TopBuild Reports First Quarter Results,Raises 2024 Outlook and Announces $1B Share Repurchase Authorization - Form 8-K

3 Months Ended 3/31/24

Reported

Change

"We are proud of our first quarter results, which reflect the strength of our business, our ongoing drive to improve, and the hard work of our team.

"We continue to focus on growing the business - both organically and through M&A - and delivering operational improvements, as evidenced by the 100 basis point expansion in our first quarter adjusted EBITDA margin year over year."

ROBERT BUCK, PRESIDENT & CEO, TOPBUILD

Sales

$1,278,717

1.1%

Gross Margin

30.3%

100 bps

SG&A as % of revenue

13.5%

0 bps

Operating Profit

$214,508

7.6%

Operating Margin

16.8%

100 bps

Net Income

$152,381

12.2%

Net Income per diluted share

$4.79

11.9%

Sales

$1,278,717

1.1%

Gross Margin

30.3%

100 bps

SG&A as % of revenue

13.5%

30 bps

Operating Profit

$214,434

5.6%

Operating Margin

16.8%

70 bps

Net Income

$153,122

10.7%

Net Income per diluted share

$4.81

10.3%

EBITDA

$253,818

6.5%

EBITDA Margin

19.8%

100 bps

Installation

3 Months
Ended
3/31/24

Specialty Distribution

3 Months
Ended
3/31/24

Sales

$798,743

Sales

$545,794

Change

Change

Volume

0.3%

Volume

(4.2)%

Price

1.2%

Price

1.5%

M&A

3.5%

M&A

0.4%

Dispositions

(0.9)%

Dispositions

0.0%

Total Change

4.1%

Total Change

(2.3)%

Operating Margin

19.6%

Operating Margin

14.2%

Change

50 bps

Change

110 bps

Adj. Operating Margin

19.6%

Adj. Operating Margin

14.1%

Change

40 bps

Change

90 bps

Adj. EBITDA Margin

22.0%

Adj. EBITDA Margin

16.9%

Change

60 bps

Change

110 bps

2024 Acquisitions

Year to date, the Company has announced the acquisition of five insulation companies which are expected to generate approximately $68 million in annual revenue. They are listed in the chart below.

"We are extremely disciplined regarding capital allocation. We will continue to prioritize reinvesting our free cash flow to make acquisitions and drive increased shareholder value.

"With a total addressable market of more than $18 billion across our highly fragmented end markets, we are actively evaluating a strong pipeline of opportunities. Year-to-date, we have announced five acquisitions totaling approximately $68 million in annual revenue.

"Our new repurchase authorization demonstrates management and our Board of Directors' continued confidence in and support of our long-term strategy and the importance of returning capital to shareholders."

ROBERT BUCK, PRESIDENT & CEO, TOPBUILD

TTM Revenue

Company

($ millions)

Month

Brabble Insulation (I)

$5.2

February

Morris Black & Sons (I)

$3.8

March

Pest Control Insulation (D)

$25.4

March

Green Space Insulation (I)

$6.0

April

Insulation Works (I)

$28.0

May

Total

$68.4

I=Installation, D=Specialty Distribution

New Share Repurchase Authorization

TopBuild also announced today that its Board of Directors authorized the repurchase of up to $1.0 billion of the Company's outstanding common stock. The new authorization is in addition to the $154.0 million remaining from the prior authorization, bringing the total availability for share repurchases to $1.15 billion.

2024 Outlook¹

The Company's raised its outlook for 2024 in light of strong profitability in the first quarter and to incorporate the acquisitions completed to date in 2024.

"We are confident in our ability to continue delivering strong performance in 2024. Our unique business model, our commitment to driving shareholder value, and our ability to successfully navigate changes in the macro environment position us extremely well for the long term."

ROBERT BUCK, PRESIDENT & CEO, TOPBUILD

2024

Low

High

Sales

$ 5,400

$ 5,600

Adjusted EBITDA*

$ 1,065

$ 1,155

*See table for Adjusted EBITDA reconciliation.

Three Months Ended March 31,

2024

2023

Net sales

$

1,278,717

$

1,265,238

Cost of sales

891,567

895,023

Gross profit

387,150

370,215

Selling, general, and administrative expense

172,642

170,784

Operating profit

214,508

199,431

Other income (expense), net:

Interest expense

(18,795)

(18,039)

Other, net

11,282

1,923

Other expense, net

(7,513)

(16,116)

Income before income taxes

206,995

183,315

Income tax expense

(54,614)

(47,445)

Net income

$

152,381

$

135,870

Net income per common share:

Basic

$

4.82

$

4.31

Diluted

$

4.79

$

4.28

Weighted average shares outstanding:

Basic

31,641,454

31,550,658

Diluted

31,843,818

31,713,239

Three Months Ended March 31,

2024

2023

Net income

$

152,381

$

135,870

Other comprehensive (loss) income:

Foreign currency translation adjustment

(4,092)

