Price Graph
Price
Yield
These terms and conditions govern your use of the website alphaminr.com and its related services.
These Terms and Conditions (“Terms”) are a binding contract between you and Alphaminr, (“Alphaminr”, “we”, “us” and “service”). You must agree to and accept the Terms. These Terms include the provisions in this document as well as those in the Privacy Policy. These terms may be modified at any time.
Your subscription will be on a month to month basis and automatically renew every month. You may terminate your subscription at any time through your account.
We will provide you with advance notice of any change in fees.
You represent that you are of legal age to form a binding contract. You are responsible for any
activity associated with your account. The account can be logged in at only one computer at a
time.
The Services are intended for your own individual use. You shall only use the Services in a
manner that complies with all laws. You may not use any automated software, spider or system to
scrape data from Alphaminr.
Alphaminr is not a financial advisor and does not provide financial advice of any kind. The service is provided “As is”. The materials and information accessible through the Service are solely for informational purposes. While we strive to provide good information and data, we make no guarantee or warranty as to its accuracy.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, UNDER NO CIRCUMSTANCES SHALL ALPHAMINR BE LIABLE TO YOU FOR DAMAGES OF ANY KIND, INCLUDING DAMAGES FOR INVESTMENT LOSSES, LOSS OF DATA, OR ACCURACY OF DATA, OR FOR ANY AMOUNT, IN THE AGGREGATE, IN EXCESS OF THE GREATER OF (1) FIFTY DOLLARS OR (2) THE AMOUNTS PAID BY YOU TO ALPHAMINR IN THE SIX MONTH PERIOD PRECEDING THIS APPLICABLE CLAIM. SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF INCIDENTAL OR CONSEQUENTIAL OR CERTAIN OTHER DAMAGES, SO THE ABOVE LIMITATION AND EXCLUSIONS MAY NOT APPLY TO YOU.
If any provision of these Terms is found to be invalid under any applicable law, such provision shall not affect the validity or enforceability of the remaining provisions herein.
This privacy policy describes how we (“Alphaminr”) collect, use, share and protect your personal information when we provide our service (“Service”). This Privacy Policy explains how information is collected about you either directly or indirectly. By using our service, you acknowledge the terms of this Privacy Notice. If you do not agree to the terms of this Privacy Policy, please do not use our Service. You should contact us if you have questions about it. We may modify this Privacy Policy periodically.
When you register for our Service, we collect information from you such as your name, email address and credit card information.
Like many other websites we use “cookies”, which are small text files that are stored on your computer or other device that record your preferences and actions, including how you use the website. You can set your browser or device to refuse all cookies or to alert you when a cookie is being sent. If you delete your cookies, if you opt-out from cookies, some Services may not function properly. We collect information when you use our Service. This includes which pages you visit.
We use Google Analytics and we use Stripe for payment processing. We will not share the information we collect with third parties for promotional purposes. We may share personal information with law enforcement as required or permitted by law.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
|
|
|
(Mark One) |
|
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2017
|
|
|
|
☐ |
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: 1-36870
TopBuild Corp.
(Exact name of Registrant as Specified in its Charter)
|
|
|
|
Delaware
(State or Other Jurisdiction of Incorporation or
|
47-3096382
(I.R.S. Employer
|
|
|
|
|
475 North Williamson Boulevard Daytona Beach, Florida (Address of Principal Executive Offices) |
32114 (Zip Code) |
(386) 304-2200
(Registrant's telephone number, including area code)
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. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
Large accelerated filer ☒ Accelerated filer ☐ Smaller reporting company ☐ Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|
Class |
|
Shares Outstanding at August 1, 2017 |
|
Common stock, par value $0.01 per share |
|
35,542,307 |
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
Page No. |
||
|
|
||||
|
|
|
|
||
|
|
||||
|
|
|
|
||
|
|
4 |
|||
|
|
|
|
||
|
|
5 |
|||
|
|
|
|
||
|
|
6 |
|||
|
|
|
|
||
|
|
7 |
|||
|
|
|
|
||
|
|
8 |
|||
|
|
|
|
||
|
Management's Discussion and Analysis of Financial Condition and Results of Operations |
23 |
|||
|
|
|
|
||
|
33 |
||||
|
|
|
|
||
|
33 |
||||
|
|
|
|
||
|
|
||||
|
|
|
|
||
|
34 |
||||
|
|
|
|
||
|
34 |
||||
|
|
|
|
||
|
34 |
||||
|
|
|
|
||
|
34 |
||||
|
|
|
|
||
|
34 |
||||
|
|
|
|
||
|
34 |
||||
|
|
|
|
||
|
34 |
||||
|
|
|
|
||
|
35 |
||||
|
|
|
|
||
|
36 |
||||
|
|
|
|
||
|
|
|
|
||
2
GLOSSARY
We use acronyms and other defined terms for certain business terms and abbreviations throughout this quarterly report on form 10-Q, as defined on the acronyms list and glossary below:
|
|
|
|
|
Term |
|
Definition |
|
2015 LTIP |
|
2015 TopBuild Long-Term Incentive Plan, as amended from time to time |
|
2016 Repurchase Program |
|
$50 million share repurchase program authorized by the Board on March 1, 2016 |
|
2017 ASR Agreement |
|
$100 million ASR agreement with Bank of America, N.A. |
|
2017 Repurchase Program |
|
$200 million share repurchase program authorized by the Board on February 24, 2017 |
|
ASC |
|
Accounting Standards Codification |
|
ASR |
|
Accelerated Share Repurchase |
|
ASU |
|
Accounting Standards Update |
|
Board |
|
Board of Directors |
|
BofA |
|
Bank of America, N.A. |
|
Canyon |
|
Canyon Insulation, Inc. |
|
Capital |
|
Capital Insulation, Inc. |
|
EcoFoam |
|
Bella Insulutions Inc., DBA EcoFoam/Insulutions |
|
Effective Date |
|
June 30, 2015, the date of the "Separation" |
|
ETR |
|
Effective tax rate |
|
Exchange Act |
|
The Securities Exchange Act of 1934, as amended |
|
FASB |
|
Financial Accounting Standards Board |
|
FCCR |
|
Fixed charge coverage ratio |
|
GAAP |
|
Generally Accepted Accounting Principles in the United States of America |
|
Guarantors |
|
Certain wholly-owned domestic subsidiaries of TopBuild Corp. |
|
Lenders |
|
Bank of America, N.A., together with the other lenders party to the "New Credit Agreement" |
|
LIBOR |
|
London interbank offered rate |
|
Masco |
|
Masco Corporation |
|
Midwest |
|
Midwest Fireproofing, LLC |
|
MR Insulfoam |
|
MR Insulfoam, LLC |
|
Net Leverage Ratio |
|
As defined in the “New Credit Agreement,” the ratio of outstanding indebtedness, less up to $75 million of unrestricted cash, to EBITDA |
|
New Credit Agreement |
|
Senior secured credit agreement and related security and pledge agreement dated May 5, 2017, with the "Lenders" |
|
NYSE |
|
New York Stock Exchange |
|
Old Credit Agreement |
|
Senior secured credit agreement, as amended, and related collateral and guarantee documentation dated June 9, 2015, with PNC Bank, N.A. as administrative agent, and the other lenders and agents party thereto |
|
Options |
|
Stock option awards |
|
Owens |
|
Owens Corning Sales, LLC |
|
Revolving Facility |
|
Senior secured revolving credit facilities available under the credit agreements. With respect to the Old Credit Agreement, a $125 million facility with applicable sublimits for letters of credit and swingline loans. With respect to the New Credit Agreement, a $250 million facility with applicable sublimits for letters of credit and swingline loans. |
|
RSA |
|
Restricted stock award |
|
SEC |
|
United States Securities and Exchange Commission |
|
Separation |
|
Distribution of 100 percent of the outstanding capital stock of TopBuild to holders of Masco
|
|
Services Business |
|
Masco's Installation and Other Services segment, spun-off as TopBuild |
|
Superior |
|
Superior Insulation Products, LLC |
|
TopBuild |
|
TopBuild Corp. and its wholly-owned consolidated domestic subsidiaries. Also, the "Company,"
|
|
Total Leverage Ratio |
|
As defined in the “New Credit Agreement,” the ratio of outstanding indebtedness, including letters of credit, to EBITDA |
3
PART I – FINANCIAL INFORMATION
TOPBUILD CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|||||
|
|
|
June 30, |
|
December 31, |
|||
|
|
|
2017 |
|
2016 |
|||
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
94,233 |
|
$ |
134,375 |
|
|
Receivables, net of an allowance for doubtful accounts of $3,566 and $3,374 at June 30, 2017, and December 31, 2016, respectively |
|
|
297,325 |
|
|
252,624 |
|
|
Inventories, net |
|
|
111,640 |
|
|
116,190 |
|
|
Prepaid expenses and other current assets |
|
|
23,391 |
|
|
23,364 |
|
|
Total current assets |
|
|
526,589 |
|
|
526,553 |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
98,185 |
|
|
92,760 |
|
|
Goodwill |
|
|
1,084,833 |
|
|
1,045,058 |
|
|
Other intangible assets, net |
|
|
28,786 |
|
|
2,656 |
|
|
Deferred tax assets, net |
|
|
19,469 |
|
|
19,469 |
|
|
Other assets |
|
|
3,197 |
|
|
3,623 |
|
|
Total assets |
|
$ |
1,761,059 |
|
$ |
1,690,119 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
243,000 |
|
$ |
241,534 |
|
|
Current portion of long-term debt |
|
|
12,500 |
|
|
20,000 |
|
|
Accrued liabilities |
|
|
77,175 |
|
|
64,399 |
|
|
Total current liabilities |
|
|
332,675 |
|
|
325,933 |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
235,422 |
|
|
158,800 |
|
|
Deferred tax liabilities, net |
|
|
193,715 |
|
|
193,715 |
|
|
Long-term portion of insurance reserves |
|
|
38,132 |
|
|
38,691 |
|
|
Other liabilities |
|
|
3,151 |
|
|
433 |
|
|
Total liabilities |
|
|
803,095 |
|
|
717,572 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value: 10,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2017, and December 31, 2016 |
|
|
— |
|
|
— |
|
|
Common stock, $0.01 par value: 250,000,000 shares authorized; 38,578,518 issued and 37,046,499 outstanding at June 30, 2017, and 38,488,825 shares issued and 37,815,199 outstanding at December 31, 2016 |
|
|
386 |
|
|
385 |
|
|
Treasury stock, 1,532,019 shares at June 30, 2017, and 673,626 shares at December 31, 2016, at cost |
|
|
(61,582) |
|
|
(22,296) |
|
|
Additional paid-in capital |
|
|
848,429 |
|
|
845,476 |
|
|
Retained earnings |
|
|
170,731 |
|
|
148,982 |
|
|
Total equity |
|
|
957,964 |
|
|
972,547 |
|
|
Total liabilities and equity |
|
$ |
1,761,059 |
|
$ |
1,690,119 |
|
See notes to our unaudited condensed consolidated financial statements.
