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, 2020


☐	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: 001-36870

TopBuild Corp.

(Exact name of Registrant as Specified in its Charter)

Delaware

(State or Other Jurisdiction of Incorporation or
Organization)

47-3096382

(I.R.S. Employer
Identification No.)

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	BLD	New York Stock Exchange

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ⌧ Yes ◻ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ 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

The registrant had outstanding 33,080,596 shares of Common Stock, par value $0.01 per share as of July 28, 2020.

Table of Contents

GLOSSARY

We use acronyms, abbreviations, and other defined terms throughout this quarterly report on Form 10-Q, which are defined in the glossary below:


Term		Definition
2015 LTIP		2015 Long-Term Incentive program authorizes the Board to grant stock options, stock appreciation rights, restricted shares, restricted share units, performance awards, and dividend equivalents
2017 Repurchase Program		$200 million share repurchase program authorized by the Board on February 24, 2017
2018 ASR Agreement		$50 million accelerated share repurchase agreement with JPMorgan Chase Bank, N.A.
2019 Repurchase Program		$200 million share repurchase program authorized by the Board on February 22, 2019
2019 ASR Agreement		$50 million accelerated share repurchase agreement with Bank of America, N.A.
Amended Credit Agreement		Senior secured credit agreement and related security and pledge agreement dated March 20, 2020
Annual Report		Annual report filed with the SEC on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
Board		Board of Directors of TopBuild
BofA		Bank of America, N.A.
Cooper		Cooper Glass Company, LLC
Current Report		Current report filed with the SEC on Form 8-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
EBITDA		Earnings before interest, taxes, depreciation, and amortization
EcoFoam		Bella Insulutions Inc., DBA EcoFoam/Insulutions
Exchange Act		The Securities Exchange Act of 1934, as amended
FASB		Financial Accounting Standards Board
GAAP		Generally accepted accounting principles in the United States of America
Hunter		Hunter Insulation
IBR		Incremental borrowing rate, as defined in ASC 842
Lenders		Bank of America, N.A., together with the other lenders party to the "Amended Credit Agreement"
LIBOR		London interbank offered rate
Net Leverage Ratio		As defined in the “Amended Credit Agreement,” the ratio of outstanding indebtedness, less up to $100 million of unrestricted cash, to EBITDA
NYSE		New York Stock Exchange
Original Credit Agreement		Senior secured credit agreement and related security and pledge agreement dated May 5, 2017, as amended March 28, 2018
Quarterly Report		Quarterly report filed with the SEC on Form 10-Q pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Revolving Facility		Senior secured revolving credit facilities available under the Amended Credit Agreement, of $450 million with applicable sublimits for letters of credit and swingline loans.
ROU		Right of use (asset), as defined in ASC 842
RSA		Restricted stock award
Santa Rosa		Santa Rosa Insulation and Fireproofing, LLC
SEC		United States Securities and Exchange Commission
Secured Leverage Ratio		As defined in the “Amended Credit Agreement,” the ratio of outstanding indebtedness, including letters of credit, to EBITDA
Senior Notes		TopBuild's 5.625% senior unsecured notes due on May 1, 2026
TopBuild		TopBuild Corp. and its wholly-owned consolidated domestic subsidiaries. Also, the "Company," "we," "us," and "our"
Viking		Viking Insulation Co.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

TOPBUILD CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands except share data)


	As of
	June 30,		December 31,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	258,837	$	184,807
Receivables, net of an allowance for credit losses of $7,541 at June 30, 2020, and allowance for doubtful accounts of $4,854 at December 31, 2019		423,000		428,844
Inventories, net		147,304		149,078
Prepaid expenses and other current assets		7,962		17,098
Total current assets		837,103		779,827

Right of use assets		85,236		87,134
Property and equipment, net		176,179		178,080
Goodwill		1,379,821		1,367,918
Other intangible assets, net		176,871		181,122
Deferred tax assets, net		4,358		4,259
Other assets		11,011		5,623
Total assets	$	2,670,579	$	2,603,963

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	293,224	$	307,970
Current portion of long-term debt		23,168		34,272
Accrued liabilities		120,689		98,418
Short-term lease liabilities		34,444		36,094
Total current liabilities		471,525		476,754

Long-term debt		694,320		697,955
Deferred tax liabilities, net		174,229		175,263
Long-term portion of insurance reserves		50,608		45,605
Long-term lease liabilities		54,798		54,010
Other liabilities		7,447		1,487
Total liabilities		1,452,927		1,451,074

Commitments and contingencies

Equity:
Preferred stock, $0.01 par value: 10,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2020 and December 31, 2019		—		—
Common stock, $0.01 par value: 250,000,000 shares authorized; 39,021,348 shares issued and 33,102,143 outstanding at June 30, 2020, and 38,884,530 shares issued and 33,489,769 outstanding at December 31, 2019		389		388
Treasury stock, 5,919,205 shares at June 30, 2020, and 5,394,761 shares at December 31, 2019, at cost		(371,670)		(330,018)
Additional paid-in capital		853,029		849,657
Retained earnings		735,904		632,862
Total equity		1,217,652		1,152,889
Total liabilities and equity	$	2,670,579	$	2,603,963

See notes to our unaudited condensed consolidated financial statements.