1,753

Comprehensive income

$

148,289

$

137,623

As of

March 31, 2024

December 31, 2023

ASSETS

Current assets:

Cash and cash equivalents

$

968,809

$

848,565

Receivables, net of an allowance for credit losses of $22,398 at March 31, 2024, and $23,948 at December 31, 2023

829,221

799,009

Inventories

375,056

364,731

Prepaid expenses and other current assets

29,376

36,939

Total current assets

2,202,462

2,049,244

Right of use assets

201,392

204,629

Property and equipment, net

266,422

264,487

Goodwill

2,052,319

2,042,568

Other intangible assets, net

578,335

591,058

Other assets

9,522

10,865

Total assets

$

5,310,452

$

5,162,851

LIABILITIES

Current liabilities:

Accounts payable

$

467,863

$

469,585

Current portion of long-term debt

46,230

47,039

Accrued liabilities

201,402

187,217

Short-term operating lease liabilities

67,041

65,780

Short-term finance lease liabilities

1,829

1,917

Total current liabilities

784,365

771,538

Long-term debt

1,362,498

1,373,028

Deferred tax liabilities, net

243,622

243,930

Long-term portion of insurance reserves

60,179

58,783

Long-term operating lease liabilities

142,552

146,213

Long-term finance lease liabilities

3,716

4,150

Other liabilities

1,487

1,554

Total liabilities

2,598,419

2,599,196

EQUITY

2,712,033

2,563,655

Total liabilities and equity

$

5,310,452

$

5,162,851

As of March 31,

2024

2023

Other Financial Data

Receivable days

52

52

Inventory days

38

43

Accounts payable days

62

60

Receivables, net plus inventories less accounts payable

$

736,414

$

805,225

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

14.0

%

15.6

%

Three Months Ended March 31,

2024

2023

Cash Flows Provided by (Used in) Operating Activities:

Net income

$

152,381

$

135,870

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

Depreciation and amortization

34,257

32,100

Share-based compensation

5,127

3,135

(Gain)/loss on sale of assets

(561)

185

Amortization of debt issuance costs

720

720

Provision for bad debt expense

4,464

1,338

Provision for inventory obsolescence

2,902

1,642

Deferred income taxes, net

(240)

563

Change in certain assets and liabilities:

Receivables, net

(28,486)

(10,847)

Inventories

(12,056)

20,096

Prepaid expenses and other current assets

7,541

11,579

Accounts payable

(2,659)

(25,480)

Accrued liabilities

16,170

(3,339)

Other, net

(783)

2,239

Net cash provided by operating activities

178,777

169,801

Cash Flows Provided by (Used in) Investing Activities:

Purchases of property and equipment

(19,881)

(15,580)

Acquisition of businesses, net of cash acquired

(22,240)

(45,845)

Proceeds from sale of assets

1,608

455

Net cash used in investing activities

(40,513)

(60,970)

Cash Flows Provided by (Used in) Financing Activities:

Repayment of long-term debt

(12,059)

(9,743)

Taxes withheld and paid on employees' equity awards

(6,059)

(6,350)

Exercise of stock options

1,020

1,029

Net cash used in financing activities

(17,098)

(15,064)

Impact of exchange rate changes on cash

(922)

(58)

Net increase in cash and cash equivalents

120,244

93,709

Cash and cash equivalents - Beginning of period

848,565

240,069

Cash and cash equivalents - End of period

$

968,809

$

333,778

Supplemental disclosure of noncash activities:

Leased assets obtained in exchange for new operating lease liabilities

$

13,737

$

18,271

Accruals for property and equipment

307

835

Three Months Ended March 31,

2024

2023

Change

Installation

Sales

$

798,743

$

767,090

4.1

%

Operating profit, as reported

$

156,757

$

146,897

Operating margin, as reported

19.6

%

19.1

%

Acquisition related costs

45

263

Operating profit, as adjusted

$

156,802

$

147,160

Operating margin, as adjusted

19.6

%

19.2

%

Share-based compensation

330

379

Depreciation and amortization

18,267

16,493

EBITDA, as adjusted

$

175,399

$

164,032

6.9

%

EBITDA margin, as adjusted

22.0

%

21.4

%

Specialty Distribution

Sales

$

545,794

$

558,375

(2.3)

%

Operating profit, as reported

$

77,579

$

73,333

Operating margin, as reported

14.2

%

13.1

%

Rationalization charges

(750)

−

Acquisition related costs

−

340

Operating profit, as adjusted

$

76,829

$

73,673

Operating margin, as adjusted

14.1

%

13.2

%

Share-based compensation

433

238

Depreciation and amortization

14,836

14,572

EBITDA, as adjusted

$

92,098

$

88,483

4.1

%

EBITDA margin, as adjusted

16.9

%

15.8

%

Three Months Ended March 31,

2024

2023

Change

Total net sales

Sales before eliminations

$

1,344,537

$

1,325,465

Intercompany eliminations

(65,820)