4
TOPBUILD CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands except per common share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
||||
|
Net sales |
|
$ |
474,458 |
|
$ |
431,589 |
|
$ |
915,821 |
|
$ |
845,613 |
|
Cost of sales |
|
|
357,849 |
|
|
333,901 |
|
|
697,584 |
|
|
658,470 |
|
Gross profit |
|
|
116,609 |
|
|
97,688 |
|
|
218,237 |
|
|
187,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expense (exclusive of significant legal settlement, shown separately below) |
|
|
75,813 |
|
|
70,898 |
|
|
150,904 |
|
|
140,586 |
|
Significant legal settlement |
|
|
— |
|
|
— |
|
|
30,000 |
|
|
— |
|
Operating profit |
|
|
40,796 |
|
|
26,790 |
|
|
37,333 |
|
|
46,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(1,918) |
|
|
(1,371) |
|
|
(3,288) |
|
|
(3,044) |
|
Loss on extinguishment of debt |
|
|
(1,086) |
|
|
— |
|
|
(1,086) |
|
|
— |
|
Other, net |
|
|
105 |
|
|
61 |
|
|
212 |
|
|
136 |
|
Other expense, net |
|
|
(2,899) |
|
|
(1,310) |
|
|
(4,162) |
|
|
(2,908) |
|
Income from continuing operations before income taxes |
|
|
37,897 |
|
|
25,480 |
|
|
33,171 |
|
|
43,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense from continuing operations |
|
|
(14,437) |
|
|
(9,865) |
|
|
(11,422) |
|
|
(16,918) |
|
Income from continuing operations |
|
|
23,460 |
|
|
15,615 |
|
|
21,749 |
|
|
26,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.64 |
|
$ |
0.41 |
|
$ |
0.59 |
|
$ |
0.71 |
|
Net income |
|
$ |
0.64 |
|
$ |
0.41 |
|
$ |
0.59 |
|
$ |
0.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.63 |
|
$ |
0.41 |
|
$ |
0.58 |
|
$ |
0.70 |
|
Net Income |
|
$ |
0.63 |
|
$ |
0.41 |
|
$ |
0.58 |
|
$ |
0.70 |
See notes to our unaudited condensed consolidated financial statements .
5
TOPBUILD CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
||||
|
|
|
2017 |
|
2016 |
||
|
Net Cash Provided by (Used in) Operating Activities: |
|
|
|
|
|
|
|
Net income |
|
$ |
21,749 |
|
$ |
26,731 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
6,835 |
|
|
5,908 |
|
Share-based compensation |
|
|
5,101 |
|
|
3,705 |
|
Loss on extinguishment of debt |
|
|
1,086 |
|
|
— |
|
Loss on sale or abandonment of property and equipment |
|
|
285 |
|
|
1,477 |
|
Amortization of debt issuance costs |
|
|
186 |
|
|
171 |
|
Provision for bad debt expense |
|
|
1,750 |
|
|
1,986 |
|
Loss from inventory obsolescence |
|
|
826 |
|
|
667 |
|
Deferred income taxes, net |
|
|
— |
|
|
(3) |
|
Changes in certain assets and liabilities: |
|
|
|
|
|
|
|
Receivables, net |
|
|
(25,123) |
|
|
(21,436) |
|
Inventories, net |
|
|
5,908 |
|
|
15,819 |
|
Prepaid expenses and other current assets |
|
|
7 |
|
|
(3,266) |
|
Accounts payable |
|
|
(3,124) |
|
|
(39,237) |
|
Accrued liabilities |
|
|
9,787 |
|
|
13,642 |
|
Other, net |
|
|
398 |
|
|
(18) |
|
Net cash provided by operating activities |
|
|
25,671 |
|
|
6,146 |
|
|
|
|
|
|
|
|
|
Cash Flows Provided by (Used in) Investing Activities: |
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(8,571) |
|
|
(6,023) |
|
Acquisition of businesses |
|
|
(83,932) |
|
|
— |
|
Proceeds from sale of property and equipment |
|
|
126 |
|
|
219 |
|
Other, net |
|
|
147 |
|
|
147 |
|
Net cash used in investing activities |
|
|
(92,230) |
|
|
(5,657) |
|
|
|
|
|
|
|
|
|
Cash Flows Provided by (Used in) Financing Activities: |
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
250,000 |
|
|
— |
|
Repayment of long-term debt |
|
|
(180,000) |
|
|
(5,000) |
|
Payment of debt issuance costs |
|
|
(2,150) |
|
|
— |
|
Taxes withheld and paid on employees' equity awards |
|
|
(2,147) |
|
|
(1,285) |
|
Repurchase of shares of common stock |
|
|
(39,286) |
|
|
(4,962) |
|
Net cash provided by (used in) financing activities |
|
|
26,417 |
|
|
(11,247) |
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
|
|
|
|
|
|
Decrease for the period |
|
|
(40,142) |
|
|
(10,758) |
|
Beginning of year |
|
|
134,375 |
|
|
112,848 |
|
End of period |
|
$ |
94,233 |
|
$ |
102,090 |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing activities: |
|
|
|
|
|
|
|
Accruals for property and equipment |
|
$ |
655 |
|
$ |
521 |
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 |
|
|
|
||||
|
|
|
($0.01 par value) |
|
at cost |
|
Capital |
|
Earnings |
|
Equity |
|||||
|
Balance at December 31, 2015 |
|
$ |
377 |
|
$ |
— |
|
$ |
838,976 |
|
$ |
76,376 |
|
$ |
915,729 |
|
Net income |
|
|
— |
|
|
— |
|
|
— |
|
|
26,731 |
|
|
26,731 |
|
Share-based compensation |
|
|
— |
|
|
— |
|
|
3,705 |
|
|
— |
|
|
3,705 |
|
Issuance of restricted share awards under long-term equity incentive plan |
|
|
8 |
|
|
— |
|
|
(8) |
|
|
— |
|
|
— |
|
Repurchase of 153,432 shares of common stock pursuant to Share Repurchase Program |
|
|
— |
|
|
(4,962) |
|
|
— |
|
|
— |
|
|
(4,962) |
|
51,578 shares of common stock withheld to pay taxes on employees' equity awards |
|
|
— |
|
|
— |
|
|
(1,285) |
|
|
— |
|
|
(1,285) |
|
Balance at June 30, 2016 |
|
$ |
385 |
|
$ |
(4,962) |
|
$ |
841,388 |
|
$ |
103,107 |
|
$ |
939,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016 |
|
$ |
385 |
|
$ |
(22,296) |
|
$ |
845,476 |
|
$ |
148,982 |
|
$ |
972,547 |
|
Net income |
|
|
— |
|
|
— |
|
|
— |
|
|
21,749 |
|
|
21,749 |
|
Share-based compensation |
|
|
— |
|
|
— |
|
|
5,101 |
|
|
— |
|
|
5,101 |
|
Issuance of 143,800 restricted share awards under long-term equity incentive plan |
|
|
1 |
|
|
— |
|
|
(1) |
|
|
— |
|
|
— |
|
Repurchase of 858,393 shares of common stock pursuant to Share Repurchase Program |
|
|
— |
|
|
(39,286) |
|
|
— |
|
|
— |
|
|
(39,286) |
|
59,940 shares of common stock withheld to pay taxes on employees' equity awards |
|
|
— |
|
|
— |
|
|
(2,147) |
|
|
— |
|
|
(2,147) |
|
Balance at June 30, 2017 |
|
$ |
386 |
|
$ |
(61,582) |
|
$ |
848,429 |
|
$ |
170,731 |
|
$ |
957,964 |
See notes to our unaudited condensed consolidated financial statements.
7
On the Effective Date, Masco completed the Separation of its Services Business from its other businesses. On the Effective Date, TopBuild became an independent public company which holds, through its consolidated subsidiaries, the assets and liabilities of the Services Business. The Separation was achieved through the distribution of 100 percent of the outstanding capital stock of TopBuild to holders of Masco common stock. TopBuild is a Delaware corporation and trades on the NYSE under the symbol “BLD.”
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 on Form 10-K for the year ended December 31, 2016.
We report our business in two segments: Installation and Distribution. Our Installation segment principally includes the sale and installation of insulation and other building products. Our Distribution segment principally includes the distribution of insulation and other building products. Our segments are based on our operating units, for which financial information is regularly evaluated by our corporate operating executives.
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 June 30, 2017, our results of operations for the three and six months ended June 30, 2017 and 2016, and cash flows for the six months ended June 30, 2017 and 2016. The Condensed Consolidated Balance Sheet at December 31, 2016, was derived from our audited financial statements, but does not include all disclosures required by GAAP.
2. ACCOUNTING POLICIES
Financial Statement Presentation. The 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. Certain reclassifications have been made in the 2016 condensed consolidated financial statements to conform to the 2017 classifications with no impact on previously reported net income or equity.
Business Combinations . The purchase price for business combinations is allocated to the estimated fair values of acquired tangible and intangible assets, including goodwill, and assumed liabilities, where applicable. Additionally, we recognize customer relationships, trademarks and trade names, and non-competition agreements as identifiable intangible assets. These assets are recorded at fair value as of the transaction date. The fair value of these intangible assets is determined primarily using the income approach and using current industry information. Goodwill is recorded when consideration transferred exceeds the fair value of identifiable assets and liabilities. Measurement-period adjustments are recorded in the period they occur. Contingent consideration is recorded at fair value at the acquisition date.
Share-based Compensation. Our share-based compensation program currently consists of RSAs and Options. Share-based compensation expense is reported in selling, general, and administrative expense. We do not capitalize any compensation cost related to share-based compensation awards. The income tax benefits and deficiencies associated with share-based awards are reported as a component of income tax expense. Excess tax benefits and deficiencies are included in cash provided by (used in) operating activities while shares withheld for tax-withholding are reported in financing activities under the caption “Taxes withheld and paid on employees’ equity awards” in our Condensed Consolidated Statements of Cash Flows. Award forfeitures are accounted for in the period they occur.
8
The following table details our award types and accounting policies:
|
|
|
|
|
|
|
Award Type: |
Fair Value Determination |
Vesting |
Expense
|
Expense
|
|
Restricted Share Awards |
|
|
|
|
|
Service Condition |
Closing stock price on date of grant |
Ratably;
|
Straight-line |
Fair value at grant date |
|
Performance Condition |
Closing stock price on date of grant |
Cliff;
|
Straight-line;
|
Evaluated quarterly;
|
|
Market Condition |
Monte-Carlo Simulation |
Cliff;
|
Straight-line;
|
Fair value at grant date |
|
Stock Options† |
Black-Scholes Options Pricing Model |
Ratably;
|
Straight-line |
Fair value at grant date |
†Stock options expire no later than 10 years after the grant date.
‡Expense is reversed if award is forfeited prior to vesting.
Recently Adopted Accounting Pronouncements:
In July 2015, the FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory.” Under this guidance, inventory should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted this guidance in the beginning of the first quarter of 2017. The adoption of this amendment did not have a material impact on our financial position or results of operations.