Table of Contents

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands except share and per common share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net sales	$	646,099	$	660,112	$	1,299,327	$	1,279,442
Cost of sales		468,045		485,190		949,316		948,824
Gross profit		178,054		174,922		350,011		330,618

Selling, general, and administrative expense		97,600		98,883		199,568		197,960
Operating profit		80,454		76,039		150,443		132,658

Other income (expense), net:
Interest expense		(8,277)		(9,631)		(17,018)		(19,232)
Loss on extinguishment of debt		—		—		(233)		—
Other, net		89		526		561		858
Other expense, net		(8,188)		(9,105)		(16,690)		(18,374)
Income before income taxes		72,266		66,934		133,753		114,284

Income tax expense		(16,770)		(14,883)		(27,485)		(24,249)
Net income	$	55,496	$	52,051	$	106,268	$	90,035

Net income per common share:
Basic	$	1.69	$	1.53	$	3.22	$	2.64
Diluted	$	1.67	$	1.51	$	3.18	$	2.60

Weighted average shares outstanding:
Basic		32,867,842		33,976,169		33,018,148		34,072,314
Diluted		33,202,423		34,557,664		33,401,135		34,630,048

See notes to our unaudited condensed consolidated financial statements.

Table of Contents

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


	Six Months Ended June 30,
	2020		2019
Cash Flows Provided by (Used in) Operating Activities:
Net income	$	106,268	$	90,035
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		33,311		25,538
Share-based compensation		9,038		7,485
Loss on extinguishment of debt		233		—
Loss on sale or abandonment of property and equipment		320		561
Amortization of debt issuance costs		716		779
Provision for bad debt expense		3,756		3,688
Loss from inventory obsolescence		1,313		1,251
Deferred income taxes, net		(38)		(21)
Change in certain assets and liabilities
Receivables, net		1,894		(41,489)
Inventories, net		538		17,391
Prepaid expenses and other current assets		9,151		14,969
Accounts payable		(16,390)		(23,823)
Accrued liabilities		28,188		(1,131)
Payment of contingent consideration		(413)		—
Other, net		277		1,031
Net cash provided by operating activities		178,162		96,264

Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(20,937)		(21,982)
Acquisition of businesses		(20,526)		—
Proceeds from sale of property and equipment		763		1,961
Other, net		—		22
Net cash used in investing activities		(40,700)		(19,999)

Cash Flows Provided by (Used in) Financing Activities:
Proceeds from issuance of long-term debt		300,000		4,998
Repayment of long-term debt		(313,407)		(11,364)
Payment of debt issuance costs		(2,280)		—
Taxes withheld and paid on employees' equity awards		(13,165)		(8,471)
Repurchase of shares of common stock		(34,152)		(19,499)
Payment of contingent consideration		(428)		(1,091)
Net cash used in financing activities		(63,432)		(35,427)

Cash and Cash Equivalents
Increase for the period		74,030		40,838
Beginning of period		184,807		100,929
End of period	$	258,837	$	141,767

Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	$	19,257	$	110,192
Accruals for property and equipment		323		497

See notes to our unaudited condensed consolidated financial statements.

Table of Contents

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, 2018	$	387	$	(216,607)	$	846,451	$	441,867	$	1,072,098
Net income		—		—		—		37,983		37,983
Share-based compensation		—		—		2,972		—		2,972
Issuance of 112,270 restricted share awards under long-term equity incentive plan		1		—		(1)		—		—
Repurchase of 176,327 shares pursuant to the settlement of the 2018 ASR Agreement		—		(10,000)		10,000		—		—
Repurchase of 72,791 shares pursuant to the 2019 Repurchase Program		—		(4,622)		—		—		(4,622)
105,615 shares withheld to pay taxes on employees' equity awards		—		—		(5,578)		—		(5,578)
Balance at March 31, 2019	$	388	$	(231,229)	$	853,844	$	479,850	$	1,102,853
Net income		—		—		—		52,051		52,051
Share-based compensation		—		—		4,513		—		4,513
Repurchase of 196,885 shares of common stock pursuant to the 2019 Repurchase Program		—		(14,878)		—		—		(14,878)
54,811 shares of common stock withheld to pay taxes on employees' equity awards		—		—		(2,893)		—		(2,893)
Balance at June 30, 2019	$	388	$	(246,107)	$	855,464	$	531,901	$	1,141,646


