TopBuild Reports Third Quarter 2023 Results

• 1.9% increase in net sales
• 31.7% gross margin
• 17.9% operating margin, 18.5% on an adjusted basis
• 21.4% adjusted EBITDA margin

DAYTONA BEACH, Fla., Oct. 31, 2023 (GLOBE NEWSWIRE) -- TopBuild Corp. (NYSE:BLD), a leading installer and specialty distributor of insulation and related building material products to the construction industry in the United States and Canada today reported results for the third quarter ended September 30, 2023.

Robert Buck, President and Chief Executive Officer, stated, “TopBuild continues to perform well and produce solid operating results, a testament to our team’s hard work and focus on profitable growth. We are particularly pleased with the performance of our non-residential business. Both our Installation and Specialty Distribution segments reported mid-single digit volume growth related to the commercial and industrial end markets they serve.

“Our strong track record of executing on our plan can be attributed, in part, to our relentless focus on driving improvements in both productivity and operational efficiencies. In addition, our unique and diversified business model provides multiple avenues for growth, and we see continued opportunities in all three end markets we serve.”

Third Quarter Financial Highlights
(unless otherwise indicated, comparisons are to the three months ended September 30, 2022)

3 Months Ended 9/30/23	Reported	Change
Sales	$1,326,120	1.9%
Gross Margin	31.7%	130 bps
SG&A as % of revenue	13.8%	50 bps
Operating Profit	$237,492	6.6%
Operating Margin	17.9%	80 bps
Net Income	$167,602	9.0%
Net Income per diluted share	$5.27	10.7%
3 Months Ended 9/30/23	Adjusted	Change
Sales	$1,326,120	1.9%
Gross Margin	31.7%	130 bps
SG&A as % of revenue	13.2%	0 bps
Operating Profit	$245,932	9.7%
Operating Margin	18.5%	130 bps
Net Income	$172,507	11.4%
Net Income per diluted share	$5.43	13.1%
EBITDA	$283,690	9.4%
EBITDA Margin	21.4%	150 bps

Nine Month Financial Highlights
(comparisons are to the nine months ended September 30, 2022)

9 Months Ended 9/30/23	Reported	Change
Sales	$3,908,620	4.4%
Gross Margin	31.0%	130 bps
SG&A as % of revenue	13.8%	0 bps
Operating Profit	$674,025	13.5%
Operating Margin	17.2%	130 bps
Net Income	$467,870	13.5%
Net Income per diluted share	$14.74	16.7%
9 Months Ended 9/30/23	Adjusted	Change
Sales	$3,908,620	4.4%
Gross Margin	31.0%	130 bps
SG&A as % of revenue	13.4%	(20 bps)
Operating Profit	$688,224	14.6%
Operating Margin	17.6%	160 bps
Net Income	$477,551	15.1%
Net Income per diluted share	$15.04	18.3%
EBITDA	$797,520	13.4%
EBITDA Margin	20.4%	160 bps

Operating Segment Highlights ($ in 000s)
(comparisons are to the period ended September 30, 2022)

Installation	3 Months Ended 9/30/23	9 Months Ended 9/30/23		Specialty Distribution	3 Months Ended 9/30/23	9 Months Ended 9/30/23
Sales	$821,673	$2,397,818		Sales	$571,009	$1,703,871
Change				Change
Volume	-3.5%	1.4%		Volume	-0.2%	-2.0%
Price	3.6%	4.0%		Price	-1.9%	1.4%
M&A	4.8%	3.1%		M&A	0.0%	0.0%
Total Change	4.9%	8.6%		Total Change	-2.1%	-0.7%
Operating Margin	21.3%	20.6%		Operating Margin	15.5%	14.5%
Change	160 bps	220 bps		Change	40 bps	20 bps
Adj. Operating Margin	21.6%	20.7%		Adj. Operating Margin	15.5%	14.6%
Change	200 bps	230 bps		Change	20 bps	20 bps
Adj. EBITDA Margin	23.7%	22.9%		Adj. EBITDA Margin	18.2%	17.2%
Change	210 bps	230 bps		Change	20 bps	20 bps

Capital Allocation
“We generate significant free cash flow and acquisitions remain our number one capital allocation priority. Our seasoned M&A team continues to identify strong prospects in our residential, commercial, and industrial insulation end markets and we expect to remain active on this front,” added Buck.

