10-Q

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 March 31, 2021

☐ 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 33,061,398 shares of Common Stock, par value $0.01 per share as of April 27, 2021.

TOPBUILD CORP.

TABLE OF CONTENTS

		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	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
Part II.	Other Information
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
Index to Exhibits		30
Signature		31

2

GLOSSARY

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

Term	Definition
2015 LTIP	2015 Long-Term Incentive Program authorizes the Board to grant stock options, stock appreciation rights, restricted shares, restricted share units, performance awards, and dividend equivalents
2019 ASR Agreement	$50 million accelerated share repurchase agreement with Bank of America, N.A.
2019 Repurchase Program	$200 million share repurchase program authorized by the Board on February 22, 2019
ABS	American Building Systems, Inc.
Amended Credit Agreement	Senior secured credit agreement and related security and pledge agreement dated March 8, 2021
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
Creative	Creative Conservation Co.
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
Exchange Act	The Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
GAAP	Generally accepted accounting principles in the United States of America
Garland	Garland Insulating, Ltd.
Hunter	J.P. Hunter Enterprises, Inc.
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"
LCR	L.C.R. Contractors, LLC
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
New Senior Notes	TopBuild's 3.625% senior unsecured notes due on March 15, 2029
NYSE	New York Stock Exchange
Old Senior Notes	TopBuild's 5.625% senior unsecured notes which were due on May 1, 2026 and redeemed in full on March 15, 2021
Original Credit Agreement	Senior secured credit agreement and related security and pledge agreement dated May 5, 2017, as amended and restated on March 20, 2020
Ozark	Ozark Foam Insealators, Inc.
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
TopBuild	TopBuild Corp. and its wholly-owned consolidated domestic subsidiaries. Also, the "Company," "we," "us," and "our"
Viking	Viking Insulation Co.

3

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

TOPBUILD CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands except share data)

	As of
	March 31,		December 31,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	319,619	$	330,007
Receivables, net of an allowance for credit losses of $7,171 at March 31, 2021, and $6,926 at December 31, 2020		462,848		427,340
Inventories, net		163,988		161,369
Prepaid expenses and other current assets		14,255		17,689
Total current assets		960,710		936,405
Right of use assets		94,094		83,490
Property and equipment, net		187,033		180,053
Goodwill		1,430,913		1,410,685
Other intangible assets, net		205,513		190,605
Deferred tax assets, net		2,767		2,728
Other assets		11,072		11,317
Total assets	$	2,892,102	$	2,815,283
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	330,813	$	331,710
Current portion of long-term debt		23,406		23,326
Accrued liabilities		124,946		107,949
Short-term lease liabilities		35,119		33,492
Total current liabilities		514,284		496,477
Long-term debt		686,493		683,396
Deferred tax liabilities, net		168,424		168,568
Long-term portion of insurance reserves		50,197		50,657
Long-term lease liabilities		62,688		53,749
Other liabilities		13,653		13,642
Total liabilities		1,495,739		1,466,489
Commitments and contingencies
Equity:
Preferred stock, $0.01 par value: 10,000,000 shares authorized; 0 shares issued and outstanding		—		—
Common stock, $0.01 par value: 250,000,000 shares authorized; 39,121,670 shares issued and 33,061,398 outstanding at March 31, 2021, and 39,029,913 shares issued and 33,018,925 outstanding at December 31, 2020		390		389
Treasury stock, 6,060,272 shares at March 31, 2021, and 6,010,988 shares at December 31, 2020, at cost		(396,525)		(386,669)
Additional paid-in capital		855,996		858,414
Retained earnings		936,502		876,660
Total equity		1,396,363		1,348,794
Total liabilities and equity	$	2,892,102	$	2,815,283

See notes to our unaudited condensed consolidated financial statements.

4

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands except share and per common share data)

	Three Months Ended March 31,
	2021		2020
Net sales	$	742,798	$	653,228
Cost of sales		545,039		481,272
Gross profit		197,759		171,956
Selling, general, and administrative expense		101,872		101,967
Operating profit		95,887		69,989
Other income (expense), net:
Interest expense		(6,603)		(8,742)
Loss on extinguishment of debt		(13,862)		(233)
Other, net		77		472
Other expense, net		(20,388)		(8,503)
Income before income taxes		75,499		61,486
Income tax expense		(15,657)		(10,715)
Net income	$	59,842	$	50,771
Net income per common share:
Basic	$	1.82	$	1.53
Diluted	$	1.80	$	1.51
Weighted average shares outstanding:
Basic		32,826,515		33,168,453
Diluted		33,202,563		33,599,847

See notes to our unaudited condensed consolidated financial statements.

5

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Three Months Ended March 31,
	2021		2020
Cash Flows Provided by (Used in) Operating Activities:
Net income	$	59,842	$	50,771
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,519		14,190
Share-based compensation		3,111		3,908
Loss on extinguishment of debt		13,862		233
Loss on sale or abandonment of property and equipment		56		383
Amortization of debt issuance costs		422		328
Provision for bad debt expense		1,765		1,670
Loss from inventory obsolescence		653		529
Deferred income taxes, net		(183)		(39)
Change in certain assets and liabilities
Receivables, net		(20,831)		(5,048)
Inventories, net		(2,088)		(3,964)
Prepaid expenses and other current assets		3,517		6,193
Accounts payable		(2,244)		(4,173)
Accrued liabilities		16,591		9,981
Other, net		(570)		(2,032)
Net cash provided by operating activities		89,422		72,930
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(12,284)		(15,892)
Acquisition of businesses		(61,092)		(20,526)
Proceeds from sale of property and equipment		56		194
Net cash used in investing activities		(73,320)		(36,224)
Cash Flows Provided by (Used in) Financing Activities:
Proceeds from issuance of long-term debt		411,250		300,000
Repayment of long-term debt		(415,856)		(307,668)
Payment of debt issuance costs		(6,500)		(2,280)
Taxes withheld and paid on employees' equity awards		(11,480)		(10,399)
Exercise of stock options		5,952		—
Repurchase of shares of common stock		(9,856)		(14,127)
Net cash used in financing activities		(26,490)		(34,474)
Cash and Cash Equivalents
(Decrease) increase for the period		(10,388)		2,232
Beginning of period		330,007		184,807
End of period	$	319,619	$	187,039
Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	$	20,322	$	9,167
Accruals for property and equipment		524		496

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, 2019	$	388	$	(330,018)	$	849,657	$	632,862	$	1,152,889
Cumulative-effect of accounting change		—		—		—		(3,225)		(3,225)
Net income		—		—		—		50,771		50,771
Share-based compensation		—		—		3,908		—		3,908
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

	Common		Treasury		Additional
	Stock		Stock		Paid-in		Retained
	($0.01 par value)		at cost		Capital		Earnings		Equity
Balance at December 31, 2020	$	389	$	(386,669)	$	858,414	$	876,660	$	1,348,794
Net income		—		—		—		59,842		59,842
Share-based compensation		—		—		3,111		—		3,111
Issuance of 30,284 restricted share awards under long-term equity incentive plan		1		—		(1)		—		—
Repurchase of 49,284 shares pursuant to the 2019 Repurchase Program		—		(9,856)		—		—		(9,856)
43,290 shares withheld to pay taxes on employees' equity awards		—		—		(11,480)		—		(11,480)
51,915 shares issued upon exercise of stock options		—		—		5,952		—		5,952
Balance at March 31, 2021	$	390	$	(396,525)	$	855,996	$	936,502	$	1,396,363

See notes to our unaudited condensed consolidated financial statements.

7

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

TopBuild was formed on June 30, 2015, and is listed on the NYSE under the ticker symbol “BLD.”  We report our business in two segments: Installation and Distribution.  Our Installation segment primarily installs insulation and other building products.  Our Distribution segment primarily sells and distributes insulation and other building products.  Our segments are based on our operating units, for which financial information is regularly evaluated by our chief operating decision maker.

We believe the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to state fairly our financial position as of March 31, 2021, and our results of operations and cash flows for the three months ended March 31, 2021 and 2020.  The condensed consolidated balance sheet at December 31, 2020, was derived from our audited financial statements, but does not include all disclosures required by GAAP.

These condensed consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report for the year ended December 31, 2020, as filed with the SEC on February 23, 2021.

2.  ACCOUNTING POLICIES

Financial Statement Presentation.  Our condensed consolidated financial statements have been developed in conformity with GAAP, which requires management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.  Actual results could differ materially from these estimates.  All intercompany transactions between TopBuild entities have been eliminated.

Recently Adopted Accounting Pronouncements

Income Taxes

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.  We adopted this standard on January 1, 2021, using the modified retrospective method related to franchise taxes. There was no cumulative-effect adjustment recorded as of the beginning of 2021.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current incurred loss methodology with an expected loss methodology, referred to as the current expected credit loss (CECL) methodology.  We adopted Topic 326 on January 1, 2020, using the modified retrospective method, which resulted in a $3.2 million cumulative-effect adjustment recorded through retained earnings at the beginning of 2020.

8

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes additional ASUs which were adopted, but did not have a material impact on our accounting policies or our consolidated financial statements and related disclosures:

ASU	Description	Period Adopted	Method
ASU 2021-01	Reference Rate Reform	01/01/21	Prospective
ASU 2017-04	Simplifying the Test for Goodwill Impairment	01/01/20	Prospective
ASU 2018-13	Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement	01/01/20	Prospective

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 March 31, 2021
		Installation		Distribution		Elims		Total
Residential	$	418,077	$	192,045	$	(33,338)	$	576,784
Commercial		114,676		59,556		(8,218)		166,014
Net sales	$	532,753	$	251,601	$	(41,556)	$	742,798

	Three Months Ended March 31, 2020
		Installation		Distribution		Elims		Total
Residential	$	373,281	$	162,456	$	(29,006)	$	506,731
Commercial		102,592		51,767		(7,862)		146,497
Net sales	$	475,873	$	214,223	$	(36,868)	$	653,228

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

	Three Months Ended March 31, 2021
		Installation		Distribution		Elims		Total
Insulation and accessories	$	417,597	$	211,494	$	(34,527)	$	594,564
Glass and windows		43,047		—		—		43,047
Gutters		19,358		25,839		(5,305)		39,892
All other		52,751		14,268		(1,724)		65,295
Net sales	$	532,753	$	251,601	$	(41,556)	$	742,798

	Three Months Ended March 31, 2020
		Installation		Distribution		Elims		Total
Insulation and accessories	$	369,996	$	180,249	$	(30,059)	$	520,186
Glass and windows		41,319		—		—		41,319
Gutters		18,930		19,991		(5,387)		33,534
All other		45,628		13,983		(1,422)		58,189
Net sales	$	475,873	$	214,223	$	(36,868)	$	653,228

9

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table represents our contract assets and contract liabilities with customers, in thousands:

	Included in Line Item on	As of
	Condensed	March 31,		December 31,
	Balance Sheets	2021		2020
Contract Assets:
Receivables, unbilled	Receivables, net	$	64,519	$	48,839
Contract Liabilities:
Deferred revenue	Accrued liabilities	$	8,091	$	6,542

The increase in contract assets as of March 31, 2021 is primarily driven by an increase in organic sales as well as sales from our acquisitions during the quarter.

The aggregate amount remaining on uncompleted performance obligations was $283.3 million as of March 31, 2021. We expect to satisfy the performance obligations and recognize revenue on substantially all of these uncompleted contracts over the next 18 months.

4.  GOODWILL AND OTHER INTANGIBLES

We have two reporting units which are also our operating and reporting segments: Installation and Distribution. Both reporting units contain goodwill. Assets acquired and liabilities assumed are assigned to the applicable reporting unit based on whether the acquired assets and liabilities relate to the operations of and determination of the fair value of such unit.  Goodwill assigned to the reporting unit is the excess of the fair value of the acquired business over the fair value of the individual assets acquired and liabilities assumed for the reporting unit.

In the fourth quarter of 2020, we performed an annual assessment on our goodwill resulting in no impairment.

Changes in the carrying amount of goodwill for the three months ended March 31, 2021 by segment, were as follows, in thousands:

							Accumulated
	Gross Goodwill				Gross Goodwill		Impairment		Net Goodwill
	December 31, 2020		Additions		March 31, 2021		Losses		March 31, 2021
Goodwill, by segment:
Installation	$	1,726,356	$	20,228	$	1,746,584	$	(762,021)	$	984,563
Distribution		446,350		—		446,350		—		446,350
Total goodwill	$	2,172,706	$	20,228	$	2,192,934	$	(762,021)	$	1,430,913

See Note 13 – Business Combinations for goodwill recognized on acquisitions that occurred during the quarter.

Other intangible assets, net includes customer relationships, non-compete agreements, and trademarks / trade names.  The following table sets forth our other intangible assets, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Gross definite-lived intangible assets	$	273,801	$	252,751
Accumulated amortization		(68,288)		(62,146)
Net definite-lived intangible assets		205,513		190,605

10

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table sets forth our amortization expense, in thousands:

	Three Months Ended March 31,
	2021		2020
Amortization expense	$	6,143	$	5,272

5. LONG-TERM DEBT

The following table reconciles the principal balances of our outstanding debt to our condensed consolidated balance sheets, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Senior Notes - 3.625% as of March 31, 2021	$	400,000	$	400,000
Term loan		300,000		288,750
Equipment notes		23,399		25,451
Unamortized debt issuance costs		(13,500)		(7,479)
Total debt, net of unamortized debt issuance costs		709,899		706,722
Less: current portion of long-term debt		23,406		23,326
Total long-term debt	$	686,493	$	683,396

The following table sets forth our remaining principal payments for our outstanding debt balances as of March 31, 2021, in thousands:

	Payments Due by Period
	2021		2022		2023		2024		2025		Thereafter		Total
Senior Notes	$	—	$	—	$	—	$	—	$	—	$	400,000	$	400,000
Term loan		11,250		15,000		20,625		22,500		28,125		202,500		300,000
Equipment notes		6,281		8,651		6,337		2,130		—				23,399
Total	$	17,531	$	23,651	$	26,962	$	24,630	$	28,125	$	602,500	$	723,399

Amendment to Original Credit Agreement and Senior Secured Term Loan Facility

On March 8, 2021, the Company entered into an Amendment to our Original Credit Agreement (as so amended, the Amended Credit Agreement).  The Amended Credit Agreement provides for a term loan facility in an aggregate principal amount of $300.0 million, all of which was drawn on March 8, 2021 and a Revolving Facility with an aggregate borrowing capacity of $450.0 million, including a $100.0 million letter of credit sublimit and up to a $35.0 million swingline sublimit.  The maturity date for the loans under the Amended Credit Agreement was extended from March 2025 to March 2026, the floor for base rate loans has been reduced from 1.5% to 1.0%, and the floor for Eurodollar rate loans has been reduced from 0.5% to 0.0%. Additional provisions have also been made for the eventual replacement of LIBOR with another alternate benchmark rate.

