BLD - Earnings call transcript Q4 2017

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the TopBuild Earnings Conference Call.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, February 27, 2018. to conference like Zane. to now would turn over the Tabitha I go Please ahead.

Tabitha Zane

good you morning. Thank and

call are and the posted Relations President Financial On section today Please senior and Robert Executive Officer. website on Chief Buck, management’s Officer, of formal Operating the we our Officer, note, John remarks Chief Jerry Peterson, have Volas, Investor Chief topbuild.com. at

subsequent morning’s These forward as forward with operations Slide supplement many no forth known press in risks, Company’s of Company to will condition. include the obligation as presentation, looking filings statements and include this X SEC. company’s assumes our events. the today's looking looking The release of of well on concerning and that or shown including As in statements statements become update those forward financial the remarks because untrue unknown set

financial release. will to today’s a we press discuss the also Volas. to now comparable Jerry addition, table GAAP most reconciled In which in I call turn measures non-GAAP can over be in will included measures

Jerry Volas

everyone. us today. joining And thanks Welcome, for

we see X.X%, beating release, organic today’s housing press sales strong handily a As you starts. quarter can growth fourth from of had lagged with

adjusted our expanded XX.X%. a more the many productive year operating about basis can also with John for XX.X% a XXX very in and a we you was It our talk accomplishments Slide had a XXXX. significant TopBuild, our We basis was for to year a quarter. detail see Starting to incremental X, and will fourth on Company good very points on pull-through robust EBITDA margin same-branch a good end

companies business installation expected capabilities. heavy scale, our increased net mix million four revenue, we our residential in markets our penetration and enhanced These product successfully team, annual are commercial to over key generate $XX completed have management of First, acquisitions our augmented six including and two firms. bolstered that and

our acquisitions facility further authorized loan to for date. liquidity maturity debt maturity capitalize our revolving two Board $XXX shareholders capital to our This $XXX and strategic we almost strengthened to May prior a a and enhancing our $XXX repurchase million capital upsized term our returned loan ASR. XXXX, million, additional credit including Second, our extending beyond ability through program, to on other long-term to share enhance our opportunities shareholders. value million and We designed years

have Over repurchased commitment of two X stock, shares we our the years, demonstrating optimizing million past our capital to our structure.

profit labor commitment branch improve to continued and our growth. our new profitable We’ve managers, We with in being to operating implemented for key productivity a metric. ongoing bonus programs sales

our Our savings. the has back-office keeping with introduction in you technology installers’ measure; initiative measurable sales our In process, tools October. metrics annual guidance have of enhanced shareholder last philosophy, you resulted are improved the what our efficiency we improved with consolidation transparency and and

it TopBuild the that to through for energy more superior we for takes been forecasted now through XX they of working updated been ENERGY and environment the an XXX% Investor efficiency the quarter. Home providing for better understand range create closely provided are home our STAR you to experience and leadership We our which and finally, and cycles, ENERGY growing We understanding value a homes successfully what adjusted every they our Day. consumers a with Company has protecting housing plan shareholders. the are depth revenue EBITDA of at numerous and our Year in were Partner STAR And They’ve annual focused efficient. will Services team and business partner leadership our on execute awarded creating be builders XXXX profitably continued comfortable of with energy our are achievements. years, for

X.X% X.X% up TruTeam increased in year, XX-day is Service financial increases as TopBuild’s by our same XXXX. know, which you price Slide volume lagged on contributions at our benchmark to were driven and acquired growth primary as This both and branch sales. the companies, Total was X, for Partners. housing were results from including Turning starts revenue,