Through October 31, the Company has completed four acquisitions which are expected to contribute approximately $173 million in annual revenue. In addition, the Company announced in late July its agreement to acquire Specialty Products and Insulation (“SPI”) in an all-cash transaction valued at $960 million. This leading North American specialty distributor and custom fabricator of mechanical insulation is expected to generate annual revenue of approximately $700 million.

2023 Outlook⁽¹⁾
($ in millions)

Metric	Low				High
Sales	$	5,130			$	5,210
Adjusted EBITDA*	$	1,025			$	1,055

*See table for adjusted EBITDA reconciliation.
⁽¹⁾ This outlook reflects management’s current view of present and future market conditions and are based on assumptions such as housing starts and completions, general and administrative expenses, weighted average diluted shares outstanding and interest rates. These targets do not include any effects related to potential acquisitions or divestitures that may occur after the date of this press release.

Conference Call
A conference call to discuss third quarter 2023 financial results is scheduled for today, Tuesday, October 31, at 9:00 a.m. Eastern Time. The call may be accessed by dialing [phone]. The conference call will be webcast simultaneously on the Company’s website at www.topbuild.com. In addition, a copy of management’s formal remarks and a presentation that summarizes management’s formal remarks will be available immediately prior to the conference call on www.topbuild.com.

About TopBuild
TopBuild Corp., headquartered in Daytona Beach, Florida, is a leading installer and specialty distributor of insulation and related building material products to the construction industry in the United States and Canada. We provide insulation installation services nationwide through our Installation segment which has approximately 240 branches located across the United States. We distribute building and mechanical insulation, insulation accessories and other building product materials for the residential, commercial, and industrial end markets through our Specialty Distribution business. Our Specialty Distribution network encompasses approximately 170 branches. To learn more about TopBuild please visit our website at www.topbuild.com.

Use of Non-GAAP Financial Measures
Adjusted EBITDA, incremental EBITDA margin, adjusted EBITDA margin, the “adjusted” financial measures presented above, and figures presented on a “same branch basis” are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company believes that these non-GAAP financial measures, which are used in managing the business, may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. We define same branch sales as sales from branches in operation for at least 12 full calendar months. Such non-GAAP financial measures are reconciled to their closest GAAP financial measures in tables contained in this press release. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results under GAAP. Additional information may be found in the Company’s filings with the Securities and Exchange Commission which are available on TopBuild’s website under “SEC Filings” at www.topbuild.com.

Safe Harbor Statement
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act.  These forward-looking statements may address, among other things, our expected financial and operational results, the related assumptions underlying our expected results, and our plan to repurchase our common stock under stock repurchase transactions. These forward-looking statements can be identified by words such as “will,” “would,” “anticipate,” “expect,” “believe,” “designed,” “plan,” “may,” “project,” “estimate” 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.  Our forward-looking statements contained herein speak only as of the date of this press release.  Factors or events that we cannot predict, including those described in the risk factors contained in our filings with the Securities and Exchange Commission, may cause our actual results to differ from those expressed in forward-looking statements.  Although TopBuild believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be achieved and it undertakes no obligation to update any forward-looking statements as a result of new information, future events, or otherwise, except as required by applicable law.

