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TopBuild Reports Strong Second Quarter 2017 Results

8.6% Operating Margin, 8.9% on an Adjusted Basis
$0.63 Per Diluted Share Income from Continuing Operations
$0.67 Per Diluted Share on an Adjusted Basis

____________________________

              Completed Two Acquisitions with ~$40 Million of Annual Revenue 
$83 million of anticipated annual incremental revenue from companies acquired in 2017

____________________________

DAYTONA BEACH, Fla., Aug. 08, 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 had another outstanding quarter as we continue to grow our two business segments and expand operating margins.  Commercial and residential new construction are demonstrating consistent strength and we continue to benefit from our business model and national scale.   

“Looking ahead, we have strong momentum going into the second half of the year.  Our focus remains on driving top line growth and improving operational efficiencies throughout the Company, generating strong results for our shareholders.”

Second Quarter Financial Highlights
(unless otherwise indicated, comparisons are to the quarter ended June 30, 2016)

  • Net sales increased 9.9% to $474.5 million, primarily driven by sales volume growth in both operating segments as well as acquisitions. On a same branch basis, revenue increased 5.1% to $453.6 million. 
     
  • Gross margin expanded 200 basis points to 24.6%.
     
  • Operating profit was $40.8 million, compared to operating profit of $26.8 million.  On an adjusted basis, operating profit was $42.2 million, compared to $27.4 million, a 53.8% improvement.
     
  • Operating margin was 8.6%, up 240 basis points.  Adjusted operating margin improved 250 basis points to 8.9%.
     
  • Income from continuing operations was $23.5 million, or $0.63 per diluted share, compared to $15.6 million, or $0.41 per diluted share. Adjusted income from continuing operations was $25.0 million, or $0.67 per diluted share, compared to $16.2 million, or $0.43 per diluted share. 
     
  • Adjusted EBITDA was $48.2 million, compared to $32.6 million, a 48.1% increase.  Incremental EBITDA margin was 36.5%. On a same branch basis, adjusted EBITDA was $45.6 million, a 40.1% increase, and incremental EBITDA margin was 59.1%. 
     
  • The seven acquisitions completed over the past 12 months contributed $20.8 million of revenue.  Incremental EBITDA related to these acquisitions improved 680 basis points from first quarter 2017 to 12.5%.
     
  • At June 30, 2017, the Company had cash and cash equivalents of $94.2 million, availability under its revolving credit facility of $201.0 million and $100 million available under a delayed draw term loan for total liquidity of $395.2 million.

/EIN News/ -- Six Month Financial Highlights
(unless otherwise indicated, comparisons are to six months ended June 30, 2016)

  • Net sales increased 8.3% to $915.8 million. On a same branch basis, revenue increased 4.9% to $887.4 million. 
     
  • Gross margin expanded 170 basis points to 23.8%.
     
  • Operating profit was $37.3 million, compared to operating profit of $46.6 million.  In the first quarter of 2017, the Company reported an operating loss of $3.5 million related to a $30 million legal settlement.  On an adjusted basis, operating profit was $70.8 million, compared to $48.2 million, a 46.8% improvement.
     
  • Operating margin was 4.1%, down 140 basis points.  Adjusted operating margin improved 200 basis points to 7.7%. 
     
  • Income from continuing operations was $21.7 million, or $0.58 per diluted share, compared to $26.7 million, or $0.70 per diluted share.  Adjusted income from continuing operations was $42.0 million, or $1.12 per diluted share, compared to $28.1 million, or $0.74 per diluted share. 
     
  • Adjusted EBITDA was $82.1 million, compared to $57.8 million, a 42.0% increase.  Incremental EBITDA margin was 34.6%. On a same branch basis, adjusted EBITDA grew 36.7% to $79.1 million and incremental EBITDA margin was 50.8%. 

             
Operating Segment Highlights ($ in 000s)
(comparisons are to the quarter ended June 30, 2016)

TruTeam 3 Months
Ended
6/30/17
6 Months
Ended
6/30/17
  Service
Partners
3 Months
Ended
6/30/17
6 Months
Ended
6/30/17
Sales $ 320,984   $ 611,870     Sales $ 175,062   $ 345,306  
Change   11.4 %   9.1 %   Change   6.6 %   6.2 %
Operating Margin   10.9 %   4.3 %   Operating Margin   9.7 %   9.4 %
Change 300 bps (220) bps   Change 150 bps 80 bps
Adj. Operating Margin   11.0 %   9.3 %   Adj. Operating Margin   9.7 %   9.4 %
Change 310 bps 270 bps   Change 150 bps 80 bps
             

Capital Allocation

Acquisitions

In the second quarter, the Company acquired Superior Insulation Products, a residential insulation company, and Canyon Insulation, a heavy commercial insulation and firestopping company.  Combined, these companies generated approximately $40 million in revenue for 2016.  Year-to-date, through August 8, 2017, the Company has closed 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, “Acquisitions remain our number one capital allocation priority and the pipeline of prospects our M&A team is currently evaluating is robust.  Year-to-date, we’ve completed six acquisitions that are expected to contribute approximately $83 million of incremental annual revenue.” 

