First Quarter
2020
_____________
May 5, 2020
Jerry Volas, CEO
Robert Buck, President & COO
John Peterson, CFO
Safe Harbor | 2 |
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 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 presentation speak only as of the date of this presentation. 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.
Business Update | 3 |
- Experienced,cycle-tested management team
- Where permissible, TruTeam on job sites and Service Partners filling and delivering orders
- Proactively flexing cost model
- Strict safety protocols in place
- Ample liquidity
Our Safety Culture Remains a Top Priority
1Q 2020 Financial Highlights* | 4 |
- 5.5% sales growth
- 26.3% gross margin, up 120 bps
- 13.5% adjusted EBITDA margin, up 150 bps
- 40.8% incremental EBITDA margin
- 29.2% increase in adjusted EPS to $1.37 per diluted share
Strong Q1 with Minimal Impact from COVID-19
* See slide 15 for adjusted EBITDA reconciliation
Capital Allocation | 5 |
- Two Acquisitions YTD
- Hunter Insulation
- Cooper Glass
- Delaying further acquisitions due to uncertain environment
- Will resume when appropriate
- Strong balance sheet and ample dry powder
- Share repurchase program on hold
Liquidity Number One Priority
Operations Update | 6 |
- Focused on:
- Safeguarding employees' health at our facilities and on job sites
- Maintaining key operations and servicing customers
- Monitoring shifting state regulations
- Construction deemed "essential" in most states
- Supply chain across both business segments remains strong
Responding Proactively to Changing Environment
Background | 7 |
- Since the last downturn:
- Closed over 130 redundant branches
- Moved all branches to common ERP system
- Simplified our business processes
- Exitednon-core products
- Cut redundant fixed overhead
- Brought key talent back to the business
- Leveraged supply chain scale
- Focused on labor and sales productivity, operational efficiency
- Leveraged model to expand margins and improve profitability
Stronger, Leaner More Flexible Business Model
Flexing the Business | 8 |
- Discretionary spending controlled/eliminated
- Capital expenditures significantly reduced
- Overhead expenses cut
- Working closely with supplier partners
- COVID-19Leave Plan for employees
- Common ERP system distinct competitive advantage
- Ongoing review of branch level performance
Multiple Levers to Pull to Drive Performance
Looking Ahead… | 9 |
- Demonstrating to our customers, current and prospective:
- We can and will support them better than any other company in our industry
- We are financially strong, ensuring we have the resources to meet their needs
- We know how to quickly and successfully adapt to changing market conditions
We are here for them today, and we will be here tomorrow with equipment, material, facilities, labor and the best operators to meet their needs
Opportunity to Differentiate Our Company
Financial Overview | 10 |
($ in 000s) | Three Months Ended March 31, 2020 | ||
Sales | $653,228 | ||
Y-O-Y Change | 5.5% | ||
Adjusted Operating Profit* | $70,261 | ||
Y-O-Y Change | 18.9% | ||
Adjusted Operating Margin* | 10.8% | ||
Y-O-Y Change | 130 bps | ||
Adjusted EBITDA* | $88,359 | ||
Y-O-Y Change | 18.5% | ||
Adjusted EBITDA Margin* | 13.5% | ||
Y-O-Y Change | 150 bps | ||
Adjusted Net Income* | $45,873 | ||
Y-O-Y Change | 25.3% | ||
Adjusted Net Income Per Diluted Share* | $1.37 | ||
Y-O-Y Change | 29.2% | ||
Solid First Quarter