Investor Relations and Media Contact
Tabitha Zane
[e-mail]
386-763-8801

(tables follow)

TopBuild Corp.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per common share amounts)
	Three Months Ended September 30,								Nine Months Ended September 30,
	2023				2022				2023				2022
Net sales	$	1,326,120			$	1,300,998			$	3,908,620			$	3,744,201
Cost of sales		905,430				905,250				2,695,916				2,633,155
Gross profit		420,690				395,748				1,212,704				1,111,046
Selling, general, and administrative expense		183,198				172,874				538,679				516,997
Operating profit		237,492				222,874				674,025				594,049
Other income (expense), net:
Interest expense		(18,830	)			(14,561	)			(55,427	)			(39,936	)
Other, net		6,015				(303	)			12,542				103
Other expense, net		(12,815	)			(14,864	)			(42,885	)			(39,833	)
Income before income taxes		224,677				208,010				631,140				554,216
Income tax expense		(57,075	)			(54,264	)			(163,270	)			(142,060	)
Net income	$	167,602			$	153,746			$	467,870			$	412,156
Net income per common share:
Basic	$	5.30			$	4.79			$	14.81			$	12.72
Diluted	$	5.27			$	4.76			$	14.74			$	12.63
Weighted average shares outstanding:
Basic		31,615,110				32,076,285				31,588,740				32,404,275
Diluted		31,788,812				32,279,820				31,744,856				32,643,161

TopBuild Corp.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)
	Three Months Ended September 30,								Nine Months Ended September 30,
	2023				2022				2023				2022
Net income	$	167,602			$	153,746			$	467,870			$	412,156
Other comprehensive (loss) income:
Foreign currency translation adjustment		(3,008	)			(15,158	)			3,029				(14,133	)
Comprehensive income	$	164,594			$	138,588			$	470,899			$	398,023

TopBuild Corp.
Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)
(dollars in thousands)
	As of
	September 30, 2023				December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	615,612			$	240,069
Receivables, net of an allowance for credit losses of $17,880 at September 30, 2023, and $16,281 at December 31, 2022		870,890				836,071
Inventories, net		357,179				438,644
Prepaid expenses and other current assets		38,104				34,257
Total current assets		1,881,785				1,549,041
Right of use assets		209,707				205,892
Property and equipment, net		264,581				253,484
Goodwill		2,039,777				1,966,994
Other intangible assets, net		606,940				614,967
Other assets		11,300				16,453
Total assets	$	5,014,090			$	4,606,831
LIABILITIES
Current liabilities:
Accounts payable	$	455,840			$	487,114
Current portion of long-term debt		48,057				40,068
Accrued liabilities		183,084				199,370
Short-term operating lease liabilities		64,632				60,880
Short-term finance lease liabilities		2,057				2,207
Total current liabilities		753,670				789,639
Long-term debt		1,383,717				1,417,257
Deferred tax liabilities, net		252,419				251,481
Long-term portion of insurance reserves		58,343				59,783
Long-term operating lease liabilities		151,970				149,943
Long-term finance lease liabilities		4,596				6,673
Other liabilities		1,548				2,349
Total liabilities		2,606,263				2,677,125
EQUITY		2,407,827				1,929,706
Total liabilities and equity	$	5,014,090			$	4,606,831
	As of September 30,
	2023				2022
Other Financial Data
Receivable days		51				48
Inventory days		36				48
Accounts payable days		60				63
Receivables, net plus inventories, net less accounts payable	$	772,229			$	752,750
Receivables, net plus inventories, net less accounts payable as a percent of sales (TTM) †		14.6	%			15.5	%