XX.X% also performance improvements Moving more line, come the there bottom was XX.X% our noted operational our and quarter EBITDA were basis. an on strong that growth correct. I EBITDA And, was throughout margin demonstrate, conversion of I the our results Company. was top full-year on our as that noted of to on the the XXXX. a to line we to XX.X% we in adjusted at implemented year, had we drop-down Last the same call, to incremental that branch for year, important with XXXX clearly fourth driver believed

savings Tax While plan to to our that and directors. employees, is and XXXX going to TopBuild redeploying our is funds future additional the are is announce our fully a wanted of our and I believe important board we We by on to Reform match team the plan. of increase meaningful impact help to leadership of to cash the intention will John very taxes talk we portion looking this Bill, our save employee the on our at about employees’ is that a providing initiative XXXK secure supported our

is will economy TopBuild. As increasing is new household low, Slide very XXXX we interest be X, inventory at The and remain another tight. look we for optimistic on strong strong, it home is rates are formation that year

result, capital number first-time only line Strategic and than acquisitions top more of seeing buyers greater proportionately believe will our remain priority. are enter family the further will market which projected multi-family, an aspect grow growth. one allocation and, growth We we our single enhance will important as our a

and focus productivity. labor drive also operational improve that on to will initiatives sales and efficiency continue We

this both and cyclicality line our TruTeam is uniquely on is has laser margin power, buying model diversified several housing growth. In cycle growth, team national mitigates and with go exposure capture is scale a business energized all team, of to years opinion, starts, that focused of the Service a expansion While and that housing TopBuild, -tested on seasoned, growth will recovery and positioned and large we into portion ensuring of profitable a to XX% segments, John? unrivaled translates business focus top to our our Partners. at and

John Peterson

Good morning, everyone.

our January As year by TruTeam overview to labor Jerry strong TopBuild of both EBITDA operating start discussing acquisition EBITDA quarter and higher branch procedures. adjustments our fourth Fourth Slide selling basis productivity; operations, compared costs, $XX.X period was to well and basis, compared volume basis as margin results offset quarter were a a expanded $XX.X margin driven direct provide have year which our as by $XX.X margin expenses and material higher Both Fourth $XXXmillion, quarter sales XXXX. an with prices optimize improvements higher $XXX,XXX, improvement million, full $XX.X XX.X%, the same in XX.X% XXXX, made Service quarter on revenue million key to streamline margin a changes for primarily everyone same of growth solid continues by and had In million focus labor in volume acquired at and the companies share-based X.X% amortization were improve Then and and our of XXXX. fourth from business. half to revenue our and a noted, be basis quarter, leverage, quarter a related adjusted Partners, sales XX.X% XXXX points driven quarter to increase expenses. XXXX. XXX sales we points. Adjusted over of and prices the ago. improved profit we XX.X%, to grew to compared margin million, Gross and improvement On processes expenses. is of from fourth by selling totaled partially improved XXXX. since healthy X. gross point margin higher increased a XXX transformative This increased footprint fourth many XXXX. operating I'll was a corresponding and at revenue our result to fourth consolidated of productivity, improvement a XX a Profitable compensation

quarter driven a $XX.X basis selling EBITDA XX.X% branch Our cost basis, improved as and adjusted EBITDA well fourth of continued margin $XX.Xmillion, revenue the to and of points seven acquisitions Incremental related strong drop-down EBITDA increase platform. the XX.X%, was XX.X% to TopBuild’s was by majority of was stock-based to to The On same drop-down our fourth the was driven quarter. prices, adjusted $X.X as our leveraging a XX.X%. margin adjusted as increase, increased EBITDA control our of to acquisitions compensation. but XXX million, declined SG&A percent impact a million, XX.X%. higher was by in

basis improved increased Gross XX.X% XXXX basis X.X%. points Adjusted our expanded adjusted XXX to basis our XX.X%. to to our margin total margin expanded EBITDA XXX Looking operating XX.X% full-year grew and EBITDA for margin XXX X%. points and points to million, sales $XXX.X at results,

was XXXX XX.X% for adjusted a to branch XX.X% drop-down EBITDA basis. same Our margin and on

share the $X.XX fourth XXXX. or continuing share was or quarter Slide operations income to fourth operations per $XX.X of full or X. diluted XXXX. per to Adjusted share per to $XX.Xmillion, of was the XXXX diluted diluted $XX.X year $X.XX or income compared quarter XXXX continuing million, in $XXX.Xmillion, per Moving million for full from for share, from diluted Adjusted compared for year $X.XX $X.XX

