TopBuild Reports Third Quarter 2016 Financial Results

TopBuild Corp.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except common share amounts)

Three Months Ended
September 30, 

Nine Months Ended
September 30, 

2016

2015

2016

2015

Net sales

$

453,102

$

427,888

$

1,298,715

$

1,190,109

Cost of sales

344,963

333,886

1,003,433

936,601

Gross profit

108,139

94,002

295,282

253,508

Selling, general, and administrative expense

69,038

63,811

209,623

212,974

Operating profit

39,101

30,191

85,659

40,534

Other income (expense), net:

Interest expense

(1,271)

(1,576)

(4,315)

(7,893)

Other, net

65

10

201

14

Other expense, net

(1,206)

(1,566)

(4,114)

(7,879)

Income from continuing operations before income taxes

37,895

28,625

81,545

32,655

Income tax expense from continuing operations

(13,329)

(12,001)

(30,246)

(13,201)

Income from continuing operations

24,566

16,624

51,299

19,454

Loss from discontinued operations, net

—

—

—

(234)

Net income

$

24,566

$

16,624

$

51,299

$

19,220

Income (loss) per common share:

Basic:

Income from continuing operations

$

0.65

$

0.44

$

1.36

$

0.52

Loss from discontinued operations, net

—

—

—

(0.01)

Net income

$

0.65

$

0.44

$

1.36

$

0.51

Diluted:

Income from continuing operations

$

0.65

$

0.44

$

1.35

$

0.52

Loss from discontinued operations, net

—

—

—

(0.01)

Net income

$

0.65

$

0.44

$

1.35

$

0.51

TopBuild Corp

Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)

(dollars in thousands)

As of

September 30,

December 31,

2016

2015

ASSETS

Current assets:

Cash and cash equivalents

$

104,497

$

112,848

Receivables, net of an allowance for doubtful accounts of $3,607 and $3,399 at September 30,
2016 and December 31, 2015, respectively

265,655

235,549

Inventories, net

105,829

118,701

Prepaid expenses and other current assets

16,425

13,263

Total current assets

492,406

480,361

Property and equipment, net

91,992

93,066

Goodwill

1,045,058

1,044,041

Other intangible assets, net

2,838

1,987

Deferred tax assets, net

20,549

20,549

Other assets

3,620

2,245

Total assets

$

1,656,463

$

1,642,249

LIABILITIES

Current liabilities:

Accounts payable

$

217,931

$

253,311

Current portion of long-term debt

20,000

15,000

Accrued liabilities

73,524

58,369

Total current liabilities

311,455

326,680

Long-term debt

163,714

178,457

Deferred tax liabilities, net

181,730

181,254

Long-term portion of insurance reserves

39,555

39,655

Other liabilities

436

474

Total liabilities

696,890

726,520

EQUITY

959,573

915,729

Total liabilities and equity

$

1,656,463

$

1,642,249

 As of

September 30,

September 30,

2016

2015

Other Financial Data

Working Capital Days

Receivable days

45

46

Inventory days

29

30

Accounts payable days

76

86

Working capital

$

153,553

$

111,782

Working capital as a percent of sales (LTM)

8.9

%

7.0

%

TopBuild Corp.

Condensed Consolidated Statement of Cash Flows (Unaudited)

(in thousands)

Nine Months Ended
September 30, 

2016

2015

Net Cash Provided by (Used in) Operating Activities:

Net income

$

51,299

$

19,220

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

8,923

9,070

Share-based compensation

5,743

3,151

Loss on sale or abandonment of property and equipment

2,399

2,265

Amortization of debt issuance costs

257

86

Provision for bad debt expense

2,696

2,658

Loss from inventory obsolescence

970

1,194

Deferred income taxes, net

476

5,401

Changes in certain assets and liabilities:

Receivables, net

(32,294)

(29,729)

Inventories, net

12,103

2,378

Prepaid expenses and other current assets

(3,162)

(2,908)

Accounts payable

(35,023)

10,146

Long-term portion of insurance reserves

(1,599)

1,211

Accrued liabilities

15,159

18,983

Other, net

(13)

20

Net cash provided by operating activities

27,934

43,146

Cash Flows Provided by (Used in) Investing Activities:

Purchases of property and equipment

(10,083)

(10,589)

Acquisition of a business

(3,476)

—

Proceeds from sale of property and equipment

379

771

Other, net 

93

500

Net cash used in investing activities

(13,087)

(9,318)

Cash Flows Provided by (Used in) Financing Activities:

Net transfer (to) from Former Parent

(153)

75,935

Cash distribution paid to Former Parent

—

(200,000)

Proceeds from issuance of long-term debt

—

200,000

Repayment of long-term debt

(10,000)

(2,500)

Payment of debt issuance costs

—

(1,715)

Taxes withheld and paid on employees' equity awards

(1,668)

(171)

Repurchase of shares of common stock

(11,377)

—

Net cash (used in) provided by financing activities

71,549

Cash and Cash Equivalents

(Decrease) increase for the period

(8,351)

105,377

Beginning of year

112,848

2,965

End of period

$

104,497

$

108,342

Supplemental disclosure of noncash investing activities:

Accruals for property and equipment

$

110

$

—

TopBuild Corp

Segment Data (Unaudited)

