·

Net sales increase 27.6%

·

Gross margin expands 40 basis points

·

10.2% operating margin, 10.5% on an adjusted basis, up 40 basis points

·

Adjusted EBITDA increases 42.4%, margin expands 130 basis points

·

$1.10 net income per diluted share, $1.20 on an adjusted basis

✓   Net sales increased 27.6% to $639.5 million, driven by acquisitions and price increases. On a same branch basis, net sales increased 6.5% to $533.9 million.

“We are pleased with our fourth quarter results as we continue to deliver on our objective of producing profitable growth.

“Our team remains focused on optimizing our operational performance as evidenced by our 40 basis point gross margin expansion and 12.9% EBITDA margin, a 130 basis point increase from a year ago.”

JERRY VOLAS, CEO, TOPBUILD

✓   Gross margin expanded 40 basis points to 24.7%.

✓   Operating profit was $65.2 million, compared to $50.0 million. On an adjusted basis, operating profit was $67.2 million, compared to $50.8 million, a 32.1% improvement.

✓   Operating margin was 10.2%, up 20 basis points. Adjusted operating margin improved 40 basis points to 10.5%.

✓   Net sales increased 25.1% to $2,384.2 million. On a same branch basis, revenue increased 8.5% to $2,067.6 million.

“Our 2018 financial results clearly demonstrate the effectiveness of our operating model, the benefits of our size and scale and our success in integrating acquisitions onto our operating platform.

“Despite an environment of unprecedented material cost increases, we maintained our gross margin and expanded our adjusted operating and EBITDA margins.”

JERRY VOLAS, CEO, TOPBUILD

✓   Gross margin was unchanged at 24.2%.

✓   Operating profit was $209.0 million, compared to operating profit of $136.9 million. On an adjusted basis, operating profit was $232.6 million, compared to $171.9 million, a 35.3% improvement.

✓   Operating margin was 8.8%, up 160 basis points. Adjusted operating margin improved 80 basis points to 9.8%.

✓   Net income was $134.8 million, or $3.78 per diluted share, compared to $158.1 million, or $4.32 per diluted share. Adjusted net income was $149.3 million, or $4.19 per diluted share, compared to $101.8 million, or $2.78 per diluted share.

In 2018, the Company completed three acquisitions that are expected to generate approximately $410 million of net annual revenue. The companies acquired were:

•    USI, the third largest provider of insulation installation and distribution services to the residential and commercial construction markets.

•    ADO Products, a distributor of insulation accessories.

•    Santa Rosa Insulation and Fireproofing, a residential and commercial insulation company.

“Strategic acquisitions remain our number one choice for capital allocation.  Since implementing our acquisition program in 2016, we have acquired ten companies that are expected to generate over $500 million in annual revenue. Our success in integrating acquisitions onto our operating platform has become a core competency, enabling us to take advantage of available synergies and generate strong returns for our shareholders.”

JERRY VOLAS, CEO, TOPBUILD

Share Repurchase Program

The Company also announced that its Board of Directors has authorized a new share repurchase program whereby the Company may purchase up to $200 million of its common stock. Repurchases will be made from cash on hand as well as from a portion of the free cash flow expected to be generated from the business.

In 2018 the Company repurchased a total of 1,049,871 shares of its common stock for approximately $65 million. This includes the receipt of 796,925 shares related to its previously announced $50 million accelerated share repurchase (“ASR”) program. The ASR is expected to settle no later than the end of the first quarter of 2019.

“We anticipate continuing to generate cash beyond what is required to fund our internal growth and finance acquisitions, our highest capital allocation priorities. This $200 million share repurchase program further enhances our on-going commitment to maximizing shareholder value.”

JERRY VOLAS, CEO, TOPBUILD

2019

Low

High

“We believe the fundamentals driving supply and demand in the residential housing market are healthy. In 2019, we will continue to focus on generating profitable growth, achieving additional operational efficiencies and identifying acquisitions that meet our investment criteria.

“Our business model, including national scale and diversity through both residential and commercial installation and distribution, offers multiple avenues for growth.”

