales increased 8.9% to $660.1 million, primarily driven by acquisitions and increased selling prices in both operating segments.  Same branch contributed 95.2% of total revenue.
     
  • Gross margin increased 260 basis points to 26.5%. 
     
  • Operating profit was $76.0 million, compared to operating profit of $43.7 million.  On an adjusted basis, operating profit was $76.4 million, compared to $57.8 million, a 32.2% improvement.
     
  • Operating margin was 11.5%, up 430 basis points.  Adjusted operating margin improved 210 basis points to 11.6%.
     
  • Net income was $52.1 million, or $1.51 per diluted share, compared to $27.2 million, or $0.76 per diluted share. Adjusted income was $49.5 million, or $1.43 per diluted share, compared to $36.9 million, or $1.03 per diluted share. 
     
  • Adjusted EBITDA was $94.0 million, compared to $70.6 million, a 33.2% increase, and adjusted EBITDA margin improved 260 basis points to 14.2%. 
     
  • Incremental EBITDA margin was 43.3%.   On a same branch basis, adjusted EBITDA was $87.7 million, a 24.3% increase, and incremental EBITDA margin was 76.3%. 
     
  • At June 30, 2019, the Company had cash and cash equivalents of $141.8 million and availability under its revolving credit facility of $187.1 million for total liquidity of $328.9 million.

Six Month Financial Highlights

(unless otherwise indicated, comparisons are to six months ended June 30, 2018)

  • Net sales increased 16.6% to $1,279.4 million. On a same branch basis, revenue increased 5.2% to $1,154.5 million. 
     
  • Gross margin expanded 250 basis points to 25.8%.
     
  • Operating profit was $132.7 million, compared to operating profit of $77.6 million.   On an adjusted basis, operating profit was $135.5 million, compared to $96.0 million, a 41.2% improvement.
     
  • Operating margin was 10.4%.  On an adjusted basis, operating margin improved 190 basis points to 10.6%. 
     
  • Net income was $90.0 million, or $2.60 per diluted share, compared to $53.5 million, or $1.49 per diluted share.  Adjusted income was $86.1 million, or $2.49 per diluted share, compared to $63.1 million, or $1.76 per diluted share. 
     
  • Adjusted EBITDA was $168.6 million, compared to $116.6 million, a 44.6% increase.  Adjusted EBITDA margin was 13.2%, a 260-basis point improvement.
     
  • Incremental EBITDA margin was 28.6%.  On a same branch basis, adjusted EBITDA grew 24.3% to $144.9 million and incremental EBITDA margin was 49.5%. 

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


TruTeam 3 Months
Ended
6/30/19
6 Months
Ended
6/30/19
  Service Partners 3 Months
Ended
6/30/19
6 Months
Ended
6/30/19
Sales $ 483,028   $ 932,410     Sales $ 213,487   $ 417,951  
Change       Change    
Volume   1.4 %   2.7 %   Volume   (2.6 %)   (2.5 %)
Price   4.3 %   5.1 %   Price   5.1 %   5.9 %
M&A   6.8 %   15.1 %   M&A   1.3 %   2.8 %
Total Change   12.5 %   22.9 %   Total Change   3.8 %   6.2 %
Operating Margin   14.2 %   12.8 %   Operating Margin   9.9 %   10.0 %
Change   260 bps   240 bps   Change   20 bps   40 bps
Adj. Operating Margin   14.2 %   12.9 %   Adj. Operating Margin   9.9 %   10.0 %
Change   260 bps   240 bps   Change   20 bps   40 bps
                             

Capital Allocation
Acquisitions
On July 15, the Company acquired Viking Insulation based in Burbank, California.  Viking focuses on fiberglass installation in a wide variety of light commercial and residential projects.  For the trailing twelve months ended March 31, 2019, Viking generated approximately $9.0 million in revenue. 

Volas stated, “Viking Insulation is an outstanding addition to TruTeam.  Viking has operated in Southern California for 35 years with strong customer relationships throughout the region.  Acquisitions remain our top capital allocation priority.  Our dedicated M&A team is working with a healthy pipeline of prospects, some of which we expect will become valuable additions to TopBuild over the next several quarters.”

Share Repurchases
In the second quarter of 2019, the Company repurchased 196,885 shares at an average price of $75.57 per share.  These shares were purchased as part of the Company’s $200 million share repurchase authorization announced on February 26, 2019.  As of June 30, 2019, approximately $180 million of the $200 million authorization remained.

2019 Revenue and Adjusted EBITDA Outlook
The Company has lowered its outlook for housing starts for 2019 to a range of 1.23 million to 1.27 million from the previous range of 1.26 million to 1.3 million starts.  Accordingly, the high end of the Company’s revenue outlook has been lowered by $30 million while the low end of its revenue range remains unchanged.  The Company has also raised the low and high end of its adjusted EBITDA outlook by $15 million and $5 million, respectively.  

