TopBuild Corp - FORM 8-K - EX-99.1

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8-K - 8-K - TopBuild Corp	f8-k.htm

Exhibit 99.1

NYSE:BLD

The leading purchaser, installer and distributor of insulation products to the U.S. construction industry

TopBuild Reports Strong Second Quarter 2018 Results

$0.76 Income Per Diluted Share

$1.03 Income Per Diluted Share on an Adjusted Basis

Completed Acquisition of USI on May 1

~$410 million of expected annual incremental revenue from companies acquired in 2018

Second Quarter Financial Highlights

(unless otherwise indicated, comparisons are to the quarter ended June 30, 2017)

✓ Net sales increased 27.7% to $606.0 million, primarily driven by acquisitions, sales volume growth and increased selling prices in both operating segments. Of the 27.7% revenue growth, same branch contributed 10.5%.		“We had another strong quarter with sales benefitting from the continued growth in residential and commercial construction. Our team remains focused on profitable growth which includes successfully managing the multiple supplier cost increases announced this year. “As a result of the USI acquisition, our national footprint is even stronger, particularly in many of the fastest growing markets. With over 10,000 employees, including almost 7,000 installers, we are well-positioned to take advantage of the continued strength in residential new construction.” JERRY VOLAS, CEO, TOPBUILD
✓ Gross margin, impacted by higher material cost, declined 70 basis points to 23.9%. On an adjusted basis, gross margin declined 60 basis points to 24.0%.
✓ Operating profit was $43.7 million, compared to operating profit of $40.8 million. On an adjusted basis, operating profit was $57.8 million, compared to $42.2 million, a 37.0% improvement.
✓ Operating margin was 7.2%, down 140 basis points. Adjusted operating margin improved 60 basis points to 9.5%.
✓ Adjusted EBITDA was $70.6 million, compared to $48.2 million, a 46.4% increase, and adjusted EBITDA margin improved 140 basis points to 11.6%. Incremental EBITDA margin was 17.0%. On a same branch basis, adjusted EBITDA was $59.9 million, a 31.4% increase, and incremental EBITDA margin was 23.6%.
✓ Net income was $27.2 million, or $0.76 per diluted share, compared to $23.5 million, or $0.63 per diluted share. Adjusted income was $36.9 million, or $1.03 per diluted share, compared to $25.0 million, or $0.67 per diluted share.

✓ The five acquisitions completed over the past 12 months contributed $81.9 million of revenue. Incremental EBITDA related to acquisitions was 13.0%.

✓ At June 30, 2018, the Company had cash and cash equivalents of $65.7 million and availability under its revolving credit facility of $190.7 million for total liquidity of $256.4 million.

Six Month Financial Highlights

(unless otherwise indicated, comparisons are to six months ended June 30, 2017)

✓ Net sales increased 19.8% to $1,097.4 million. On a same branch basis, revenue increased 12.1% to $994.9 million.

✓ On both a reported and adjusted basis, gross margin declined 50 basis points to 23.3%.

✓ Operating profit was $77.6 million, compared to operating profit of $37.3 million. On an adjusted basis, operating profit was $96.0 million, compared to $70.8 million, a 35.6% improvement.

✓ Operating margin was 7.1%. On an adjusted basis, operating margin improved 100 basis points to 8.7%.

✓ Net income was $53.5 million, or $1.49 per diluted share, compared to $21.7 million, or $0.58 per diluted share. Adjusted income was $63.1 million, or $1.76 per diluted share, compared to $42.0 million, or $1.12 per diluted share.

✓ Adjusted EBITDA was $116.6 million, compared to $82.1 million, a 42.0% increase. Adjusted EBITDA margin was 10.6%, a 160-basis point improvement, and incremental EBITDA margin was 19.0%. On a same branch basis, adjusted EBITDA grew 32.4% to $104.7 million and incremental EBITDA margin was 28.6%.

Operating Segment Highlights ($ in 000s)

(comparisons are to the period ended June 30, 2017)

Capital Allocation

Acquisitions

In the second quarter, the Company acquired USI, a leading provider of insulation installation and distribution services to the residential and commercial construction markets, for a purchase price of $475 million. The transaction was financed with proceeds from a $400 million 5.625% Senior Notes offering which closed on April 25th and a $100 million delayed-draw term loan that was available under the Company’s existing secured credit facility.

Year-to-date, the Company has closed three acquisitions which, combined, are expected to generate approximately $410 million of incremental annual revenue.

“The integration of USI is proceeding very well and their operating performance was consistent with our initial expectations. Our team is focused on making the transition as seamless as possible for our customers, employees and suppliers. We continue to expect at least $15 million in cost saving synergies and have begun exploring cross selling opportunities.

