TopBuild Corp. · NYSE:BLD
TopBuild — J.P. Morgan conference (January 2015)
38 slides from TopBuild's conference presentation, January 2015
Slide 1: NYSE:BLD
NYSE:BLD
Slide 2: Safe Harbor
Safe Harbor Statements contained in this presentation and during question and answer panels 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 s
Slide 3: Today’s Presenters
Today’s Presenters Jerry Volas Chief Executive Officer Robert Buck President, Chief Operating Officer John Peterson Chief Financial Officer 3
Slide 4: Agenda
Agenda The Business Today Key Strengths We Are Leveraging Financial Position Growth Drivers 4
Slide 5: Building on Two Strong Platforms
Building on Two Strong Platforms • Leading provider of installation • Leading distributor of residential of residential insulation & select insulation & select building building products products • >190 branches in 43 states • >70 distribution centers • National scale with recognized in 35 states lo
Slide 6: A critical component of the insulation supply chain
A critical component of the insulation supply chain Primary manufacturers of fiberglass insulation • #1 in residential installation • 35% share of new housing starts • 2x size of largest competitor Residential new construction is highly fragmented • Over 50,000 home builders in the US • 50% of housi
Slide 7: Attractive Product and Line of Business Mix
Attractive Product and Line of Business Mix Segment Mix 64% 36% TruTeam Service Partners Product 71% 7% 22% Insulation Rain gutter Other Line of 66% 18% 16% Business Mix Residential new construction Residential Commercial repair & remodel 7
Slide 8: Positioned to Capitalize on Established Strong Foundation
Positioned to Capitalize on Established Strong Foundation Prior to 2005 2006 - 2010 2011 - 2014 Highly acquisitive; assembled Lowered breakeven point Established operating model critical mass from 1.3M housing starts to driving agility 750k Diversified business mix Completed ERP system, scalable and
Slide 9: Successful Results from Repositioning
Successful Results from Repositioning Revenue ($B) Adjusted EBITDA ($M) 12% 165% CAGR CAGR $1.5 $91 $1.4 $1.2 $73 $13 2012 2013 2014 2012 2013 2014 9
Slide 10: Agenda
Agenda The Business Today Key Strengths We Are Leveraging Financial Position Growth Drivers 10
Slide 11: Key Strengths We are Leveraging
Key Strengths We are Leveraging 1 Unrivaled national scale 2 Strong competitive advantages 3 Diversified lines of business 4 Two distinct channels to customers 11
Slide 12: 1. Leadership with Unrivaled National Scale
1. Leadership with Unrivaled National Scale – Over 260 Locations • Largest network in U.S. • Serves 95% of all housing starts and 99 of Top 100 MSAs 12
Slide 13: 1. National Scale with Local Relationships
1. National Scale with Local Relationships Unrivaled Platform National Reach Local Presence Unrivaled Platform and Scale • Offers superior supply • Localized knowledge, • Diversified earnings chain efficiencies to service capability and base by geography and suppliers in exchange for customer rela
Slide 14: 2. Strong Competitive Advantages Differentiate TopBuild
2. Strong Competitive Advantages Differentiate TopBuild Broad geographic reach enables servicing Inventory management highly fragmented home building industry Comprehensive product selection Relationships with key customers Flexible delivery (less than full truck load) and suppliers and next day del
Slide 15: 3. Continuing to Diversify Lines of Business and Optimize Mix
3. Continuing to Diversify Lines of Business and Optimize Mix 2005 2010 2014 Commercial Commercial Commercial R&R 7% 16% 15% 2% R&R 15% R&R 18% Residential Residential Residential 91% 70% 66% Source: Management estimates 15
Slide 16: 3. Service Partners Provides Diversity – Less Cyclical
3. Service Partners Provides Diversity – Less Cyclical and Key Defense Against Housing Start Volatility Service Partners Sales vs. Housing Starts Indexed to 100 120 100 80 Housing 60 A Starts 40 Advantage 20 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 16
Slide 17: 3. Customer base is diverse, with low levels of concentration
3. Customer base is diverse, with low levels of concentration TruTeam residential new Customer base construction customer base • No customer greater than 3% of TopBuild sales revenue Select, key customers 40% Custom builders • D.R. Horton America’s Builder • KB Home • Lennar • Pulte Homes • Toll Bro
Slide 18: 4. Two Distinct Channels to Reach Broader Customer Base
4. Two Distinct Channels to Reach Broader Customer Base • National footprint with local • Strong relationships with brands and presence appeals local contractors to customers of all sizes • Highly valued by local • Consistency across a broad custom builders geography-highly valued by large customers
Slide 19: Agenda
Agenda The Business Today Key Strengths We Are Leveraging Financial Position Growth Drivers 19
Slide 20: Revenue Growing, Margin Expanding
Revenue Growing, Margin Expanding Intercompany eliminations and other adj. Consolidated Revenue ($M) Adjusted EBITDA ($M) $1,512 $1,412 $1,208 $629 $578 $528 $91 $73 $905 $963 $745 $14 ($65) ($71) ($80) 2012 2013 2014 2012 2013 2014 Revenue growth 2012 2013 2014 % margin 1.2% 5.1% 6.0% TopBuild 12.2
Slide 21: Seasonality and timing of revenue and earnings