Recently Issued Accounting Pronouncements Not Yet Adopted:
In May 2014, the FASB issued a new standard for revenue recognition, ASC 606. Subsequent to issuing ASC 606, the FASB issued a number of updates and technical improvements which do not change the core principles of the guidance. The purpose of ASC 606 is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability across industries. ASC 606 is effective for us beginning January 1, 2018, (with early adoption permitted) and allows for full retrospective or modified retrospective methods of adoption. In determining the applicability of ASC 606, we considered the general nature of our orders is short-term, based on a single deliverable, and not accounted for under industry-specific guidance. We reviewed our revenue streams at both our Installation and Distribution segments. Our initial assessment indicates that the adoption of the standard will likely not have a material impact on the amount or timing of our revenue recognition process. Additional disclosures related to our revenues, contract balances, and judgments affecting recognition will be required. We plan to apply the modified retrospective approach to transition to the new guidance, which would allow us to recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. We do not plan to early adopt the standard. We will continue to evaluate additional changes, modifications, clarifications, or interpretations issued by the FASB, which may impact our current conclusions.
In February 2016, the FASB issued ASU 2016-02, “Leases.” This standard requires a lessee to recognize most leases on their balance sheet. Companies are required to use a modified retrospective transition method for all existing leases. This standard is effective for us beginning January 1, 2019. Early adoption is permitted. We have not yet selected an adoption date and we are currently evaluating the effect on our financial position and results of operations.
9
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses.” This guidance introduces a current expected credit loss (“CECL”) model for the recognition of impairment losses on financial assets, including trade receivables. The CECL model replaces current GAAP’s incurred loss model. Under CECL, companies will record an allowance through current earnings for the expected credit loss for the life of the financial asset upon initial recognition of the financial asset. This update is effective for us at the beginning of 2020 with early adoption permitted at the beginning of 2019. We have not yet selected an adoption date and we are currently evaluating the effect on our financial position and results of operations.
In January 2017, the FASB issued ASU 2017-01, “Clarifying the Definition of a Business. The new standard narrows the definition of a business and provides a framework for evaluation. This update is effective for us beginning January 1, 2018 and will be applied prospectively. We do not expect this update to have a material impact on our financial position or results of operations.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the good will impairment test. This update is effective for us beginning January 1, 2020. Early adoption is permitted and the new standard will be applied on a prospective basis. We have not yet selected an adoption date and we are currently evaluating the effect on our financial position and results of operations.
3. GOODWILL AND OTHER INTANGIBLES
Changes in the carrying amount of goodwill for the six months ended June 30, 2017, by segment, were as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Goodwill |
|
|
|
Gross Goodwill |
|
Accumulated |
|
Net Goodwill |
|||||
|
|
|
at |
|
|
|
at |
|
Impairment |
|
at |
|||||
|
|
|
December 31, 2016 |
|
Additions |
|
June 30, 2017 |
|
Losses |
|
June 30, 2017 |
|||||
|
Installation |
|
$ |
1,390,792 |
|
$ |
39,775 |
|
$ |
1,430,567 |
|
$ |
(762,021) |
|
$ |
668,546 |
|
Distribution |
|
|
416,287 |
|
|
— |
|
|
416,287 |
|
|
— |
|
|
416,287 |
|
Total |
|
$ |
1,807,079 |
|
$ |
39,775 |
|
$ |
1,846,854 |
|
$ |
(762,021) |
|
$ |
1,084,833 |
Other intangible assets, net includes customer relationships, non-compete agreements, and trademarks. The following table sets forth our other intangible assets, in thousands:
|
|
|
|
|
|
|
|
|
|
|
As of |
||||
|
|
|
June 30, |
|
December 31, |
||
|
|
|
2017 |
|
2016 |
||
|
Gross definite-lived intangible assets |
|
$ |
47,502 |
|
$ |
20,932 |
|
Accumulated amortization |
|
|
(19,123) |
|
|
(18,683) |
|
Net definite-lived intangible assets |
|
|
28,379 |
|
|
2,249 |
|
Indefinite-lived intangible assets not subject to amortization |
|
|
407 |
|
|
407 |
|
Other intangible assets, net |
|
$ |
28,786 |
|
$ |
2,656 |
10
On May 5, 2017, we and the Guarantors entered into a New Credit Agreement with the Lenders. All obligations under the New Credit Agreement are guaranteed by the Guarantors, and all obligations under the New Credit Agreement, including the guarantees of those obligations, are secured by substantially all of the assets of us and the Guarantors.
Interest payable on borrowings under the New Credit Agreement is based on an applicable margin rate plus, at our option, either:
|
|
· |
|
A base rate determined by reference to the highest of either (i) the federal funds rate plus 0.50 percent, (ii) Bank of America’s “prime rate,” or (iii) the LIBOR rate for U.S. dollar deposits with a term of one month, plus 1.00 percent; or |
|
|
· |
|
A LIBOR rate determined by reference to the costs of funds for deposits in U.S. dollars for the interest period relevant to such borrowings. |
The applicable margin rate is determined based on our Total Leverage Ratio. In the case of base rate borrowings, the applicable margin rate ranges from 0.00 percent to 1.50 percent and in the case of LIBOR rate borrowings, the applicable margin ranges from 1.00 percent to 2.50 percent.
We are required to pay commitment fees to the Lenders in respect of any unutilized commitments. The commitment fees range from 0.15 percent to 0.275 percent per annum, depending on our Total Leverage Ratio. We must also pay customary fees on outstanding letters of credit.
We used a portion of the proceeds from the term loan under the New Credit Agreement to repay all amounts outstanding under the Old Credit Agreement. The remaining proceeds may be used to fund our 2017 Repurchase program, to make additional acquisitions, or for general operating purposes. Upon executing the New Credit Agreement, we terminated the Old Credit Agreement and all associated agreements and instruments.
In conjunction with the New Credit Agreement, we recognized a loss on extinguishment of debt of $1.1 million for the three and six months ended June 30, 2017, which is reflected under the caption, “Loss on extinguishment of debt” in our Condensed Consolidated Statements of Operations. The following table outlines the key terms of our New Credit Agreement compared to the Old Credit Agreement, dollars in thousands:
|
|
|
|
|
|
|
|
|
|
New Credit Agreement |
|
Old Credit Agreement |
|||
|
Senior secured term loan facility (original borrowing) (a) |
$ |
250,000 |
|
|
$ |
200,000 |
|
Additional term loan capacity under delayed draw feature (b) |
$ |
100,000 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
Additional term loan and/or revolver capacity available under incremental facility (c) |
$ |
200,000 |
|
|
$ |
100,000 |
|
|
|
|
|
|
|
|
|
Revolving Facility |
$ |
250,000 |
|
|
$ |
125,000 |
|
Sublimit for issuance of letters of credit under Revolving Facility (d) |
$ |
100,000 |
|
|
$ |
100,000 |
|
Sublimit for swingline loans under Revolving Facility (d) |
$ |
20,000 |
|
|
$ |
15,000 |
|
|
|
|
|
|
|
|
|
Interest rate as of June 30, 2017 |
|
2.596 |
% |
|
|
N/A |
|
Scheduled maturity date (e) |
|
5/05/2022 |
|
|
|
6/30/2020 |
|
|
(a) |
|
The New Credit Agreement provides for a term loan limit of $350.0 million; $250.0 million was drawn on May 5, 2017. |
|
|
(b) |
|
We can access $100.0 million through a delayed draw term loan on the New Credit Agreement until May 5, 2018. We have not determined the timing or amounts of our delayed draws, if any. |
|
|
(c) |
|
Additional borrowing capacity is available under the incremental facility, subject to certain terms and conditions (including existing or new lenders providing commitments in respect of such additional borrowing capacity). |
|
|
(d) |
|
Use of the sublimits for the issuance of letters of credit and swingline loans reduces the availability under the Revolving Facility. |
|
|
(e) |
|
The scheduled maturity date of the Old Credit Agreement is shown for information only as the Old Credit Agreement has been fully repaid and terminated. |
11
Borrowings under the New Credit Agreement are prepayable at the Company’s option without premium or penalty. The Company is required to make prepayments with the net cash proceeds of certain asset sales and certain extraordinary receipts.
The following table sets forth our remaining principal payments for our outstanding term loan balance as of June 30, 2017, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Principal |
||
|
|
|
|
|
Payments |
||
|
Schedule of Debt Maturity by Years: |
|
|
|
|
|
|
|
2017 |
|
|
|
|
$ |
6,250 |
|
2018 |
|
|
|
|
|
12,500 |
|
2019 |
|
|
|
|
|
15,625 |
|
2020 |
|
|
|
|
|
18,750 |
|
2021 |
|
|
|
|
|
21,875 |
|
2022 |
|
|
|
|
|
175,000 |
|
Total principal maturities |
|
|
|
|
$ |
250,000 |
The following table reconciles the principal balance of our long-term debt to our Condensed Consolidated Balance Sheets, in thousands:
|
|
|
|
|
|
|
|
|
|
|
As of |
||||
|
|
|
June 30, |
|
December 31, |
||
|
|
|
2017 |
|
2016 |
||
|
Current portion of long-term debt |
|
$ |
12,500 |
|
$ |
20,000 |
|
Long-term portion of long-term debt |
|
|
237,500 |
|
|
160,000 |
|
Unamortized debt issuance costs |
|
|
(2,078) |
|
|
(1,200) |
|
Long-term debt |
|
$ |
247,922 |
|
$ |
178,800 |
The Company has outstanding standby letters of credit that secure our financial obligations related to our workers’ compensation, general insurance, and auto liability programs. These standby letters of credit reduce the availability under the Revolving Facility. The following table summarizes our availability under the Revolving Facility, in thousands:
|
|
|
|
|
|
|
|
|
|
|
As of |
||||
|
|
|
June 30, |
|
December 31, |
||
|
|
|
2017 |
|
2016 |
||
|
Revolving Facility |
|
$ |
250,000 |
|
$ |
125,000 |
|
Less: standby letters of credit |
|
|
(49,080) |
|
|
(49,080) |
|
Capacity under Revolving Facility |
|
$ |
200,920 |
|
$ |
75,920 |
The New Credit Agreement contains certain covenants that limit, among other things, the ability of the Company to incur additional indebtedness or liens; to make certain investments or loans; to make certain restricted payments; to enter into consolidations, mergers, sales of material assets, and other fundamental changes; to transact with affiliates; to enter into agreements restricting the ability of subsidiaries to incur liens or pay dividends; or to make certain accounting changes. The New Credit Agreement contains customary affirmative covenants and events of default.