“Acquisitions remain our number one capital allocation priority and we continue to look for opportunities that will enhance our customer value proposition, market share and earnings growth.”

JERRY VOLAS, CEO, TOPBUILD

2018 Revenue and Adjusted EBITDA Outlook

Assumptions:

2018 housing starts between 1.260k and 1.280k

Eight months of revenue from USI with $2M to $4M of cost savings synergies

$75 million of incremental revenue for every 50,000 increase in new housing starts

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 2018 results to differ materially from TopBuild’s current expectations are discussed below and are also detailed in the Company’s 2017 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 2018 financial results is scheduled for today, Tuesday, August 7, at 9:00 a.m. Eastern Time. The call may be accessed by dialing (800) 920-2997. The conference call will be webcast simultaneously on the “Investors” section of the Company’s website at www.topbuild.com.

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 205 branches, and through Service Partners® which distributes insulation 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, 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

(tables follow)

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,
	2018		2017		2018		2017
Net sales	$	605,969	$	474,458	$	1,097,412	$	915,821
Cost of sales		460,928		357,849		841,353		697,584
Gross profit		145,041		116,609		256,059		218,237

Selling, general, and administrative expense (exclusive of significant legal settlement, shown separately below)		101,360		75,813		178,486		150,904
Significant legal settlement		—		—		—		30,000
Operating profit		43,681		40,796		77,573		37,333

Other income (expense), net:
Interest expense		(7,322)		(1,918)		(9,645)		(3,288)
Loss on extinguishment of debt		—		(1,086)		—		(1,086)
Other, net		82		105		115		212
Other expense, net		(7,240)		(2,899)		(9,530)		(4,162)
Income before income taxes		36,441		37,897		68,043		33,171

Income tax expense		(9,288)		(14,437)		(14,503)		(11,422)
Net income	$	27,153	$	23,460	$	53,540	$	21,749

Income per common share:
Basic	$	0.77	$	0.64	$	1.53	$	0.59
Diluted	$	0.76	$	0.63	$	1.49	$	0.58

Weighted average shares outstanding:
Basic		35,102,429		36,488,222		35,081,292		36,803,979
Diluted		35,837,102		37,191,299		35,828,290		37,404,193

TopBuild Corp.

Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)

(dollars in thousands)


	As of
	June 30,		December 31,
	2018		2017
ASSETS
Current assets:
Cash and cash equivalents	$	65,737	$	56,521
Receivables, net of an allowance for doubtful accounts of $3,303 and $3,673 at June 30, 2018, and December 31, 2017, respectively		396,220		308,508
Inventories, net		158,495		131,342
Prepaid expenses and other current assets		23,929		15,221
Total current assets		644,381		511,592

Property and equipment, net		159,265		107,121
Goodwill		1,362,861		1,077,186
Other intangible assets, net		210,345		33,243
Deferred tax assets, net		17,634		18,129
Other assets		6,130		2,278
Total assets	$	2,400,616	$	1,749,549

LIABILITIES
Current liabilities:
Accounts payable	$	283,708	$	263,814
Current portion of long-term debt - term loan		17,500		12,500
Current portion of long-term debt - equipment notes		2,800		—
Accrued liabilities		108,951		75,087
Total current liabilities		412,959		351,401

Long-term debt - term loan		315,926		229,387
Long-term debt - equipment notes		11,734		—
Long-term debt - senior notes		393,666		—
Deferred tax liabilities, net		168,590		132,840
Long-term portion of insurance reserves		43,925		36,160
Other liabilities		2,891		3,242
Total liabilities		1,349,691		753,030

EQUITY		1,050,925		996,519
Total liabilities and equity	$	2,400,616	$	1,749,549


	As of June 30,
	2018			2017
Other Financial Data
Receivable days †		45			45
Inventory days †		31			29
Accounts payable days †		66			83
Receivables, net plus inventories, net less accounts payable †	$	271,007		$	165,965
Receivables, net plus inventories, net less accounts payable as a percent of sales (TTM)‡		11.1	%		8.8	%

† Adjusted for remaining acquisition day one balance sheet items

‡ Last 12 months sales have been adjusted for the pro forma effect of acquired branches