$XX.X CapEx quarter acquired million, $X purchases X, X.X% of Fourth of we historically vehicle see million, CapEx was of $XX.X Included over have in year quarter for CapEx operating on was was can fourth leases. XXXX approximately you As revenue. X.X% full Slide through or million revenue. which

cash was facility third quarter call our we proceeds points In prior first growth equipment increase couple from the be equipment line of that our to The of This factors. debt acquisition fund leases. is quarter, cash we business than we growth. due of operating XXX our organic As use purchases to funded will a both with instead executed Working new acquisitions percent our communicated a sales balance on primary basis continued driver a XXXX quarter. financing fourth in fleet future was primarily capital reminder, debt sheet. refunded plan X.X%, during of the to and This quarter of in to year. vehicle from as the higher commercial on the be

we’ve payment the comes residential As business with in than business. typically discussed longer past, commercial terms

change year we AR show Accounts capital year’s seasonal a XQXX. our steeper leading balance was a the a impacting quarter quarter higher fourth to patterns. seasonality than delivered This balance. stronger normal lower balance in seasonal which Receivable factor in decline saw fourth sales Typical had sales end Another sales a working in

annual of was year. liquidity leverage commercial our guidance a long on range term our million, and the XX%. result a with flow million, balance of million. year and percent normalized of the of ended $XXX.X the a capital $XXX.X $XX.X ratio inclusive draw of X.X%. laws are the $XXX the to committed tax adjusting the X.X net cash are XX% of million available for total the Operating of current loan $XXX.X the of working line million as to anticipated year, available we a year-end tax growth to late we and of effective of Due As business, revolver We rate change delayed to our enacted X.X% funds modifying sales term of previous cash guidance our in from of the federal of last of on

benefit We new the are the liabilities address analyzing law in assets rate. communicate the to still adjustment states regards fourth impact to with see the in waiting in and recognize changes. how did $XX.X will and federal full their the material tax quarter a rates noted million as changes its federal to own change individual deferred from one-time and business reflect today’s our release, tax tax to we are of Also, of any going

but of we new any both of between Moving the acquisitions to tax million does starts January and X, $X,XXX we not working which year. adjusted include discussed $XXX of our million and we a two I million. $XXX $X,XXX include rate, guidance Slide additional and EBITDA long-term and acquisitions have changed with are this between in does not be the capital may X.XX the recently of total revenue to new million earlier. make It Further, exception X.XX assumes million. any housing million normalized annual guidance be we XXXX on range of residential assumptions announced and between to This projecting

segment now results. the and me operations over to Let all Robert, will pass who Robert? discuss our

Robert Buck

good John, another XXXX year Thanks for morning. and Partners. TruTeam great was and Service both

for focus to dedication customers work providing due, operational outstanding in employees. measure, of pushing service success our to hard profitably value Company is Their us our safely, to throughout the our grow X,XXX Our and enables over on shareholders. working our and enhance ultimately excellence and for large

a from margin benefiting a increased Looking improvement acquisitions was basis from fourth results at X.X% Adjusted quarter branch Slide TruTeam’s fourth operating and financial volume, XX.X%, increase XXXX. in XX, higher quarter point prices. XXX XX.X%, on same sales selling

were a and in Although increased impacted On housing and sales labor quarter, outpacing branch lagged the contributor key improvement volume leverage productivity. results TruTeam’s prices favorably revenue by in fourth same was quarter basis, selling X.X%. starts continued X.X% higher also of a

increased TruTeam’s aligned starts a branch For year. revenue XX%, a for expansion was revenue On housing business of XXXX, a very X.X% XX.X% full and full organic from operating with lagged growth acquired revenue. year the for year XX.X% XXX-basis adjusted XXXX. XXXX XXXX, basis, TruTeam’s grew closely and same TruTeam’s commercial point of from combination margin

commercial a business. in our competitive edge us and is Our giving strong bundled backlog is approach services this

from XXXX. this benefiting new We from increased sales codes which consumer execution, XX% revenue education. almost and also saw growth, in Installation product strong building spray is foam

sales by X% Partners, higher prices. and up Service growth selling At were quarter XX. Slide volume the to driven in Moving

Service As a X.X%. increase was the margin quarter. throughout X% prices with year, improved in we Adjusted forecasted, flat at fourth Partners operating selling at