The following table outlines the key terms of our Amended Credit Agreement (dollars in thousands):

Senior secured term loan facility	$	300,000
Additional term loan and/or revolver capacity available under incremental facility (a)	$	300,000
Revolving Facility	$	450,000
Sublimit for issuance of letters of credit under Revolving Facility (b)	$	100,000
Sublimit for swingline loans under Revolving Facility (b)	$	35,000
Interest rate as of March 31, 2021		1.11	%
Scheduled maturity date		3/20/2026

11

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(a) 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).

(b) Use of the sublimits for the issuance of letters of credit and swingline loans reduces the availability under the Revolving Facility.

Interest payable on borrowings under the Amended 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) BofA’s “prime rate,” and (iii) the LIBOR rate for U.S. dollar deposits with a term of one month, plus 1.00 percent; or

● A LIBOR rate (or a comparable successor rate) determined by reference to the costs of funds for deposits in U.S. dollars for the interest period relevant to such borrowings, subject to a floor of 0%.

The Amended Credit Agreement contemplates future amendment by the Company and the agent to provide for the replacement of LIBOR with another alternate benchmark rate, giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated syndicated credit facilities for such alternative benchmarks, including any related mathematical or other applicable adjustments.

The applicable margin rate is determined based on our Secured Leverage Ratio.  In the case of base rate borrowings, the applicable margin rate ranges from 0.00 percent to 1.00 percent and in the case of LIBOR rate borrowings, the applicable margin ranges from 1.00 percent to 2.50 percent.  Borrowings under the Amended 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.

Revolving Facility

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, as well as any outstanding amount borrowed under our Revolving Facility, reduce the availability under the Revolving Facility.  The following table summarizes our availability under the Revolving Facility, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Revolving Facility	$	450,000	$	450,000
Less: standby letters of credit		(60,382)		(60,382)
Availability under Revolving Facility	$	389,618	$	389,618

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 Secured Leverage Ratio.  We must also pay customary fees on outstanding letters of credit.

Senior Notes

On March 15, 2021, the Company completed a private offering of $400.0 million aggregate principal amount of 3.625% New Senior Notes due 2029. The Company used the proceeds from the issuance of the New Senior Notes, together with cash on hand, to redeem 100% of its $400.0 million aggregate principal amount of 5.625% Old Senior Notes due 2026.   The New Senior Notes are our senior unsecured obligations and bear interest at 3.625% per year, payable semiannually in arrears on March 15 and September 15 of each year, which begins on September 15, 2021. The New Senior Notes mature on March 15, 2029, unless redeemed early or repurchased. If we undergo a change in control, we must make an offer to repurchase all of the Senior Notes then outstanding at a repurchase price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest (if any) to, but not including, the repurchase date. 

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company may redeem the Notes, in whole or in part, at any time on or after March 15, 2024 at the redemption prices specified in the Notes.  The Company may also redeem all or part of the Notes at any time prior to March 15, 2024 at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus the Applicable Premium (as defined in the Indenture), as of, and accrued and unpaid interest to, the redemption date. Additionally, the Company may redeem up to 40% of the aggregate principal amount of the Notes prior to March 15, 2024 with the net cash proceeds of certain sales of its capital stock at 103.625% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to the date of redemption only if, after the redemption, at least 60% of the aggregate principal amount of the Notes originally issued remains outstanding.

Equipment Notes

As of December 31, 2020, the company has issued $41.6 million of equipment notes for the purpose of financing the purchase of vehicles and equipment. No equipment notes were issued during the three months ended March 31, 2021. The Company’s equipment notes each have a five year term maturing from 2023 to 2024 and bear interest at fixed rates between 2.8% and 4.4%.

  Covenant Compliance

The indenture governing our New Senior Notes contains restrictive covenants that, among other things, generally limit the ability of the Company and certain of its subsidiaries (subject to certain exceptions) to (i) create liens, (ii) pay dividends, acquire shares of capital stock and make payments on subordinated debt, (iii) place limitations on distributions from certain subsidiaries, (iv) issue or sell the capital stock of certain subsidiaries, (v) sell assets, (vi) enter into transactions with affiliates and (vii) effect mergers.  The indenture provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among others: nonpayment of principal or interest; breach of covenants or other agreements in the indenture; defaults in failure to pay certain other indebtedness; and certain events of bankruptcy or insolvency. Generally, if an event of default occurs and is continuing under the indenture, the trustee or the holders of at least 30% in aggregate principal amount of the New Senior Notes then outstanding may declare the principal of, premium, if any, and accrued interest on all the New Senior Notes immediately due and payable. The New Senior Notes and related guarantees have not been registered under the Securities Act of 1933, and we are not required to register either the New Senior Notes or the guarantees in the future.

The Amended 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 Amended Credit Agreement contains customary affirmative covenants and events of default.

The Amended Credit Agreement requires that we maintain a Net Leverage Ratio and minimum Interest Coverage Ratio throughout the term of the agreement.  The following table outlines the key financial covenants effective for the period covered by this Quarterly Report:

	As of March 31, 2021
Maximum Net Leverage Ratio	3.50:1.00
Minimum Interest Coverage Ratio	3.00:1.00
Compliance as of period end	In Compliance

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6.  FAIR VALUE 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 13 – Business Combinations.

Fair Value on Non-Recurring Basis

Fair value measurements were applied to our long-term debt portfolio.  We believe the carrying value of our term loan 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 Amended Credit Agreement.  In addition, due to the floating-rate nature of our term loan, 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.  Based on market trades of our New Senior Notes close to March 31, 2021 (Level 1 fair value measurement), we estimate that the fair value of the New Senior Notes is approximately $415.6 million compared to a gross carrying value of $400.0 million at March 31, 2021.

7.  SEGMENT INFORMATION

The following tables set forth our net sales and operating results by segment, in thousands:

	Three Months Ended March 31,
	2021		2020		2021		2020
	Net Sales				Operating Profit (b)
Our operations by segment were (a):
Installation	$	532,753	$	475,873	$	73,636	$	60,351
Distribution		251,601		214,223		35,385		24,669
Intercompany eliminations		(41,556)		(36,868)		(6,528)		(5,833)
Total	$	742,798	$	653,228		102,493		79,187
General corporate expense, net (c)						(6,606)		(9,198)
Operating profit, as reported						95,887		69,989
Other expense, net						(20,388)		(8,503)
Income before income taxes					$	75,499	$	61,486

(a) All of our operations are located in the U.S.

(b) Segment operating profit 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 includes expenses not specifically attributable to our segments for functions such as corporate human resources, finance, and legal, including salaries, benefits, and other related costs.

8. LEASES

We have operating leases for our installation branch locations, distribution centers, our Branch Support Center in Daytona Beach, Florida, vehicles and certain equipment. In addition, we lease certain operating facilities from related parties, primarily former owners (and in certain cases, current management personnel) of companies acquired. These related party leases are immaterial to our consolidated statements of operations. As of March 31, 2021, we did not have any finance leases.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The components of lease expense were as follows and are primarily included in cost of sales on the accompanying unaudited condensed consolidated statements of operations, in thousands:

	Three Months Ended March 31,
	2021		2020
Operating lease cost (a)	$	11,810	$	12,271
Short-term lease cost		3,354		3,064
Sublease income		(206)		(62)
Net lease cost	$	14,958	$	15,273

(a) Includes variable cost components of $1,697 and $1,444 in the three months ended March 31, 2021 and 2020, respectively.

Future minimum lease payments under non-cancellable operating leases as of March 31, 2021 were as follows, in thousands:

Payments due by Period
2021	$	29,428
2022		30,287
2023		19,595
2024		12,704
2025		8,229
2026 & Thereafter		5,218
Total future minimum lease payments		105,461
Less: imputed interest		(7,654)
Lease liability at March 31, 2021	$	97,807

As of March 31, 2021, the weighted average remaining lease term was 3.6 years and the related lease liability was calculated using a weighted average discount rate of 3.6%.

The amount below is included in the cash flows provided by (used in) operating activities section on the accompanying unaudited condensed consolidated statements of cash flows, in thousands:

	Three Months Ended March 31,
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities	$	(10,150)	$	(10,801)

9.  INCOME TAXES    

Our effective tax rates were 20.7 percent and 17.4 percent for the three months ended March 31, 2021 and 2020, respectively. The higher 2021 tax rate was due to permanent items including share-based compensation, partially offset by state tax adjustments.

A tax benefit of $3.1 million and $5.5 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 months ended March 31, 2021 and 2020, respectively.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. INCOME PER SHARE

Basic net income per share is calculated by dividing net income by the number of weighted average shares outstanding during the period, without consideration for common stock equivalents.

Diluted net income per share is calculated by adjusting the number of 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 net income per share were computed as follows:

	Three Months Ended March 31,
	2021		2020
Net income (in thousands) - basic and diluted	$	59,842	$	50,771
Weighted average number of common shares outstanding - basic		32,826,515		33,168,453
Dilutive effect of common stock equivalents:
RSAs with service-based conditions		35,619		71,221
RSAs with market-based conditions		147,098		131,024
RSAs with performance-based conditions		49,020		49,778
Stock options		144,311		179,371
Weighted average number of common shares outstanding - diluted		33,202,563		33,599,847
Basic net income per common share	$	1.82	$	1.53
Diluted net income per common share	$	1.80	$	1.51

The following table summarizes shares excluded from the calculation of diluted net income per share because their effect would have been anti-dilutive:

	Three Months Ended March 31,
	2021		2020
Anti-dilutive common stock equivalents:
RSAs with service-based conditions		2,831		5,271
RSAs with market-based conditions		5,512		8,341
RSAs with performance-based conditions		—		—
Stock options		11,766		32,067
Total anti-dilutive common stock equivalents		20,109		45,679

11. SHARE-BASED COMPENSATION

Effective July 1, 2015, our eligible employees commenced participation 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 March 31, 2021, we had 2.0 million shares remaining available for issuance under the 2015 LTIP.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Share-based compensation expense is included in selling, general, and administrative expense.  The income tax effect associated with share-based compensation awards is included in income tax expense.  The following table presents share-based compensation amounts recognized in our condensed consolidated statements of operations, in thousands:

	Three Months Ended March 31,
	2021		2020
Share-based compensation expense	$	3,111	$	3,908
Income tax benefit realized	$	3,093	$	5,500

The following table presents a summary of our share-based compensation activity for the three months ended March 31, 2021, in thousands, except per share amounts:

	RSAs			Stock 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 Intrinsic Value
Balance December 31, 2020	324.8	$	87.79	239.7	$	24.33	$	68.86	$	27,612.1
Granted	56.8	$	248.17	24.1	$	89.59	$	214.58
Converted/Exercised	(134.1)	$	81.03	(51.9)	$	21.97	$	61.30	$	7,039.9
Forfeited/Expired	—	$	—	—	$	—	$	—
Balance March 31, 2021	247.5	$	109.33	211.9	$	32.33	$	87.28	$	25,997.0
Exercisable March 31, 2021 (a)				115.7	$	20.97	$	57.86	$	17,535.3

(a) The weighted average remaining contractual term for vested stock options is approximately 6.5 years.

Unrecognized share-based compensation expense related to unvested awards is shown in the following table, dollars in thousands:

	As of March 31, 2021
	Unrecognized Compensation Expense on Unvested Awards		Weighted Average Remaining Vesting Period
RSAs	$	14,062		1.4
Stock options		2,801		1.3
Total unrecognized compensation expense related to unvested awards	$	16,863

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 18, 2019	$	2,281	$	—	$	570	$	2,281	$	4,562
February 17, 2020	$	2,694	$	—	$	674	$	2,694	$	5,388
February 16, 2021	$	2,596	$	—	$	649	$	2,596	$	5,192

During the first quarter of 2021, RSAs with performance-based conditions that were granted on February 19, 2018 vested based on cumulative three-year achievement of 200%. Total compensation expense recognized over the three-year performance period, net of forfeitures, was $3.7 million.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 2021 and 2020:

	2021			2020
Measurement period (years)		2.87			2.88
Risk free interest rate		0.22	%		1.40	%
Dividend yield		0.00	%		0.00	%
Estimated fair value of market-based RSAs at grant date	$	298.66		$	158.24

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 stock options granted in 2021 and 2020:

	2021			2020
Risk free interest rate		0.76	%		1.53	%
Expected volatility, using historical return volatility and implied volatility		43.29	%		31.50	%
Expected life (in years)		6.0			6.0
Dividend yield		0.00	%		0.00	%
Estimated fair value of stock options at grant date	$	89.59		$	39.49

12. SHARE REPURCHASE PROGRAM

On February 22, 2019, our Board authorized the 2019 Repurchase Program, pursuant to which the Company may purchase up to $200.0 million of our common stock.  Share repurchases may be executed through various means including open market purchases, privately negotiated transactions, accelerated share repurchase transactions, or other available means.  The 2019 Share Repurchase Program does not obligate the Company to purchase any shares and has no expiration date.  Authorization for the 2019 Share Repurchase Program may be terminated, increased, or decreased by the Board at its discretion at any time.  As of March 31, 2021, the Company has approximately $30.1 million remaining under the 2019 Repurchase Program.