(60,227)

Net sales after eliminations

$

1,278,717

$

1,265,238

1.1

%

Operating profit, as reported - segments

$

234,336

$

220,230

General corporate expense, net

(9,067)

(10,828)

Intercompany eliminations

(10,761)

(9,971)

Operating profit, as reported

$

214,508

$

199,431

Operating margin, as reported

16.8

%

15.8

%

Rationalization charges

(750)

-

Acquisition related costs †

676

3,658

Operating profit, as adjusted

$

214,434

$

203,089

Operating margin, as adjusted

16.8

%

16.1

%

Share-based compensation

5,127

3,135

Depreciation and amortization

34,257

32,100

EBITDA, as adjusted

$

253,818

$

238,324

6.5

%

EBITDA margin, as adjusted

19.8

%

18.8

%

Sales change period over period

13,479

EBITDA, as adjusted, change period over period

15,494

Incremental EBITDA, as adjusted, as a percentage of change in sales

114.9

%

Three Months Ended March 31,

2024

2023

Net sales

Same branch:

Installation

$

771,942

$

760,652

Specialty Distribution

543,445

558,375

Eliminations

(65,820)

(60,227)

Total same branch

$

1,249,567

$

1,258,800

Acquisitions (a):

Installation

$

26,801

$

-

Specialty Distribution

2,349

-

Total acquisitions

$

29,150

$

-

Dispositions (b):

Installation

$

-

$

6,438

Total dispositions

-

6,438

Total net sales

$

1,278,717

$

1,265,238

EBITDA, as adjusted

Same branch

$

250,105

$

237,190

Acquisitions (a)

3,713

-

Dispositions (b)

-

1,134

Total

$

253,818

$

238,324

EBITDA, as adjusted, as a percentage of sales

Same branch (c)

20.0

%

Acquisitions (d)

12.7

%

Total (e)

19.8

%

18.8

%

As Adjusted Incremental EBITDA, as a percentage of change in sales

Same branch (f)

NM

Acquisitions (d)

12.7

%

Total (g)

114.9

%

Three Months Ended March 31,

2024

2023

Gross Profit Reconciliation

Net sales

$

1,278,717

$

1,265,238

Gross profit, as reported

$

387,150

$

370,215

Acquisition related costs

-

-

Gross profit, as adjusted

$

387,150

$

370,215

Gross margin, as reported

30.3

%

29.3

%

Gross margin, as adjusted

30.3

%

29.3

%

Selling, General and Administrative Expense Reconciliation

Selling, general, and administrative expense, as reported

$

172,642

$

170,784

Rationalization charges

(750)

-

Acquisition related costs

676

3,658

Selling, general, and administrative expense, as adjusted

$

172,716

$

167,126

Operating Profit Reconciliation

Operating profit, as reported

$

214,508

$

199,431

Rationalization charges

(750)

-

Acquisition related costs

676

3,658

Operating profit, as adjusted

$

214,434

$

203,089

Operating margin, as reported

16.8

%

15.8

%

Operating margin, as adjusted

16.8

%

16.1

%

Income Per Common Share Reconciliation

Income before income taxes, as reported

$

206,995

$

183,315

Rationalization charges

(750)

-

Acquisition related costs

676

3,658

Income before income taxes, as adjusted

206,921

186,973

Tax rate at 26.0%

(53,799)

(48,613)

Income, as adjusted

$

153,122

$

138,360

Income per common share, as adjusted

$

4.81

$

4.36

Weighted average diluted common shares outstanding

31,843,818

31,713,239

Three Months Ended March 31,

2024

2023

Net income, as reported

$

152,381

$

135,870

Adjustments to arrive at EBITDA, as adjusted:

Interest expense and other, net

7,513

16,116

Income tax expense

54,614

47,445

Depreciation and amortization

34,257

32,100

Share-based compensation

5,127

3,135

Rationalization charges

(750)

-

Acquisition related costs

676

3,658

EBITDA, as adjusted

$

253,818

$

238,324

2023

2024

Trailing Twelve Months Ended

Q2

Q3

Q4

Q1

March 31, 2024

Net Sales

$

1,317,262

$

1,326,120

$

1,286,074

$

1,278,717

$

5,208,173

Acquisitions proforma adjustment †

35,527

13,815

9,525

5,691

64,558

Net sales, acquisition adjusted

$

1,352,789

$

1,339,935

$

1,295,599

$

1,284,408

$

5,272,731

Twelve Months Ending December 31, 2024

Low

High

Estimated net income, as reported

$

611.0

$

689.0

Adjustments to arrive at estimated EBITDA, as adjusted:

Interest expense and other, net

47.0

43.0

Income tax expense

216.0

241.0

Depreciation and amortization

143.0

139.0

Share-based compensation

19.0

17.0

Acquisition related costs

29.0

26.0

Estimated EBITDA, as adjusted

$

1,065.0

$

1,155.0