Service year, in the X.X% up from XX% full foam Partners’ XX expanded to sales at XXXX. increased Partners spray For and Service Distribution operating revenue were X.X%. basis points adjusted margin

We’ve On in to over in January a price labor play. past three we is the XXXX there continue also months see material XXXX increase XX currently the fiberglass tighten and we and supply saw industry. price the seen increases constraints fiberglass side, in

in and in across from increases XXXX. margin As did cost job businesses our you improve productivity, labor managing our can local margins great teams a see both to performance XXXX, logistics material

expand our continue will We XXXX these to the should manage year. well issues again in and very margins for teams full expect

focused generation labor, developing Speaking on always the of and are we of management talent next leaders.

well attracting provide objective build program a career exposes MIT qualified program new new are facets training to in Manager-in-Training bench July, As on XX, program, individual you and talent to to for our the introduced We program, want our we developing who new MIT in on-the-job our our can of of a The arise company The within see seize that future branch Slide MIT, ready managers. talent of to join on the individuals current opportunities all or focused that operations. to TopBuild’s is is company. team.

training. team. guides months to six how up, in and then as as field, move to them production four well and inventory management, ensures operations ground first is or the field and learning the MIT to they assigned the sales, day-to-day products lead are process who out are For through learning installing a from a the and objectives. leadership They safety the mentor and meeting Each they goals program’s distributing

We are the out of a and the in very have excited learning recruits about on group this already job. field program

labor of and and geographic market almost to foam revenue but acquisitions experienced will an our ADO team long-standing $XX two insulation strong we feel are and just leadership the the share area reach. team. country The in insulation as we Combined, distribution distributor of demonstrated to we Florida, these company. its are commercial healthy We to about strong with region acquisitions and customer as far also million will force Service to as our very deals XX, M&A Santa are Rosa on to that the XXXX. with close. Products, a our and net companies in of and acquired good a growth. presence we’ve relationships expertise. opportunities a experienced ADO, Rosa not expected Turning residential fireproofing of Santa has looking Slide customer and expands integrating pipeline in XXXX, contribute process addition distribution It first insulation increase so Rosa well continue Insulation throughout in our Miami accessories, Santa relationships great TopBuild, acquisition an Partners is believe also Fireproofing, experience the and of

profitable remain back Company successful call want I for hard to Company. and thank turning XXXX TopBuild our dedication closing focused the for our continued another driving We team improvements. year to and moving to on remarks, believe forward will Jerry? Before of their be Jerry and work our growth again

Jerry Volas

another to again our should M&A it for has will of our further add now environment how and questions. opportunities for questions, XXXX opening Company. profitable that value The for are we look up external is be team want that emphasize for knows growth positive TopBuild. to execute well. continued to Before it long-term I We year which demonstrated Operator, ready

Operator

[Operator Instructions] the proceed. Ing Our first with question line comes from Please of Jefferies. Phil

is line open. Your

Colin Mooney

had I want Colin of actually quarter. Hi. Good questions. -- for couple on just This is a Phil.

guys just you of terms sales price increases versus this And acquisitions in growth. any already of there you baked In attributable offset how increases do made was of your much X% XX% to that have market? the organic are for manufacturing guidance growth? to some the in I to wondering

John Peterson

This is John Yes. Peterson.

be not to giving guidance. a going additional are lot We of

think end. I booking a starts we standpoint we our the $X,XXX,XXX and in $X,XXX,XXX low high the end was provided at started from in had what we points the at we talking had fact that

are I are if think this that's two you acquisitions basically those it is into right there and on the announced last that worth carryover we $XX which that's -- year's year XXXX. is in is you acquisitions took those acquisitions acquisition total then there impact release press You of million on assuming revenue for lower absolutely there two which in about And two just numbers. that will total, of so that falling

growth. by in same Obviously is driven acquisitions the branch yes, there more total. So, impacts organic that -- there they are

Colin Mooney

you incremental on How Okay, guys this given the of great. inflationary you side. what will able the there be just seeing increases back terms manufacturers. lot to a And target this cost are Obviously, definitely guys but is do price hit in year term are there enable think and predict, basis, of then manage just tough you it's by in up? your to longer you margin to this quarter-to-quarter out