The New Credit Agreement requires us to maintain a Net Leverage Ratio and minimum FCCR throughout the term of the agreement. The following table sets forth the maximum Net Leverage Ratios and minimum FCCR:
|
|
|
|
|
|
|
Quarter Ending |
|
Maximum
|
|
Minimum
|
|
September 30, 2017 |
|
3.50:1.00 |
|
1.25:1.00 |
|
December 31, 2017 through September 30, 2018 |
|
3.25:1.00 |
|
1.25:1.00 |
|
December 31, 2018 and each quarter thereafter |
|
3.00:1.00 |
|
1.25:1.00 |
12
The following table outlines the key financial covenants effective for the period covered by this report:
|
|
|
|
|
|
|
|
|
As of |
||
|
|
|
June 30, |
|
December 31, |
|
|
|
2017 |
|
2016 (a) |
|
Maximum Net Leverage Ratio |
|
3.50:1.00 |
|
3.00:1.00 |
|
Minimum FCCR |
|
1.25:1.00 |
|
1.10:1.00 |
|
Compliance as of period end |
|
In Compliance |
|
In Compliance |
|
|
(a) |
|
Financial ratios as of December 31, 2016 were subject to the Old Credit Agreement |
5 . FAIR VALUE MEASUREMENTS
The fair value measurement standard defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (referred to as an “exit price”). Authoritative guidance on fair value measurements and disclosures clarifies that a fair value measurement for a liability should reflect the entity’s non-performance risk. In addition, a fair value hierarchy is established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Fair Value on Recurring Basis
The carrying values of cash and cash equivalents, receivables, net, and accounts payable are considered to be representative of their respective fair values due to the short-term nature of these instruments. We measure our contingent consideration liabilities related to business combinations at fair value. For more information see Note 12 – Business Combinations.
Fair Value on Non-Recurring Basis
Fair value measurements were applied to our long-term debt. The carrying value of our long-term debt approximates the fair market value primarily due to the fact that the non-performance risk of servicing our debt obligations, as reflected in our business and credit risk profile, has not materially changed since we assumed our debt obligations under the New Credit Agreement. In addition, due to the floating-rate nature of our long-term debt, the market value is not subject to variability solely due to changes in the general level of interest rates as is the case with a fixed-rate debt obligation. During the periods presented, there were no transfers between fair value hierarchical levels.
13
6. SEGMENT INFORMATION
The following table sets forth our net sales and operating results by segment, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
||||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
||||
|
|
|
Net Sales |
|
Operating Profit (b) |
||||||||
|
Our operations by segment were (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Installation |
|
$ |
320,984 |
|
$ |
288,042 |
|
$ |
35,086 |
|
$ |
22,797 |
|
Distribution |
|
|
175,062 |
|
|
164,257 |
|
|
17,022 |
|
|
13,547 |
|
Intercompany eliminations |
|
|
(21,588) |
|
|
(20,710) |
|
|
(3,680) |
|
|
(3,524) |
|
Total |
|
$ |
474,458 |
|
$ |
431,589 |
|
|
48,428 |
|
|
32,820 |
|
General corporate expense, net (c) |
|
|
|
|
|
|
|
|
(7,632) |
|
|
(6,030) |
|
Operating profit, as reported |
|
|
|
|
|
|
|
|
40,796 |
|
|
26,790 |
|
Other expense, net |
|
|
|
|
|
|
|
|
(2,899) |
|
|
(1,310) |
|
Income from continuing operations before income taxes |
|
|
|
|
|
|
|
$ |
37,897 |
|
$ |
25,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
||||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
||||
|
|
|
Net Sales |
|
Operating Profit (b) |
||||||||
|
Our operations by segment were (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Installation (exclusive of significant legal settlement, shown separately below) |
|
$ |
611,870 |
|
$ |
560,920 |
|
$ |
56,123 |
|
$ |
36,303 |
|
Significant legal settlement (Installation segment) (d) |
|
|
— |
|
|
— |
|
|
(30,000) |
|
|
— |
|
Distribution |
|
|
345,306 |
|
|
325,145 |
|
|
32,506 |
|
|
27,880 |
|
Intercompany eliminations |
|
|
(41,355) |
|
|
(40,452) |
|
|
(6,980) |
|
|
(6,876) |
|
Total |
|
$ |
915,821 |
|
$ |
845,613 |
|
|
51,649 |
|
|
57,307 |
|
General corporate expense, net (c) |
|
|
|
|
|
|
|
|
(14,316) |
|
|
(10,750) |
|
Operating profit, as reported |
|
|
|
|
|
|
|
|
37,333 |
|
|
46,557 |
|
Other expense, net |
|
|
|
|
|
|
|
|
(4,162) |
|
|
(2,908) |
|
Income from continuing operations before income taxes |
|
|
|
|
|
|
|
$ |
33,171 |
|
$ |
43,649 |
|
|
(a) |
|
All of our operations are located in the United States. |
|
|
(b) |
|
Segment operating profit for the three and six months ended June 30, 2017 and 2016, includes an allocation of general corporate expenses attributable to the operating segments which is based on direct benefit or usage (such as salaries of corporate employees who directly support the segment). |
|
|
(c) |
|
General corporate expense, net included expenses not specifically attributable to our segments for functions such as corporate human resources, finance, and legal, including salaries, benefits, and other related costs . |
|
|
(d) |
|
Significant legal settlement expense of $30 million incurred for the six months ended June 30, 2017, related to the settlement agreement with Owens. For more information see Note 7 – Other Commitments and Contingencies . |
14
7 . OTHER COMMITMENTS AND CONTINGENCIES
Litigation . During the second quarter of 2017, we entered into a settlement with Owens in connection with our previously reported breach of contract action related to our termination of an insulation supply agreement. Under the terms of the settlement, we paid Owens $30 million. The settlement resulted in the dismissal of the lawsuit filed in May 2016 in Toledo, Ohio. The settlement is reflected in the significant legal settlement line item within our Condensed Consolidated Statements of Operations for the six months ended June 30, 2017. The settlement is also reflected in our installation segment’s operating results.
We are subject to certain claims, charges, litigation, and other proceedings in the ordinary course of our business, including those arising from or related to contractual matters, intellectual property, personal injury, environmental matters, product liability, product recalls, construction defects, insurance coverage, personnel and employment disputes, antitrust, and other matters, including class actions. We believe we have adequate defenses in these matters and we do not believe that the ultimate outcome of these matters will have a material adverse effect on us. However, there is no assurance that we will prevail in any of these pending matters, and we could in the future incur judgments, enter into settlements of claims, or revise our expectations regarding the outcome of these matters, which could materially impact our liquidity and our results of operations.
Other Matters . We enter into contracts, which include customary indemnities that are standard for the industries in which we operate. Such indemnities include, among other things, customer claims against builders for issues relating to our products and workmanship. In conjunction with divestitures and other transactions, we occasionally provide customary indemnities relating to various items including, among others: the enforceability of trademarks; legal and environmental issues; and asset valuations. We evaluate the probability that we may incur liabilities under these customary indemnities and appropriately record an estimated liability when deemed probable.
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. Other types of bonds outstanding were principally license and insurance related.
8 . INCOME TAXES
Our effective tax rates were 38.1 percent and 34.4 percent for the three and six months ended June 30, 2017, respectively. The effective tax rates for the three and six months ended June 30, 2016, were 38.7 percent and 38.8 percent, respectively. The lower 2017 rates were due to discrete benefits related to share-based compensation and an increase in the amount of the Domestic Production Activities Deduction.
A tax benefit of $0.3 million and $1.2 million related to share-based compensation was recognized in our Condensed Consolidated Statements of Operations as a discrete item in income tax expense for the three and six months ended June 30, 2017, respectively.
15
Basic net income per share is calculated by dividing net income by the weighted average shares outstanding during the period, without consideration for common stock equivalents.
Diluted net income per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury stock method.
Basic and diluted income per share were computed as follows, in thousands, except share and per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
||||
|
Income from continuing operations |
|
$ |
23,460 |
|
$ |
15,615 |
|
$ |
21,749 |
|
$ |
26,731 |
|
Net income - basic and diluted |
|
$ |
23,460 |
|
$ |
15,615 |
|
$ |
21,749 |
|
$ |
26,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic |
|
|
36,488,222 |
|
|
37,691,259 |
|
|
36,803,979 |
|
|
37,726,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
RSAs with service-based conditions |
|
|
227,185 |
|
|
176,401 |
|
|
214,242 |
|
|
145,042 |
|
RSAs with market-based conditions |
|
|
189,835 |
|
|
58,392 |
|
|
160,693 |
|
|
29,196 |
|
RSAs with performance-based conditions |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Stock options |
|
|
286,057 |
|
|
50,651 |
|
|
225,279 |
|
|
37,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - diluted |
|
|
37,191,299 |
|
|
37,976,703 |
|
|
37,404,193 |
|
|
37,938,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.64 |
|
$ |
0.41 |
|
$ |
0.59 |
|
$ |
0.71 |
|
Net income |
|
$ |
0.64 |
|
$ |
0.41 |
|
$ |
0.59 |
|
$ |
0.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.63 |
|
$ |
0.41 |
|
$ |
0.58 |
|
$ |
0.70 |
|
Net income |
|
$ |
0.63 |
|
$ |
0.41 |
|
$ |
0.58 |
|
$ |
0.70 |
The following table summarizes shares excluded from the calculation of diluted income per share because their effect would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
||||
|
Anti-dilutive common stock equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
RSAs with service-based conditions |
|
|
985 |
|
|
12,238 |
|
|
916 |
|
|
55,986 |
|
RSAs with market-based conditions |
|
|
— |
|
|
— |
|
|
— |
|
|
12,647 |
|
RSAs with performance-based conditions |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Stock options |
|
|
96,211 |
|
|
445,196 |
|
|
86,442 |
|
|
464,740 |
|
Total anti-dilutive common stock equivalents: |
|
|
97,196 |
|
|
457,434 |
|
|
87,358 |
|
|
533,373 |
10. SHARE-BASED COMPENSATION
Our eligible employees currently participate in the 2015 LTIP. The 2015 LTIP authorizes the Board to grant stock options, stock appreciation rights, restricted shares, restricted share units, performance awards, and dividend equivalents. All grants are made by issuing new shares and no more than 4.0 million shares of common stock may be issued under the 2015 LTIP. As of June 30, 2017, we had 2.8 million shares available under the 2015 LTIP.