Share Repurchases
In the second quarter, under the $200 million share repurchase program announced on February 28, 2017, the Company repurchased 461,358 shares at an average price of $47.48 per share.  Year-to-date, through June 30, the Company has acquired 858,393 shares at an average share price of $45.77. 

In addition, as previously announced, the Company entered into an agreement with Bank of America Merrill Lynch (BofAML) to repurchase $100 million of the Company’s common stock under an accelerated share repurchase program.  On July 5th, the Company made a payment of $100.0 million to BofAML, 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. 

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 2017 financial results is scheduled for today, Tuesday, August 8, at 9:00 a.m. Eastern Time.  The call may be accessed by dialing (877) 256-5211.  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: 21842821.

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.

(tables follow)

TopBuild Corp.                          
Condensed Consolidated Statements of Operations (Unaudited)                          
(in thousands, except per common share amounts)                          
                           
    Three Months Ended June 30,    Six Months Ended June 30,   
    2017     2016     2017     2016    
Net sales   $   474,458      $    431,589     $   915,821      $    845,613    
Cost of sales       357,849         333,901         697,584         658,470    
Gross profit       116,609         97,688         218,237         187,143    
                           
Selling, general, and administrative expense (exclusive of significant legal settlement, shown separately below)       75,813         70,898         150,904         140,586    
Significant legal settlement       —         —         30,000         —    
Operating profit       40,796         26,790         37,333         46,557    
                           
Other income (expense), net:                          
Interest expense       (1,918 )       (1,371 )       (3,288 )       (3,044 )  
Loss on extinguishment of debt       (1,086 )       —         (1,086 )       —    
Other, net        105         61         212         136    
Other expense, net       (2,899 )       (1,310 )       (4,162 )       (2,908 )  
Income from continuing operations before income taxes       37,897         25,480         33,171         43,649    
                           
Income tax expense from continuing operations       (14,437 )       (9,865 )       (11,422 )       (16,918 )  
Income from continuing operations       23,460         15,615         21,749         26,731    
                           
Net income   $   23,460     $   15,615     $   21,749     $   26,731    
                           
Income per common share:                          
Basic:                          
Income from continuing operations   $   0.64      $    0.41     $   0.59      $    0.71    
Net income   $   0.64      $    0.41     $   0.59      $    0.71    
                           
Diluted:                          
Income from continuing operations   $   0.63      $    0.41     $   0.58      $    0.70    
Net income   $   0.63      $    0.41     $   0.58      $    0.70    
                           

 

TopBuild Corp.              
Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)            
(dollars in thousands)              
    As of  
    June 30,    December 31,   
    2017   2016  
ASSETS              
Current assets:              
Cash and cash equivalents   $   94,233   $   134,375  
Receivables, net of an allowance for doubtful accounts of $3,566 and $3,374 at June 30, 2017, and December 31, 2016, respectively       297,325       252,624  
Inventories, net       111,640       116,190  
Prepaid expenses and other current assets       23,391       23,364  
Total current assets       526,589       526,553  
               
Property and equipment, net       98,185       92,760  
Goodwill       1,084,833       1,045,058  
Other intangible assets, net       28,786       2,656  
Deferred tax assets, net       19,469       19,469  
Other assets       3,197       3,623  
Total assets   $   1,761,059   $   1,690,119  
               
LIABILITIES              
Current liabilities:              
Accounts payable   $   243,000   $   241,534  
Current portion of long-term debt       12,500       20,000  
Accrued liabilities       77,175       64,399  
Total current liabilities       332,675       325,933  
               
Long-term debt       235,422       158,800  
Deferred tax liabilities, net       193,715       193,715  
Long-term portion of insurance reserves       38,132       38,691  
Other liabilities       3,151       433  
Total liabilities       803,095       717,572  
               
EQUITY       957,964       972,547  
Total liabilities and equity   $   1,761,059   $   1,690,119  
               
     As of   
    June 30,    June 30,   
    2017   2016  
Other Financial Data              
Working Capital Days†              
Receivable days       45       46  
Inventory days       29       28  
Accounts payable days       83       82  
Working capital   $   165,965   $   143,202  
Working capital as a percent of sales (LTM)‡       8.8 %     8.4 %
               
† Amounts adjusted for acquisitions for comparability purposes              
‡ Last 12 months sales have been adjusted for the pro forma effect of acquired branches              
               