* See slides 15, 16 & 17 for adjusted EBITDA reconciliation, GAAP to non-GAAP reconciliation and Income per Common Share reconciliation
CapEx, Working Capital & Cash Flow | 11 |
($ in 000s) | Three Months Ended | ||
March 31, 2020 | |||
CAPEX | $15,892 | ||
Working Capital % to Sales | 10.5% | ||
Operating Cash Flow | $72,930 | ||
Cash Balance | $187,039 | ||
Strong Cash Flow Generation
Leverage | 12 | |||||||
First Quarter 2020 | ||||||||
$ in millions | ||||||||
$731.4 | ||||||||
Total Debt | ▪ | $389M available on $450M Revolver | ||||||
Less Cash | 187.0 | |||||||
▪ | No debt maturing until 2025 | |||||||
Net Debt | $544.4 | |||||||
▪ | Significant room under debt covenants | |||||||
$372.9 | ||||||||
TTM Adj. EBITDA | ||||||||
Leverage | 1.46x | |||||||
Total Liquidity of $576 Million
COVID-19 Initiatives
▪Flexible business model enables Company to adapt quickly |
•70% variable costs, 20% fixed costs, 10% mix of both |
13
Mix
10%
• | Expand margins in periods of growth |
• | Adjust to downturns to mitigate impact on operations |
▪Cost Savings | |
• | Elimination of most travel, entertainment and in-person meetings |
• | Postponing non-essential CapEx |
• | Reducing workforce in the field and at Branch Support Center |
▪Defensive capital allocation strategy - preserve capital |
Fixed Costs
20%
Variable Costs
70%
Responding Proactively to Changing Environment
Appendix
Adjusted EBITDA Reconciliation | 15 | |
($ in 000s) |
Three Months Ended March 31, | ||||
2020 | 2019 | |||
Net income, as reported | $ | 50,771 | $ | 37,983 |
Adjustments to arrive at EBITDA, as adjusted: | ||||
Interest expense and other, net | 8,270 | 9,269 | ||
Income tax expense | 10,715 | 9,366 | ||
Depreciation and amortization | 14,190 | 12,475 | ||
Share-based compensation | 3,908 | 2,972 | ||
Rationalization charges | - | 1,827 | ||
Acquisition related costs | 235 | 652 | ||
Refinancing costs and loss on extinguishment of debt | 270 | - | ||
EBITDA, as adjusted | $ | 88,359 | $ | 74,544 |
Segment GAAP to Non-GAAP Reconciliation | 16 | |
($ in 000s) |
TruTeam | |
Sales | $ |
Operating profit, as reported | $ |
Operating margin, as reported | |
Rationalization charges | |
Acquisition related costs | |
Operating profit, as adjusted | $ |
Operating margin, as adjusted | |
Service Partners | |
Sales | $ |
Operating profit, as reported | $ |
Operating margin, as reported | |
Rationalization charges | |
Operating profit, as adjusted | $ |
Operating margin, as adjusted |
Three Months Ended March 31, | |||
2020 | 2019 | Change | |
475,873 | $ | 449,383 | 5.9 % |
60,351 | $ | 51,299 | |
12.7 | % | 11.4 | % |
- | 118 | ||
4 | 125 | ||
60,355 | $ | 51,542 | |
12.7 | % | 11.5 | % |
214,223 | $ | 204,464 | 4.8 % |
24,669 | $ | 20,597 | |
11.5 | % | 10.1 | % |
- | 109 | ||
24,669 | $ | 20,706 | |
11.5 | % | 10.1 | % |
Income Per Common Share Reconciliation | 17 | |
($ in 000s) |
Three Months Ending March 31, | ||||
2020 | 2019 | |||
Income before income taxes, as reported | $ | 61,486 | $ | 47,349 |
Rationalization charges | - | 1,827 | ||
Acquisition related costs | 235 | 652 | ||
Refinancing costs and loss on extinguishment of debt | 270 | - | ||
Income before income taxes, as adjusted | 61,991 | 49,828 | ||
Tax rate at 26.0% and 26.5% for 2020 and 2019, respectively | (16,118) | (13,204) | ||
Income, as adjusted | $ | 45,873 | $ | 36,624 |
Income per common share, as adjusted | $ | 1.37 | $ | 1.06 |
Weighted average diluted common shares outstanding | 33,599,847 | 34,703,289 | ||