(dollars in thousands)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2016

2015

Change

2016

2015

Change

Installation

Sales

$

300,005

$

279,809

7.2

%

$

860,924

$

778,469

10.6

%

Operating profit, as reported

$

32,196

$

20,678

$

68,499

$

26,713

Operating margin, as reported

10.7

%

7.4

%

8.0

%

3.4

%

Rationalization charges^†

115

23

1,009

3,853

Legal adjustments, net

—

1,030

—

2,400

Fixed asset disposal (truck mounted devices)

—

—

—

1,690

Employee benefit policy change

—

—

—

—

Operating profit, as adjusted

$

32,311

$

21,731

$

69,508

$

34,656

Operating margin, as adjusted

10.8

%

7.8

%

8.1

%

4.5

%

Distribution

Sales

$

174,123

$

170,881

1.9

%

$

499,268

$

476,333

4.8

%

Operating profit, as reported

$

15,536

$

16,909

$

43,416

$

40,183

Operating margin, as reported

8.9

%

9.9

%

8.7

%

8.4

%

Rationalization charges

—

—

83

512

Operating profit, as adjusted

$

15,536

$

16,909

$

43,499

$

40,695

Operating margin, as adjusted

8.9

%

9.9

%

8.7

%

8.5

%

Total

Sales before eliminations

$

474,128

$

450,690

$

1,360,192

$

1,254,802

Intercompany eliminations

(21,026)

(22,802)

(61,477)

(64,693)

Net sales after eliminations

$

453,102

$

427,888

5.9

%

$

1,298,715

$

1,190,109

9.1

%

Operating profit, as reported - segment

$

47,732

$

37,587

$

111,915

$

66,896

General corporate expense, net

(4,966)

(4,395)

(15,716)

(18,022)

Intercompany eliminations and other adjustments

(3,665)

(3,001)

(10,540)

(8,340)

Operating profit, as reported

$

39,101

$

30,191

$

85,659

$

40,534

Operating margin, as reported

8.6

%

7.1

%

6.6

%

3.4

%

Rationalization charges^†‡

435

23

2,090

4,365

Legal adjustments, net

—

1,030

—

2,400

Acqusition costs

55

—

55

—

Fixed asset disposal (truck mounted devices)

—

—

—

1,690

Masco general corporate expense, net

—

—

—

13,627

Masco direct corporate expense

—

—

—

5,604

Expected standalone corporate expense

—

—

—

(11,000)

Operating profit, as adjusted

$

39,591

$

31,244

$

87,804

$

57,220

Operating margin, as adjusted

8.7

%

7.3

%

6.8

%

4.8

%

Share-based compensation

2,037

1,485

5,743

3,151

Depreciation and amortization

3,015

2,930

8,923

9,156

EBITDA, as adjusted

$

44,643

$

35,659

$

102,470

$

69,527

Sales change period over period

25,214

108,606

EBITDA, as adjusted change period over period

8,984

32,943

EBITDA, as adjusted as percentage of sales change

35.6

%

30.3

%

† 2015 Rationalization charges included spin-off charges

‡ 2016 Rationalization charges include corporate level adjustments as well as segment operating adjustments

TopBuild Corp.

Non-GAAP Reconciliations (Unaudited)

(in thousands, except common share amounts)

Three Months Ended
September 30, 

Nine Months Ended
September 30, 

2016

2015

2016

2015

Gross Profit and Operating Profit Reconciliations

Net sales

$

453,102

$

427,888

$

1,298,715

$

1,190,109

Gross profit, as reported

$

108,139

$

94,002

$

295,282

$

253,508

Insurance adjustment

—

1,000

—

1,000

Gross profit, as adjusted

$

108,139

$

95,002

$

295,282

$

254,508

Gross margin, as reported

23.9

%

22.0

%

22.7

%

21.3

%

Gross margin, as adjusted

23.9

%

22.2

%

22.7

%

21.4

%

Operating profit, as reported

$

39,101

$

30,191

$

85,659

$

40,534

Rationalization charges†

435

23

2,090

4,365

Acqusition costs

55

—

55

—

Legal adjustments, net

—

1,030

—

2,400

Fixed asset disposal (truck mounted device)

—

—

—

1,690

Masco general corporate expense, net

—

—

—

13,627

Masco direct corporate expense

—

—

—

5,604

Expected standalone corporate expense

—

—

—

(11,000)

Operating profit, as adjusted

$

39,591

$

31,244

$

87,804

$

57,220

Operating margin, as reported

8.6

%

7.1

%

6.6

%

3.4

%

Operating margin, as adjusted

8.7

%

7.3

%

6.8

%

4.8

%

Income Per Common Share Reconciliation

Income from continuing operations before income taxes, as
reported

$

37,895

$

28,625

$

81,545

$

32,655

Rationalization charges†

435

23

2,090

4,365

Acquisition costs

55

—

55

—

Legal adjustments, net

—

1,030

—

2,400

Fixed asset disposal (truck mounted device)

—

—

—

1,690

Masco general corporate expense, net

—

—

—

13,627

Masco direct corporate expense

—

—

—

5,604

Expected standalone corporate expense

—

—

—

(11,000)

Income from continuing operations before income taxes, as
adjusted

38,385

29,678

83,690

49,341

Tax rate at 38% and 36% for 2016 and 2015, respectively

(14,586)

(10,684)

(31,802)

(17,763)

Income from continuing operations, as adjusted

$

23,799

$

18,994

$

51,888

$

31,578

Income per common share, as adjusted

$

0.63

$

0.50

$

1.37

$

0.84

Average diluted common shares outstanding

37,952,333

37,907,784

37,942,540

37,748,756

† 2015 Rationalization charges included spin-off charges.