16
Share-based compensation expense is included in selling, general, and administrative expense. The income tax effect associated with award vestings is included in income tax expense. The following table presents the amounts recognized in our Condensed Consolidated Statements of Operations, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
||||
|
Share-based compensation expense |
|
$ |
3,017 |
|
$ |
2,105 |
|
$ |
5,101 |
|
$ |
3,705 |
|
Income tax benefit realized from award vestings |
|
$ |
338 |
|
$ |
— |
|
$ |
1,166 |
|
$ |
— |
The following table presents a summary of our share-based compensation activity for the six months ended June 30, 2017, in thousands, except per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSAs |
|
Options |
||||||||||||
|
|
|
Number of Shares |
|
Weighted Average Grant Date Fair Value Per Share |
|
Number of Shares |
|
Weighted Average Grant Date Fair Value Per Share |
|
Weighted Average Exercise Price Per Share |
|
Aggregate
|
||||
|
Balance December 31, 2016 |
|
653.1 |
|
$ |
25.71 |
|
712.0 |
|
$ |
9.73 |
|
$ |
25.03 |
|
$ |
7,525.8 |
|
Granted |
|
145.3 |
|
$ |
43.46 |
|
153.0 |
|
$ |
14.62 |
|
$ |
38.89 |
|
|
— |
|
Converted/Exercised |
|
(142.0) |
|
$ |
21.99 |
|
(49.0) |
|
$ |
11.07 |
|
$ |
28.81 |
|
$ |
1,160.1 |
|
Forfeited |
|
(24.0) |
|
$ |
31.86 |
|
— |
|
$ |
— |
|
$ |
— |
|
|
— |
|
Balance June 30, 2017 |
|
632.4 |
|
$ |
30.39 |
|
816.0 |
|
$ |
10.56 |
|
$ |
27.40 |
|
$ |
20,948.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable June 30, 2017 (a) |
|
|
|
|
237.5 |
|
$ |
8.74 |
|
$ |
22.37 |
|
$ |
7,291.0 |
||
|
|
(a) |
|
The weighted average remaining contractual term for vested options is 6.9 years. |
We had unrecognized share-based compensation expense relating to unvested awards as shown in the following table, dollars in thousands:
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017 |
||||
|
|
|
Unrecognized Compensation Expense
|
|
Weighted Average
|
||
|
RSAs |
|
$ |
13,658 |
|
|
1.7 years |
|
Options |
|
|
5,326 |
|
|
1.6 years |
|
Total unrecognized compensation expense related to unvested awards |
|
$ |
18,984 |
|
|
|
Our RSAs with performance-based conditions are evaluated on a quarterly basis with adjustments to compensation expense based on the likelihood of the performance target being achieved or exceeded. The following table shows the range of payouts and the related expense for our outstanding RSAs with performance-based conditions, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payout Ranges and related expense |
||||||||||
|
RSAs with performance-based conditions |
|
Grant Date Fair Value |
|
0% |
|
25% |
|
100% |
|
200% |
|||||
|
February 22, 2016 |
|
$ |
2,018 |
|
$ |
— |
|
$ |
505 |
|
$ |
2,018 |
|
$ |
4,036 |
|
February 21, 2017 |
|
$ |
2,161 |
|
$ |
— |
|
$ |
540 |
|
$ |
2,161 |
|
$ |
4,322 |
17
The fair value of our RSAs with a market-based condition granted under the 2015 LTIP was determined using a Monte Carlo simulation. The following are key inputs in the Monte Carlo analysis for awards granted in 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
2016 |
||||
|
Measurement period (years) |
|
|
2.86 |
|
|
|
2.86 |
|
|
Risk free interest rate |
|
|
1.46 |
% |
|
|
0.90 |
% |
|
Dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
Estimated fair value of market-based RSAs granted |
|
$ |
50.06 |
|
|
$ |
33.77 |
|
The fair values of stock options granted under the 2015 LTIP were calculated using the Black-Scholes Options Pricing Model. The following table presents the assumptions used to estimate the fair values of options granted in 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
2016 |
||||
|
Risk free interest rate |
|
|
2.18 |
% |
|
|
1.51 |
% |
|
Expected volatility, using historical return volatility and implied volatility |
|
|
35.00 |
% |
|
|
38.00 |
% |
|
Expected life (in years) |
|
|
6.00 |
|
|
|
6.00 |
|
|
Dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
Estimated fair value of options granted |
|
$ |
14.44 |
|
|
$ |
10.20 |
|
11. SHARE REPURCHASE PROGRAM
On March 1, 2016, our Board authorized the 2016 Repurchase Program, which expired on February 28, 2017. We repurchased a total of 788,399 shares for an approximate cost of $26.6 million, or $33.72 per share, under the 2016 Repurchase Plan.
On February 24, 2017, our Board authorized the 2017 Repurchase Program, pursuant to which we may purchase up to $200 million of our common stock. Share repurchases under the 2017 Repurchase Program may be executed through various means including, without limitation, open market purchases, privately negotiated transactions, or otherwise. The 2017 Repurchase Program does not obligate the Company to purchase any shares and expires February 24, 2019. Authorization for the 2017 Repurchase Program may be terminated, increased, or decreased by our Board at its discretion at any time.
The following table sets forth our share repurchases under the 2016 and 2017 Share Repurchase Programs:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
2017 |
|
2017 |
||
|
Number of shares purchased |
|
|
461,358 |
|
|
858,393 |
|
Share repurchase cost (in thousands) |
|
$ |
21,907 |
|
$ |
39,286 |
|
Average price per share |
|
$ |
47.48 |
|
$ |
45.77 |
On May 5, 2017, we entered into the 2017 ASR Agreement. The agreement became effective on July 5, 2017. Upon the effectiveness of the agreement, we delivered to BofA $100.0 million in exchange for an initial delivery of a number of shares of our common stock. The actual number of shares to be repurchased under the 2017 ASR Agreement will be based on the average of the daily volume-weighted average prices paid for our common stock during the term of the transaction, less an agreed discount, and subject to potential adjustments pursuant to the terms and conditions of the agreement. The final settlement of the transaction under the agreement is expected to occur no later than the first quarter of 2018. At final settlement, BofA may be required to deliver additional shares of common stock to us, or, under certain circumstances, we may be required to deliver shares of our common stock or to make a cash payment, at our election, to BofA.
The 2017 ASR Agreement is part of our 2017 Repurchase Program. For more information, see Note 14 – Subsequent Events .
18
12. BUSINESS COMBINATIONS
As part of our strategy to supplement our organic growth and expand our access to additional markets and products, we made several acquisitions during the six months ended June 30, 2017. Each acquisition was accounted for as a business combination under ASC Topic 805, “Business Combinations.” Acquisition related costs for the three and six months ended June 30, 2017, were $0.1 million and $0.4 million, respectively and are included in selling, general, and administrative expense in our Condensed Consolidated Statements of Operations.
Acquisitions
On January 16, 2017, we acquired substantially all of the assets of Midwest, a heavy commercial fireproofing and insulation company with locations in Chicago, Illinois and Indianapolis, Indiana. The purchase price of approximately $12.2 million was funded by cash on hand.
On February 27, 2017, we acquired substantially all of the assets of EcoFoam, a residential and light commercial insulation installation company with locations in Colorado Springs and Denver, Colorado. The purchase price of approximately $22.3 million was funded by cash on hand of $20.2 million and contingent consideration of $2.1 million.
On February 27, 2017, we acquired substantially all of the assets of MR Insulfoam, a residential insulation installation company located in Norwalk, Connecticut. The purchase price of approximately $1.5 million was funded by cash on hand.
On March 29, 2017, we acquired substantially all of the assets of Capital, a residential insulation installation company located in Sacramento, California. The purchase price of approximately $7.3 million was funded by cash on hand.
On April 20, 2017, we acquired substantially all of the assets of Superior, a residential insulation installation company located in Seattle, Washington. The purchase price of approximately $10.9 million was funded by cash on hand.
On June 8, 2017, we acquired substantially all of the assets of Canyon, a heavy commercial insulation and firestopping company with locations in Corona, San Diego, and Livermore, California. The purchase price of approximately $34.4 million was funded by cash on hand of $31.8 million and deferred purchase price consideration of $2.7 million.
Revenue and net income since the acquisition date included in our Condensed Consolidated Statements of Operations were as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017 |
|
Six Months Ended June 30, 2017 |
||||||||
|
|
|
Net Sales |
|
Net Income |
|
Net Sales |
|
Net Income |
||||
|
Midwest |
|
$ |
4,940 |
|
$ |
231 |
|
$ |
8,208 |
|
$ |
140 |
|
EcoFoam |
|
$ |
6,848 |
|
$ |
134 |
|
$ |
9,237 |
|
$ |
225 |
|
Superior |
|
$ |
2,866 |
|
$ |
337 |
|
$ |
2,866 |
|
$ |
337 |
|
Canyon |
|
$ |
1,733 |
|
$ |
221 |
|
$ |
1,733 |
|
$ |
221 |
|
All others |
|
$ |
2,745 |
|
$ |
355 |
|
$ |
2,941 |
|
$ |
377 |
Pro Forma Results
The following unaudited pro forma information has been prepared as if the 2017 acquisitions had taken place on January 1, 2016. The unaudited pro forma information is not necessarily indicative of the results that we would have achieved had the transactions actually taken place on January 1, 2016. Further, the pro forma information does not purport to be indicative of future financial operating results. Our pro forma results are presented below, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma for the three months ended June 30, |
|
Pro forma for the six months ended June 30, |
||||||||
|
|
|
2017 |
|
|
2016 |
|
2017 |
|
|
2016 |
||
|
Net sales |
|
$ |
485,299 |
|
$ |
456,173 |
|
$ |
940,334 |
|
$ |
890,158 |
|
Net income |
|
$ |
24,113 |
|
$ |
17,212 |
|
$ |
23,804 |
|
$ |
29,227 |
19
The following table details the additional expense included in the unaudited pro forma net income that would have been recorded had the acquisitions taken place on January 1, 2016, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma for the three months ended June 30, |
|
Pro forma for the six months ended June 30, |
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
||||
|
Amortization of intangible assets |
|
$ |
216 |
|
$ |
751 |
|
$ |
830 |
|
$ |
1,503 |
|
Income tax expense (using normalized 38% ETR) |
|
$ |
400 |
|
$ |
979 |
|
$ |
1,260 |
|
$ |
1,530 |
Purchase Price Allocations
The estimated fair values of the assets acquired and liabilities assumed for the acquisitions, as well as total consideration paid, approximated the following as of June 30, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
||||||||||||||||
|
|
|
Midwest |
|
EcoFoam |
|
Superior |
|
Canyon |
|
All others |
|
Total |
||||||
|
Estimated fair values: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
6,690 |
|
$ |
3,762 |
|
$ |
2,012 |
|
$ |
8,222 |
|
$ |
678 |
|
$ |
21,364 |
|
Inventories |
|
|
75 |
|
|
1,119 |
|
|
321 |
|
|
529 |
|
|
141 |
|
|
2,185 |
|
Prepaid and other assets |
|
|
— |
|
|
27 |
|
|
1 |
|
|
— |
|
|
6 |
|
|
34 |
|
Property and equipment |
|
|
655 |
|
|
1,544 |
|
|
361 |
|
|
475 |
|
|
357 |
|
|
3,392 |
|
Intangible assets |
|
|
2,660 |
|
|
6,650 |
|
|
5,270 |
|
|
8,450 |
|
|
3,540 |
|
|
26,570 |
|
Goodwill |
|
|
3,504 |
|
|
11,588 |
|
|
3,657 |
|
|
16,889 |
|
|
4,137 |
|
|
39,775 |
|
Accounts payable |
|
|
(1,359) |
|
|
(2,093) |
|
|
(681) |
|
|
(163) |
|
|
(26) |
|
|
(4,322) |
|
Accrued liabilities |
|
|
— |
|
|
(302) |
|
|
(4) |
|
|
— |
|
|
— |
|
|
(306) |
|
Net assets acquired |
|
$ |
12,225 |
|
$ |
22,295 |
|
$ |
10,937 |
|
$ |
34,402 |
|
$ |
8,833 |
|
$ |
88,692 |
The following table details the fair value of consideration transferred as of June 30, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
||||||||||||||||
|
|
|
Midwest |
|
EcoFoam |
|
Superior |
|
Canyon |
|
All others |
|
Total |
||||||
|
Fair value of consideration: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
12,225 |
|
$ |
20,185 |
|
$ |
10,937 |
|
$ |
31,752 |
|
$ |
8,833 |
|
$ |
83,932 |
|
Deferred consideration |
|
|
— |
|
|
— |
|
|
— |
|
|
2,650 |
|
|
— |
|
|
2,650 |
|
Contingent consideration |
|
|
— |
|
|
2,110 |
|
|
— |
|
|
— |
|
|
— |
|
|
2,110 |
|
Total consideration transferred |
|
$ |
12,225 |
|
$ |
22,295 |
|
$ |
10,937 |
|
$ |
34,402 |
|
$ |
8,833 |
|
$ |
88,692 |
Estimates of acquired intangible assets related to the acquisitions are as follows, as of June 30, dollars in thousands:
|
|
|
|
|
|
|
|
|
|
|
2017 |
||||
|
|
|
Estimated Fair Value |
|
Weighted Average Estimated Useful Life (Years) |
||
|
Customer relationships |
|
$ |
19,070 |
|
|
10 |
|
Trademarks and trade names |
|
|
1,260 |
|
|
10 |
|
Non-competition agreements |
|
|
6,240 |
|
|
5 |
|
Total intangible assets |
|
$ |
26,570 |
|
|
9 |
Further adjustments to the allocation for each acquisition still under its measurement period, generally one year from acquisition date, are expected as third-party or internal valuations are finalized, certain tax aspects of the transaction are completed, and customary post-closing reviews are concluded during the measurement period attributable to each individual business combination. Insignificant adjustments to the fair value of assets acquired, and in some cases total purchase price, have been made to certain business combinations since the date of acquisition. Adjustments may be made to the fair value of assets acquired, and in some cases total purchase price may be adjusted, through the end of each measurement period.