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

TopBuild Corp.
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
	Nine Months Ended September 30,
	2023				2022
Cash Flows Provided by (Used in) Operating Activities:
Net income	$	467,870			$	412,156
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		98,216				93,051
Share-based compensation		11,080				9,673
Loss on sale of assets		2,733				76
Amortization of debt issuance costs		2,161				2,147
Provision for bad debt expense		7,380				8,837
Loss from inventory obsolescence		3,617				5,127
Change in certain assets and liabilities:
Receivables, net		(52,482	)			(152,578	)
Inventories, net		82,960				(101,148	)
Prepaid expenses and other current assets		(3,267	)			(807	)
Accounts payable		(21,361	)			49,079
Accrued liabilities		(9,027	)			3,469
Other, net		(1,402	)			6,548
Net cash provided by operating activities		588,478				335,630
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(48,076	)			(56,044	)
Acquisition of businesses, net of cash acquired		(147,614	)			(20,500	)
Proceeds from sale of assets		14,674				2,877
Net cash used in investing activities		(181,016	)			(73,667	)
Cash Flows Provided by (Used in) Financing Activities:
Repayment of long-term debt		(27,711	)			(28,968	)
Proceeds from revolving credit facility		—				70,000
Repayment of revolving credit facility		—				(70,000	)
Taxes withheld and paid on employees' equity awards		(6,350	)			(11,719	)
Exercise of stock options		2,489				2,028
Repurchase of shares of common stock		—				(200,050	)
Payment of contingent consideration		(300	)			(1,674	)
Net cash used in financing activities		(31,872	)			(240,383	)
Impact of exchange rate changes on cash		(47	)			(1,975	)
Net increase in cash and cash equivalents		375,543				19,605
Cash and cash equivalents- Beginning of period		240,069				139,779
Cash and cash equivalents- End of period	$	615,612			$	159,384
Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	$	45,525			$	80,186
Accruals for property and equipment		305				395

TopBuild Corp.
Segment Data (Unaudited)
(dollars in thousands)
	Three Months Ended September 30,												Nine Months Ended September 30,
		2023				2022			Change					2023				2022			Change
Installation
Sales	$	821,673			$	783,056				4.9	%		$	2,397,818			$	2,208,717			8.6	%
Operating profit, as reported	$	175,218			$	154,236							$	494,394			$	406,835
Operating margin, as reported		21.3	%			19.7	%							20.6	%			18.4	%
Rationalization charges		1,882				(807	)							1,882				(334	)
Acquisition related costs		26				15								516				112
Operating profit, as adjusted	$	177,126			$	153,444							$	496,792			$	406,613
Operating margin, as adjusted		21.6	%			19.6	%							20.7	%			18.4	%
Share-based compensation		436				268								1,124				956
Depreciation and amortization		17,417				15,610								50,700				46,615
EBITDA, as adjusted	$	194,979			$	169,322				15.2	%		$	548,616			$	454,184			20.8	%
EBITDA margin, as adjusted		23.7	%			21.6	%							22.9	%			20.6	%
Specialty Distribution
Sales	$	571,009			$	583,543				(2.1	)%		$	1,703,871			$	1,715,196			(0.7	)%
Operating profit, as reported	$	88,269			$	88,364							$	247,583			$	245,534
Operating margin, as reported		15.5	%			15.1	%							14.5	%			14.3	%
Acquisition related costs		10				660								350				1,235
Operating profit, as adjusted	$	88,279			$	89,024							$	247,933			$	246,769
Operating margin, as adjusted		15.5	%			15.3	%							14.6	%			14.4	%
Share-based compensation		434				296								987				938
Depreciation and amortization		15,102				15,662								44,414				43,697
EBITDA, as adjusted	$	103,815			$	104,982				(1.1	)%		$	293,334			$	291,404			0.7	%
EBITDA margin, as adjusted		18.2	%			18.0	%							17.2	%			17.0	%