Effective November 4, 2019, under the 2019 Repurchase program, we entered into the 2019 ASR Agreement. We paid BofA $50.0 million in exchange for an initial delivery of 392,501 shares of our common stock on November 5, 2019, representing an estimated 85% of the total number of shares we expected to receive under the 2019 ASR Agreement, at the time we entered into the agreement.  During the quarter ended March 31, 2020, we received an additional 73,455 shares of our common stock from BofA representing the final settlement of the 2019 ASR agreement. We purchased a total of 465,956 shares of our common stock under the 2019 ASR Agreement at an average price per share of $107.31.

The following table sets forth our share repurchases under the 2019 Repurchase Program during the periods presented:

	Three Months Ended March 31,
	2021		2020
Number of shares repurchased		49,284		261,555 (a)
Share repurchase cost (in thousands)	$	9,856	$	14,127

(a) The three months ended March 31, 2020 includes 73,455 shares we received as final settlement of our 2019 ASR Agreement.

18

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. BUSINESS COMBINATIONS

We continue to acquire businesses as part of our ongoing strategy to grow our company and expand our market share.  Each acquisition has been accounted for as a business combination under ASC 805, “Business Combinations.” Acquisition related costs for the three months ended March 31, 2021 and 2020, were $0.7 million and $0.2 million, respectively. Acquisition costs are included in selling, general, and administrative expense in our condensed consolidated statements of operations.

The tables below provide a summary of businesses acquired in 2021 including, for significant acquisitions, the net sales and operating (loss) income incurred during the three months ended March 31, 2021:

											Three Months Ended
											March 31, 2021
2021 Acquisitions	Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired		Net Sales		Operating (Loss) Income
LCR		1/20/2021	$	53,833	$	—	$	53,833	$	17,863	$	8,306	$	(705)
Ozark		3/3/2021		7,404		—		7,404		3,447		567		34
Total			$	61,237	$	—	$	61,237	$	21,310	$	8,873	$	(671)

Purchase Price Allocations

The estimated fair values of the assets acquired and liabilities assumed for the 2021 acquisitions approximated the following as of March 31, 2021, in thousands:

	2021 Acquisitions
	LCR		Ozark		Total
Estimated fair values:
Accounts receivable	$	16,041	$	376	$	16,417
Inventories		806		378		1,184
Prepaid and other assets		83		—		83
Property and equipment		3,792		309		4,101
Intangible assets		17,750		2,900		20,650
Goodwill		17,863		3,447		21,310
Accounts payable		(1,464)		(4)		(1,468)
Accrued liabilities		(1,038)		(2)		(1,040)
Net assets acquired	$	53,833	$	7,404	$	61,237

Estimates of acquired intangible assets related to the 2021 acquisitions are as follows, as of March 31, 2021, dollars in thousands:

	Estimated Fair Value		Weighted Average Estimated Useful Life (Years)
2021 Acquisitions
Customer relationships	$	19,220		12
Trademarks and trade names		1,430		10
Total intangible assets acquired	$	20,650		12

19

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The table below provides a summary as of March 31, 2021 for businesses acquired during the three months ended March 31, 2020:

2020 Acquisitions	Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired
Cooper		2/20/2020	$	10,500	$	1,000	$	11,500	$	5,700
Hunter		2/24/2020		9,100		—		9,100		5,300
Total			$	19,600	$	1,000	$	20,600	$	11,000

As third-party or internal valuations are finalized, certain tax aspects of the foregoing transactions are completed, and customer post-closing reviews are concluded, adjustments may be made to the fair value of assets acquired, and in some cases total purchase price, through the end of each measurement period, generally one year following the applicable acquisition date. Primarily all of the $21.3 million and $11.0 million of goodwill recorded from acquisitions for the three months ended March 31, 2021 and 2020, respectively, is expected to be deductible for income tax purposes.

Contingent Consideration

The acquisition of Viking included a contingent consideration arrangement that requires additional consideration to be paid by TopBuild based on the achievement of annual gross revenue targets over a three-year period. The range of undiscounted amounts TopBuild may be required to pay under the contingent consideration agreement is between zero and $1.5 million. The fair value of the contingent consideration recognized on the acquisition date of $1.2 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 10.0%. Changes in the fair value measurement each period reflect the passage of time as well as the impact of adjustments, if any, to the likelihood of achieving the specified targets. We made a contingent payment of $0.5 million in the year ended December 31, 2020.

The acquisition of Cooper includes a contingent consideration arrangement that requires additional consideration to be paid by TopBuild based on the achievement of annual gross revenue targets over a two-year period. The range of undiscounted amounts TopBuild may be required to pay under the contingent consideration agreement is between zero and $1.0 million, which also represents the fair value recognized on the acquisition date. Changes in the fair value measurement each period reflect the passage of time as well as the impact of adjustments, if any, to the likelihood of achieving the specified targets.

The following table presents the fair value of contingent consideration, in thousands:

	Viking		Cooper
Date of Acquisition	July 15, 2019		February 20, 2020
Fair value of contingent consideration recognized at acquisition date	$	1,243	$	1,000
Contingent consideration at December 31, 2020	$	910	$	1,000
Change in fair value of contingent consideration during the three months ended March 31, 2021		22		(350)
Payment of contingent consideration during the three months ended March 31, 2021		—		—
Liability balance for contingent consideration at March 31, 2021	$	932	$	650

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14.  ACCRUED LIABILITIES

The following table sets forth the components of accrued liabilities, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Accrued liabilities:
Salaries, wages, and commissions	$	39,131	$	34,584
Insurance liabilities		22,414		22,007
Income & franchise taxes payable		13,124		129
Employee tax-related liabilities		12,666		12,603
Deferred revenue		8,091		6,542
Sales & property taxes		7,451		6,939
Customer rebates		4,720		6,191
Interest payable on long-term debt		155		3,924
Other		17,194		15,030
Total accrued liabilities		124,946		107,949

The increase in income and franchise taxes payable as of March 31, 2021 is primarily driven by the timing of tax payments, which typically occurs later in the year.

See Note 3 – Revenue Recognition for discussion of our deferred revenue balances and related revenue recognition policy.

15.  OTHER COMMITMENTS AND CONTINGENCIES

Litigation.  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 also maintain indemnification agreements with our directors and officers that may require us to indemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by applicable law.

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 license and insurance.

21

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes our outstanding performance, licensing, insurance and other bonds, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Outstanding bonds:
Performance bonds	$	108,964	$	102,534
Licensing, insurance, and other bonds		27,716		27,633
Total bonds	$	136,680	$	130,167

16.  SUBSEQUENT EVENTS

On April 5, 2021, we acquired ABS, a residential insulation and distribution business that primarily services the eastern United States. The acquisition was accounted for as a business combination under ASC 805, “Business Combinations.” The purchase price of approximately $126.2 million was funded by cash on hand. During the measurement period, we expect to receive additional detailed information to complete the purchase price allocation.

On April 7, 2021, we acquired Creative, a residential and light commercial insulation company serving customers in Richmond, Charlottesville, Roanoke and Northern Virginia. The acquisition was accounted for as a business combination under ASC 805, “Business Combinations.” The purchase price of approximately $6.8 million was funded by cash on hand. During the measurement period, we expect to receive additional detailed information to complete the purchase price allocation.

22

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

TopBuild, headquartered in Daytona Beach, Florida, is a leading installer and distributor of insulation and other building products to the U.S. construction industry.  We trade on the NYSE under the ticker symbol “BLD.”

We operate in two segments:  Installation (TruTeam) and Distribution (Service Partners).  Our Installation segment installs insulation and other building products nationwide through our TruTeam contractor services business which, as of March 31, 2021, had approximately 200 branches located across the United 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 glass and windows, rain gutters, afterpaint products, fireproofing, garage doors, and fireplaces.  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.  

Our Distribution segment sells and distributes insulation and other building products, including gutters, fireplaces, closet shelving, and roofing materials through our Service Partners business, which, as of March 31, 2021, had approximately 75 branches located across the United 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 the availability of supply to our local branches and distribution centers at competitive prices with the overall effect of driving efficiencies through our supply chain.  Second, being a leader in both installation and distribution allows us to effectively reach a broader range 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 7 – Segment Information to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report, which is incorporated herein by reference. For additional details regarding our strategy, material trends in our business and seasonality, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the year ended December 31, 2020, as filed with the SEC on February 23, 2021, which discussion is hereby incorporated herein by reference.

COVID-19 BUSINESS UPDATE

We continue to monitor the COVID-19 pandemic and its impact on macroeconomic and local economic conditions. While we are currently able to operate in all of our locations, there is no guarantee that the services we provide will continue to be allowed or that other events making the provision of our services challenging or impossible, will not occur.  For example, if there are surges in levels of COVID-19 infections in certain states, those states may respond by, among other things, deeming residential and commercial construction as nonessential in connection with a restriction of commercial activity.  

We continue to implement procedures and processes as required or recommended by governmental and medical authorities to ensure the safety of our employees, including increasing our cleaning and sanitizing practices at all locations and for all company vehicles, mandating social distancing on job sites and within our branch operations and limiting all but essential travel.  However, we are not able to predict whether our customers will continue to operate at their current or typical volumes, and such decreases in their operations would have a negative impact on our business.  We are also unable to predict how long the COVID-19 pandemic will last and the impact of the pandemic on demand for our products and

23

services.  For additional discussion of the potential impact of the COVID-19 pandemic on our business, see the sections entitled “Outlook” and “Risk Factors” included in this Quarterly Report.

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 in this Quarterly Report.

FIRST QUARTER 2021 VERSUS FIRST QUARTER 2020

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 March 31,
	2021			2020
Net sales	$	742,798		$	653,228
Cost of sales		545,039			481,272
Cost of sales ratio		73.4	%		73.7	%
Gross profit		197,759			171,956
Gross profit margin		26.6	%		26.3	%
Selling, general, and administrative expense		101,872			101,967
Selling, general, and administrative expense to sales ratio		13.7	%		15.6	%
Operating profit		95,887			69,989
Operating profit margin		12.9	%		10.7	%
Other expense, net		(20,388)			(8,503)
Income tax expense		(15,657)			(10,715)
Net income	$	59,842		$	50,771
Net margin		8.1	%		7.8	%

Sales and Operations

Net sales increased 13.7 percent for the three months ended March 31, 2021, from the comparable period of 2020.  The increase was primarily driven by a 7.7 percent increase in sales volume, a 4.2 percent impact from our acquisitions and a 1.8 percent increase due to higher selling prices.

Gross profit margins were 26.6 percent and 26.3 percent for the three months ended March 31, 2021 and 2020, respectively.  Gross profit margin improved primarily due to higher selling prices, savings from cost reduction initiatives, lower insurance costs, and operational efficiencies, partially offset by material inflation.

Selling, general, and administrative expense, as a percent of sales, was 13.7 and 15.6 percent for the three months ended March 31, 2021 and 2020, respectively.  The decrease in selling, general, and administrative expense as a percent of sales was primarily the result of higher sales, lower travel and entertainment costs, lower legal fees, lower stock-based compensation expense, and overall cost reduction initiatives.

Operating margins were 12.9 percent and 10.7 percent for the three months ended March 31, 2021 and 2020, respectively. The increase in operating margins was due to higher sales volume, higher selling prices, savings from cost reduction initiatives, lower insurance costs, lower stock-based compensation expense, reduced travel and entertainment activity, lower legal fees, and operational efficiencies, partially offset by material inflation.

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Business Segment Results

The following table sets forth our net sales and operating profit margins by business segment, in thousands:

	Three Months Ended March 31,
	2021			2020			Percent Change
Net sales by business segment:
Installation	$	532,753		$	475,873		12.0	%
Distribution		251,601			214,223		17.4	%
Intercompany eliminations		(41,556)			(36,868)
Net sales	$	742,798		$	653,228		13.7	%
Operating profit by business segment:
Installation	$	73,636		$	60,351		22.0	%
Distribution		35,385			24,669		43.4	%
Intercompany eliminations		(6,528)			(5,833)
Operating profit before general corporate expense		102,493			79,187		29.4	%
General corporate expense, net		(6,606)			(9,198)
Operating profit	$	95,887		$	69,989		37.0	%
Operating profit margins:
Installation		13.8	%		12.7	%
Distribution		14.1	%		11.5	%
Operating profit margin before general corporate expense		13.8	%		12.1	%
Operating profit margin		12.9	%		10.7	%

Installation

Sales

Sales in our Installation segment increased $56.9 million, or 12.0 percent, for the three months ended March 31, 2021, as compared to the same period in 2020.  The increase was due to a 5.8 percent impact from our acquisitions, a 5.1 percent increase in sales volume and a 1.1 percent increase from higher selling prices.

Operating margins

Operating margins in our Installation segment were 13.8 percent and 12.7 percent for the three months ended March 31, 2021 and 2020, respectively.  The increase in operating margins was driven by higher sales volume, higher selling prices, savings from cost reduction initiatives, lower insurance costs, reduced travel and entertainment activity, and operational efficiencies, partially offset by material inflation.

Distribution

Sales

Sales in our Distribution segment increased $37.4 million, or 17.4 percent, for the three months ended March 31, 2021, as compared to the same period in 2020.  This increase was due to a 13.8 percent increase in sales volume and a 3.7 percent increase due to higher selling prices.  

Operating margins

Operating margins in our Distribution segment were 14.1 percent and 11.5 percent for the three months ended March 31, 2021 and 2020, respectively.  The increase in operating margins was driven by higher sales volume, higher selling prices, savings from cost reduction initiatives, reduced travel and entertainment activity, and operational efficiencies, partially offset by material inflation.

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OTHER ITEMS

Other expense, net

Other expense, net, which primarily consisted of interest expense, was $20.4 million and $8.5 million for the three months ended March 31, 2021 and 2020, respectively.  The increase was driven by costs incurred to redeem our Old Senior Notes during the quarter.

Income tax expense

Income tax expense was $15.7 million, an effective tax rate of 20.7 percent, for the three months ended March 31, 2021, compared to $10.7 million, an effective tax rate of 17.4 percent, for the comparable period in 2020. The tax rate for the three months ended March 31, 2021, was higher due to permanent items including share-based compensation, partially offset by state tax adjustments.