Balance at December 31, 2019	$	388	$	(330,018)	$	849,657	$	632,862	$	1,152,889
Net income		—		—		—		50,771		50,771
Share-based compensation		—		—		3,908		—		3,908
Cumulative-effect of accounting change		—		—		—		(3,225)		(3,225)
Issuance of 63,780 restricted share awards under long-term equity incentive plan		1		—		(1)		—		—
Repurchase of 73,455 shares pursuant to the settlement of the 2019 ASR Agreement		—		(7,500)		7,500		—		—
Repurchase of 188,100 shares pursuant to the 2019 Repurchase Program		—		(14,127)		—		—		(14,127)
97,144 shares withheld to pay taxes on employees' equity awards		—		—		(10,399)		—		(10,399)
Balance at March 31, 2020	$	389	$	(351,645)	$	850,665	$	680,408	$	1,179,817
Net income		—		—		—		55,496		55,496
Share-based compensation		—		—		5,130		—		5,130
Repurchase of 262,889 shares of common stock pursuant to the 2019 Repurchase Program				(20,025)		—		—		(20,025)
38,372 shares of common stock withheld to pay taxes on employees' equity awards		—		—		(2,766)		—		(2,766)
Balance at June 30, 2020	$	389	$	(371,670)	$	853,029	$	735,904	$	1,217,652

See notes to our unaudited condensed consolidated financial statements.

Table ofContents

TOPBUILD CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Fair Value

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” The new standard modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including adjustments to Level 3 fair value measurement disclosures as well as the removal of disclosures around Level 1 and Level 2 transfers. This update was effective for us beginning January 1, 2020, and did not have a material impact on our financial position and results of operations.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles included in current guidance, as well as improving consistent application of and simplifying GAAP for other areas by clarifying and amending existing guidance. This update is effective for us beginning January 1, 2021, with early adoption permitted. We have not yet selected an adoption date, and we are currently evaluating the effect of adoption of this standard on our financial position and results of operations.

3. REVENUE RECOGNITION

Revenue is disaggregated between our Installation and Distribution segments and further based on market and product, as we believe this best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The following tables present our revenues disaggregated by market (in thousands):


	Three Months Ended June 30,
	2020								2019
		Installation		Distribution		Elims		Total		Installation		Distribution		Elims		Total
Residential	$	370,969	$	163,615	$	(29,050)	$	505,534	$	373,945	$	159,774	$	(29,060)	$	504,659
Commercial		95,600		52,721		(7,756)		140,565		109,083		53,713		(7,343)		155,453
Net sales	$	466,569	$	216,336	$	(36,806)	$	646,099	$	483,028	$	213,487	$	(36,403)	$	660,112


	Six Months Ended June 30,
	2020								2019
		Installation		Distribution		Elims		Total		Installation		Distribution		Elims		Total
Residential	$	744,250	$	326,071	$	(58,055)	$	1,012,266	$	723,818	$	313,552	$	(56,576)	$	980,794
Commercial		198,192		104,487		(15,618)		287,061		208,592		104,399		(14,343)		298,648
Net sales	$	942,442	$	430,558	$	(73,673)	$	1,299,327	$	932,410	$	417,951	$	(70,919)	$	1,279,442

The following tables present our revenues disaggregated by product (in thousands):


	Three Months Ended June 30,
	2020								2019
		Installation		Distribution		Elims		Total		Installation		Distribution		Elims		Total
Insulation and accessories	$	360,999	$	175,559	$	(29,548)	$	507,010	$	377,541	$	174,024	$	(28,182)	$	523,383
Glass and windows		39,371		—		—		39,371		39,086		—		—		39,086
Gutters		21,577		25,979		(5,687)		41,869		21,569		23,066		(6,294)		38,341
All other		44,622		14,798		(1,571)		57,849		44,832		16,397		(1,927)		59,302
Net sales	$	466,569	$	216,336	$	(36,806)	$	646,099	$	483,028	$	213,487	$	(36,403)	$	660,112

Table ofContents

TOPBUILD CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


	Six Months Ended June 30,
	2020								2019
		Installation		Distribution		Elims		Total		Installation		Distribution		Elims		Total
Insulation and accessories	$	730,995	$	355,808	$	(59,607)	$	1,027,196	$	727,496	$	343,606	$	(56,016)	$	1,015,086
Glass and windows		80,690		—		—		80,690		76,954		—		—		76,954
Gutters		40,506		45,970		(11,074)		75,402		40,492		41,651		(11,881)		70,262
All other


		Page No.
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Operations	5

	Condensed Consolidated Statements of Cash Flows	6

	Condensed Consolidated Statements of Changes in Equity	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	32

Part II.	Other Information

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults upon Senior Securities	32

Item 4.	Mine Safety Disclosures	33

Item 5.	Other Information	33

Item 6.	Exhibits	33

Index to Exhibits		34

Signature		35