TopBuild Corp.
Adjusted EBITDA (Unaudited)
(dollars in thousands)
	Three Months Ended September 30,											Nine Months Ended September 30,
	2023				2022				Change			2023				2022				Change
Total net sales
Sales before eliminations	$	1,392,682			$	1,366,599						$	4,101,689			$	3,923,913
Intercompany eliminations		(66,562	)			(65,601	)						(193,069	)			(179,712	)
Net sales after eliminations	$	1,326,120			$	1,300,998			1.9	%		$	3,908,620			$	3,744,201			4.4	%
Operating profit, as reported - segments	$	263,487			$	242,600						$	741,977			$	652,369
General corporate expense, net		(14,494	)			(8,920	)						(35,280	)			(28,371	)
Intercompany eliminations		(11,501	)			(10,806	)						(32,672	)			(29,949	)
Operating profit, as reported	$	237,492			$	222,874						$	674,025			$	594,049
Operating margin, as reported		17.9	%			17.1	%						17.2	%			15.9	%
Rationalization charges		1,882				(807	)						1,882				(334	)
Acquisition related costs †		6,558				2,107							12,317				6,759
Operating profit, as adjusted	$	245,932			$	224,174						$	688,224			$	600,474
Operating margin, as adjusted		18.5	%			17.2	%						17.6	%			16.0	%
Share-based compensation		4,194				2,611							11,080				9,673
Depreciation and amortization		33,564				32,430							98,216				93,051
EBITDA, as adjusted	$	283,690			$	259,215			9.4	%		$	797,520			$	703,198			13.4	%
EBITDA margin, as adjusted		21.4	%			19.9	%						20.4	%			18.8	%
Sales change period over period		25,122											164,419
EBITDA, as adjusted, change period over period		24,475											94,322
Incremental EBITDA, as adjusted, as a percentage of change in sales		97.4	%										57.4	%

† Acquisition related costs include corporate level adjustments as well as segment operating adjustments.

TopBuild Corp.
Non-GAAP Reconciliations (Unaudited)
(in thousands, except share and per common share amounts)
	Three Months Ended September 30,								Nine Months Ended September 30,
	2023				2022				2023				2022
Gross Profit Reconciliation
Net sales	$	1,326,120			$	1,300,998			$	3,908,620			$	3,744,201
Gross profit, as reported	$	420,690			$	395,748			$	1,212,704			$	1,111,046
Acquisition related costs		—				—				—				121
Gross profit, as adjusted	$	420,690			$	395,748			$	1,212,704			$	1,111,167
Gross margin, as reported		31.7	%			30.4	%			31.0	%			29.7	%
Gross margin, as adjusted		31.7	%			30.4	%			31.0	%			29.7	%
Selling, General and Administrative Expense Reconciliation
Selling, general, and administrative expense, as reported	$	183,198			$	172,874			$	538,679			$	516,997
Rationalization charges		1,882				(807	)			1,882				(334	)
Acquisition related costs		6,558				2,107				12,317				6,638
Selling, general, and administrative expense, as adjusted	$	174,758			$	171,574			$	524,480			$	510,693
Operating Profit Reconciliation
Operating profit, as reported	$	237,492			$	222,874			$	674,025			$	594,049
Rationalization charges		1,882				(807	)			1,882				(334	)
Acquisition related costs		6,558				2,107				12,317				6,759
Operating profit, as adjusted	$	245,932			$	224,174			$	688,224			$	600,474
Operating margin, as reported		17.9	%			17.1	%			17.2	%			15.9	%
Operating margin, as adjusted		18.5	%			17.2	%			17.6	%			16.0	%
Income Per Common Share Reconciliation
Income before income taxes, as reported	$	224,677			$	208,010			$	631,140			$	554,216
Rationalization charges		1,882				(807	)			1,882				(334	)
Acquisition related costs		6,558				2,107				12,317				6,759
Income before income taxes, as adjusted		233,117				209,310				645,339				560,641
Tax rate at 26.0%		(60,610	)			(54,421	)			(167,788	)			(145,767	)
Income, as adjusted	$	172,507			$	154,889			$	477,551			$	414,874
Income per common share, as adjusted	$	5.43			$	4.80			$	15.04			$	12.71
Weighted average diluted common shares outstanding		31,788,812				32,279,820				31,744,856				32,643,161