 

TopBuild Corp.            
Condensed Consolidated Statements of Cash Flows (Unaudited)            
(in thousands)            
             
             
    Six Months Ended June 30, 
    2017     2016  
Net Cash Provided by (Used in) Operating Activities:                  
Net income   $   21,749     $   26,731  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization       6,835         5,908  
Share-based compensation       5,101         3,705  
Loss on extinguishment of debt       1,086         —  
Loss on sale or abandonment of property and equipment       285         1,477  
Amortization of debt issuance costs       186         171  
Provision for bad debt expense       1,750         1,986  
Loss from inventory obsolescence       826         667  
Deferred income taxes, net       —         (3 )
Changes in certain assets and liabilities:            
Receivables, net       (25,123 )       (21,436 )
Inventories, net       5,908         15,819  
Prepaid expenses and other current assets       7         (3,266 )
Accounts payable       (3,124 )       (39,237 )
Accrued liabilities       9,787         13,642  
Other, net       398         (18 )
Net cash provided by operating activities       25,671         6,146  
             
Cash Flows Provided by (Used in) Investing Activities:            
Purchases of property and equipment       (8,571 )       (6,023 )
Acquisition of businesses       (83,932 )       —  
Proceeds from sale of property and equipment       126         219  
Other, net        147         147  
Net cash used in investing activities       (92,230 )       (5,657 )
             
Cash Flows Provided by (Used in) Financing Activities:            
Proceeds from issuance of long-term debt       250,000         —  
Repayment of long-term debt       (180,000 )       (5,000 )
Payment of debt issuance costs       (2,150 )       —  
Taxes withheld and paid on employees' equity awards       (2,147 )       (1,285 )
Repurchase of shares of common stock       (39,286 )       (4,962 )
Net cash provided by (used in) financing activities       26,417         (11,247 )
             
Cash and Cash Equivalents            
Decrease for the period       (40,142 )       (10,758 )
Beginning of year       134,375         112,848  
End of year   $   94,233     $   102,090  
             
Supplemental disclosure of noncash investing activities:            
Accruals for property and equipment   $   655     $   521  

 

TopBuild Corp.                                          
Segment Data (Unaudited)                                          
(dollars in thousands)                                          
                                           
    Three Months Ended June 30,            Six Months Ended  June 30,           
      2017       2016     Change        2017       2016     Change     
Installation                                          
Sales   $   320,984     $   288,042       11.4 %   $   611,870     $   560,920       9.1 %  
                                           
Operating profit, as reported   $   35,086     $   22,797             $   26,123     $   36,303            
Operating margin, as reported       10.9   %     7.9   %             4.3   %     6.5   %        
                                           
Significant legal settlement       —         —                 30,000         —            
Rationalization charges       171         66                 582         894            
Operating profit, as adjusted   $   35,257     $   22,863             $   56,705     $   37,197            
Operating margin, as adjusted       11.0   %     7.9   %             9.3   %     6.6   %        
                                           
Distribution                                           
Sales   $   175,062     $   164,257       6.6 %   $   345,306     $   325,145       6.2 %  
                                           
Operating profit, as reported   $   17,022     $   13,547             $   32,506     $   27,880            
Operating margin, as reported       9.7   %     8.2   %             9.4   %     8.6   %        
                                           
Rationalization charges       17         —                 17         83            
Operating profit, as adjusted   $   17,039     $   13,547             $   32,523     $   27,963            
Operating margin, as adjusted       9.7   %     8.2   %             9.4   %     8.6   %        
                                           
Total                                          
Sales before eliminations   $   496,046     $   452,299             $   957,176     $   886,065            
Intercompany eliminations        (21,588 )       (20,710 )               (41,355 )       (40,452 )          
Net sales after eliminations   $   474,458     $   431,589       9.9 %   $   915,821     $   845,613       8.3 %  
                                           
Operating profit, as reported - segment   $   52,108     $   36,344             $   58,629     $   64,183            
General corporate expense, net       (7,632 )       (6,030 )               (14,316 )       (10,750 )          
Intercompany eliminations and other adjustments       (3,680 )       (3,524 )               (6,980 )       (6,876 )          
Operating profit, as reported   $   40,796     $   26,790             $   37,333     $   46,557            
Operating margin, as reported       8.6   %     6.2   %             4.1   %     5.5   %        
                                           
Significant legal settlement       —         —                 30,000         —            
Rationalization charges       1,258         647                 2,995         1,655            
Acquisition related costs       145         —                 437         —            
Operating profit, as adjusted   $   42,199     $   27,437             $   70,765     $   48,212            
Operating margin, as adjusted       8.9   %     6.4   %             7.7   %     5.7   %        
                                           