20
Goodwill to be recognized in connection with these acquisitions is attributable to the synergies expected to be realized and improvements in the businesses after the acquisitions. The goodwill will be recognized entirely by our Installation segment. All of the $39.8 million of goodwill is expected to be deductible for income tax purposes.
Contingent Consideration
The acquisition of EcoFoam includes a contingent consideration arrangement that requires additional consideration to be paid by TopBuild to the sellers of EcoFoam based on certain future revenues of EcoFoam over a three-year period. The range of the undiscounted amounts TopBuild could pay under the contingent consideration agreement is between zero and $2.5 million. The fair value of the contingent consideration recognized on the acquisition date of $2.1 million was estimated by applying the income approach using discounted cash flows. That measure is based on significant Level 3 inputs not observable in the market. The significant assumption includes a discount rate of 9.5%.
Contingent consideration is recorded in the Condensed Consolidated Balance Sheets in accrued liabilities and other liabilities. Adjustments to the fair value of contingent consideration will be reflected in selling, general, and administrative expense in the Condensed Consolidated Statements of Operations and are included in the acquisition related costs above. The following table presents the fair value of contingent consideration as of June 30, 2017, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Contingent Consideration Recognized at Acquisition Date |
|
Settlement of Contingent Consideration |
|
Adjustment to Contingent Consideration Charged to Expense |
|
Liability Balance for Contingent Consideration |
||||
|
EcoFoam |
|
$ |
2,110 |
|
$ |
— |
|
$ |
48 |
|
$ |
2,158 |
13. CLOSURE COSTS
We continuously evaluate our national footprint to ensure we are strategically located throughout the U.S. to serve our customers and position ourselves for continued growth. As a result of this evaluation, management approved a plan to consolidate certain back-office support operations to our Daytona Beach, Florida, Branch Support Center. We recognize expenses related to closures and position eliminations at the time of announcement or notification. Such costs included termination and other severance benefits, lease abandonment costs, and other transition costs. Closure costs are reflected in our Condensed Consolidated Statements of Operations as selling, general, and administrative expense. Accrued closure costs are reflected in our Condensed Consolidated Balance Sheets as accrued liabilities. Remaining accrued closure costs are expected to be paid within the next three to six months, except our lease termination costs, which we expect to be paid over the following three years.
The following table details our total estimated closure costs, by cost type, related to the above closure and transition costs, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment / Cost Type |
|
Closure Costs Liability at December 31,
|
|
Closure Costs Incurred for the Six Months Ended
|
|
Cash Payments for the Six Months Ended
|
|
Non-cash Adjustments for the Six Months Ended
|
|
Closure Costs Liability at
|
|||||
|
Corporate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
$ |
— |
|
$ |
672 |
|
$ |
(59) |
|
$ |
(282) |
|
$ |
331 |
|
Lease abandonment |
|
|
— |
|
|
582 |
|
|
(52) |
|
|
(115) |
|
|
415 |
|
Other costs |
|
|
— |
|
|
876 |
|
|
(792) |
|
|
— |
|
|
84 |
|
Total Corporate: |
|
$ |
— |
|
$ |
2,130 |
|
$ |
(903) |
|
$ |
(397) |
|
$ |
830 |
21
14. SUBSEQUENT EVENTS
On May 5, 2017, we entered into the 2017 ASR Agreement as part of our 2017 Repurchase Program. On July 5, 2017, we made a payment of $100.0 million and received an initial share delivery of approximately 1.5 million shares worth approximately $80.0 million. The remaining balance of $20.0 million is expected to settle no later than March 2018. The actual number of shares to be repurchased will be based on the average of the daily volume-weighted average prices of our common stock repurchased during the term of the transaction, less an agreed discount. At final settlement, BofA may be required to deliver additional shares of common stock to us, or, under certain circumstances, we may be required to deliver shares of our common stock or make a cash payment, at our election, to BofA.
During July 2017, we used $30.0 million of cash on hand and borrowed $70.0 million under our Revolving Facility to fund the 2017 ASR Agreement.
22
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
TopBuild, headquartered in Daytona Beach, Florida, is the leading purchaser, installer, and distributor of insulation products to the U.S. construction industry, based on revenue. We trade on the NYSE under the symbol “BLD.”
We operate in two segments: Installation (TruTeam) and Distribution (Service Partners). Through our Installation segment, we provide insulation installation services nationwide through our TruTeam contractor services business which has over 175 branches located in 41 states. We install various insulation applications, including fiberglass batts and rolls, blown-in loose fill fiberglass, blown-in loose fill cellulose, and polyurethane spray foam. Additionally, we install other building products, including rain gutters, garage doors, fireplaces, shower enclosures, and closet shelving. We handle every stage of the installation process, including material procurement supplied by leading manufacturers, project scheduling and logistics, multi-phase professional installation, and installation quality assurance.
Through our Distribution segment, we distribute insulation and other building products, including rain gutters, fireplaces, closet shelving, and roofing materials through our Service Partners business, which has over 70 branches in 32 states. Our Service Partners customer base consists of thousands of insulation contractors of all sizes, gutter contractors, weatherization contractors, other contractors, dealers, metal building erectors, and modular home builders.
We believe that having both TruTeam and Service Partners provides us with a number of distinct competitive advantages. First, the combined buying power of our two business segments, along with our national scale, strengthens our ties to the major manufacturers of insulation and other building products. This helps to ensure we are buying competitively and ensures the availability of supply to our local branches and distribution centers. The overall effect is driving efficiencies through our supply chain. Second, being a leader in both installation and distribution allows us to more effectively reach a broader set of builder customers, regardless of their size or geographic location in the U.S., and leverage housing growth wherever it occurs. Third, during industry downturns, many insulation contractors who buy directly from manufacturers during industry peaks return to purchasing through distributors. As a result, this helps to reduce our exposure to cyclical swings in our business.
For additional details pertaining to our operating results by segment see Note 6 – Segment Information in the notes to the unaudited condensed consolidated financial statements, which is incorporated herein by reference.
23
SECOND QUARTER 2017 VERSUS SECOND QUARTER 2016
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 elsewhere in this Quarterly Report on Form 10-Q.
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 June 30, |
|
||||
|
|
|
2017 |
|
2016 |
|
||
|
Net sales |
|
$ |
474,458 |
|
$ |
431,589 |
|
|
Cost of sales |
|
|
357,849 |
|
|
333,901 |
|
|
Cost of sales ratio |
|
|
75.4 |
% |
|
77.4 |
% |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
116,609 |
|
|
97,688 |
|
|
Gross profit margin |
|
|
24.6 |
% |
|
22.6 |
% |
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expense |
|
|
75,813 |
|
|
70,898 |
|
|
Selling, general, and administrative expense to sales ratio |
|
|
16.0 |
% |
|
16.4 |
% |
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
40,796 |
|
|
26,790 |
|
|
Operating profit margin |
|
|
8.6 |
% |
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
|
Other expense, net |
|
|
(2,899) |
|
|
(1,310) |
|
|
Income tax expense from continuing operations |
|
|
(14,437) |
|
|
(9,865) |
|
|
Income from continuing operations |
|
$ |
23,460 |
|
$ |
15,615 |
|
|
Net margin on continuing operations |
|
|
4.9 |
% |
|
3.6 |
% |
Sales and Operations
Net sales increased 9.9 percent for the three months ended June 30, 2017, from the comparable period of 2016. The increase was principally driven by increased organic sales volume, overall increased selling prices as well as our seven acquisitions completed during 2017 and 2016. Our sales benefited from the overall continued improvement in the housing market, as well as our continued focus on organically growing our residential and commercial activity.
The following table details our same branch sales and sales from acquired businesses, in thousands:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
||||
|
|
|
2017 |
|
2016 |
||
|
Net sales |
|
|
|
|
|
|
|
Same branch (a) |
|
$ |
453,648 |
|
$ |
431,589 |
|
Acquired |
|
|
20,810 |
|
|
— |
|
Total |
|
$ |
474,458 |
|
$ |
431,589 |
|
|
(a) |
|
We define same branch sales as sales from branches in operation for at least 12 full calendar months. |
Our gross profit margins were 24.6 percent and 22.6 percent for the three months ended June 30, 2017 and 2016, respectively. Gross profit margin was positively impacted by favorable leverage on overall higher sales volume, improved selling prices, improved labor productivity, lower material costs, and lower health insurance costs.
24
Selling, general, and administrative expense, as a percent of sales, was 16.0 percent and 16.4 percent for the three months ended June 30, 2017 and 2016, respectively. Decreased selling, general, and administrative expense as a percent of sales was a result of better absorption of fixed costs, lower salaries expense, and lower workers’ compensation and general insurance expense, partially offset by higher share-based compensation and legal expenses. Operating margins were 8.6 percent and 6.2 percent for the three months ended June 30, 2017 and 2016, respectively. The increase in operating margins was a result of better absorption of fixed costs, overall increased sales volume, improved selling prices, lower material cost, improved labor productivity, and lower salaries expense, partially offset by higher share-based compensation and legal expenses, as well as closure and related costs noted below.
Closure and Related Costs
We incurred expense of $0.5 million during the three months ended June 30, 2017, related to the consolidation of certain back-office operations to our Daytona Beach, Florida, Branch Support Center.