TopBuild Corp.
Same Branch and Acquisition Metrics (Unaudited)
(dollars in thousands)
	Three Months Ended September 30,								Nine Months Ended September 30,
	2023				2022				2023				2022
Net sales
Same branch:
Installation	$	784,025			$	783,056			$	2,328,800			$	2,208,717
Specialty Distribution		571,009				583,543				1,703,871				1,715,196
Eliminations		(66,562	)			(65,601	)			(193,069	)			(179,712	)
Total same branch	$	1,288,472			$	1,300,998			$	3,839,602			$	3,744,201
Acquisitions (a):
Installation	$	37,648			$	—			$	69,018			$	—
Total acquisitions		37,648				—				69,018				—
Total	$	1,326,120			$	1,300,998			$	3,908,620			$	3,744,201
EBITDA, as adjusted
Same branch	$	277,497			$	259,215			$	787,212			$	703,198
Acquisitions (a)		6,193				—				10,308				—
Total	$	283,690			$	259,215			$	797,520			$	703,198
EBITDA, as adjusted, as a percentage of sales
Same branch (b)		21.5	%							20.5	%
Acquisitions (c)		16.4	%							14.9	%
Total (d)		21.4	%			19.9	%			20.4	%			18.8	%
As Adjusted Incremental EBITDA, as a percentage of change in sales
Same branch (e)		NM								88.1	%
Acquisitions (c)		16.4	%							14.9	%
Total (f)		97.4	%							57.4	%

(a) Represents current year impact of acquisitions in their first twelve months
(b) Same branch metric, as adjusted, as a percentage of same branch sales
(c) Acquired metric, as adjusted, as a percentage of acquired sales
(d) Total EBITDA, as adjusted, as a percentage of total sales
(e) Change in same branch EBITDA, as adjusted, as a percentage of change in same branch sales
(f) Change in total EBITDA, as adjusted, as a percentage of change in total sales
NM Not Meaningful

TopBuild Corp.
Reconciliation of Adjusted EBITDA to Net Income (Unaudited)
(in thousands)
	Three Months Ended September 30,								Nine Months Ended September 30,
	2023				2022				2023				2022
Net income, as reported	$	167,602			$	153,746			$	467,870			$	412,156
Adjustments to arrive at EBITDA, as adjusted:
Interest expense and other, net		12,815				14,864				42,885				39,833
Income tax expense		57,075				54,264				163,270				142,060
Depreciation and amortization		33,564				32,430				98,216				93,051
Share-based compensation		4,194				2,611				11,080				9,673
Rationalization charges		1,882				(807	)			1,882				(334	)
Acquisition related costs		6,558				2,107				12,317				6,759
EBITDA, as adjusted	$	283,690			$	259,215			$	797,520			$	703,198

TopBuild Corp.
Acquisition Adjusted Net Sales (Unaudited)
(in thousands)
	2022				2023												Trailing Twelve Months Ended
	Q4				Q1				Q2				Q3				September 30, 2023
Net Sales	$	1,264,543			$	1,265,238			$	1,317,262			$	1,326,120			$	5,173,163
Acquisitions proforma adjustment †		45,575				30,745				25,753				4,258				106,331
Net sales, acquisition adjusted	$	1,310,118			$	1,295,983			$	1,343,015			$	1,330,378			$	5,279,494

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

TopBuild Corp.
2023 Estimated Adjusted EBITDA Range (Unaudited)
(in millions)
	Twelve Months Ending December 31, 2023
		Low				High
Estimated net income	$	597.0				625.0
Adjustments to arrive at estimated EBITDA, as adjusted:
Interest expense and other, net		54.0				51.0
Income tax expense		210.0				219.0
Depreciation and amortization		133.0				131.0
Share-based compensation		15.0				14.0
Acquisition related costs		16.0				15.0
Estimated EBITDA, as adjusted	$	1,025.0			$	1,055.0