John Peterson

Great question there.

price partnership relationship, we good we XXXX when of our particular Two with strong never suppliers very that. very, feel One the So I that ends look and and them is took we the were really And out that well to negotiate the sales of there with put to we at side, that about about thousands work us. out have partner ability then shape, we going say them and the guidance the both hard is annual do on of for would to benefit with that there really customers that equation. and both better on that our to basis of with so terms have has and we up. which quarter-to-quarter period on in in matching of terms pricing amount right there things of get historically timing. some But a been volatility

continuous We at a that able facilitates turn to excellent higher strength, historically and ability We to our like manufacture capacity that as continue have ability marketplace. believe believe results. plays to our And to utilization financial tighten terms we viewpoint really will we feel manage we from the very good that Quite in very, to been which be that frankly, well. manage that. our into really pricing to of the in managing

real from we that good right So positioned feel now are we how about perspective.

Operator

KeyBanc. question from Zener Ken next comes Our with

Please Your line is open. proceed.

Ken Zener

at you. this to going XX% correct? Analyst And gentlemen. morning, out EBITDA ex I XX% at question range I any kind to John, which price, laid guys of you Day; have am back you Good incrementals for asked

John Peterson

would XX% margin the hold manage Yes. The assumes that material essentially relationship certain that and between to so. we XX% pricing

Ken Zener

Yes.

why FYXX in XX% where picking XX% Could -- did could price given quarter, of the realizing up M&A persist that. was XX% how saw would just that any your incremental just -- tightening, those was you some dynamics XX% that year really why for if fine not to on way same XX% what you to higher and kind labor the FYXX that than margin above one range understand wouldn't FYXX. your am am incrementals, that. in has So for trying we I I lower to was with

John Peterson

here we say dynamics that of prior say side. of had in TruTeam year-to-year Again this talked pricing going think we going different. half when always I'd the be good on I first In some call, XXXX, there dynamics material terms is and are very year the about cost to on on the

through pull one we XXXX there know. for on at you Obviously, which And one at look that, as one so that's XX%. each to are said sign things, branch non-recurring you always day is in I cost through were are we basis if and up our offs and same And not think year pull we from going example. reduction total XX%

the the out. of math we've what you terms between we we same think which and provided, guardrails in if of you are do And there I M&A are provided But branch I pull In right we we given, are we terms pointed guidance, differences through of within expectation, terms basis type a again to that lower think go performance going so. anybody's that expectation forward it our a in than are in certainly was continue at of don't lower have XXXX. on we

Ken Zener

lot Yes. for keeps manufactures just a But June of of want more normally you stronger you saw There industry. price the a obviously, announcements could larger lot last first one. we were getting is two but in activity what because or, January. not don't out guys us three the contacts to if price, or everything on the give more way It increase your if the common there, interesting get just this last are than I insulation, their had favorable there for March could the perspective January transition, specific you. you is And I year, by of increases is year,

to market. seems is of prices event more like the much it's is January. it about early spring it pretty you seems most usually you to What guys Because from summer and the manufactures it realized then So are seeing your when like the prices sticky. out customers not view we

seems to as very as pricing, be bullish demand. labor fact So the well for sticking January

Robert Buck

morning. Robert. Yes. is good Ken, This

But the season better to typically spring industry right are important is there and that with get dynamic material. you So that time now of of into year. the busier spring as selling happening time that an right is out capacity we the come

that tightness is happening in the material everyone allocation fill loose to including material relative on that think and so there has of of I aware So been builders. the industry

And term which so the pricing the are right driving we that's what of stickiness usual now seeing.

on in right things manufactures, short-term the up happening that Coming manufactures. are and of work dynamic what's that's capacity there base very and capacity price see XXXX the different strong of So probably with here QX now. type the relative talking going to and drives out to ability QX, I going be on event to in

Operator

And our next question comes from the line of is Matt McCall with Please open. Seaport Global. The proceed. line

Rubin

good you, Thank Matt. Rubin for on morning. It's actually

I your So guidance, quickly contribution breakout Can incrementals what's inorganic the sure versus on it expectation apologize, I -- you for want was you just said organic? for make did to that you XXXX understand correctly. if I