Business Segment Results
The following table sets forth our net sales and operating profit margins by business segment, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
||||
|
|
|
2017 |
|
2016 |
|
Percent Change |
|
||
|
Sales by business segment: |
|
|
|
|
|
|
|
|
|
|
Installation |
|
$ |
320,984 |
|
$ |
288,042 |
|
11.4 |
% |
|
Distribution |
|
|
175,062 |
|
|
164,257 |
|
6.6 |
% |
|
Intercompany eliminations and other adjustments |
|
|
(21,588) |
|
|
(20,710) |
|
|
|
|
Net sales |
|
$ |
474,458 |
|
$ |
431,589 |
|
9.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit by business segment: |
|
|
|
|
|
|
|
|
|
|
Installation |
|
$ |
35,086 |
|
$ |
22,797 |
|
53.9 |
% |
|
Distribution |
|
|
17,022 |
|
|
13,547 |
|
25.7 |
% |
|
Intercompany eliminations and other adjustments |
|
|
(3,680) |
|
|
(3,524) |
|
|
|
|
Operating profit before general corporate expense |
|
|
48,428 |
|
|
32,820 |
|
47.6 |
% |
|
General corporate expense, net |
|
|
(7,632) |
|
|
(6,030) |
|
26.6 |
% |
|
Operating profit |
|
$ |
40,796 |
|
$ |
26,790 |
|
52.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit margins: |
|
|
|
|
|
|
|
|
|
|
Installation |
|
|
10.9 |
% |
|
7.9 |
% |
|
|
|
Distribution |
|
|
9.7 |
% |
|
8.2 |
% |
|
|
|
Operating profit margin before general corporate expense |
|
|
10.2 |
% |
|
7.6 |
% |
|
|
|
Operating profit margin |
|
|
8.6 |
% |
|
6.2 |
% |
|
|
Installation
Sales
Sales in the Installation segment increased $32.9 million, or 11.4 percent, for the three months ended June 30, 2017, compared to the same period in 2016. Sales increased 7.2 percent from acquired branches and 1.5 percent due to increased selling prices. Sales also increased due to increased sales volume related to a higher level of activity in new home construction and an increased sales volume of commercial installation.
25
Operating results
Operating margins in the Installation segment were 10.9 percent and 7.9 percent for the three months ended June 30, 2017 and 2016, respectively. The increase in operating margins was a result of increased sales volume and related absorption of fixed costs, a 1.5 percent increase in selling prices, lower material cost, improved sales productivity, lower health insurance costs, as well as the benefits associated with cost savings initiatives, partially offset by higher legal fees.
Distribution
Sales
Sales in the Distribution segment increased $10.8 million, or 6.6 percent, for the three months ended June 30, 2017, compared to the same period in 2016. The increase was primarily due to increased sales volume related to a higher level of activity in new home construction. Sales were partially offset by a 0.2 percent decrease in selling prices.
Operating results
Operating margins in the Distribution segment were 9.7 percent and 8.2 percent for the three months ended June 30, 2017 and 2016, respectively. The increase in operating margins was a result of better absorption of fixed costs and increased sales volume. Sales volume increased due to a higher level of activity in new home construction as well as lower material costs, partially offset by selling price degradation.
OTHER ITEMS
Other expense, net
Other expense, net, which primarily consisted of interest expense, was $2.9 million and $1.3 million for the three months ended June 30, 2017 and 2016, respectively. The increase in other expense, net for the three months ended June 30, 2017, primarily related to a $1.1 million loss on extinguishment of debt as a result of our debt refinancing completed on May 5, 2017.
Income tax expense from continuing operations
Income tax expense from continuing operations was $14.4 million, an ETR of 38.1 percent, for the three months ended June 30, 2017, compared to $9.9 million, an ETR of 38.7 percent, for the comparable period in 2016. The lower 2017 rate was due to a discrete benefit related to share-based compensation and an increase in the amount of the Domestic Production Activities Deduction.
26
FIRST SIX MONTHS 2017 VERSUS FIRST SIX MONTHS 2016
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:
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
||||
|
|
|
2017 |
|
2016 |
|
||
|
Net sales |
|
$ |
915,821 |
|
$ |
845,613 |
|
|
Cost of sales |
|
|
697,584 |
|
|
658,470 |
|
|
Cost of sales ratio |
|
|
76.2 |
% |
|
77.9 |
% |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
218,237 |
|
|
187,143 |
|
|
Gross profit margin |
|
|
23.8 |
% |
|
22.1 |
% |
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expense (exclusive of significant legal settlement, shown separately below) |
|
|
150,904 |
|
|
140,586 |
|
|
Selling, general, and administrative expense (exclusive of significant legal settlement, show separately below) to sales ratio |
|
|
16.5 |
% |
|
16.6 |
% |
|
|
|
|
|
|
|
|
|
|
Significant legal settlement |
|
|
30,000 |
|
|
— |
|
|
Significant legal settlement to sales ratio |
|
|
3.3 |
% |
|
— |
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
37,333 |
|
|
46,557 |
|
|
Operating profit margin |
|
|
4.1 |
% |
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
Other expense, net |
|
|
(4,162) |
|
|
(2,908) |
|
|
Income tax expense from continuing operations |
|
|
(11,422) |
|
|
(16,918) |
|
|
Income from continuing operations |
|
$ |
21,749 |
|
$ |
26,731 |
|
|
Net margin on continuing operations |
|
|
2.4 |
% |
|
3.2 |
% |
Sales and Operations
Net sales increased 8.3 percent for the six months ended June 30, 2017, from the comparable period of 2016. The increase was principally driven by increased organic sales volume, overall increased selling prices as well as our seven acquisitions completed during 2017 and 2016. Our sales benefited from the overall continued improvement in the housing market, as well as our continued focus on organically growing our residential and commercial activity.
The following table details our same branch sales and sales from acquired businesses, in thousands:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
||||
|
|
|
2017 |
|
2016 |
||
|
Net sales |
|
|
|
|
|
|
|
Same branch (a) |
|
$ |
887,425 |
|
$ |
845,613 |
|
Acquired |
|
|
28,396 |
|
|
— |
|
Total |
|
$ |
915,821 |
|
$ |
845,613 |
|
|
(a) |
|
We define same branch sales as sales from branches in operation for at least 12 full calendar months. |
Our gross profit margins were 23.8 percent and 22.1 percent for the six months ended June 30, 2017 and 2016, respectively. Gross profit margin was positively impacted by favorable leverage on overall higher sales volume, higher selling prices, lower material costs, and lower health insurance costs.
Selling, general, and administrative expense, exclusive of the significant legal settlement discussed below, as a percent of sales, was 16.5 percent and 16.6 percent for the six months ended June 30, 2017 and 2016, respectively. Decreased selling, general, and administrative expense as a percent of sales was a result of lower salaries and group health expense, partially offset by higher legal and share-based compensation expense, as well as closure and related costs noted below. We incurred a $30 million legal settlement during
27
the six months ended June 30, 2017, related to the settlement of a breach of contract action related to our termination of an insulation supply agreement with Owens. Operating margins, exclusive of the significant legal settlement discussed above were 7.4 percent and 5.5 percent for the six months ended June 30, 2017 and 2016, respectively. The increase in operating margins was a result of overall increased sales volume, higher selling prices, lower material cost, and lower health insurance costs, partially offset by higher legal fees, share-based compensation expense, and bonus expense.
Closure and Related Costs
We incurred expense of $1.7 million during the six months ended June 30, 2017, related to the consolidation of certain back-office operations to our Daytona Beach, Florida, Branch Support Center.
Business Segment Results
The following table sets forth our net sales and operating profit margins by business segment, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
||||
|
|
2017 |
|
2016 |
|
Percent Change |
|
||
|
Sales by business segment: |
|
|
|
|
|
|
|
|
|
Installation |
$ |
611,870 |
|
$ |
560,920 |
|
9.1 |
% |
|
Distribution |
|
345,306 |
|
|
325,145 |
|
6.2 |
% |
|
Intercompany eliminations and other adjustments |
|
(41,355) |
|
|
(40,452) |
|
|
|
|
Net sales |
$ |
915,821 |
|
$ |
845,613 |
|
8.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
Operating profit by business segment: |
|
|
|
|
|
|
|
|
|
Installation (exclusive of significant legal settlement, shown separately below) |
|
56,123 |
|
|
36,303 |
|
54.6 |
% |
|
Significant legal settlement (Installation segment) |
$ |
(30,000) |
|
$ |
— |
|
|
|
|
Distribution |
|
32,506 |
|
|
27,880 |
|
16.6 |
% |
|
Intercompany eliminations and other adjustments |
|
(6,980) |
|
|
(6,876) |
|
|
|
|
Operating profit before general corporate expense |
|
51,649 |
|
|
57,307 |
|
(9.9) |
% |
|
General corporate expense, net |
|
(14,316) |
|
|
(10,750) |
|
|
|
|
Operating profit |
$ |
37,333 |
|
$ |
46,557 |
|
(19.8) |
% |
|
|
|
|
|
|
|
|
|
|
|
Operating profit margins: |
|
|
|
|
|
|
|
|
|
Installation (exclusive of significant legal settlement) |
|
9.2 |
% |
|
6.5 |
% |
|
|
|
Installation (inclusive of significant legal settlement) |
|
4.3 |
% |
|
|
|
|
|
|
Distribution |
|
9.4 |
% |
|
8.6 |
% |
|
|
|
Operating profit margin before general corporate expense |
|
5.6 |
% |
|
6.8 |
% |
|
|
|
Operating profit margin |
|
4.1 |
% |
|
5.5 |
% |
|
|
Installation
Sales
Sales in the Installation segment increased $51.0 million, or 9.1 percent, for the six months ended June 30, 2017, compared to the same period in 2016. Sales increased 5.1 percent from acquired branches and 1.6 percent due to increased selling prices. Sales also increased due to increased sales volume related to a higher level of activity in new home construction and an increased sales volume of commercial installation.
Operating results
28
Operating margins in the Installation segment were 4.3 percent and 6.5 percent for the six months ended June 30, 2017 and 2016, respectively. The decrease in operating margins was a result of the $30 million legal settlement with Owens, as well as legal fee expense. The decrease was partially offset by increased sales volume and related absorption of fixed costs, higher selling prices, lower material cost, improved sales productivity, as well as the benefits associated with cost savings initiatives.
Distribution
Sales
Sales in the Distribution segment increased $20.2 million, or 6.2 percent, for the six months ended June 30, 2017, compared to the same period in 2016. The increase was primarily due to increased sales volume related to a higher level of activity in new home construction. Sales were partially offset by a 1.4 percent decrease in selling prices.
Operating results
Operating margins in the Distribution segment were 9.4 percent and 8.6 percent for the six months ended June 30, 2017 and 2016, respectively. Operating margins were positively impacted by increased sales volume related to a higher level of activity in new home construction as well as improved labor productivity, partially offset by selling price degradation.
OTHER ITEMS
Other expense, net
Other expense, net, which primarily consisted of interest expense, was $4.2 million and $2.9 million for the six months ended June 30, 2017 and 2016, respectively. The increase in other expense, net for the six months ended June 30, 2017, primarily related to a $1.1 million loss on extinguishment of debt as a result of our debt refinancing completed on May 5, 2017. Utilizing our current interest rate of 2.60 percent as of June 30, 2017, our expected interest expense, including the amortization of debt issuance costs and other fees, is estimated to be $4.1 million for the remaining six months of 2017.