JERRY VOLAS, CEO, TOPBUILD

Revenue

$2,570M

$2,635M

Adjusted EBITDA*

$310M

$330M

*See table for adjusted EBITDA reconciliation

Assumptions

($ in millions)

2019

Low

High

Housing Starts

1,260K

1,300K

Adjusted net income

$          145.3

$                167.9

Depreciation and Amortization

$            54.5

$                  50.5

Interest Expense and other, net

$            38.9

$                  35.9

Income tax expense

$            53.7

$                  62.1

Share based compensation

$            14.6

$                  12.6

Metric

Working Capital (% of Sales)

10% to 11%

CapEx (% of Sales)

2.0% to 2.5%

Commercial Annual Revenue Growth

10.0%

Normalized Tax Rate

26% to 27%

Incremental Adjusted EBITDA (Organic)

22% to 27%

Incremental Adjusted EBITDA (Acquisitions Year One)

11% to 16%

Revenue for every 50K increase in housing starts

$80 million

Three Months Ended December 31, 

Year Ended December 31, 

2018

2017

2018

2017

Net sales

$

639,547

$

501,401

$

2,384,249

$

1,906,266

Cost of sales

481,321

379,368

1,808,097

1,445,157

Gross profit

158,226

122,033

576,152

461,109

Selling, general, and administrative expense (exclusive of significant legal settlement, shown separately below)

93,065

72,063

367,199

294,245

Significant legal settlement

 —

 —

 —

30,000

Operating profit

65,161

49,970

208,953

136,864

Other income (expense), net:

Interest expense

(9,661)

(2,252)

(28,687)

(8,019)

Loss on extinguishment of debt

 —

 —

 —

(1,086)

Other, net

266

42

558

281

Other expense, net

(9,395)

(2,210)

(28,129)

(8,824)

Income before income taxes

55,766

47,760

180,824

128,040

Income tax (expense) benefit

(17,213)

57,231

(46,072)

30,093

Net income

$

38,553

$

104,991

$

134,752

$

158,133

Income per common share:

Basic

$

1.12

$

3.00

$

3.86

$

4.41

Diluted

$

1.10

$

2.93

$

3.78

$

4.32

Weighted average shares outstanding:

Basic

34,436,518

34,990,047

34,921,318

35,897,641

Diluted

35,012,535

35,772,124

35,613,319

36,572,146

As of December 31,

2018

2017

ASSETS

Current assets:

Cash and cash equivalents

$

100,929

$

56,521

Receivables, net of an allowance for doubtful accounts of $3,676 and $3,673 at December 31, 2018, and December 31, 2017, respectively

407,106

308,508

Inventories, net

168,977

131,342

Prepaid expenses and other current assets

27,685

15,221

Total current assets

704,697

511,592

Property and equipment, net

167,961

107,121

Goodwill

1,364,016

1,077,186

Other intangible assets, net

199,387

33,243

Deferred tax assets, net

13,176

18,129

Other assets

5,294

2,278

Total assets

$

2,454,531

$

1,749,549

LIABILITIES

Current liabilities:

Accounts payable

$

313,172

$

263,814

Current portion of long-term debt

26,852

12,500

Accrued liabilities

104,236

75,087

Total current liabilities

444,260

351,401

Long-term debt

716,622

229,387

Deferred tax liabilities, net

176,212

132,840

Long-term portion of insurance reserves

43,434

36,160

Other liabilities

1,905

3,242

Total liabilities

1,382,433

753,030

EQUITY

1,072,098

996,519

Total liabilities and equity

$

2,454,531

$

1,749,549

As of December 31, 

2018

2017

Other Financial Data

Receivable days †

Inventory days †

34

33

Accounts payable days †

80

79

Receivables, net plus inventories, net less accounts payable †

$

262,911

$

176,036

Receivables, net plus inventories, net less accounts payable as a percent of sales (TTM)‡

10.4

%

9.1

%

†  Adjusted for remaining acquisition day one balance sheet items.

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

Year Ended December 31, 

2018

2017

Cash Flows Provided by (Used in) Operating Activities:

Net income

$

134,752

$

158,133

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

Depreciation and amortization

39,419

16,453

Share-based compensation

11,317

9,889

Loss on extinguishment of debt

 —

1,086

Loss on sale or abandonment of property and equipment

1,204

998

Amortization of debt issuance costs

1,201

401

Change in fair value of contingent consideration

(330)

149

Provision for bad debt expense

3,240

3,231

Loss from inventory obsolescence

2,187

1,979

Deferred income taxes, net

12,936

(59,535)

Change in certain assets and liabilities

Receivables, net

(35,522)

(37,943)

Inventories, net

(23,297)

(14,901)

Prepaid expenses and other current assets

(8,360)

8,184

Accounts payable

29,687

17,936

Accrued liabilities

(660)

7,160

Other, net

(602)

(28)

Net cash provided by operating activities

167,172

113,192

Cash Flows Provided by (Used in) Investing Activities:

Purchases of property and equipment

(52,504)

(25,308)

Acquisition of businesses, net of cash acquired of $15,756 in 2018

(500,202)

(84,090)

Proceeds from sale of property and equipment

849

603

Other, net

38

199

Net cash used in investing activities

(551,819)

(108,596)

Cash Flows Provided by (Used in) Financing Activities:

Proceeds from issuance of long-term debt

526,604

250,000

Repayment of long-term debt

(18,399)

(186,250)

Payment of debt issuance costs

(7,819)

(2,150)

Proceeds from revolving credit facility

90,000

225,000

Repayment of revolving credit facility

(90,000)

(225,000)

Taxes withheld and paid on employees' equity awards

(5,465)

(4,764)

Repurchase of shares of common stock

(65,025)

(139,286)

Payment of contingent consideration

(841)

 —

Net cash provided by (used in) financing activities

429,055

(82,450)

Cash and Cash Equivalents

Increase (decrease) for the period

44,408

(77,854)

Beginning of period

56,521

134,375

End of period

$

100,929

$

56,521

Supplemental disclosure of cash paid for:

Interest on long-term debt

$

23,733

$

6,423

Income taxes

39,010

22,580

Supplemental disclosure of noncash investing activities:

Accruals for property and equipment

$

860

$

1,123

Three Months Ended December 31, 

Year Ended December 31, 

2018

2017

Change

2018

2017

Change

Installation

Sales

$

457,610

$

336,188

%

$

1,680,967

$

1,281,296

%

Operating profit, as reported

$

57,016

$

42,331

$

196,986

$

109,316

Operating margin, as reported

12.5

%

12.6

%

11.7

%

8.5

%

Significant legal settlement

 —

 —

 —

30,000

Rationalization charges

216

336

845

1,056

Operating profit, as adjusted

$

57,232

$

42,667

$

197,831

$

140,372

Operating margin, as adjusted

12.5

%

12.7

%

11.8

%

11.0

%

Distribution

Sales

$

213,974

$

193,306

%

$

820,309

$

719,759

%

Operating profit, as reported

$

21,598

$

17,927

$

78,739

$

68,733

Operating margin, as reported

10.1

%

9.3

%

9.6

%

9.5

%

Rationalization charges

 —

 —

159

23

Operating profit, as adjusted

$

21,598

$

17,927

$

78,898

$

68,756

Operating margin, as adjusted

10.1

%

9.3

%

9.6

%

9.6

%

Total

Sales before eliminations

$

671,584

$

529,494

$

2,501,276

$

2,001,055

Intercompany eliminations

(32,037)

(28,093)

(117,027)

(94,789)

Net sales after eliminations

$

639,547

$

501,401

%

$

2,384,249

$

1,906,266

%

Operating profit, as reported - segment

$

78,614

$

60,258

$

275,725

$

178,049

General corporate expense, net

(7,936)

(5,218)

(45,873)

(24,722)

Intercompany eliminations and other adjustments

(5,517)

(5,070)

(20,899)

(16,463)

Operating profit, as reported

$

65,161

$

49,970

$

208,953

$

136,864

Operating margin, as reported

10.2

%

10.0

%

8.8

%

7.2

%

Significant legal settlement

 —

 —

 —

30,000

Rationalization charges †

929

356

7,736

3,755

Acquisition related costs

1,066

508

15,925

1,256

Operating profit, as adjusted

$

67,156

$

50,834

$

232,614

$

171,875

Operating margin, as adjusted

10.5

%

10.1

%

9.8

%

9.0

%

Share-based compensation ‡

3,072

2,415

11,317

9,274

Depreciation and amortization

12,286

4,700

39,419

16,453

EBITDA, as adjusted

$

82,514

$

57,949

$

283,350

$

197,602

EBITDA margin, as adjusted

12.9

%

11.6

%

11.9

%

10.4

%

Sales change period over period

138,146

477,983

EBITDA, as adjusted, change period over period

24,565

85,748

EBITDA, as adjusted, as percentage of sales change

17.8

%

17.9

%

Three Months Ended December 31, 

Year Ended December 31, 

2018

2017

2018

2017

Gross Profit and Operating Profit Reconciliations

Net sales

$

639,547

$

501,401

$

2,384,249

$

1,906,266

Gross profit, as reported

$

158,226

$

122,033

$

576,152

$

461,109

Rationalization charges

 —

 —

176

 —

Gross profit, as adjusted

$

158,226

$

122,033

$

576,328

$

461,109

Gross margin, as reported

24.7

%

24.3

%

24.2

%

24.2

%

Gross margin, as adjusted

24.7

%

24.3

%

24.2

%

24.2

%

Operating profit, as reported

$

65,161

$

49,970

$

208,953

$

136,864

Significant legal settlement

 —

 —

 —

30,000

Rationalization charges

929

356

7,736

3,755

Acquisition related costs

1,066

508

15,925

1,256

Operating profit, as adjusted

$

67,156

$

50,834

$

232,614

$

171,875