Cash Flows and Liquidity

Significant sources (uses) of cash and cash equivalents are summarized for the periods indicated, in thousands:

	Three Months Ended March 31,
	2021		2020
Changes in cash and cash equivalents:
Net cash provided by operating activities	$	89,422	$	72,930
Net cash used in investing activities		(73,320)		(36,224)
Net cash used in financing activities		(26,490)		(34,474)
(Decrease) increase for the period	$	(10,388)	$	2,232

Net cash flows provided by operating activities increased $16.5 million for the three months ended March 31, 2021, as compared to the prior year period. The change was primarily due to an increase in net income, timing of accounts receivable collections and accrued liability payments.

Net cash used in investing activities was $73.3 million for the three months ended March 31, 2021, primarily composed of $61.1 million for acquisitions and $12.2 million for purchases of property and equipment, primarily vehicles.  Net cash used in investing activities was $36.2 million for the three months ended March 31, 2020, primarily composed of $15.9 million for purchases of property and equipment, primarily vehicles, and $20.5 million for the acquisition of Cooper and Hunter.

Net cash used in financing activities was $26.5 million for the three months ended March 31, 2021.  During the three months ended March 31, 2021, we used $9.9 million for the repurchase of common stock pursuant to the 2019 Repurchase Program, $6.5 million in debt issuance costs as a result of entering into our Amended Credit Agreement and New Senior Notes, $5.5 million net activity related to exercise of share-based incentive awards and stock options, and $4.6 million net payments for redemption of our Old Senior Notes, issuance of our New Senior Notes, proceeds from the increase in our term loan from our Amended Credit Agreement, and payments on equipment notes.  Net cash used in financing activities was $34.5 million for the three months ended March 31, 2020. During the three months ended March 31, 2020, we used $14.1 million for the repurchase of common stock pursuant to the 2019 Repurchase Program, $10.3 million on purchases of common stock for tax withholding obligations related to the vesting and exercise of share-based incentive awards, $7.7 million for payments on our term loan under our Original Credit Agreement and on our equipment notes, and $2.3 million in debt issuance costs as a result of entering into a new term loan revolving credit facility.

We are closely managing our balance sheet, including maximizing our cash flow, to maintain our strong foundation and provide stability as we continue to navigate operations through the ongoing COVID-19 pandemic.  We had solid liquidity available to us at March 31, 2021, with $319.6 million of cash and $389.6 million available borrowing capacity under our Revolving Facility.  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 working capital needs.

26

The following table summarizes our liquidity, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Cash and cash equivalents (a)	$	319,619	$	330,007
Revolving Facility		450,000		450,000
Less: standby letters of credit		(60,382)		(60,382)
Availability under Revolving Facility		389,618		389,618
Total liquidity	$	709,237	$	719,625

(a) Our cash and cash equivalents consist of AAA-rated money market funds as well as cash held in our demand deposit accounts.

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 license and insurance.  Information regarding our outstanding bonds as of March 31, 2021 is incorporated by reference from Note 15 – Other Commitments and Contingencies to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report.

OUTLOOK

The demand for housing is outpacing supply, however labor and material shortages are limiting the speed at which new homes can be built to meet this increased demand. All trades in our industry continue to experience constrained capacity, specifically in fiberglass and spray foam, resulting in manufacturers increasing costs on products. We expect both TruTeam and Service Partners to drive higher selling prices throughout the year in response to these cost increases. The increased demand for housing, combined with low interest rates and home affordability balance, should result in a continued strong outlook for the residential construction industry.

Similarly, the commercial business is poised to see continued improvement throughout 2021 as delayed projects get back on track, however management will continue to evaluate every aspect of our business, including monitoring ongoing developments related to the COVID-19 pandemic, which may trigger restrictions on operating activities, an economic downturn, or other adverse impact to our business.

OFF-BALANCE SHEET ARRANGEMENTS

We had no material off-balance sheet arrangements during the quarter ended March 31, 2021, other than short-term leases, letters of credit, and performance and license bonds, which have been disclosed in Part 1, Item 1 of this Quarterly report.

CONTRACTUAL OBLIGATIONS

There have been no material changes to our contractual obligations from those previously disclosed in our Annual Report for the year ended December 31, 2020, as filed with the SEC on February 23, 2021, except for the amendment to our Original Credit Agreement on March 8, 2021 and completion of a private offering of our New Senior Notes on March 15, 2021 for which the proceeds were used to redeem 100% of our Old Senior Notes. See further information as disclosed in Note 5 – Long Term Debt in our unaudited condensed consolidated financial statements contained in Part 1, Item 1 of this Quarterly Report.

CRITICAL ACCOUNTING POLICIES

We prepare our condensed consolidated financial statements in conformity with GAAP.  The preparation of these 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 and

27

expenses during the reporting period.  Actual results could differ from those estimates.  Our critical accounting policies have not changed from those previously reported in our Annual Report for year ended December 31, 2020, as filed with the SEC on February 23, 2021.

APPLICATION OF NEW ACCOUNTING STANDARDS

Information regarding application of new accounting standards is incorporated by reference from Note 2 – Accounting Policies to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report.

FORWARD-LOOKING STATEMENTS

Statements contained in this report that reflect our views about future periods, including our future plans and 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 the duration and impact of the COVID-19 pandemic on the United States economy, specifically with respect to residential and commercial construction, our ability to continue operations in markets affected by the COVID-19 pandemic and our ability to collect receivables from our customers, 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, and our ability to maintain our competitive position.  We discuss the material risks we face under the caption entitled “Risk Factors” in our Annual Report for the year ended December 31, 2020, as filed with the SEC on February 23, 2021, as well as under the caption entitled “Risk Factors” in subsequent reports that we file 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.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

On March 8, 2021, the Company entered into the Amended Credit Agreement, which renewed, amended and restated the Original Credit Agreement. The Amended Credit Agreement consists of a senior secured term loan facility in the amount of $300.0 million and a Revolving Facility in the amount of $450.0 million.  We also have outstanding New Senior Notes with an aggregate principal balance of $400.0 million.  The New Senior Notes bear a fixed rate of interest and therefore are excluded from the calculation below as they are not subject to fluctuations in interest rates.

Interest payable on both the term loan facility and Revolving Facility under the Amended Credit Agreement is based on a variable interest rate.  As a result, we are exposed to market risks related to fluctuations in interest rates on this outstanding indebtedness.  As of March 31, 2021, we had $300.0 million outstanding under our term loan facility, and the applicable interest rate as of such date was 1.11%.  Based on our outstanding borrowings under the Amended Credit Agreement as of March 31, 2021, a 100 basis point increase in the interest rate would result in a $2.9 million increase in our annualized interest expense.  There was no outstanding balance under the Revolving Facility as of March 31, 2021.

Item 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report, 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).  Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2021.

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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 March 31, 2021, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

The information set forth under the caption “Litigation” in Note 15 – Other Commitments and Contingencies to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report, is incorporated by reference herein.

Item 1A.  RISK FACTORS

There have been no material changes to our risk factors as previously disclosed in our Annual Report for the year ended December 31, 2020, as filed with the SEC on February 23, 2021 which are incorporated by reference herein.

Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information regarding the repurchase of our common stock for the three months ended March 31, 2021, 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
January 1, 2021 - January 31, 2021	—	$	—	—	$	39,962
February 1, 2021 - February 28, 2021	—	$	—	—	$	39,962
March 1, 2021 - March 31, 2021	49,284	$	199.98	49,284	$	30,106
Total	49,284	$	199.98	49,284

All repurchases were made using cash resources.  Excluded from this disclosure are shares repurchased to settle statutory employee tax withholding related to the vesting of stock awards.

Item 3.  DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4.  MINE SAFETY DISCLOSURES

Not applicable.

Item 5.  OTHER INFORMATION

Not applicable.

Item 6. EXHIBITS

The Exhibits listed on the accompanying Index to Exhibits are filed or furnished (as noted on such Index) as part of this Quarterly Report and incorporated herein by reference.

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INDEX TO EXHIBITS

		Incorporated by Reference			Filed
Exhibit No.	Exhibit Title	Form	Exhibit	Filing Date	Herewith
1.01	Purchase Agreement, dated February 24, 2021	8-K	1.01	3/1/2021
10.01	Amendment No. 1 to Amended and Restated Credit Agreement, dated as of March 8, 2021	8-K	10.01	3/11/2021
4.01	Indenture, dated March 15, 2021, by and among TopBuild Corp., the Guarantors party thereto and U.S. Bank National Association, as Trustee	8-K	4.01	3/16/2021
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	Inline XBRL Instance Document - the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document				X
101.SCH	Inline XBRL Taxonomy Extension Schema Document				X
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document				X
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document				X
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document				X
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document				X
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)				X
	‡Furnished herewith

30

SIGNATURE

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
	(Principal Financial Officer)

May 6, 2021

31

EX-31.1

Exhibit 31.1

Certifications

I, Robert Buck, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TopBuild Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2021	/s/ Robert Buck
	Robert Buck
	Chief Executive Officer and Director
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certifications

I, John S. Peterson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TopBuild Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2021	/s/ John S. Peterson
	John S. Peterson
	Vice President and Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF PERIOD REPORT

I, Robert Buck, Chief Executive Officer and Director of TopBuild Corp. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to the best of my knowledge:

(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 6, 2021	/s/ Robert Buck
	Robert Buck
	Chief Executive Officer and Director
	(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION OF PERIOD REPORT

I, John S. Peterson, Vice President and Chief Financial Officer of TopBuild Corp. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to the best of my knowledge:

(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 6, 2021	/s/ John S. Peterson
	John S. Peterson
	Vice President and Chief Financial Officer
	(Principal Financial Officer)

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	Mar. 31, 2021	Apr. 27, 2021
Cover page.
Entity Registrant Name	TopBuild Corp
Entity Central Index Key	0001633931
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Document Quarterly Report	true
Document Period End Date	Mar. 31, 2021
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Entity File Number	001-36870
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	47-3096382
Entity Address, Address Line One	475 North Williamson Boulevard
Entity Address, City or Town	Daytona Beach
Entity Address, State or Province	FL
Entity Address, Postal Zip Code	32114
City Area Code	386
Local Phone Number	304-2200
Title of 12(b) Security	Common stock, par value $0.01 per share
Trading Symbol	BLD
Security Exchange Name	NYSE
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
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Entity Filer Category	Large Accelerated Filer
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CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 319,619	$ 330,007
Receivables, net of an allowance for credit losses of $7,171 at March 31, 2021, and $6,926 at December 31, 2020	462,848	427,340
Inventories, net	163,988	161,369
Prepaid expenses and other current assets	14,255	17,689
Total current assets	960,710	936,405
Right of use assets	94,094	83,490
Property and equipment, net	187,033	180,053
Goodwill	1,430,913	1,410,685
Other intangible assets, net	205,513	190,605
Deferred tax assets, net	2,767	2,728
Other assets	11,072	11,317
Total assets	2,892,102	2,815,283
Current liabilities:
Accounts payable	330,813	331,710
Current portion of long-term debt	23,406	23,326
Accrued liabilities	124,946	107,949
Short-term lease liabilities	35,119	33,492
Total current liabilities	514,284	496,477
Long-term debt	686,493	683,396
Deferred tax liabilities, net	168,424	168,568
Long-term portion of insurance reserves	50,197	50,657
Long-term lease liabilities	62,688	53,749
Other liabilities	13,653	13,642
Total liabilities	1,495,739	1,466,489
Commitments and contingencies
Equity:
Preferred stock, $0.01 par value: 10,000,000 shares authorized; 0 shares issued and outstanding
Common stock, $0.01 par value: 250,000,000 shares authorized; 39,121,670 shares issued and 33,061,398 outstanding at March 31, 2021, and 39,029,913 shares issued and 33,018,925 outstanding at December 31, 2020	390	389
Treasury stock, 6,060,272 shares at March 31, 2021, and 6,010,988 shares at December 31, 2020, at cost	(396,525)	(386,669)
Additional paid-in capital	855,996	858,414
Retained earnings	936,502	876,660
Total equity	1,396,363	1,348,794
Total liabilities and equity	$ 2,892,102	$ 2,815,283

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
CONSOLIDATED BALANCE SHEETS
Allowance for doubtful accounts	$ 7,171	$ 6,926
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares, issued	0	0
Preferred stock, shares, outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	250,000,000	250,000,000
Common stock, shares issued	39,121,670	39,029,913
Common stock, shares outstanding	33,061,398	33,018,925
Treasury stock, shares at cost	6,060,272	6,010,988

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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales	$ 742,798	$ 653,228
Cost of sales	545,039	481,272
Gross profit	197,759	171,956
Selling, general, and administrative expense	101,872	101,967
Operating profit	95,887	69,989
Other income (expense), net:
Interest expense	(6,603)	(8,742)
Loss on extinguishment of debt	(13,862)	(233)
Other, net	77	472
Other expense, net	(20,388)	(8,503)
Income before income taxes	75,499	61,486
Income tax expense	(15,657)	(10,715)
Net income	$ 59,842	$ 50,771
Net income per common share:
Basic	$ 1.82	$ 1.53
Diluted	$ 1.80	$ 1.51
Weighted average shares outstanding:
Basic	32,826,515	33,168,453
Diluted	33,202,563	33,599,847