Income tax expense from continuing operations
Income tax expense from continuing operations was $11.4 million, an ETR of 34.4 percent, for the six months ended June 30, 2017, compared to $16.9 million, and ETR of 38.8 percent, for the comparable period in 2016. The lower rate was primarily due to a discrete benefit related to share-based compensation and an increase in the amount of the Domestic Production Activities Deduction.
29
Cash Flows and Liquidity
Significant sources (uses) of cash and cash equivalents for the six months ended June 30, 2017 and 2016, are summarized as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
||||
|
|
|
2017 |
|
2016 |
|
||
|
Net cash provided by operating activities |
|
$ |
25,671 |
|
$ |
6,146 |
|
|
Purchases of property and equipment |
|
|
(8,571) |
|
|
(6,023) |
|
|
Acquisition of businesses |
|
|
(83,932) |
|
|
— |
|
|
Proceeds from sale of property and equipment |
|
|
126 |
|
|
219 |
|
|
Other investing, net |
|
|
147 |
|
|
147 |
|
|
Proceeds from issuance of long-term debt |
|
|
250,000 |
|
|
— |
|
|
Repayment of long-term debt |
|
|
(180,000) |
|
|
(5,000) |
|
|
Taxes withheld and paid on employees' equity awards |
|
|
(2,147) |
|
|
(1,285) |
|
|
Repurchase of shares of common stock |
|
|
(39,286) |
|
|
(4,962) |
|
|
Payment of debt issuance costs |
|
|
(2,150) |
|
|
— |
|
|
Cash and cash equivalents decrease |
|
$ |
(40,142) |
|
$ |
(10,758) |
|
|
Working capital (receivables, net plus inventories, net less accounts payable) as a percentage of net sales for the trailing 12 months (a) |
|
|
8.8 |
% |
|
8.4 |
% |
|
|
(a) |
|
Sales for the trailing 12 months have been adjusted for the pro forma effect of acquired branches |
30
Net cash flows provided by operating activities were $25.7 million and $6.1 million for the six months ended June 30, 2017 and 2016, respectively. The increase was due to the satisfaction of payables during the first six months of 2016 related to strategic inventory purchases in the fourth quarter of 2015 which were not replicated in 2016, as well as nominal changes to payment terms for select suppliers which accelerated payments in 2016. Additionally, a decrease of inventory related to higher sales for the six months ended June 30, 2017, served as a cash inflow, partially offset by a decrease in net income related to the legal settlement with Owens. As of June 30, 2017, and 2016, our working capital was 8.8 percent and 8.4 percent of net sales for the trailing twelve months, adjusted for the pro forma effect to assume full LTM for acquired companies, respectively. Working capital increased $22.8 million to $166.0 million at June 30, 2017, compared to June 30, 2016. The increase in working capital as a percentage of net sales for the trailing 12 months was primarily due to increased accounts receivable driven by higher commercial sales mix which comes with longer collection terms, relative to the trailing 12 months’ net sales, as well as initial inefficiencies in accounts payable and accounts receivable processes for acquired companies, partially offset by an increase in our accounts payable balance related to improved management of our supplier payments.
Net cash used in investing activities was $92.2 million for the six months ended June 30, 2017, primarily comprised of $83.9 million for the acquisitions of substantially all of the assets of Midwest, EcoFoam, MR Insulfoam, Capital, Superior, and Canyon and $8.6 million for purchases of property and equipment, partially offset by $0.1 million of proceeds from the sale of property and equipment. Net cash used in investing activities was $5.7 million for the six months ended June 30, 2016, primarily comprised of $6.0 million of purchases of property and equipment, partially offset by $0.2 million of proceeds from the sale of property and equipment.
Net cash provided by financing activities was $26.4 million for the six months ended June 30, 2017, primarily comprised of $250 million of proceeds from issuance of long-term debt related to our New Credit Agreement. We used $175 million of the proceeds to pay off all amounts outstanding under our Old Credit Agreement, $39.3 million for common stock repurchases related to our share repurchase programs, $5.0 million of repayments of our previous long-term debt, $2.2 million for payment of debt issuance costs, and $2.1 million for purchases of common stock for tax withholding obligations related to the vesting of share-based incentive awards during the six months ended June 30, 2017. Net cash used in financing activities was $11.2 million for the six months ended June 30, 2016, primarily comprised of $5.0 million of repayments of our long-term debt, $5.0 million for common stock repurchases related to our $50 million share repurchase program announced in March 2016, and $1.3 million for purchases of common stock for tax withholding obligations related to the vesting of restricted share awards during the six months ended June 30, 2016.
We have access to liquidity through our cash from operations and available borrowing capacity under our New Credit Agreement, which provides for borrowing and/or standby letter of credit issuances of up to $250 million under a Revolving Facility as well as $100 million of additional term loan capacity under a delayed draw feature. We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to support our ongoing operations and to fund our debt service requirements, capital expenditures, and working capital for at least the next 12 months. Cash flows are seasonally stronger in the third and fourth quarters as a result of increased new construction activity.
The following table summarizes our liquidity, in thousands:
|
|
|
|
|
|
|
|
|
|
|
As of |
||||
|
|
|
June 30, |
|
December 31, |
||
|
|
|
2017 |
|
2016 |
||
|
Cash and cash equivalents |
|
$ |
94,233 |
|
$ |
134,375 |
|
Revolving Facility |
|
|
250,000 |
|
|
125,000 |
|
Less: standby letters of credit |
|
|
(49,080) |
|
|
(49,080) |
|
Capacity under Revolving Facility |
|
|
200,920 |
|
|
75,920 |
|
Additional term loan capacity under delayed draw feature |
|
|
100,000 |
|
|
― |
|
Total liquidity |
|
$ |
395,153 |
|
$ |
210,295 |
31
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 licensing and insurance. The following table summarizes our outstanding bonds, in thousands:
|
|
|
|
|
|
|
|
|
|
|
As of |
||||
|
|
|
June 30, |
|
December 31, |
||
|
|
|
2017 |
|
2016 |
||
|
Performance bonds |
|
$ |
34,933 |
|
$ |
22,312 |
|
Licensing, insurance, and other bonds |
|
|
13,520 |
|
|
13,480 |
|
Total |
|
$ |
48,453 |
|
$ |
35,792 |
OUTLOOK
In general, the residential and commercial new construction industries are continuing to recover. Household formations and the available housing supply point towards continued growth in new home construction. Increasing rental demand across multiple markets has led to an increase in multi-family housing construction and the demand for commercial space is also increasing. However, residential construction activity remains below historical averages. We believe a number of factors, including credit availability, student debt, labor availability, and attitudes towards home ownership will continue to cause volatility in the housing market.
CRITICAL ACCOUNTING POLICIES
We prepare our condensed consolidated financial statements in conformity with GAAP. The preparation of these condensed consolidated 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, costs, and expenses during the reporting period. Actual results could differ from those estimates. Our critical accounting policies have not changed materially from those previously reported in our Annual Report on Form 10-K for year ended December 31, 2016, as filed with the SEC on February 28, 2017.
APPLICATION OF NEW ACCOUNTING STANDARDS
Information regarding application of new accounting standards is incorporated by reference from Note 2 to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
FORWARD-LOOKING STATEMENTS
Statements contained in this report that reflect our views about our future 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 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; our ability to maintain our competitive position; and our ability to realize the expected benefits of the Separation. We discuss the material risks we face under the caption entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC. Our forward-looking statements in this filing speak only as of the date of this filing. 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.
32
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our New Credit Agreement became effective on May 5, 2017. The Credit Agreement consists of a senior secured term loan facility in the amount of $250 million, $100 million of additional term loan capacity under a delayed draw feature, and a revolving facility in the amount of $250 million.
Interest payable on both the term loan facility and revolving facility is based on a variable interest rate. As a result, we are exposed to market risks related to fluctuations in interest rates on our outstanding indebtedness. Based on the current interest rate, as of June 30, 2017, of 2.60 percent under the senior secured term loan facility, a 100 basis point increase in the interest rate would result in a $2.5 million increase in our annualized interest expense. There was no outstanding balance under the Revolving Facility as of June 30, 2017.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2017.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) in the most recent fiscal quarter ended June 30, 2017, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
33
The information set forth in
There have been no material changes to our risk factors as previously disclosed in our 2016 Annual Report on Form
10-K as filed with the SEC on February 28, 2017.
The following table provides information regarding the repurchase of our common stock for the three months ended June 30, 2017, in thousands, except share and per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
Total Number of Shares Purchased |
|
Average Price Paid per Common Share |
|
Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
||
|
April 1, 2017 - April 30, 2017 |
|
461,358 |
|
$ |
47.48 |
|
461,358 |
|
$ |
165,000 |
|
May 1, 2017 - May 31, 2017 |
|
— |
|
$ |
— |
|
— |
|
$ |
165,000 |
|
June 1, 2017 - June 30, 2017 |
|
— |
|
$ |
— |
|
— |
|
$ |
165,000 |
|
Total |
|
461,358 |
|
$ |
47.48 |
|
461,358 |
|
|
|
During the three months ended June 30, 2017, we repurchased 461,358 shares of our common stock for approximately $21.9 million under the 2017 Repurchase Program. All repurchases were made using cash resources. Our common stock repurchases occurred on the open market pursuant to a Rule 10b5-1 plan. Excluded from this disclosure are shares repurchased to settle statutory employee tax withholding related to the vesting of stock awards and exercise of options.
Not applicable.
Not applicable.
Not applicable.
The Exhibits listed on the accompanying Index to Exhibits are filed or furnished (as noted on such Index) as part of this Form 10-Q and incorporated herein by reference.
34
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
TOPBUILD CORP. |
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/ John S. Peterson |
|
|
Name: |
John S. Peterson |
|
|
Title: |
Vice President and Chief Financial Officer |
|
|
|
|
August 8, 2017
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated By Reference |
|
Filed |
||||
|
Exhibit No. |
|
Exhibit Title |
|
Form |
|
Exhibit |
|
Filing Date |
|
Herewith |
|
10.1 |
|
Credit Agreement, dated May 5, 2017, among TopBuild Corp. and Bank of America, N.A., as administrative agent, and the other lenders and agents party thereto |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2 |
|
Security and Pledge Agreement, dated May 5, 2017, among Topbuild Corp. and Bank of America, N.A. as administrative agent, and the other lenders and agents party thereto |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.3 |
|
Form of Exhibits to Credit Agreement dated May 5, 2017, among Topbuild Corp. and Bank of America, N.A. as administrative agent, and the other lenders and agents party thereto |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4 |
|
Annex and Schedules to Credit Agreement dated May 5, 2017, among Topbuild Corp. and Bank of America, N.A. as administrative agent, and the other lenders and agents party thereto |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.5 |
|
Accelerated Share Repurchase agreement, dated May 5, 2017, between TopBuild Corp. and Bank of America, N.A.⃰ |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
Principal Executive Officer Certification required by Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
Principal Financial Officer Certification required by Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1‡ |
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2‡ |
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
‡Furnished herewith |
|
|
|
|
|
|
|
|
|
|
|
⃰⃰ Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality requests. Omissions are designated as [***]. A complete version of this exhibit has been filed with the SEC. |
||||||||
36
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
No Suppliers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|