TOPBUILD CORP. OVERVIEW
We operate in two segments: Installation (
Our Distribution segment sells and distributes insulation and other building
products, including gutters, fireplaces, closet shelving, and roofing materials
through our
We believe that having both
For additional details pertaining to our operating results by segment, see Note
7 - Segment Information to our unaudited condensed consolidated financial
statements contained in Part I, Item 1 of this Quarterly Report, which is
incorporated herein by reference. For additional details regarding our strategy,
material trends in our business and seasonality, please refer to Part II, Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report for the year ended
COVID-19 BUSINESS UPDATE
We continue to monitor the COVID-19 pandemic and its impact on macroeconomic and local economic conditions. To date, with the exception of a few states, residential and commercial construction has been deemed an essential service.
In those locations, the Company continues to operate; however, while net sales
during the quarter ended
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FIRST QUARTER 2020 VERSUS FIRST QUARTER 2019
The following discussion and analysis contains forward-looking statements and should be read in conjunction with the unaudited condensed consolidated financial statements, the notes thereto, and the section entitled "Forward-Looking Statements" included in this Quarterly Report.
The following table sets forth our net sales, gross profit, operating profit,
and margins, as reported in our condensed consolidated statements of operations,
in thousands:
Three Months Ended March 31,
2020 2019
Net sales $ 653,228 $ 619,330
Cost of sales 481,272 463,635
Cost of sales ratio 73.7 % 74.9 %
Gross profit 171,956 155,695
Gross profit margin 26.3 % 25.1 %
Selling, general, and administrative expense 101,967 99,077
Selling, general, and administrative expense to sales ratio 15.6 % 16.0 %
Operating profit 69,989 56,618
Operating profit margin 10.7 % 9.1 %
Other expense, net (8,503) (9,269)
Income tax expense (10,715) (9,366)
Net income $ 50,771 $ 37,983
Net margin 7.8 % 6.1 %
Sales and Operations
Net sales increased 5.5 percent for the three months ended
Gross profit margins were 26.3 percent and 25.1 percent for the three months
ended
Selling, general, and administrative expense, as a percent of sales, was 15.6
percent and 16.0 percent for the three months ended
Operating margins were 10.7 percent and 9.1 percent for the three months ended
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Business Segment Results
The following table sets forth our net sales and operating profit margins by business segment, in thousands:
Three Months Ended March 31,
2020 2019 Percent Change
Sales by business segment:
Installation $ 475,873 $ 449,383 5.9 %
Distribution 214,223 204,464 4.8 %
Intercompany eliminations (36,868) (34,517)
Net sales $ 653,228 $ 619,330 5.5 %
Operating profit by business segment:
Installation $ 60,351 $ 51,299 17.6 %
Distribution 24,669 20,597 19.8 %
Intercompany eliminations and other
adjustments (5,833) (5,674)
Operating profit before general corporate
expense 79,187 66,222 19.6 %
General corporate expense, net (9,198) (9,604)
Operating profit $ 69,989 $ 56,618 23.6 %
Operating profit margins:
Installation 12.7 % 11.4 %
Distribution 11.5 % 10.1 %
Operating profit margin before general
corporate expense 12.1 % 10.7 %
Operating profit margin 10.7 % 9.1 %
Installation
Sales
Sales in the Installation segment increased
Sales increased 2.7 percent due to volume, 2.2 percent due to increased selling prices, and 1.1 percent due to acquisitions. Sales volume was down marginally due to the reduction in activities since the onset of the COVID-19 pandemic.
Operating margins
Operating margins in the Installation segment were 12.7 percent and 11.4 percent
for the three months ended
Distribution Sales
Sales in the Distribution segment increased
Sales increased 3.8 percent due to volume and 0.9 percent due to increased selling prices. Sales volume was down marginally due to the reduction in activities since the onset of the COVID-19 pandemic.
Operating margins
Operating margins in the Distribution segment were 11.5 percent and 10.1 percent
for the three months ended
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OTHER ITEMS
Other expense, net
Other expense, net, which primarily consisted of interest expense, was
Income tax expense
Income tax expense was
Cash Flows and Liquidity
Significant sources (uses) of cash and cash equivalents are summarized for the periods indicated, in thousands:
Three Months Ended March 31,
2020 2019
Changes in cash and cash equivalents:
Net cash provided by operating activities
(36,224) (10,122)
Net cash used in financing activities (34,474) (16,051)
Increase (decrease) for the period $ 2,232 $ (2,651) Net cash flows provided by operating activities increased
Net cash used in investing activities was
Net cash used in financing activities was
We are closely managing our balance sheet, including maximizing our cash flow,
to maintain our strong foundation and provide stabilization as we continue to
work through the impacts of the COVID-19 pandemic. We had solid liquidity
available to us at
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The following table summarizes our liquidity, in thousands:
As of
March 31, December 31,
2020 2019
Cash and cash equivalents (a) $ 187,039 $ 184,807
Revolving Facility 450,000 250,000
Less: standby letters of credit (61,382) (61,382)
Availability under Revolving Facility 388,618 188,618
Total liquidity $ 575,657 $ 373,425 (a) Our cash and cash equivalents consist of AAA-rated money market funds as well as cash held in our demand deposit accounts.
We occasionally use performance bonds to ensure completion of our work on
certain larger customer contracts that can span multiple accounting periods.
Performance bonds generally do not have stated expiration dates; rather, we are
released from the bonds as the contractual performance is completed. We also
have bonds outstanding for license and insurance. Information regarding our
outstanding bonds as
OUTLOOK
OFF-BALANCE SHEET ARRANGEMENTS
We had no material off-balance sheet arrangements during the quarter ended
CONTRACTUAL OBLIGATIONS
There have been no material changes to our contractual obligations from those
previously disclosed in our Annual Report for the year ended
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CRITICAL ACCOUNTING POLICIES
We prepare our condensed consolidated financial statements in conformity with
GAAP. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities, at the date of
the financial statements, and the reported amounts of sales and expenses during
the reporting period. Actual results could differ from those estimates. Our
critical accounting policies have not changed from those previously reported in
our Annual Report for year ended
APPLICATION OF NEW ACCOUNTING STANDARDS
Information regarding application of new accounting standards is incorporated by reference from Note 2 - Accounting Policies to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report.
FORWARD-LOOKING STATEMENTS
Statements contained in this report that 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
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