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Cash Flows Provided by (Used in) Operating Activities:
Net income	$ 59,842	$ 50,771
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	15,519	14,190
Share-based compensation	3,111	3,908
Loss on extinguishment of debt	13,862	233
Loss on sale or abandonment of property and equipment	56	383
Amortization of debt issuance costs	422	328
Provision for bad debt expense	1,765	1,670
Loss from inventory obsolescence	653	529
Deferred income taxes, net	(183)	(39)
Change in certain assets and liabilities
Receivables, net	(20,831)	(5,048)
Inventories, net	(2,088)	(3,964)
Prepaid expenses and other current assets	3,517	6,193
Accounts payable	(2,244)	(4,173)
Accrued liabilities	16,591	9,981
Other, net	(570)	(2,032)
Net cash provided by operating activities	89,422	72,930
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment	(12,284)	(15,892)
Acquisition of businesses	(61,092)	(20,526)
Proceeds from sale of property and equipment	56	194
Net cash used in investing activities	(73,320)	(36,224)
Cash Flows Provided by (Used in) Financing Activities:
Proceeds from issuance of long-term debt	411,250	300,000
Repayment of long-term debt	(415,856)	(307,668)
Payment of debt issuance costs	(6,500)	(2,280)
Taxes withheld and paid on employees' equity awards	(11,480)	(10,399)
Exercise of stock options	5,952
Repurchase of shares of common stock	(9,856)	(14,127)
Net cash used in financing activities	(26,490)	(34,474)
Cash and Cash Equivalents
(Decrease) increase for the period	(10,388)	2,232
Beginning of period	330,007	184,807
End of period	319,619	187,039
Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	20,322	9,167
Accruals for property and equipment	$ 524	$ 496

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($) $ in Thousands	Cumulative Effect, Period of Adoption, Adjustment Retained Earnings	Cumulative Effect, Period of Adoption, Adjustment	Common Stock	Treasury Stock at Cost	Additional Paid-in Capital	Retained Earnings	Total
Balance at Dec. 31, 2019	$ (3,225)	$ (3,225)	$ 388	$ (330,018)	$ 849,657	$ 632,862	$ 1,152,889
Increase (Decrease) in Stockholders' Equity
Net income						50,771	50,771
Share-based compensation					3,908		3,908
Issuance of restricted share awards under long-term equity incentive plan			1		(1)
Repurchase of shares pursuant to the settlement of ASR Agreement				(7,500)	7,500
Repurchase of shares pursuant to the Repurchase Program				(14,127)			(14,127)
Shares withheld to pay taxes on employees' equity awards					(10,399)		(10,399)
Balance at Mar. 31, 2020			389	(351,645)	850,665	680,408	1,179,817
Balance at Dec. 31, 2020			389	(386,669)	858,414	876,660	1,348,794
Increase (Decrease) in Stockholders' Equity
Net income						59,842	59,842
Share-based compensation					3,111		3,111
Issuance of restricted share awards under long-term equity incentive plan			1		(1)
Repurchase of shares pursuant to the Repurchase Program				(9,856)			(9,856)
Shares withheld to pay taxes on employees' equity awards					(11,480)		(11,480)
Shares issued upon exercise of stock options					5,952		5,952
Balance at Mar. 31, 2021			$ 390	$ (396,525)	$ 855,996	$ 936,502	$ 1,396,363

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Issuance of restricted share awards under long-term equity incentive plan (in shares)	30,284	63,780
Repurchase of shares pursuant to the settlement of ASR Agreement (in shares)		73,455
Repurchase of shares pursuant to the Repurchase Program(in shares)	49,284	(188,100)
Number of shares withheld to pay taxes on employees' equity awards (in shares)	43,290	97,144
Shares issued upon exercise of stock options (in shares)	51,915

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Basis of Presentation

3 Months Ended

Mar. 31, 2021

Basis of Presentation

Basis of Presentation

1.  BASIS OF PRESENTATION

TopBuild was formed on June 30, 2015, and is listed on the NYSE under the ticker symbol “BLD.”  We report our business in two segments: Installation and Distribution.  Our Installation segment primarily installs insulation and other building products.  Our Distribution segment primarily sells and distributes insulation and other building products.  Our segments are based on our operating units, for which financial information is regularly evaluated by our chief operating decision maker.

We believe the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to state fairly our financial position as of March 31, 2021, and our results of operations and cash flows for the three months ended March 31, 2021 and 2020.  The condensed consolidated balance sheet at December 31, 2020, was derived from our audited financial statements, but does not include all disclosures required by GAAP.

These condensed consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report for the year ended December 31, 2020, as filed with the SEC on February 23, 2021.

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Accounting Policies

3 Months Ended

Mar. 31, 2021

Accounting Policies

Accounting Policies

2.  ACCOUNTING POLICIES

Financial Statement Presentation.  Our condensed consolidated financial statements have been developed in conformity with GAAP, which requires management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.  Actual results could differ materially from these estimates.  All intercompany transactions between TopBuild entities have been eliminated.

Recently Adopted Accounting Pronouncements

Income Taxes

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.  We adopted this standard on January 1, 2021, using the modified retrospective method related to franchise taxes. There was no cumulative-effect adjustment recorded as of the beginning of 2021.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current incurred loss methodology with an expected loss methodology, referred to as the current expected credit loss (CECL) methodology.  We adopted Topic 326 on January 1, 2020, using the modified retrospective method, which resulted in a $3.2 million cumulative-effect adjustment recorded through retained earnings at the beginning of 2020.

The following table summarizes additional ASUs which were adopted, but did not have a material impact on our accounting policies or our consolidated financial statements and related disclosures:

ASU	Description	Period Adopted	Method
ASU 2021-01	Reference Rate Reform	01/01/21	Prospective
ASU 2017-04	Simplifying the Test for Goodwill Impairment	01/01/20	Prospective
ASU 2018-13	Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement	01/01/20	Prospective

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Revenue Recognition

3 Months Ended

Mar. 31, 2021

Revenue Recognition

Revenue Recognition

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 March 31, 2021
		Installation		Distribution		Elims		Total
Residential	$	418,077	$	192,045	$	(33,338)	$	576,784
Commercial		114,676		59,556		(8,218)		166,014
Net sales	$	532,753	$	251,601	$	(41,556)	$	742,798

	Three Months Ended March 31, 2020
		Installation		Distribution		Elims		Total
Residential	$	373,281	$	162,456	$	(29,006)	$	506,731
Commercial		102,592		51,767		(7,862)		146,497
Net sales	$	475,873	$	214,223	$	(36,868)	$	653,228

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

	Three Months Ended March 31, 2021
		Installation		Distribution		Elims		Total
Insulation and accessories	$	417,597	$	211,494	$	(34,527)	$	594,564
Glass and windows		43,047		—		—		43,047
Gutters		19,358		25,839		(5,305)		39,892
All other		52,751		14,268		(1,724)		65,295
Net sales	$	532,753	$	251,601	$	(41,556)	$	742,798

	Three Months Ended March 31, 2020
		Installation		Distribution		Elims		Total
Insulation and accessories	$	369,996	$	180,249	$	(30,059)	$	520,186
Glass and windows		41,319		—		—		41,319
Gutters		18,930		19,991		(5,387)		33,534
All other		45,628		13,983		(1,422)		58,189
Net sales	$	475,873	$	214,223	$	(36,868)	$	653,228

The following table represents our contract assets and contract liabilities with customers, in thousands:

	Included in Line Item on	As of
	Condensed	March 31,		December 31,
	Balance Sheets	2021		2020
Contract Assets:
Receivables, unbilled	Receivables, net	$	64,519	$	48,839
Contract Liabilities:
Deferred revenue	Accrued liabilities	$	8,091	$	6,542

The increase in contract assets as of March 31, 2021 is primarily driven by an increase in organic sales as well as sales from our acquisitions during the quarter.

The aggregate amount remaining on uncompleted performance obligations was $283.3 million as of March 31, 2021. We expect to satisfy the performance obligations and recognize revenue on substantially all of these uncompleted contracts over the next 18 months.

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Goodwill and Other Intangibles

3 Months Ended

Mar. 31, 2021

Goodwill and Other Intangibles

Goodwill and Other Intangibles

4.  GOODWILL AND OTHER INTANGIBLES

We have two reporting units which are also our operating and reporting segments: Installation and Distribution. Both reporting units contain goodwill. Assets acquired and liabilities assumed are assigned to the applicable reporting unit based on whether the acquired assets and liabilities relate to the operations of and determination of the fair value of such unit.  Goodwill assigned to the reporting unit is the excess of the fair value of the acquired business over the fair value of the individual assets acquired and liabilities assumed for the reporting unit.

In the fourth quarter of 2020, we performed an annual assessment on our goodwill resulting in no impairment.

Changes in the carrying amount of goodwill for the three months ended March 31, 2021 by segment, were as follows, in thousands:

							Accumulated
	Gross Goodwill				Gross Goodwill		Impairment		Net Goodwill
	December 31, 2020		Additions		March 31, 2021		Losses		March 31, 2021
Goodwill, by segment:
Installation	$	1,726,356	$	20,228	$	1,746,584	$	(762,021)	$	984,563
Distribution		446,350		—		446,350		—		446,350
Total goodwill	$	2,172,706	$	20,228	$	2,192,934	$	(762,021)	$	1,430,913

See Note 13 – Business Combinations for goodwill recognized on acquisitions that occurred during the quarter.

Other intangible assets, net includes customer relationships, non-compete agreements, and trademarks / trade names.  The following table sets forth our other intangible assets, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Gross definite-lived intangible assets	$	273,801	$	252,751
Accumulated amortization		(68,288)		(62,146)
Net definite-lived intangible assets		205,513		190,605

The following table sets forth our amortization expense, in thousands:

	Three Months Ended March 31,
	2021		2020
Amortization expense	$	6,143	$	5,272

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Long-Term Debt

3 Months Ended

Mar. 31, 2021

Long-Term Debt

Long-Term Debt

5. LONG-TERM DEBT

The following table reconciles the principal balances of our outstanding debt to our condensed consolidated balance sheets, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Senior Notes - 3.625% as of March 31, 2021	$	400,000	$	400,000
Term loan		300,000		288,750
Equipment notes		23,399		25,451
Unamortized debt issuance costs		(13,500)		(7,479)
Total debt, net of unamortized debt issuance costs		709,899		706,722
Less: current portion of long-term debt		23,406		23,326
Total long-term debt	$	686,493	$	683,396

The following table sets forth our remaining principal payments for our outstanding debt balances as of March 31, 2021, in thousands:

	Payments Due by Period
	2021		2022		2023		2024		2025		Thereafter		Total
Senior Notes	$	—	$	—	$	—	$	—	$	—	$	400,000	$	400,000
Term loan		11,250		15,000		20,625		22,500		28,125		202,500		300,000
Equipment notes		6,281		8,651		6,337		2,130		—				23,399
Total	$	17,531	$	23,651	$	26,962	$	24,630	$	28,125	$	602,500	$	723,399

Amendment to Original Credit Agreement and Senior Secured Term Loan Facility

On March 8, 2021, the Company entered into an Amendment to our Original Credit Agreement (as so amended, the Amended Credit Agreement).  The Amended Credit Agreement provides for a term loan facility in an aggregate principal amount of $300.0 million, all of which was drawn on March 8, 2021 and a Revolving Facility with an aggregate borrowing capacity of $450.0 million, including a $100.0 million letter of credit sublimit and up to a $35.0 million swingline sublimit.  The maturity date for the loans under the Amended Credit Agreement was extended from March 2025 to March 2026, the floor for base rate loans has been reduced from 1.5% to 1.0%, and the floor for Eurodollar rate loans has been reduced from 0.5% to 0.0%. Additional provisions have also been made for the eventual replacement of LIBOR with another alternate benchmark rate.

The following table outlines the key terms of our Amended Credit Agreement (dollars in thousands):

Senior secured term loan facility	$	300,000
Additional term loan and/or revolver capacity available under incremental facility (a)	$	300,000
Revolving Facility	$	450,000
Sublimit for issuance of letters of credit under Revolving Facility (b)	$	100,000
Sublimit for swingline loans under Revolving Facility (b)	$	35,000
Interest rate as of March 31, 2021		1.11	%
Scheduled maturity date		3/20/2026

(a) 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).

(b) Use of the sublimits for the issuance of letters of credit and swingline loans reduces the availability under the Revolving Facility.

Interest payable on borrowings under the Amended 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) BofA’s “prime rate,” and (iii) the LIBOR rate for U.S. dollar deposits with a term of one month, plus 1.00 percent; or

● A LIBOR rate (or a comparable successor rate) determined by reference to the costs of funds for deposits in U.S. dollars for the interest period relevant to such borrowings, subject to a floor of 0%.

The Amended Credit Agreement contemplates future amendment by the Company and the agent to provide for the replacement of LIBOR with another alternate benchmark rate, giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated syndicated credit facilities for such alternative benchmarks, including any related mathematical or other applicable adjustments.

The applicable margin rate is determined based on our Secured Leverage Ratio.  In the case of base rate borrowings, the applicable margin rate ranges from 0.00 percent to 1.00 percent and in the case of LIBOR rate borrowings, the applicable margin ranges from 1.00 percent to 2.50 percent.  Borrowings under the Amended 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.

Revolving Facility

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, as well as any outstanding amount borrowed under our Revolving Facility, reduce the availability under the Revolving Facility.  The following table summarizes our availability under the Revolving Facility, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Revolving Facility	$	450,000	$	450,000
Less: standby letters of credit		(60,382)		(60,382)
Availability under Revolving Facility	$	389,618	$	389,618

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 Secured Leverage Ratio.  We must also pay customary fees on outstanding letters of credit.

Senior Notes

On March 15, 2021, the Company completed a private offering of $400.0 million aggregate principal amount of 3.625% New Senior Notes due 2029. The Company used the proceeds from the issuance of the New Senior Notes, together with cash on hand, to redeem 100% of its $400.0 million aggregate principal amount of 5.625% Old Senior Notes due 2026.   The New Senior Notes are our senior unsecured obligations and bear interest at 3.625% per year, payable semiannually in arrears on March 15 and September 15 of each year, which begins on September 15, 2021. The New Senior Notes mature on March 15, 2029, unless redeemed early or repurchased. If we undergo a change in control, we must make an offer to repurchase all of the Senior Notes then outstanding at a repurchase price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest (if any) to, but not including, the repurchase date. 

The Company may redeem the Notes, in whole or in part, at any time on or after March 15, 2024 at the redemption prices specified in the Notes.  The Company may also redeem all or part of the Notes at any time prior to March 15, 2024 at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus the Applicable Premium (as defined in the Indenture), as of, and accrued and unpaid interest to, the redemption date. Additionally, the Company may redeem up to 40% of the aggregate principal amount of the Notes prior to March 15, 2024 with the net cash proceeds of certain sales of its capital stock at 103.625% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to the date of redemption only if, after the redemption, at least 60% of the aggregate principal amount of the Notes originally issued remains outstanding.