Share-based compensation ‡        2,403         2,105                 4,487         3,705            
Depreciation and amortization       3,605         3,013                 6,835         5,908            
EBITDA, as adjusted   $   48,207     $   32,555             $   82,087     $   57,825            
                                           
Sales change period over period       42,869                       70,208                  
EBITDA, as adjusted change period over period       15,652                       24,262                  
EBITDA, as adjusted as percentage of sales change       36.5   %                   34.6   %              
                                           
† Rationalization charges include corporate level adjustments as well as segment operating adjustments.                      
‡ Amounts for the three and six month periods ending June 30, 2017, exclude $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 June 30,    Six Months Ended  June 30,   
    2017     2016     2017     2016    
Gross Profit and Operating Profit Reconciliations                          
                           
Net sales   $   474,458     $   431,589     $   915,821     $   845,613    
                           
Gross profit, as reported   $   116,609     $   97,688     $   218,237     $   187,143    
                           
Gross profit, as adjusted   $   116,609     $   97,688     $   218,237     $   187,143    
                           
Gross margin, as reported       24.6   %     22.6   %     23.8   %     22.1   %
Gross margin, as adjusted       24.6   %     22.6   %     23.8   %     22.1   %
                           
Operating profit, as reported   $   40,796     $   26,790     $   37,333     $   46,557    
                           
Significant legal settlement       —         —         30,000         —    
Rationalization charges       1,258         647         2,995         1,655    
Acquisition related costs       145         —         437         —    
Operating profit, as adjusted   $   42,199     $   27,437     $   70,765     $   48,212    
                           
Operating margin, as reported       8.6   %     6.2   %     4.1   %     5.5   %
Operating margin, as adjusted       8.9   %     6.4   %     7.7   %     5.7   %
                           
Income Per Common Share Reconciliation                          
                           
Income from continuing operations before income taxes, as reported   $   37,897     $   25,480     $   33,171     $   43,649    
                           
Significant legal settlement       —         —         30,000         —    
Rationalization charges       1,258         647         2,995         1,655    
Acquisition related costs       145         —         437         —    
Loss on extinguishment of debt       1,086         —         1,086         —    
Income from continuing operations before income taxes, as adjusted       40,386         26,127         67,689         45,304    
                           
Tax at 38% rate       (15,347 )       (9,928 )       (25,722 )       (17,216 )  
Income from continuing operations, as adjusted   $   25,039     $   16,199     $   41,967     $   28,088    
                           
Income per common share, as adjusted   $   0.67     $   0.43     $   1.12     $   0.74    
                           
Average diluted common shares outstanding       37,191,299         37,976,703         37,404,193         37,938,108    
                           

 

TopBuild Corp.                              
Same Branch Net Sales and Adjusted EBITDA (Unaudited)                              
(in thousands)                              
                               
    Three Months Ended June 30,      Six Months Ended June 30,     
    2017   2016     2017   2016    
Net sales                              
Same branch   $   453,648   $   431,589     $   887,425   $   845,613    
Acquired       20,810       —         28,396       —    
Total   $   474,458   $   431,589     $   915,821   $   845,613    
                               
EBITDA, as adjusted                              
Same branch       45,599       32,555         79,050       57,825    
Acquired       2,608       —         3,037       —    
Total   $   48,207   $   32,555     $   82,087   $   57,825    
                               
Same branch EBITDA, as adjusted as percentage of sales change       59.1 %   33.3 %     50.8 %   28.8 %
Acquired EBITDA, as adjusted as percentage of sales change       12.5 %   — %     10.7 %   — %

 

TopBuild Corp.                        
Reconciliation of EBITDA to Net Income (Unaudited)                        
(in thousands)                        
                         
    Three Months Ended June 30,    Six Months Ended June 30, 
    2017   2016   2017   2016
Net income, as reported   $   23,460   $   15,615   $   21,749   $   26,731
Adjustments to arrive at EBITDA, as adjusted:                        
Interest expense and other, net       1,813       1,310       3,076       2,908
Income tax expense from continuing operations       14,437       9,865       11,422       16,918
Depreciation and amortization       3,605       3,013       6,835       5,908
Share-based compensation †       2,403       2,105       4,487       3,705
Significant legal settlement       —       —       30,000       —
Rationalization charges       1,258       647       2,995       1,655
Loss on extinguishment of debt       1,086       —       1,086       —
Acquisition related costs       145       —       437       —
EBITDA, as adjusted   $   48,207   $   32,555   $   82,087   $   57,825
                         
† Amounts for the three and six month periods ending June 30, 2017, exclude $0.6 million of share-based compensation included in the line item, rationalization charges.
                         


Investor Relations and Media Contact
Tabitha Zane
tabitha.zane@topbuild.com 
386-763-8801