TopBuild Reports Third Quarter 2020 Results

Rhea-AI Summary

TopBuild Corp. (NYSE:BLD) reported a 2.2% increase in net sales for Q3 2020, totaling $697.2 million. The company's gross margin expanded by 210 basis points to 28.4%, while operating profit surged to $101.5 million. Adjusted EBITDA rose 21.6% to $119.2 million, with an EBITDA margin of 17.1%. Despite challenges in its commercial business due to COVID-19, CEO Jerry Volas expressed optimism about market fundamentals. The company also completed the acquisition of Garland Insulating, aiming for continued growth through M&A.

Positive

• Net sales increased 2.2% to $697.2 million.
• Gross margin expanded by 210 basis points to 28.4%.
• Operating profit rose to $101.5 million, a significant increase.
• Adjusted EBITDA increased by 21.6% to $119.2 million.
• Acquisition of Garland Insulating expected to generate $60 million in revenue.

Negative

• Sales at TruTeam affected by delays in the commercial business due to COVID-19.

• 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

 

FAQ

What are the financial highlights for TopBuild Corp. for Q3 2020?

TopBuild Corp. reported net sales of $697.2 million, a 2.2% increase, with a gross margin of 28.4% and operating profit of $101.5 million.

How much did TopBuild's adjusted EBITDA increase in Q3 2020?

Adjusted EBITDA increased by 21.6% to $119.2 million in Q3 2020.

What acquisition did TopBuild complete recently?

TopBuild completed the acquisition of Garland Insulating, expected to generate approximately $60 million in revenue.

What challenges did TopBuild face in Q3 2020?

TopBuild's TruTeam sales were adversely impacted by delays in the commercial business due to COVID-19 safety protocols.

What was TopBuild's net income per diluted share for Q3 2020?

Net income for Q3 2020 was $70.0 million, or $2.11 per diluted share.