Equipment Notes

As of December 31, 2020, the company has issued $41.6 million of equipment notes for the purpose of financing the purchase of vehicles and equipment. No equipment notes were issued during the three months ended March 31, 2021. The Company’s equipment notes each have a five year term maturing from 2023 to 2024 and bear interest at fixed rates between 2.8% and 4.4%.

  Covenant Compliance

The indenture governing our New Senior Notes contains restrictive covenants that, among other things, generally limit the ability of the Company and certain of its subsidiaries (subject to certain exceptions) to (i) create liens, (ii) pay dividends, acquire shares of capital stock and make payments on subordinated debt, (iii) place limitations on distributions from certain subsidiaries, (iv) issue or sell the capital stock of certain subsidiaries, (v) sell assets, (vi) enter into transactions with affiliates and (vii) effect mergers.  The indenture provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among others: nonpayment of principal or interest; breach of covenants or other agreements in the indenture; defaults in failure to pay certain other indebtedness; and certain events of bankruptcy or insolvency. Generally, if an event of default occurs and is continuing under the indenture, the trustee or the holders of at least 30% in aggregate principal amount of the New Senior Notes then outstanding may declare the principal of, premium, if any, and accrued interest on all the New Senior Notes immediately due and payable. The New Senior Notes and related guarantees have not been registered under the Securities Act of 1933, and we are not required to register either the New Senior Notes or the guarantees in the future.

The Amended 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 Amended Credit Agreement contains customary affirmative covenants and events of default.

The Amended Credit Agreement requires that we maintain a Net Leverage Ratio and minimum Interest Coverage Ratio throughout the term of the agreement.  The following table outlines the key financial covenants effective for the period covered by this Quarterly Report:

	As of March 31, 2021
Maximum Net Leverage Ratio	3.50:1.00
Minimum Interest Coverage Ratio	3.00:1.00
Compliance as of period end	In Compliance

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Fair Value Measurements

3 Months Ended

Mar. 31, 2021

Fair Value Measurements

Fair Value Measurements

6.  FAIR VALUE 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 13 – Business Combinations.

Fair Value on Non-Recurring Basis

Fair value measurements were applied to our long-term debt portfolio.  We believe the carrying value of our term loan 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 Amended Credit Agreement.  In addition, due to the floating-rate nature of our term loan, 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.  Based on market trades of our New Senior Notes close to March 31, 2021 (Level 1 fair value measurement), we estimate that the fair value of the New Senior Notes is approximately $415.6 million compared to a gross carrying value of $400.0 million at March 31, 2021.

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Segment Information

3 Months Ended

Mar. 31, 2021

Segment Information

Segment Information

7.  SEGMENT INFORMATION

The following tables set forth our net sales and operating results by segment, in thousands:

	Three Months Ended March 31,
	2021		2020		2021		2020
	Net Sales				Operating Profit (b)
Our operations by segment were (a):
Installation	$	532,753	$	475,873	$	73,636	$	60,351
Distribution		251,601		214,223		35,385		24,669
Intercompany eliminations		(41,556)		(36,868)		(6,528)		(5,833)
Total	$	742,798	$	653,228		102,493		79,187
General corporate expense, net (c)						(6,606)		(9,198)
Operating profit, as reported						95,887		69,989
Other expense, net						(20,388)		(8,503)
Income before income taxes					$	75,499	$	61,486

(a) All of our operations are located in the U.S.

(b) Segment operating profit 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 includes expenses not specifically attributable to our segments for functions such as corporate human resources, finance, and legal, including salaries, benefits, and other related costs.

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Leases

3 Months Ended

Mar. 31, 2021

Leases

Leases

8. LEASES

We have operating leases for our installation branch locations, distribution centers, our Branch Support Center in Daytona Beach, Florida, vehicles and certain equipment. In addition, we lease certain operating facilities from related parties, primarily former owners (and in certain cases, current management personnel) of companies acquired. These related party leases are immaterial to our consolidated statements of operations. As of March 31, 2021, we did not have any finance leases.

The components of lease expense were as follows and are primarily included in cost of sales on the accompanying unaudited condensed consolidated statements of operations, in thousands:

	Three Months Ended March 31,
	2021		2020
Operating lease cost (a)	$	11,810	$	12,271
Short-term lease cost		3,354		3,064
Sublease income		(206)		(62)
Net lease cost	$	14,958	$	15,273

(a) Includes variable cost components of $1,697 and $1,444 in the three months ended March 31, 2021 and 2020, respectively.

Future minimum lease payments under non-cancellable operating leases as of March 31, 2021 were as follows, in thousands:

Payments due by Period
2021	$	29,428
2022		30,287
2023		19,595
2024		12,704
2025		8,229
2026 & Thereafter		5,218
Total future minimum lease payments		105,461
Less: imputed interest		(7,654)
Lease liability at March 31, 2021	$	97,807

As of March 31, 2021, the weighted average remaining lease term was 3.6 years and the related lease liability was calculated using a weighted average discount rate of 3.6%.

The amount below is included in the cash flows provided by (used in) operating activities section on the accompanying unaudited condensed consolidated statements of cash flows, in thousands:

	Three Months Ended March 31,
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities	$	(10,150)	$	(10,801)

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Income Taxes

3 Months Ended

Mar. 31, 2021

Income Taxes

Income Taxes

9.  INCOME TAXES    

Our effective tax rates were 20.7 percent and 17.4 percent for the three months ended March 31, 2021 and 2020, respectively. The higher 2021 tax rate was due to permanent items including share-based compensation, partially offset by state tax adjustments.

A tax benefit of $3.1 million and $5.5 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 months ended March 31, 2021 and 2020, respectively.

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Income Per Share

3 Months Ended

Mar. 31, 2021

Income Per Share

Income Per Share

10. INCOME PER SHARE

Basic net income per share is calculated by dividing net income by the number of weighted average shares outstanding during the period, without consideration for common stock equivalents.

Diluted net income per share is calculated by adjusting the number of 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 net income per share were computed as follows:

	Three Months Ended March 31,
	2021		2020
Net income (in thousands) - basic and diluted	$	59,842	$	50,771
Weighted average number of common shares outstanding - basic		32,826,515		33,168,453
Dilutive effect of common stock equivalents:
RSAs with service-based conditions		35,619		71,221
RSAs with market-based conditions		147,098		131,024
RSAs with performance-based conditions		49,020		49,778
Stock options		144,311		179,371
Weighted average number of common shares outstanding - diluted		33,202,563		33,599,847
Basic net income per common share	$	1.82	$	1.53
Diluted net income per common share	$	1.80	$	1.51

The following table summarizes shares excluded from the calculation of diluted net income per share because their effect would have been anti-dilutive:

	Three Months Ended March 31,
	2021		2020
Anti-dilutive common stock equivalents:
RSAs with service-based conditions		2,831		5,271
RSAs with market-based conditions		5,512		8,341
RSAs with performance-based conditions		—		—
Stock options		11,766		32,067
Total anti-dilutive common stock equivalents		20,109		45,679

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Share-Based Compensation

3 Months Ended

Mar. 31, 2021

Share-Based Compensation.

Share-Based Compensation

11. SHARE-BASED COMPENSATION

Effective July 1, 2015, our eligible employees commenced participation 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 March 31, 2021, we had 2.0 million shares remaining available for issuance under the 2015 LTIP.

Share-based compensation expense is included in selling, general, and administrative expense.  The income tax effect associated with share-based compensation awards is included in income tax expense.  The following table presents share-based compensation amounts recognized in our condensed consolidated statements of operations, in thousands:

	Three Months Ended March 31,
	2021		2020
Share-based compensation expense	$	3,111	$	3,908
Income tax benefit realized	$	3,093	$	5,500

The following table presents a summary of our share-based compensation activity for the three months ended March 31, 2021, in thousands, except per share amounts:

	RSAs			Stock 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 Intrinsic Value
Balance December 31, 2020	324.8	$	87.79	239.7	$	24.33	$	68.86	$	27,612.1
Granted	56.8	$	248.17	24.1	$	89.59	$	214.58
Converted/Exercised	(134.1)	$	81.03	(51.9)	$	21.97	$	61.30	$	7,039.9
Forfeited/Expired	—	$	—	—	$	—	$	—
Balance March 31, 2021	247.5	$	109.33	211.9	$	32.33	$	87.28	$	25,997.0
Exercisable March 31, 2021 (a)				115.7	$	20.97	$	57.86	$	17,535.3

(a) The weighted average remaining contractual term for vested stock options is approximately 6.5 years.

Unrecognized share-based compensation expense related to unvested awards is shown in the following table, dollars in thousands:

	As of March 31, 2021
	Unrecognized Compensation Expense on Unvested Awards		Weighted Average Remaining Vesting Period
RSAs	$	14,062		1.4
Stock options		2,801		1.3
Total unrecognized compensation expense related to unvested awards	$	16,863

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 18, 2019	$	2,281	$	—	$	570	$	2,281	$	4,562
February 17, 2020	$	2,694	$	—	$	674	$	2,694	$	5,388
February 16, 2021	$	2,596	$	—	$	649	$	2,596	$	5,192

During the first quarter of 2021, RSAs with performance-based conditions that were granted on February 19, 2018 vested based on cumulative three-year achievement of 200%. Total compensation expense recognized over the three-year performance period, net of forfeitures, was $3.7 million.

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 2021 and 2020:

	2021			2020
Measurement period (years)		2.87			2.88
Risk free interest rate		0.22	%		1.40	%
Dividend yield		0.00	%		0.00	%
Estimated fair value of market-based RSAs at grant date	$	298.66		$	158.24

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 stock options granted in 2021 and 2020:

	2021			2020
Risk free interest rate		0.76	%		1.53	%
Expected volatility, using historical return volatility and implied volatility		43.29	%		31.50	%
Expected life (in years)		6.0			6.0
Dividend yield		0.00	%		0.00	%
Estimated fair value of stock options at grant date	$	89.59		$	39.49

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Share Repurchase Program

3 Months Ended

Mar. 31, 2021

Share Repurchase Program

Share Repurchase Program

12. SHARE REPURCHASE PROGRAM

On February 22, 2019, our Board authorized the 2019 Repurchase Program, pursuant to which the Company may purchase up to $200.0 million of our common stock.  Share repurchases may be executed through various means including open market purchases, privately negotiated transactions, accelerated share repurchase transactions, or other available means.  The 2019 Share Repurchase Program does not obligate the Company to purchase any shares and has no expiration date.  Authorization for the 2019 Share Repurchase Program may be terminated, increased, or decreased by the Board at its discretion at any time.  As of March 31, 2021, the Company has approximately $30.1 million remaining under the 2019 Repurchase Program.

Effective November 4, 2019, under the 2019 Repurchase program, we entered into the 2019 ASR Agreement. We paid BofA $50.0 million in exchange for an initial delivery of 392,501 shares of our common stock on November 5, 2019, representing an estimated 85% of the total number of shares we expected to receive under the 2019 ASR Agreement, at the time we entered into the agreement.  During the quarter ended March 31, 2020, we received an additional 73,455 shares of our common stock from BofA representing the final settlement of the 2019 ASR agreement. We purchased a total of 465,956 shares of our common stock under the 2019 ASR Agreement at an average price per share of $107.31.

The following table sets forth our share repurchases under the 2019 Repurchase Program during the periods presented:

	Three Months Ended March 31,
	2021		2020
Number of shares repurchased		49,284		261,555 (a)
Share repurchase cost (in thousands)	$	9,856	$	14,127

(a) The three months ended March 31, 2020 includes 73,455 shares we received as final settlement of our 2019 ASR Agreement.

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Business Combinations

3 Months Ended

Mar. 31, 2021

Business Combinations

Business Combinations

13. BUSINESS COMBINATIONS

We continue to acquire businesses as part of our ongoing strategy to grow our company and expand our market share.  Each acquisition has been accounted for as a business combination under ASC 805, “Business Combinations.” Acquisition related costs for the three months ended March 31, 2021 and 2020, were $0.7 million and $0.2 million, respectively. Acquisition costs are included in selling, general, and administrative expense in our condensed consolidated statements of operations.

The tables below provide a summary of businesses acquired in 2021 including, for significant acquisitions, the net sales and operating (loss) income incurred during the three months ended March 31, 2021:

											Three Months Ended
											March 31, 2021
2021 Acquisitions	Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired		Net Sales		Operating (Loss) Income
LCR		1/20/2021	$	53,833	$	—	$	53,833	$	17,863	$	8,306	$	(705)
Ozark		3/3/2021		7,404		—		7,404		3,447		567		34
Total			$	61,237	$	—	$	61,237	$	21,310	$	8,873	$	(671)

Purchase Price Allocations

The estimated fair values of the assets acquired and liabilities assumed for the 2021 acquisitions approximated the following as of March 31, 2021, in thousands:

	2021 Acquisitions
	LCR		Ozark		Total
Estimated fair values:
Accounts receivable	$	16,041	$	376	$	16,417
Inventories		806		378		1,184
Prepaid and other assets		83		—		83
Property and equipment		3,792		309		4,101
Intangible assets		17,750		2,900		20,650
Goodwill		17,863		3,447		21,310
Accounts payable		(1,464)		(4)		(1,468)
Accrued liabilities		(1,038)		(2)		(1,040)
Net assets acquired	$	53,833	$	7,404	$	61,237

Estimates of acquired intangible assets related to the 2021 acquisitions are as follows, as of March 31, 2021, dollars in thousands:

	Estimated Fair Value		Weighted Average Estimated Useful Life (Years)
2021 Acquisitions
Customer relationships	$	19,220		12
Trademarks and trade names		1,430		10
Total intangible assets acquired	$	20,650		12

The table below provides a summary as of March 31, 2021 for businesses acquired during the three months ended March 31, 2020:

2020 Acquisitions	Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired
Cooper		2/20/2020	$	10,500	$	1,000	$	11,500	$	5,700
Hunter		2/24/2020		9,100		—		9,100		5,300
Total			$	19,600	$	1,000	$	20,600	$	11,000

As third-party or internal valuations are finalized, certain tax aspects of the foregoing transactions are completed, and customer post-closing reviews are concluded, adjustments may be made to the fair value of assets acquired, and in some cases total purchase price, through the end of each measurement period, generally one year following the applicable acquisition date. Primarily all of the $21.3 million and $11.0 million of goodwill recorded from acquisitions for the three months ended March 31, 2021 and 2020, respectively, is expected to be deductible for income tax purposes.