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


	Six Months Ended June 30,
	2018		2017
Net Cash Provided by (Used in) Operating Activities:
Net income	$	53,540	$	21,749
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,185		6,835
Share-based compensation		5,397		5,101
Loss on extinguishment of debt		—		1,086
Loss on sale or abandonment of property and equipment		487		285
Amortization of debt issuance costs		422		186
Change in fair value of contingent consideration		123		—
Provision for bad debt expense		1,672		1,750
Loss from inventory obsolescence		928		826
Deferred income taxes, net		375		—
Change in certain assets and liabilities
Receivables, net		(22,382)		(25,123)
Inventories, net		(11,517)		5,908
Prepaid expenses and other current assets		(5,363)		7
Accounts payable		220		(3,124)
Accrued liabilities		2,901		9,787
Other, net		(595)		398
Net cash provided by operating activities		41,393		25,671

Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(27,521)		(8,571)
Acquisition of businesses, net of cash acquired of $15,756 in 2018		(499,050)		(83,932)
Proceeds from sale of property and equipment		427		126
Other, net		23		147
Net cash used in investing activities		(526,121)		(92,230)

Cash Flows Provided by (Used in) Financing Activities:
Proceeds from issuance of Senior Notes		400,000		—
Proceeds from issuance of term loan		100,000		250,000
Repayments of term loan		(7,500)		(180,000)
Proceeds from equipment notes		15,066		—
Repayments of equipment notes		(533)		—
Proceeds from revolving credit facility		90,000		—
Repayment of revolving credit facility		(90,000)		—
Payment of debt issuance costs		(7,717)		(2,150)
Taxes withheld and paid on employees' equity awards		(4,531)		(2,147)
Repurchase of shares of common stock		—		(39,286)
Payment of contingent consideration		(841)		—
Net cash provided by financing activities		493,944		26,417

Cash and Cash Equivalents
Increase (decrease) for the period		9,216		(40,142)
Beginning of year		56,521		134,375
End of period	$	65,737	$	94,233

Supplemental disclosure of noncash investing activities:
Accruals for property and equipment	$	864	$	655

TopBuild Corp.

Segment Data (Unaudited)

(dollars in thousands)


	Three Months Ended June 30,									Six Months Ended June 30,
	2018			2017			Change			2018			2017			Change
Installation
Sales	$	429,423		$	320,984			33.8	%	$	758,817		$	611,870			24.0	%

Operating profit, as reported	$	49,635		$	35,086					$	78,965		$	26,123
Operating margin, as reported		11.6	%		10.9	%					10.4	%		4.3	%

Significant legal settlement		—			—						—			30,000
Rationalization charges		236			171						453			582
Operating profit, as adjusted	$	49,871		$	35,257					$	79,418		$	56,705
Operating margin, as adjusted		11.6	%		11.0	%					10.5	%		9.3	%

Distribution
Sales	$	205,621		$	175,062			17.5	%	$	393,387		$	345,306			13.9	%

Operating profit, as reported	$	20,009		$	17,022					$	37,912		$	32,506
Operating margin, as reported		9.7	%		9.7	%					9.6	%		9.4	%

Rationalization charges		—			17						25			17
Operating profit, as adjusted	$	20,009		$	17,039					$	37,937		$	32,523
Operating margin, as adjusted		9.7	%		9.7	%					9.6	%		9.4	%

Total
Sales before eliminations	$	635,044		$	496,046					$	1,152,204		$	957,176
Intercompany eliminations		(29,075)			(21,588)						(54,792)			(41,355)
Net sales after eliminations	$	605,969		$	474,458			27.7	%	$	1,097,412		$	915,821			19.8	%

Operating profit, as reported - segment	$	69,644		$	52,108					$	116,877		$	58,629
General corporate expense, net		(20,686)			(7,632)						(29,579)			(14,316)
Intercompany eliminations and other adjustments		(5,277)			(3,680)						(9,725)			(6,980)
Operating profit, as reported	$	43,681		$	40,796					$	77,573		$	37,333
Operating margin, as reported		7.2	%		8.6	%					7.1	%		4.1	%

Significant legal settlement		—			—						—			30,000
Rationalization charges †		4,341			1,258						5,138			2,995
Acquisition related costs		9,799			145						13,281			437
Operating profit, as adjusted	$	57,821		$	42,199					$	95,992		$	70,765
Operating margin, as adjusted		9.5	%		8.9	%					8.7	%		7.7	%

Share-based compensation ‡		2,995			2,403						5,397			4,487
Depreciation and amortization		9,743			3,605						15,185			6,835
EBITDA, as adjusted	$	70,559		$	48,207					$	116,574		$	82,087
EBITDA margin, as adjusted		11.6	%		10.2	%					10.6	%		9.0	%

Sales change period over period		131,511									181,591
EBITDA, as adjusted, change period over period		22,352									34,487
EBITDA, as adjusted, as percentage of sales change		17.0	%								19.0	%

† 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 share and per common share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Gross Profit and Operating Profit Reconciliations