     
2019 Low High
Revenue $2,610M $2,640M
Adjusted EBITDA* $345M $355M
*See table below for adjusted EBITDA reconciliation
 
 
Assumptions ($ in millions):
2019 Low High
Housing Starts 1,230K 1,270K
Estimated net income $ 170.5 $ 185.6
Interest Expense and other, net $ 38.9 $ 35.9
Income tax expense $ 61.5 $ 66.9
Depreciation and Amortization $ 54.0 $ 50.0
Share based compensation $ 14.6 $ 12.1
         

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 second quarter 2019 financial results is scheduled for today, Thursday, August 1, 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 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
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 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 share and per common share amounts)
   
                       
  Three Months Ended June 30,    Six Months Ended June 30, 
  2019     2018     2019     2018  
Net sales $ 660,112     $ 605,969     $ 1,279,442     $ 1,097,412  
Cost of sales   485,190       460,928       948,824       841,353  
Gross profit   174,922       145,041       330,618       256,059  
                       
Selling, general, and administrative expense   98,883       101,360       197,960       178,486  
Operating profit   76,039       43,681       132,658       77,573  
                       
Other income (expense), net:                      
Interest expense   (9,631 )     (7,322 )     (19,232 )     (9,645 )
Other, net   526       82       858       115  
Other expense, net   (9,105 )     (7,240 )     (18,374 )     (9,530 )
Income before income taxes   66,934       36,441       114,284       68,043  
                       
Income tax expense   (14,883 )     (9,288 )     (24,249 )     (14,503 )
Net income $ 52,051     $ 27,153     $ 90,035     $ 53,540  
                       
Net income per common share:                      
Basic $ 1.53     $ 0.77     $ 2.64     $ 1.53  
Diluted $ 1.51     $ 0.76     $ 2.60     $ 1.49  
                       
Weighted average shares outstanding:                      
Basic   33,976,169       35,102,429       34,072,314       35,081,292  
Diluted   34,557,664       35,837,102       34,630,048       35,828,290  
 

 

               
TopBuild Corp.              
Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)              
(dollars in thousands)              
   
  As of  
  June 30,     December 31,  
  2019     2018  
ASSETS              
Current assets:              
Cash and cash equivalents $ 141,767     $ 100,929  
Receivables, net of an allowance for doubtful accounts of $5,199 and $3,676 at June 30, 2019, and December 31, 2018, respectively   444,823       407,106  
Inventories, net   150,282       168,977  
Prepaid expenses and other current assets   11,416       27,685  
Total current assets   748,288       704,697  
               
Right of use assets   90,735        
Property and equipment, net   172,719       167,961  
Goodwill   1,363,738       1,364,016  
Other intangible assets, net   189,041       199,387  
Deferred tax assets, net   12,033       13,176  
Other assets   4,569       5,294  
Total assets $ 2,581,123     $ 2,454,531  
               
LIABILITIES              
Current liabilities:              
Accounts payable $ 288,985     $ 313,172  
Current portion of long-term debt   32,261       26,852  
Accrued liabilities   100,282       104,236  
Short-term lease liabilities   36,527        
Total current liabilities   458,055       444,260  
               
Long-term debt   705,626       716,622  
Deferred tax liabilities, net   174,269       176,212  
Long-term portion of insurance reserves   43,856       43,434  
Long-term lease liabilities   57,312        
Other liabilities   359       1,905  
Total liabilities   1,439,477       1,382,433  
               
EQUITY   1,141,646       1,072,098  
Total liabilities and equity $ 2,581,123     $ 2,454,531  
               
               
  As of  
  June 30,     June 30,  
  2019     2018  
Other Financial Data              
Receivable days †   53       45  
Inventory days †   29       31  
Accounts payable days †   78       66  
Receivables, net plus inventories, net less accounts payable † $ 306,119     $ 271,007  
Receivables, net plus inventories, net less accounts payable as a percent of sales (TTM)‡   11.9 %     11.1 %
               
† 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)          
           
           
  Six Months Ended June 30,
    2019       2018  
Cash Flows Provided by (Used in) Operating Activities:          
Net income $ 90,035     $ 53,540  
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   25,538       15,185  
Share-based compensation   7,485       5,397  
Loss on sale or abandonment of property and equipment   561       487  
Amortization of debt issuance costs   779       422  
Change in fair value of contingent consideration   (50 )     123  
Provision for bad debt expense   3,688       1,672  
Loss from inventory obsolescence   1,251       928  
Deferred income taxes, net   (21 )     375  
Change in certain assets and liabilities          
Receivables, net   (41,489 )     (22,382 )
Inventories, net   17,391       (11,517 )
Prepaid expenses and other current assets   14,969       (5,363 )
Accounts payable   (23,823 )     220  
Accrued liabilities   (1,131 )     2,901  
Other, net   1,081       (595 )
Net cash provided by operating activities   96,264       41,393  
           