Contingent Consideration

The acquisition of Viking included a contingent consideration arrangement that requires additional consideration to be paid by TopBuild based on the achievement of annual gross revenue targets over a three-year period. The range of undiscounted amounts TopBuild may be required to pay under the contingent consideration agreement is between zero and $1.5 million. The fair value of the contingent consideration recognized on the acquisition date of $1.2 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 10.0%. Changes in the fair value measurement each period reflect the passage of time as well as the impact of adjustments, if any, to the likelihood of achieving the specified targets. We made a contingent payment of $0.5 million in the year ended December 31, 2020.

The acquisition of Cooper includes a contingent consideration arrangement that requires additional consideration to be paid by TopBuild based on the achievement of annual gross revenue targets over a two-year period. The range of undiscounted amounts TopBuild may be required to pay under the contingent consideration agreement is between zero and $1.0 million, which also represents the fair value recognized on the acquisition date. Changes in the fair value measurement each period reflect the passage of time as well as the impact of adjustments, if any, to the likelihood of achieving the specified targets.

The following table presents the fair value of contingent consideration, in thousands:

	Viking		Cooper
Date of Acquisition	July 15, 2019		February 20, 2020
Fair value of contingent consideration recognized at acquisition date	$	1,243	$	1,000
Contingent consideration at December 31, 2020	$	910	$	1,000
Change in fair value of contingent consideration during the three months ended March 31, 2021		22		(350)
Payment of contingent consideration during the three months ended March 31, 2021		—		—
Liability balance for contingent consideration at March 31, 2021	$	932	$	650

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Accrued Liabilities

3 Months Ended

Mar. 31, 2021

Accrued Liabilities

Accrued Liabilities

14.  ACCRUED LIABILITIES

The following table sets forth the components of accrued liabilities, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Accrued liabilities:
Salaries, wages, and commissions	$	39,131	$	34,584
Insurance liabilities		22,414		22,007
Income & franchise taxes payable		13,124		129
Employee tax-related liabilities		12,666		12,603
Deferred revenue		8,091		6,542
Sales & property taxes		7,451		6,939
Customer rebates		4,720		6,191
Interest payable on long-term debt		155		3,924
Other		17,194		15,030
Total accrued liabilities		124,946		107,949

The increase in income and franchise taxes payable as of March 31, 2021 is primarily driven by the timing of tax payments, which typically occurs later in the year.

See Note 3 – Revenue Recognition for discussion of our deferred revenue balances and related revenue recognition policy.

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Other Commitments and Contingencies

3 Months Ended

Mar. 31, 2021

Other Commitments and Contingencies

Other Commitments and Contingencies

15.  OTHER COMMITMENTS AND CONTINGENCIES

Litigation.  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 also maintain indemnification agreements with our directors and officers that may require us to indemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by applicable law.

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 license and insurance.

The following table summarizes our outstanding performance, licensing, insurance and other bonds, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Outstanding bonds:
Performance bonds	$	108,964	$	102,534
Licensing, insurance, and other bonds		27,716		27,633
Total bonds	$	136,680	$	130,167

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Subsequent Events

3 Months Ended

Mar. 31, 2021

Subsequent Events

Subsequent Events

16.  SUBSEQUENT EVENTS

On April 5, 2021, we acquired ABS, a residential insulation and distribution business that primarily services the eastern United States. The acquisition was accounted for as a business combination under ASC 805, “Business Combinations.” The purchase price of approximately $126.2 million was funded by cash on hand. During the measurement period, we expect to receive additional detailed information to complete the purchase price allocation.

On April 7, 2021, we acquired Creative, a residential and light commercial insulation company serving customers in Richmond, Charlottesville, Roanoke and Northern Virginia. The acquisition was accounted for as a business combination under ASC 805, “Business Combinations.” The purchase price of approximately $6.8 million was funded by cash on hand. During the measurement period, we expect to receive additional detailed information to complete the purchase price allocation.

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Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2021

Accounting Policies

Financial Statement Presentation

Financial Statement Presentation.  Our condensed consolidated financial statements have been developed in conformity with GAAP, which requires management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.  Actual results could differ materially from these estimates.  All intercompany transactions between TopBuild entities have been eliminated.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Income Taxes

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.  We adopted this standard on January 1, 2021, using the modified retrospective method related to franchise taxes. There was no cumulative-effect adjustment recorded as of the beginning of 2021.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current incurred loss methodology with an expected loss methodology, referred to as the current expected credit loss (CECL) methodology.  We adopted Topic 326 on January 1, 2020, using the modified retrospective method, which resulted in a $3.2 million cumulative-effect adjustment recorded through retained earnings at the beginning of 2020.

The following table summarizes additional ASUs which were adopted, but did not have a material impact on our accounting policies or our consolidated financial statements and related disclosures:

ASU	Description	Period Adopted	Method
ASU 2021-01	Reference Rate Reform	01/01/21	Prospective
ASU 2017-04	Simplifying the Test for Goodwill Impairment	01/01/20	Prospective
ASU 2018-13	Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement	01/01/20	Prospective

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Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2021

Accounting Policies

Summary of additional ASUs adopted in fiscal year

ASU	Description	Period Adopted	Method
ASU 2021-01	Reference Rate Reform	01/01/21	Prospective
ASU 2017-04	Simplifying the Test for Goodwill Impairment	01/01/20	Prospective
ASU 2018-13	Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement	01/01/20	Prospective

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Revenue Recognition (Tables)

3 Months Ended

Mar. 31, 2021

Revenue Recognition

Schedule of revenues disaggregated by market and product

	Three Months Ended March 31, 2021
		Installation		Distribution		Elims		Total
Residential	$	418,077	$	192,045	$	(33,338)	$	576,784
Commercial		114,676		59,556		(8,218)		166,014
Net sales	$	532,753	$	251,601	$	(41,556)	$	742,798

	Three Months Ended March 31, 2020
		Installation		Distribution		Elims		Total
Residential	$	373,281	$	162,456	$	(29,006)	$	506,731
Commercial		102,592		51,767		(7,862)		146,497
Net sales	$	475,873	$	214,223	$	(36,868)	$	653,228

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

	Three Months Ended March 31, 2021
		Installation		Distribution		Elims		Total
Insulation and accessories	$	417,597	$	211,494	$	(34,527)	$	594,564
Glass and windows		43,047		—		—		43,047
Gutters		19,358		25,839		(5,305)		39,892
All other		52,751		14,268		(1,724)		65,295
Net sales	$	532,753	$	251,601	$	(41,556)	$	742,798

	Three Months Ended March 31, 2020
		Installation		Distribution		Elims		Total
Insulation and accessories	$	369,996	$	180,249	$	(30,059)	$	520,186
Glass and windows		41,319		—		—		41,319
Gutters		18,930		19,991		(5,387)		33,534
All other		45,628		13,983		(1,422)		58,189
Net sales	$	475,873	$	214,223	$	(36,868)	$	653,228

Schedule of contract assets and contract liabilities with customers

The following table represents our contract assets and contract liabilities with customers, in thousands:

	Included in Line Item on	As of
	Condensed	March 31,		December 31,
	Balance Sheets	2021		2020
Contract Assets:
Receivables, unbilled	Receivables, net	$	64,519	$	48,839
Contract Liabilities:
Deferred revenue	Accrued liabilities	$	8,091	$	6,542

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Goodwill and Other Intangibles (Tables)

3 Months Ended

Mar. 31, 2021

Goodwill and Other Intangibles

Changes in the carrying amount of goodwill by segment

Changes in the carrying amount of goodwill for the three months ended March 31, 2021 by segment, were as follows, in thousands:

							Accumulated
	Gross Goodwill				Gross Goodwill		Impairment		Net Goodwill
	December 31, 2020		Additions		March 31, 2021		Losses		March 31, 2021
Goodwill, by segment:
Installation	$	1,726,356	$	20,228	$	1,746,584	$	(762,021)	$	984,563
Distribution		446,350		—		446,350		—		446,350
Total goodwill	$	2,172,706	$	20,228	$	2,192,934	$	(762,021)	$	1,430,913

Schedule of other intangible assets

Other intangible assets, net includes customer relationships, non-compete agreements, and trademarks / trade names.  The following table sets forth our other intangible assets, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Gross definite-lived intangible assets	$	273,801	$	252,751
Accumulated amortization		(68,288)		(62,146)
Net definite-lived intangible assets		205,513		190,605

Schedule of amortization expense

The following table sets forth our amortization expense, in thousands:

	Three Months Ended March 31,
	2021		2020
Amortization expense	$	6,143	$	5,272

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Long-Term Debt (Tables)

3 Months Ended

Mar. 31, 2021

Long-Term Debt

Reconciliation of principal balance of outstanding debt

The following table reconciles the principal balances of our outstanding debt to our condensed consolidated balance sheets, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Senior Notes - 3.625% as of March 31, 2021	$	400,000	$	400,000
Term loan		300,000		288,750
Equipment notes		23,399		25,451
Unamortized debt issuance costs		(13,500)		(7,479)
Total debt, net of unamortized debt issuance costs		709,899		706,722
Less: current portion of long-term debt		23,406		23,326
Total long-term debt	$	686,493	$	683,396

Schedule of remaining principal payments of debt

The following table sets forth our remaining principal payments for our outstanding debt balances as of March 31, 2021, in thousands:

	Payments Due by Period
	2021		2022		2023		2024		2025		Thereafter		Total
Senior Notes	$	—	$	—	$	—	$	—	$	—	$	400,000	$	400,000
Term loan		11,250		15,000		20,625		22,500		28,125		202,500		300,000
Equipment notes		6,281		8,651		6,337		2,130		—				23,399
Total	$	17,531	$	23,651	$	26,962	$	24,630	$	28,125	$	602,500	$	723,399

Summary of key terms of Amended Credit Agreement

The following table outlines the key terms of our Amended Credit Agreement (dollars in thousands):

Senior secured term loan facility	$	300,000
Additional term loan and/or revolver capacity available under incremental facility (a)	$	300,000
Revolving Facility	$	450,000
Sublimit for issuance of letters of credit under Revolving Facility (b)	$	100,000
Sublimit for swingline loans under Revolving Facility (b)	$	35,000
Interest rate as of March 31, 2021		1.11	%
Scheduled maturity date		3/20/2026

(a) 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).

(b) Use of the sublimits for the issuance of letters of credit and swingline loans reduces the availability under the Revolving Facility.

Schedule of availability under the Revolving Facility

The following table summarizes our availability under the Revolving Facility, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Revolving Facility	$	450,000	$	450,000
Less: standby letters of credit		(60,382)		(60,382)
Availability under Revolving Facility	$	389,618	$	389,618

Schedule of the key financial covenants

	As of March 31, 2021
Maximum Net Leverage Ratio	3.50:1.00
Minimum Interest Coverage Ratio	3.00:1.00
Compliance as of period end	In Compliance

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Segment Information (Tables)

3 Months Ended

Mar. 31, 2021

Segment Information

Schedule of net sales and operating results by segment

The following tables set forth our net sales and operating results by segment, in thousands:

	Three Months Ended March 31,
	2021		2020		2021		2020
	Net Sales				Operating Profit (b)
Our operations by segment were (a):
Installation	$	532,753	$	475,873	$	73,636	$	60,351
Distribution		251,601		214,223		35,385		24,669
Intercompany eliminations		(41,556)		(36,868)		(6,528)		(5,833)
Total	$	742,798	$	653,228		102,493		79,187
General corporate expense, net (c)						(6,606)		(9,198)
Operating profit, as reported						95,887		69,989
Other expense, net						(20,388)		(8,503)
Income before income taxes					$	75,499	$	61,486

(a) All of our operations are located in the U.S.

(b) Segment operating profit 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 includes expenses not specifically attributable to our segments for functions such as corporate human resources, finance, and legal, including salaries, benefits, and other related costs.

