UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One) | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
(Exact name of Registrant as Specified in its Charter)
(State or Other Jurisdiction of Incorporation or | (I.R.S. Employer |
(Address of Principal Executive Offices) | (Zip Code) |
(
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.⌧
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ⌧
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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The registrant had outstanding
TOPBUILD CORP.
TABLE OF CONTENTS
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Management's Discussion and Analysis of Financial Condition and Results of Operations | 23 | |||
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2
GLOSSARY
We use acronyms, abbreviations, and other defined terms throughout this quarterly report on Form 10-Q, which are defined in the glossary below:
Term | Definition | |
2015 LTIP | 2015 Long-Term Incentive program authorizes the Board to grant stock options, stock appreciation rights, restricted shares, restricted share units, performance awards, and dividend equivalents | |
2017 Repurchase Program | $200 million share repurchase program authorized by the Board on February 24, 2017 | |
2018 ASR Agreement | $50 million accelerated share repurchase agreement with JPMorgan Chase Bank, N.A. | |
2019 Repurchase Program | $200 million share repurchase program authorized by the Board on February 22, 2019 | |
2019 ASR Agreement | $50 million accelerated share repurchase agreement with Bank of America, N.A. | |
Amended Credit Agreement | Senior secured credit agreement and related security and pledge agreement dated March 20, 2020 | |
Annual Report | Annual report filed with the SEC on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
ASC | Accounting Standards Codification | |
ASU | Accounting Standards Update | |
Board | Board of Directors of TopBuild | |
BofA | Bank of America, N.A. | |
Cooper | Cooper Glass Company, LLC | |
Current Report | Current report filed with the SEC on Form 8-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
EBITDA | Earnings before interest, taxes, depreciation, and amortization | |
EcoFoam | Bella Insulutions Inc., DBA EcoFoam/Insulutions | |
Exchange Act | The Securities Exchange Act of 1934, as amended | |
FASB | Financial Accounting Standards Board | |
GAAP | Generally accepted accounting principles in the United States of America | |
Garland | Garland Insulating | |
Hunter | Hunter Insulation | |
IBR | Incremental borrowing rate, as defined in ASC 842 | |
Lenders | Bank of America, N.A., together with the other lenders party to the "Amended Credit Agreement" | |
LIBOR | London interbank offered rate | |
Net Leverage Ratio | As defined in the “Amended Credit Agreement,” the ratio of outstanding indebtedness, less up to $100 million of unrestricted cash, to EBITDA | |
NYSE | New York Stock Exchange | |
Original Credit Agreement | Senior secured credit agreement and related security and pledge agreement dated May 5, 2017, as amended March 28, 2018 | |
Quarterly Report | Quarterly report filed with the SEC on Form 10-Q pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
Revolving Facility | Senior secured revolving credit facilities available under the Amended Credit Agreement, of $450 million with applicable sublimits for letters of credit and swingline loans. | |
ROU | Right of use (asset), as defined in ASC 842 | |
RSA | Restricted stock award | |
Santa Rosa | Santa Rosa Insulation and Fireproofing, LLC | |
SEC | United States Securities and Exchange Commission | |
Secured Leverage Ratio | As defined in the “Amended Credit Agreement,” the ratio of outstanding indebtedness, including letters of credit, to EBITDA | |
Senior Notes | TopBuild's 5.625% senior unsecured notes due on May 1, 2026 | |
TopBuild | TopBuild Corp. and its wholly-owned consolidated domestic subsidiaries. Also, the "Company," | |
Viking | Viking Insulation Co. |
3
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
TOPBUILD CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands except share data)
As of | ||||||
| September 30, | December 31, | ||||
2020 | 2019 | |||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Receivables, net of an allowance for credit losses of $ | |
| | |||
Inventories, net | |
| | |||
Prepaid expenses and other current assets | |
| | |||
Total current assets | |
| | |||
Right of use assets | | | ||||
Property and equipment, net | |
| | |||
Goodwill | |
| | |||
Other intangible assets, net | |
| | |||
Deferred tax assets, net | | | ||||
Other assets | |
| | |||
Total assets | $ | | $ | | ||
LIABILITIES AND EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Current portion of long-term debt | | | ||||
Accrued liabilities | | | ||||
Short-term lease liabilities | | | ||||
Total current liabilities | | | ||||
Long-term debt | | | ||||
Deferred tax liabilities, net | | | ||||
Long-term portion of insurance reserves | | | ||||
Long-term lease liabilities | | | ||||
Other liabilities | | | ||||
Total liabilities | | | ||||
Commitments and contingencies | ||||||
Equity: | ||||||
Preferred stock, $ | ||||||
Common stock, $ | | | ||||
Treasury stock, | ( | ( | ||||
Additional paid-in capital | | | ||||
Retained earnings | | | ||||
Total equity | | | ||||
Total liabilities and equity | $ | | $ | | ||
See notes to our unaudited condensed consolidated financial statements.