Cash Flows Provided by (Used in) Investing Activities:          
Purchases of property and equipment   (21,982 )     (27,521 )
Acquisition of businesses, net of cash acquired of $15,756 in 2018         (499,050 )
Proceeds from sale of property and equipment   1,961       427  
Other, net   22       23  
Net cash used in investing activities   (19,999 )     (526,121 )
           
Cash Flows Provided by (Used in) Financing Activities:          
Proceeds from issuance of long-term debt   4,998       515,066  
Repayment of long-term debt   (11,364 )     (8,033 )
Payment of debt issuance costs         (7,717 )
Proceeds from revolving credit facility         90,000  
Repayment of revolving credit facility         (90,000 )
Taxes withheld and paid on employees' equity awards   (8,471 )     (4,531 )
Repurchase of shares of common stock   (19,499 )      
Payment of contingent consideration   (1,091 )     (841 )
Net cash (used in) provided by financing activities   (35,427 )     493,944  
           
Cash and Cash Equivalents          
Increase for the period   40,838       9,216  
Beginning of period   100,929       56,521  
End of period $ 141,767     $ 65,737  
           
Supplemental disclosure of noncash activities:          
Leased assets obtained in exchange for new operating lease liabilities $ 110,192     $  
Accruals for property and equipment   497     864  
             

 

 
TopBuild Corp.
Segment Data (Unaudited)
(dollars in thousands)
                                     
                                     
  Three Months Ended
June 30, 
          Six Months Ended
June 30, 
     
  2019     2018     Change     2019     2018     Change  
TruTeam                                    
Sales $ 483,028     $ 429,423       12.5 %   $ 932,410     $ 758,817     22.9 %
                                     
Operating profit, as reported $ 68,423     $ 49,635             $ 119,722     $ 78,965        
Operating margin, as reported   14.2   %   11.6   %           12.8   %   10.4   %    
                                     
Rationalization charges   81       236               199       453        
Acquisition related costs   277                     403              
Operating profit, as adjusted $ 68,781     $ 49,871             $ 120,324     $ 79,418        
Operating margin, as adjusted   14.2   %   11.6   %           12.9   %   10.5   %    
                                     
Service Partners                                    
Sales $ 213,487     $ 205,621       3.8 %   $ 417,951     $ 393,387     6.2 %
                                     
Operating profit, as reported $ 21,151     $ 20,009             $ 41,748     $ 37,912        
Operating margin, as reported   9.9   %   9.7   %           10.0   %   9.6   %    
                                     
Rationalization charges                       109       25        
Operating profit, as adjusted $ 21,151     $ 20,009             $ 41,857     $ 37,937        
Operating margin, as adjusted   9.9   %   9.7   %           10.0   %   9.6   %    
                                     
Total                                    
Sales before eliminations $ 696,515     $ 635,044             $ 1,350,361     $ 1,152,204        
Intercompany eliminations   (36,403 )     (29,075 )             (70,919 )     (54,792 )      
Net sales after eliminations $ 660,112     $ 605,969       8.9 %   $ 1,279,442     $ 1,097,412     16.6 %
                                     
Operating profit, as reported - segments $ 89,574     $ 69,644             $ 161,470     $ 116,877        
General corporate expense, net   (7,130 )     (20,686 )             (16,734 )     (29,579 )      
Intercompany eliminations and other adjustments   (6,405 )     (5,277 )             (12,078 )     (9,725 )      
Operating profit, as reported $ 76,039     $ 43,681             $ 132,658     $ 77,573        
Operating margin, as reported   11.5   %   7.2   %           10.4   %   7.1   %    
                                     
Rationalization charges †   142       4,341               1,969       5,138        
Acquisition related costs   251       9,799               903       13,281        
Operating profit, as adjusted $ 76,432     $ 57,821             $ 135,530     $ 95,992        
Operating margin, as adjusted   11.6   %   9.5   %           10.6   %   8.7   %    
                                     
Share-based compensation   4,513       2,995               7,485       5,397        
Depreciation and amortization   13,062       9,743               25,538       15,185        
EBITDA, as adjusted $ 94,007     $ 70,559             $ 168,553     $ 116,574        
EBITDA margin, as adjusted   14.2   %   11.6   %           13.2   %   10.6   %    
                                     
Sales change period over period   54,143                     182,030              
EBITDA, as adjusted, change period over period   23,448                     51,979              
EBITDA, as adjusted, as percentage of sales change   43.3   %                 28.6   %          
                                     
† 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 June 30,    Six Months Ended June 30,   
    2019       2018       2019       2018    
Gross Profit and Operating Profit Reconciliations                        
                         