John Peterson

we branch last Rubin, this again M&A not a John. kind starts acquisitions from we both No, in from to of of haven't. will but standpoint. than going components high some terms residential receive. lower Again, a the through did we to which we the baked will individual certainly we pull we same suffice And there guardrail the give normal January in breakout the say around year that they that is have and as carryover guidance are the end obviously

are high basically and you end doing long-term So look at on was guidance through, end in of EBITDA just if so. in the we the provide math parameters you -- on the only you within low within a that said think and baked pull that I our if prior that's get there that I question terms

Rubin

Okay, perfect.

just can dynamic? Let's and the that so you allocation maybe relative guys environment your see, to about sort given had you any guess guess help this scale. on you product you talk of and I issues industry about I product size getting if Can talk can

Robert Buck

Yes.

is Robert. this Rubin, So,

of obviously, business have have maintenance supply and and is sources to so some back pull contracting distribution have manufactures It relationships actually in back So, have stand with April from Those are but we will discussions. between timeframe. across is generally to our coming lines the ongoing be we both allocation, from all directly that some there last the working sometimes the we other buy year. up we our business March, so relationship manufacture

think some short-term will we will supplier there doing I what we are feel So we working but with addressing how our be there, overall closely dynamics really partners. and happen comfortable allocation that

Operator

Our Zelman next & Associates. question comes from Scott Rednor with

line open. Please is Your proceed.

Scott Rednor

good changed? to was XXXX. you guys a has of in and everyone, impact? that's Hello, the Meaning John, match, what's the hoping question, the diluting I imagine elaborate that? could what approach what through financial would changing flow guys intentionally was then you some had XXXK How that morning. maybe prior John now I I are

maybe I walk those was So could of hoping you kind through pieces. us various

John Peterson

So, Scott, this is John.

an So we that the from standpoint. is company ultimately around expectation the employee the going haven't increase finalized specifics that. match all are But we to

just that baked the in be Our right the best of with estimate impact guidance But is now range kind into shared. wise $X million now probably And will probably again not you we right finalized that go business. of assumption number that can terms range is of provided. into I $X million the but to numbers

Scott Rednor

Robert. this the make best everyone for And I just maybe on is want sure clear is to --

well. that mean I the and go Just with are to facility to going guys see that fill as until you are the now margin you on XQ. it's not allocation is up expansion the on side, guidance XQ feel going recognizing comfortable in annually loose that come

Robert Buck

Scott. Good question,

but some building all year confident think for QX be fluctuations can earlier, feel some And there are the and on happening in our here. in of conversations very, what said Jerry very full we I there QX with started customers overall lag there guidance. is our

business. where I we the confidence margins are are going made in earlier, XXXX in the across see We to statement comfortable very and expanded

that. yes, So, very we feel very, in confident

Scott Rednor

Santa Okay, about of to more story, just of already acquisition then specific but just think great. kind talk have color. you example, and you When installed maybe guys get just just X% Rosa a little one And Florida. I little as one hoping last in your branches

maybe can How in penetration increase kind that in your of to one that why explain equals you So you us two? Florida? plus needed help example one

Robert Buck

Rosa Santa us. direct Santa second, The [Indiscernible] pretty Miami down long things the Rosa we market Scott. Number downtown presence their doing then penetration be Keys will before, across -- work a of one, rebuild Miami, to given company; relationship that's And in the question. relative relationship way so lot to did two the Florida. question, good like great goes give headquartered for a your That's Yes. all expanded you great Keys rebuild that is commercial Florida which into and in happening the Miami and I'll reach there. we the standing from

all value win, the think they TruTeam. So its bring the Rosa way round to and we win Santa

Operator

I registered time. am showing at further this no questions

Jerry Volas

interest Thank your support Thanks QX, your we call look And you to our in XXXX May. and in forward TopBuild. for all again.

Operator

that today. conclude conference disconnect thank and for does Ladies you for gentlemen, your you your that We line. please And ask call participation. the

TopBuild (BLD) 27 Feb 182017 Q4 Earnings call transcript