4
TOPBUILD CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands except share and per common share data)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Net sales | $ | |
| $ | |
| $ | |
| $ | | |
Cost of sales | | | | | ||||||||
Gross profit | | | | | ||||||||
Selling, general, and administrative expense | | | | | ||||||||
Operating profit | | | | | ||||||||
Other income (expense), net: | ||||||||||||
Interest expense | ( | ( | ( | ( | ||||||||
Loss on extinguishment of debt | — | — | ( | — | ||||||||
Other, net | | | | | ||||||||
Other expense, net | ( | ( | ( | ( | ||||||||
Income before income taxes | | | | | ||||||||
Income tax expense | ( | ( | ( | ( | ||||||||
Net income | $ | | $ | | $ | | $ | | ||||
Net income per common share: | ||||||||||||
Basic | $ | | $ | $ | | $ | | |||||
Diluted | $ | | $ | $ | | $ | | |||||
| ||||||||||||
Weighted average shares outstanding: | ||||||||||||
Basic | | | | | ||||||||
Diluted | | | | | ||||||||
See notes to our unaudited condensed consolidated financial statements.
5
TOPBUILD CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine Months Ended September 30, | ||||||
2020 | 2019 | |||||
Cash Flows Provided by (Used in) Operating Activities: |
|
|
| |||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Depreciation and amortization | | | ||||
Share-based compensation | | | ||||
Loss on extinguishment of debt | | — | ||||
Loss on sale or abandonment of property and equipment | | | ||||
Amortization of debt issuance costs | | | ||||
Provision for bad debt expense | | | ||||
Loss from inventory obsolescence | | | ||||
Deferred income taxes, net | ( | ( | ||||
Change in certain assets and liabilities | ||||||
Receivables, net | ( | ( | ||||
Inventories, net | | | ||||
Prepaid expenses and other current assets | ( | | ||||
Accounts payable | | ( | ||||
Accrued liabilities | | | ||||
Payment of contingent consideration | ( | — | ||||
Other, net | | | ||||
Net cash provided by operating activities | | | ||||
Cash Flows Provided by (Used in) Investing Activities: | ||||||
Purchases of property and equipment | ( | ( | ||||
Acquisition of businesses | ( | ( | ||||
Proceeds from sale of property and equipment | | | ||||
Other, net | — | | ||||
Net cash used in investing activities | ( | ( | ||||
Cash Flows Provided by (Used in) Financing Activities: | ||||||
Proceeds from issuance of long-term debt | | | ||||
Repayment of long-term debt | ( | ( | ||||
Payment of debt issuance costs | ( | — | ||||
Taxes withheld and paid on employees' equity awards | ( | ( | ||||
Exercise of stock options | | — | ||||
Repurchase of shares of common stock | ( | ( | ||||
Payment of contingent consideration | ( | ( | ||||
Net cash used in financing activities | ( | ( | ||||
Cash and Cash Equivalents | ||||||
Increase for the period | | | ||||
Beginning of period |
| |
| | ||
End of period | $ | | $ | | ||
Supplemental disclosure of noncash activities: | ||||||
Leased assets obtained in exchange for new operating lease liabilities | $ | | $ | | ||
Accruals for property and equipment | | | ||||
See notes to our unaudited condensed consolidated financial statements.