Seasonality and timing of revenue and earnings Revenue EBIT (segment operating profit)* 2013 2014 2013 2014 26% 26% 26% 26% 27% 43% 25% 37% 37% 22% 22% 34% 26% 22% 3% (2%) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 *Before general corporate expense and intercompany eliminations and other adjustments • Strongest sales
Slide 22: Positioned to Self Fund Organic Growth
Positioned to Self Fund Organic Growth Capital Expenditures ($M) Net Working Capital* ($M) and % of Revenue and % of Revenue $119 $112 $14 $99 $13 $11 9.2% 8.4% 6.5% 0.9% 1.0% 0.9% 2012 2013 2014 2012 2013 2014 * Defined as accounts receivable plus inventory minus accounts payable 22
Slide 23: Pro Forma Capitalization – Strong Balance Sheet
Pro Forma Capitalization – Strong Balance Sheet Total Debt to Adj. EBITDA Conservative Net Leverage Long-term debt $200 Less: Cash¹ (20) Total net debt $180 12/31/14 EBITDA $91 2.20X Reflects EBITDA at 12/31/2014 ¹TopBuild is targeting a closing cash balance of $20M 23
Slide 24: Attractive Financial Profile Provides Flexibility
Attractive Financial Profile Provides Flexibility Free cash flow ($mm) $93 $43 $14 2012 2013 2014 Medium Term Attractive Cash Free Flow and Balance Sheet Optimize Fund organic Potential Return balance sheet growth acquisitions of capital Free cash flow is defined as adjusted EBITDA less capex and ch
Slide 25: Expect Smooth Transition to Public Company
Expect Smooth Transition to Public Company Clear path to separation from Masco − Already independent business with limited integration with Masco − Separate IT systems − No shared locations Strong governance foundation − Public company infrastructure in place − Public company governance policies and
Slide 26: Agenda
Agenda The Business Today Key Strengths We Are Leveraging Financial Position Growth Drivers 26
Slide 27: Growth Drivers Going Forward
Growth Drivers Going Forward Benefit from macroeconomic trends 1 driving recovery in lines of business Capitalize on demand for greater 2 energy efficiency 3 Gain share in residential market 4 Expand position in commercial market 27
Slide 28: 1. Macro Economic Trends Supporting Growth
1. Macro Economic Trends Supporting Growth 1 2 3 4 5 Age of General Population Household New home housing economy growth formations construction stock 28
Slide 29: 1. Recovery in Housing Starts – Reverting Toward the Norm
1. Recovery in Housing Starts – Reverting Toward the Norm Total U.S. New Housing Starts (000s) Historical Blue Chip Economic Indicators (April 2015) 2,500 20, 30, 50-year new housing start average: ~1.5M units 2,000 1,500 Trough 1,100 average: ~1.2M units 1,000 TopBuild breakeven 500 at 750k 0 1959
Slide 30: 2. Capitalize on Drive for Greater Energy Efficiency
2. Capitalize on Drive for Greater Energy Efficiency Key Drivers Play to Our Strengths Regulatory • Consulting with builders • New energy codes demand a minimum HERS¹ rating • Testing home performance • States increasingly adopting more stringent 2012 IECC2 codes • Training sales and production crew
Slide 31: Case study – IECC Code adoption and enforcement in Maryland
2. Capitalize on Drive for Greater Energy Efficiency Case study – IECC Code adoption and enforcement in Maryland • 1st state to adopt 2012 IECC Energy Code • 22 of 23 counties are within IECC Climate Zone 4 • Local jurisdictions required to enforce IECC code within 12 months • Responsible for energy
Slide 32: 3. Gain Share in Residential New Construction and Repair and Remodel
3. Gain Share in Residential New Construction and Repair and Remodel Lines of Business Key Initiatives • Leverage strong value proposition with Top 20 Big Builders to gain share • Continue to drive increased penetration of Regional Builders and Small Custom Builders • Continue to grow Multi-Family b
Slide 33: 4. Expand Position in Commercial Business
4. Expand Position in Commercial Business Key Initiatives • Leverage key capabilities and national footprint • Build on light commercial momentum to capture additional share • Increase focus on growing heavy commercial over the long term ~$75-$100M incremental TopBuild opportunity by 2017 33
Slide 34: TopBuild’s forward outlook
TopBuild’s forward outlook Revenue assumptions $45M in TopBuild revenue for every 50k increase in new housing starts ~$75-$100M incremental commercial opportunity by 2017 R&R estimated to increase at GDP + 1-2% EBITDA assumption Incremental margins ~20% on revenue growth 34
Slide 35: TopBuild: Repositioned for Profitable Growth
IN SUMMARY TopBuild: Repositioned for Profitable Growth Successfully repositioned business – expansion and rationalization complete Leveraging unrivaled strength – national network, competitive advantages, diversified revenues, growing free cash flow Multiple growth drivers – market recovery, gainin
Slide 36: Appendix
Appendix
Slide 37: TopBuild Adjusted EBITDA Reconciliation
TopBuild Adjusted EBITDA Reconciliation TopBuild Adjusted EBITDA ($ in Millions) 2012 2013 2014 Operating profit, as reported ($116) $24 $41 Depreciation & Amortization 30 28 26 EBITDA -$86 $52 $67 Adjustments: Non-recurring litigation and rationalization expenses (1) $77 $2 $2 Stock-based compensat
Slide 38: TopBuild Free Cash Flow Reconciliation
TopBuild Free Cash Flow Reconciliation TopBuild Free Cash Flow ($ in millions) 2012 2013 2014 Adjusted EBITDA $14 $73 $91 Less capex per cash flow statement -11 -14 -13 Adjusted for changes in working capital per cash flow statement Receivables -20 -22 -16 Inventory -9 -13 -9 Accounts payable and ac