Net sales	$	605,969		$	474,458		$	1,097,412		$	915,821

Gross profit, as reported	$	145,041		$	116,609		$	256,059		$	218,237

Rationalization charges		155			—			155			—
Gross profit, as adjusted	$	145,196		$	116,609		$	256,214		$	218,237

Gross margin, as reported		23.9	%		24.6	%		23.3	%		23.8	%
Gross margin, as adjusted		24.0	%		24.6	%		23.3	%		23.8	%

Operating profit, as reported	$	43,681		$	40,796		$	77,573		$	37,333

Significant legal settlement		—			—			—			30,000
Rationalization charges		4,341			1,258			5,138			2,995
Acquisition related costs		9,799			145			13,281			437
Operating profit, as adjusted	$	57,821		$	42,199		$	95,992		$	70,765

Operating margin, as reported		7.2	%		8.6	%		7.1	%		4.1	%
Operating margin, as adjusted		9.5	%		8.9	%		8.7	%		7.7	%

Income Per Common Share Reconciliation

Income before income taxes, as reported	$	36,441		$	37,897		$	68,043		$	33,171

Significant legal settlement		—			—			—			30,000
Rationalization charges		4,341			1,258			5,138			2,995
Acquisition related costs		9,799			145			13,281			437
Loss on extinguishment of debt		—			1,086			—			1,086
Income before income taxes, as adjusted		50,581			40,386			86,462			67,689

Tax rate at 27% and 38% for 2018 and 2017, respectively		(13,657)			(15,347)			(23,345)			(25,722)
Income, as adjusted	$	36,924		$	25,039		$	63,117		$	41,967

Income per common share, as adjusted	$	1.03		$	0.67		$	1.76		$	1.12

Weighted average diluted common shares outstanding		35,837,102			37,191,299			35,828,290			37,404,193

TopBuild Corp.

Same Branch Net Sales and Adjusted EBITDA (Unaudited)

(dollars in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Net sales
Same branch	$	524,067		$	453,648		$	994,942		$	887,425
Acquired		81,902			20,810			102,470			28,396
Total	$	605,969		$	474,458		$	1,097,412		$	915,821

EBITDA, as adjusted
Same branch	$	59,933		$	45,599		$	104,690		$	79,050
Acquired		10,626			2,608			11,884			3,037
Total	$	70,559		$	48,207		$	116,574		$	82,087

Change in total EBITDA, as adjusted, as percentage of total sales change		17.0	%		36.5	%		19.0	%		34.6	%

Change in same branch EBITDA, as adjusted, as percentage of same branch sales change		20.4	%		59.1	%		23.8	%		50.8	%
Change in acquired EBITDA, as adjusted, as percentage of acquired sales change		13.1	%		12.5	%		11.9	%		10.7	%

Same branch change in EBITDA, as adjusted, and total prior year EBITDA (inclusive of prior year acquired EBITDA), as adjusted, as a percentage of the change in current period same branch sales and total prior year sales (inclusive of prior year acquired sales)		23.6	%		59.1	%		28.6	%		50.8	%
Acquired EBITDA, as adjusted, as a percentage of acquired sales		13.0	%		12.5	%		11.6	%		10.7	%

TopBuild Corp.

Reconciliation of EBITDA to Net Income (Unaudited)

(dollars in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Net income, as reported	$	27,153	$	23,460	$	53,540	$	21,749
Adjustments to arrive at EBITDA, as adjusted:
Interest expense and other, net		7,240		1,813		9,530		3,076
Income tax expense		9,288		14,437		14,503		11,422
Depreciation and amortization		9,743		3,605		15,185		6,835
Share-based compensation †		2,995		2,403		5,397		4,487
Significant legal settlement		—		—		—		30,000
Rationalization charges		4,341		1,258		5,138		2,995
Loss on extinguishment of debt		—		1,086		—		1,086
Acquisition related costs		9,799		145		13,281		437
EBITDA, as adjusted	$	70,559	$	48,207	$	116,574	$	82,087

† 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.

2018 Estimated Adjusted EBITDA Range (Unaudited)

(dollars in millions)


	Twelve Months Ending December 31, 2018
		Low		High
Estimated net income	$	117.7	$	134.7
Adjustments to arrive at estimated EBITDA, as adjusted:
Interest expense and other, net		29.7		28.1
Income tax expense		43.5		49.9
Depreciation and amortization		39.5		36.3
Share-based compensation		12.8		11.7
Rationalization charges		11.5		9.5
Acquisition related costs		14.3		13.8
Estimated EBITDA, as adjusted	$	269.0	$	284.0

TopBuild Corp - FORM 8-K - EX-99.1 - August 7, 2018

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