6
TOPBUILD CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)
(In thousands except share data)
Common | Treasury | Additional | ||||||||||||
Stock | Stock | Paid-in | Retained | |||||||||||
($ | at cost | Capital | Earnings | Equity | ||||||||||
Balance at December 31, 2018 | $ | | $ | ( | $ | | $ | | $ | | ||||
Net income | — | — | — | | | |||||||||
Share-based compensation | — | — | | — | | |||||||||
Issuance of | | — | ( | — | — | |||||||||
Repurchase of | — | ( | | — | — | |||||||||
Repurchase of | — | ( | — | — | ( | |||||||||
— | — | ( | — | ( | ||||||||||
Balance at March 31, 2019 | $ | | $ | ( | $ | | $ | | $ | | ||||
Net income | — | — | — | | | |||||||||
Share-based compensation | — | — | | — | | |||||||||
Repurchase of | — | ( | — | — | ( | |||||||||
— | — | ( | — | ( | ||||||||||
Balance at June 30, 2019 | $ | | $ | ( | $ | | $ | | $ | | ||||
Net income | — | — | — | | | |||||||||
Share-based compensation | — | — | | — | | |||||||||
Repurchase of | — | ( | — | — | ( | |||||||||
— | — | ( | — | ( | ||||||||||
Balance at September 30, 2019 | $ | | $ | ( | $ | | $ | | $ | | ||||
Balance at December 31, 2019 | $ | | $ | ( | $ | | $ | | $ | | ||||
Net income | — | — | — | | | |||||||||
Share-based compensation | — | — | | — | | |||||||||
Cumulative-effect of accounting change | — | — | — | ( | ( | |||||||||
Issuance of | | — | ( | — | — | |||||||||
Repurchase of | — | ( | | — | — | |||||||||
Repurchase of | — | ( | — | — | ( | |||||||||
— | — | ( | — | ( | ||||||||||
Balance at March 31, 2020 | $ | | $ | ( | $ | | $ | | $ | | ||||
Net income | — | — | — | | | |||||||||
Share-based compensation | — | — | | — | | |||||||||
Repurchase of | — | ( | — | — | ( | |||||||||
— | — | ( | — | ( | ||||||||||
Balance at June 30, 2020 | $ | | $ | ( | $ | | $ | | $ | | ||||
Net income | — | — | — | | | |||||||||
Share-based compensation | — | — | | — | | |||||||||
Repurchase of | — | ( | — | — | ( | |||||||||
— | — | ( | — | ( | ||||||||||
— | — | | — | | ||||||||||
Balance at September 30, 2020 | $ | | $ | ( | $ | | $ | | $ | | ||||
See notes to our unaudited condensed consolidated financial statements.
7
1. BASIS OF PRESENTATION
TopBuild was formed on June 30, 2015, and is listed on the NYSE under the ticker symbol “BLD.” We report our business in
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to state fairly our financial position as of September 30, 2020, our results of operations for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019. The condensed consolidated balance sheet at December 31, 2019, was derived from our audited financial statements, but does not include all disclosures required by GAAP.
These condensed consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report for the year ended December 31, 2019, as filed with the SEC on February 25, 2020.
2. ACCOUNTING POLICIES
Financial Statement Presentation. Our condensed consolidated financial statements have been developed in conformity with GAAP, which requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates. All intercompany transactions between TopBuild entities have been eliminated.
Recently Adopted Accounting Pronouncements
Credit Losses
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current incurred loss methodology with an expected loss methodology, referred to as the current expected credit loss (CECL) methodology. We adopted Topic 326 on January 1, 2020, using the modified retrospective method, which resulted in a $
We measure the expected credit losses on accounts receivable by segment, using historical loss rate information adjusted for current conditions, with changes in the allowance recorded as a provision for (or reversal of) credit loss expense. Expected losses are charged against the allowance when management believes a receivable is uncollectible. Receivables, net are presented net of certain allowances, including allowance for credit losses.
Goodwill Impairment
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment.” The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. This update was effective for us beginning January 1, 2020, and did not have a material impact on our financial position and results of operations.
8
Fair Value
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” The new standard modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including adjustments to Level 3 fair value measurement disclosures as well as the removal of disclosures around Level 1 and Level 2 transfers. This update was effective for us beginning January 1, 2020, and did not have a material impact on our financial position and results of operations.
Recently Issued Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles included in current guidance, as well as improving consistent application of and simplifying GAAP for other areas by clarifying and amending existing guidance. This update is effective for us beginning January 1, 2021, with early adoption permitted. We plan to adopt this standard on January 1, 2021 and we do not anticipate that the adoption will have a material impact on our financial position and results of operations.
3. REVENUE RECOGNITION
Revenue is disaggregated between our Installation and Distribution segments and further based on market and product, as we believe this best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The following tables present our revenues disaggregated by market (in thousands):
Three Months Ended September 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Installation | Distribution | Elims | Total | Installation | Distribution | Elims | Total | |||||||||||||||||
Residential | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | ( | $ | | ||||||||
Commercial | | | ( | | | | ( | | ||||||||||||||||
Net sales | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | ( | $ | | ||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Installation | Distribution | Elims | Total | Installation | Distribution | Elims | Total | |||||||||||||||||
Residential | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | ( | $ | | ||||||||
Commercial | | | ( | | | | ( | | ||||||||||||||||
Net sales | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | ( | $ | | ||||||||
The following tables present our revenues disaggregated by product (in thousands):
Three Months Ended September 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Installation | Distribution | Elims | Total | Installation | Distribution | Elims | Total | |||||||||||||||||
Insulation and accessories | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | ( | $ | | ||||||||
Glass and windows | | — | — | | | — | — | | ||||||||||||||||
Gutters | | | ( | | | | ( | | ||||||||||||||||
All other | | | ( | | | | ( | | ||||||||||||||||
Net sales | $ | | $ | | $ | ( | $ | | $ | | $ | | ||||||||||||