Net sales $ 660,112     $ 605,969     $ 1,279,442     $ 1,097,412    
                         
Gross profit, as reported $ 174,922     $ 145,041     $ 330,618     $ 256,059    
                         
Rationalization charges         155             155    
Gross profit, as adjusted $ 174,922     $ 145,196     $ 330,618     $ 256,214    
                         
Gross margin, as reported   26.5   %   23.9   %   25.8   %   23.3   %
Gross margin, as adjusted   26.5   %   24.0   %   25.8   %   23.3   %
                         
Operating profit, as reported $ 76,039     $ 43,681     $ 132,658     $ 77,573    
                         
Rationalization charges   142       4,341       1,969       5,138    
Acquisition related costs   251       9,799       903       13,281    
Operating profit, as adjusted $ 76,432     $ 57,821     $ 135,530     $ 95,992    
                         
Operating margin, as reported   11.5   %   7.2   %   10.4   %   7.1   %
Operating margin, as adjusted   11.6   %   9.5   %   10.6   %   8.7   %
                         
Income Per Common Share Reconciliation                        
                         
Income before income taxes, as reported $ 66,934     $ 36,441     $ 114,284     $ 68,043    
                         
Rationalization charges   142       4,341       1,969       5,138    
Acquisition related costs   251       9,799       903       13,281    
Income before income taxes, as adjusted   67,327       50,581       117,156       86,462    
                         
Tax rate at 26.5% and 27.0% for 2019 and 2018, respectively   (17,842 )     (13,657 )     (31,046 )     (23,345 )  
Income, as adjusted $ 49,485     $ 36,924     $ 86,110     $ 63,117    
                         
Income per common share, as adjusted $ 1.43     $ 1.03     $ 2.49     $ 1.76    
                         
Weighted average diluted common shares outstanding   34,557,664       35,837,102       34,630,048       35,828,290    
                                 

 


                         
TopBuild Corp.                        
Same Branch and Acquisition Net Sales and Adjusted EBITDA (Unaudited)                
(dollars in thousands)                        
   
                         
  Three Months Ended June 30,    Six Months Ended June 30,   
    2019       2018       2019       2018    
Net sales                        
Same branch:                        
Installation segment $ 453,820     $ 429,423     $ 817,717     $ 758,817    
Distribution segment   210,805       205,621       406,881       393,387    
Eliminations   (36,241 )     (29,075 )     (70,057 )     (54,792 )  
Total same branch   628,384       605,969       1,154,541       1,097,412    
                         
Acquisitions (a):                        
Installation segment $ 29,208     $     $ 114,693     $    
Distribution segment   2,682             11,070          
Eliminations   (162 )           (862 )        
Total acquisitions   31,728             124,901          
Total $ 660,112     $ 605,969     $ 1,279,442     $ 1,097,412    
                         
EBITDA, as adjusted                        
Same branch $ 87,671     $ 70,559     $ 144,875     $ 116,574    
Acquisitions (a)   6,336             23,678          
Total $ 94,007     $ 70,559     $ 168,553     $ 116,574    
                         
EBITDA, as adjusted, as a percentage of sales                        
Same branch (b)   14.0   %         12.5   %      
Acquisitions (c)   20.0   %         19.0   %      
Total (d)   14.2   %   11.6   %   13.2   %   10.6   %
                         
As Adjusted Incremental EBITDA, as a percentage of incremental sales                          
Same branch (e)   76.3   %         49.5   %      
Acquisitions (c)   20.0   %         19.0   %      
Total (f)   43.3   %         28.6   %      
                             
(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 June 30,    Six Months Ended June 30, 
  2019   2018   2019   2018
Net income, as reported $   52,051     $     27,153   $   90,035     $     53,540
Adjustments to arrive at EBITDA, as adjusted:                      
Interest expense and other, net   9,105     7,240     18,374     9,530
Income tax expense   14,883     9,288     24,249     14,503
Depreciation and amortization   13,062     9,743     25,538     15,185
Share-based compensation   4,513     2,995     7,485     5,397
Rationalization charges   142     4,341     1,969     5,138
Acquisition related costs   251     9,799     903     13,281
EBITDA, as adjusted $   94,007     $     70,559   $   168,553     $     116,574
                       

 

           
TopBuild Corp.
2019 Estimated Adjusted EBITDA Range (Unaudited)
(dollars in millions)
   
           
  Twelve Months Ending December 31, 2019
    Low     High
Estimated net income $ 170.5   $ 185.6
Adjustments to arrive at estimated EBITDA, as adjusted:          
Interest expense and other, net   38.9     35.9
Income tax expense   61.5     66.9
Depreciation and amortization   54.0     50.0
Share-based compensation   14.6     12.1
Rationalization charges   4.0     2.5
Acquisition related costs   1.5     2.0
Estimated EBITDA, as adjusted $ 345.0   $ 355.0
   

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