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Leases (Tables)

3 Months Ended

Mar. 31, 2021

Leases

Schedule of components of lease expense

The components of lease expense were as follows and are primarily included in cost of sales on the accompanying unaudited condensed consolidated statements of operations, in thousands:

	Three Months Ended March 31,
	2021		2020
Operating lease cost (a)	$	11,810	$	12,271
Short-term lease cost		3,354		3,064
Sublease income		(206)		(62)
Net lease cost	$	14,958	$	15,273

Schedule of future minimum lease payments

Future minimum lease payments under non-cancellable operating leases as of March 31, 2021 were as follows, in thousands:

Payments due by Period
2021	$	29,428
2022		30,287
2023		19,595
2024		12,704
2025		8,229
2026 & Thereafter		5,218
Total future minimum lease payments		105,461
Less: imputed interest		(7,654)
Lease liability at March 31, 2021	$	97,807

Schedule of cash flow information

The amount below is included in the cash flows provided by (used in) operating activities section on the accompanying unaudited condensed consolidated statements of cash flows, in thousands:

	Three Months Ended March 31,
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities	$	(10,150)	$	(10,801)

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Income Per Share (Tables)

3 Months Ended

Mar. 31, 2021

Income Per Share

Schedule of basic and diluted income per share

Basic and diluted net income per share were computed as follows:

	Three Months Ended March 31,
	2021		2020
Net income (in thousands) - basic and diluted	$	59,842	$	50,771
Weighted average number of common shares outstanding - basic		32,826,515		33,168,453
Dilutive effect of common stock equivalents:
RSAs with service-based conditions		35,619		71,221
RSAs with market-based conditions		147,098		131,024
RSAs with performance-based conditions		49,020		49,778
Stock options		144,311		179,371
Weighted average number of common shares outstanding - diluted		33,202,563		33,599,847
Basic net income per common share	$	1.82	$	1.53
Diluted net income per common share	$	1.80	$	1.51

Summary of shares excluded from the calculation of diluted income per share because their effect would have been anti-dilutive

The following table summarizes shares excluded from the calculation of diluted net income per share because their effect would have been anti-dilutive:

	Three Months Ended March 31,
	2021		2020
Anti-dilutive common stock equivalents:
RSAs with service-based conditions		2,831		5,271
RSAs with market-based conditions		5,512		8,341
RSAs with performance-based conditions		—		—
Stock options		11,766		32,067
Total anti-dilutive common stock equivalents		20,109		45,679

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Share-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2021

Share-Based Compensation

Schedule of share-based compensation expense and related income tax benefit

The following table presents share-based compensation amounts recognized in our condensed consolidated statements of operations, in thousands:

	Three Months Ended March 31,
	2021		2020
Share-based compensation expense	$	3,111	$	3,908
Income tax benefit realized	$	3,093	$	5,500

Schedule of share-based compensation activity

The following table presents a summary of our share-based compensation activity for the three months ended March 31, 2021, in thousands, except per share amounts:

	RSAs			Stock 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 Intrinsic Value
Balance December 31, 2020	324.8	$	87.79	239.7	$	24.33	$	68.86	$	27,612.1
Granted	56.8	$	248.17	24.1	$	89.59	$	214.58
Converted/Exercised	(134.1)	$	81.03	(51.9)	$	21.97	$	61.30	$	7,039.9
Forfeited/Expired	—	$	—	—	$	—	$	—
Balance March 31, 2021	247.5	$	109.33	211.9	$	32.33	$	87.28	$	25,997.0
Exercisable March 31, 2021 (a)				115.7	$	20.97	$	57.86	$	17,535.3

(a) The weighted average remaining contractual term for vested stock options is approximately 6.5 years.

Schedule of unrecognized share-based compensation expense relating to unvested awards

Unrecognized share-based compensation expense related to unvested awards is shown in the following table, dollars in thousands:

	As of March 31, 2021
	Unrecognized Compensation Expense on Unvested Awards		Weighted Average Remaining Vesting Period
RSAs	$	14,062		1.4
Stock options		2,801		1.3
Total unrecognized compensation expense related to unvested awards	$	16,863

Schedule of key inputs used to estimate the fair value of awards

	2021			2020
Measurement period (years)		2.87			2.88
Risk free interest rate		0.22	%		1.40	%
Dividend yield		0.00	%		0.00	%
Estimated fair value of market-based RSAs at grant date	$	298.66		$	158.24

Schedule of assumptions used to estimate the fair values of options granted

	2021			2020
Risk free interest rate		0.76	%		1.53	%
Expected volatility, using historical return volatility and implied volatility		43.29	%		31.50	%
Expected life (in years)		6.0			6.0
Dividend yield		0.00	%		0.00	%
Estimated fair value of stock options at grant date	$	89.59		$	39.49

Performance-based conditions | Restricted Stock Awards

Share-Based Compensation

Schedule of the range of payouts and the related expense for RSAs with performance-based conditions

			Payout Ranges and Related Expense
RSAs with Performance-Based Conditions	Grant Date Fair Value		0%		25%		100%		200%
February 18, 2019	$	2,281	$	—	$	570	$	2,281	$	4,562
February 17, 2020	$	2,694	$	—	$	674	$	2,694	$	5,388
February 16, 2021	$	2,596	$	—	$	649	$	2,596	$	5,192

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Share Repurchase Program (Tables)

3 Months Ended

Mar. 31, 2021

Share Repurchase Program

Schedule of share repurchase program

The following table sets forth our share repurchases under the 2019 Repurchase Program during the periods presented:

	Three Months Ended March 31,
	2021		2020
Number of shares repurchased		49,284		261,555 (a)
Share repurchase cost (in thousands)	$	9,856	$	14,127

(a) The three months ended March 31, 2020 includes 73,455 shares we received as final settlement of our 2019 ASR Agreement.

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Business Combinations (Tables)

3 Months Ended

Mar. 31, 2021

Business Combinations

Schedule of fair value of contingent consideration

The following table presents the fair value of contingent consideration, in thousands:

	Viking		Cooper
Date of Acquisition	July 15, 2019		February 20, 2020
Fair value of contingent consideration recognized at acquisition date	$	1,243	$	1,000
Contingent consideration at December 31, 2020	$	910	$	1,000
Change in fair value of contingent consideration during the three months ended March 31, 2021		22		(350)
Payment of contingent consideration during the three months ended March 31, 2021		—		—
Liability balance for contingent consideration at March 31, 2021	$	932	$	650

2021 Acquisitions

Business Combinations

Summary of businesses acquired

The tables below provide a summary of businesses acquired in 2021 including, for significant acquisitions, the net sales and operating (loss) income incurred during the three months ended March 31, 2021:

											Three Months Ended
											March 31, 2021
2021 Acquisitions	Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired		Net Sales		Operating (Loss) Income
LCR		1/20/2021	$	53,833	$	—	$	53,833	$	17,863	$	8,306	$	(705)
Ozark		3/3/2021		7,404		—		7,404		3,447		567		34
Total			$	61,237	$	—	$	61,237	$	21,310	$	8,873	$	(671)

Purchase Price Allocations

The estimated fair values of the assets acquired and liabilities assumed for the 2021 acquisitions approximated the following as of March 31, 2021, in thousands:

	2021 Acquisitions
	LCR		Ozark		Total
Estimated fair values:
Accounts receivable	$	16,041	$	376	$	16,417
Inventories		806		378		1,184
Prepaid and other assets		83		—		83
Property and equipment		3,792		309		4,101
Intangible assets		17,750		2,900		20,650
Goodwill		17,863		3,447		21,310
Accounts payable		(1,464)		(4)		(1,468)
Accrued liabilities		(1,038)		(2)		(1,040)
Net assets acquired	$	53,833	$	7,404	$	61,237

Schedule of estimates of acquired intangible assets related to the acquisitions

Estimates of acquired intangible assets related to the 2021 acquisitions are as follows, as of March 31, 2021, dollars in thousands:

	Estimated Fair Value		Weighted Average Estimated Useful Life (Years)
2021 Acquisitions
Customer relationships	$	19,220		12
Trademarks and trade names		1,430		10
Total intangible assets acquired	$	20,650		12

2020 Acquisitions

Business Combinations

Summary of businesses acquired

The table below provides a summary as of March 31, 2021 for businesses acquired during the three months ended March 31, 2020:

2020 Acquisitions	Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired
Cooper		2/20/2020	$	10,500	$	1,000	$	11,500	$	5,700
Hunter		2/24/2020		9,100		—		9,100		5,300
Total			$	19,600	$	1,000	$	20,600	$	11,000

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Accrued Liabilities (Tables)

3 Months Ended

Mar. 31, 2021

Accrued Liabilities

Schedule of components of accrued liabilities

The following table sets forth the components of accrued liabilities, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Accrued liabilities:
Salaries, wages, and commissions	$	39,131	$	34,584
Insurance liabilities		22,414		22,007
Income & franchise taxes payable		13,124		129
Employee tax-related liabilities		12,666		12,603
Deferred revenue		8,091		6,542
Sales & property taxes		7,451		6,939
Customer rebates		4,720		6,191
Interest payable on long-term debt		155		3,924
Other		17,194		15,030
Total accrued liabilities		124,946		107,949

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Other Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2021

Other Commitments and Contingencies

Summary of outstanding bonds

The following table summarizes our outstanding performance, licensing, insurance and other bonds, in thousands:

	As of
	March 31,		December 31,
	2021		2020
Outstanding bonds:
Performance bonds	$	108,964	$	102,534
Licensing, insurance, and other bonds		27,716		27,633
Total bonds	$	136,680	$	130,167

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Basis of Presentation (Details)	3 Months Ended
	Mar. 31, 2021 segment
Basis of Presentation
Number of reportable segments	2

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Accounting Policies - Recently Adopted Accounting Pronouncements (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Recently Adopted Accounting Pronouncements
Retained earnings	$ (936,502)	$ (876,660)
Cumulative Effect, Period of Adoption, Adjustment | Accounting Standards Update 2016-13
Recently Adopted Accounting Pronouncements
Retained earnings			$ 3,200

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Revenue Recognition - Disaggregation (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Revenue Recognition
Net sales	$ 742,798	$ 653,228
Insulation and accessories
Revenue Recognition
Net sales	594,564	520,186
Glass and windows
Revenue Recognition
Net sales	43,047	41,319
Gutters
Revenue Recognition
Net sales	39,892	33,534
All other
Revenue Recognition
Net sales	65,295	58,189
Residential
Revenue Recognition
Net sales	576,784	506,731
Commercial
Revenue Recognition
Net sales	166,014	146,497
Operating Segment | Installation
Revenue Recognition
Net sales	532,753	475,873
Operating Segment | Installation | Insulation and accessories
Revenue Recognition
Net sales	417,597	369,996
Operating Segment | Installation | Glass and windows
Revenue Recognition
Net sales	43,047	41,319
Operating Segment | Installation | Gutters
Revenue Recognition
Net sales	19,358	18,930
Operating Segment | Installation | All other
Revenue Recognition
Net sales	52,751	45,628
Operating Segment | Installation | Residential
Revenue Recognition
Net sales	418,077	373,281
Operating Segment | Installation | Commercial
Revenue Recognition
Net sales	114,676	102,592
Operating Segment | Distribution
Revenue Recognition
Net sales	251,601	214,223
Operating Segment | Distribution | Insulation and accessories
Revenue Recognition
Net sales	211,494	180,249
Operating Segment | Distribution | Gutters
Revenue Recognition
Net sales	25,839	19,991
Operating Segment | Distribution | All other
Revenue Recognition
Net sales	14,268	13,983
Operating Segment | Distribution | Residential
Revenue Recognition
Net sales	192,045	162,456
Operating Segment | Distribution | Commercial
Revenue Recognition
Net sales	59,556	51,767
Intercompany Eliminations and Other Adjustments
Revenue Recognition
Net sales	(41,556)	(36,868)
Intercompany Eliminations and Other Adjustments | Insulation and accessories
Revenue Recognition
Net sales	(34,527)	(30,059)
Intercompany Eliminations and Other Adjustments | Gutters
Revenue Recognition
Net sales	(5,305)	(5,387)
Intercompany Eliminations and Other Adjustments | All other
Revenue Recognition
Net sales	(1,724)	(1,422)
Intercompany Eliminations and Other Adjustments | Residential
Revenue Recognition
Net sales	(33,338)	(29,006)
Intercompany Eliminations and Other Adjustments | Commercial
Revenue Recognition
Net sales	$ (8,218)	$ (7,862)

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Revenue Recognition - Other (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Contract Liabilities
Deferred revenue	$ 8,091	$ 6,542
Uncompleted Performance Obligations
Amount remaining on uncompleted performance obligations	$ 283,300
Expected timing of satisfaction of performance obligations	over the next 18 months
Receivables, net
Contract Assets
Receivables, unbilled	$ 64,519	48,839
Accrued liabilities
Contract Liabilities
Deferred revenue	$ 8,091	$ 6,542

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Goodwill and Other Intangibles - Goodwill (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($) item	Dec. 31, 2020 USD ($)
Changes in the carrying amount of goodwill
Number of reporting units | item	2
Gross Goodwill, at beginning of period	$ 2,172,706
Additions	20,228
Gross Goodwill, at end of period	2,192,934	$ 2,172,706
Accumulated Impairment Losses	(762,021)
Net Goodwill	1,430,913	1,410,685
Impairment of goodwill		0
Installation
Changes in the carrying amount of goodwill
Gross Goodwill, at beginning of period	1,726,356
Additions	20,228
Gross Goodwill, at end of period	1,746,584	1,726,356
Accumulated Impairment Losses	(762,021)
Net Goodwill	984,563
Distribution
Changes in the carrying amount of goodwill
Gross Goodwill, at beginning of period	446,350
Gross Goodwill, at end of period	446,350	$ 446,350
Net Goodwill	$ 446,350

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Goodwill and Other Intangibles - Other intangible assets (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Other intangible assets
Gross Definite-lived intangible assets	$ 273,801		$ 252,751
Accumulated Amortization	(68,288)		(62,146)
Net definite-lived intangible assets	205,513		$ 190,605
Amortization expense	$ 6,143	$ 5,272

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Long-Term Debt - Reconciliation (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Long-Term Debt
Long-term debt	$ 723,399
Unamortized debt issuance costs	(13,500)	$ (7,479)
Total debt, net of unamortized debt issuance costs	709,899	706,722
Less: current portion of long-term debt	23,406	23,326
Total long-term debt	$ 686,493	683,396
Senior Notes
Long-Term Debt
Interest rate (as a percent)	3.625%
Long-term debt	$ 400,000	400,000
Term Loan Facility
Long-Term Debt
Long-term debt	300,000	288,750
Equipment Notes
Long-Term Debt
Long-term debt	$ 23,399	$ 25,451

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Long-Term Debt - Schedule of debt maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Schedule of Debt Maturity by Years:
2021	$ 17,531
2022	23,651
2023	26,962
2024	24,630
2025	28,125
Thereafter	602,500
Total principal maturities	723,399
Senior Notes
Schedule of Debt Maturity by Years:
Thereafter	400,000
Total principal maturities	400,000	$ 400,000
Term Loan Facility
Schedule of Debt Maturity by Years:
2021	11,250
2022	15,000
2023	20,625
2024	22,500
2025	28,125
Thereafter	202,500
Total principal maturities	300,000	288,750
Equipment Notes
Schedule of Debt Maturity by Years:
2021	6,281
2022	8,651
2023	6,337
2024	2,130
Total principal maturities	$ 23,399	$ 25,451

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Long-Term Debt - Key Terms of Credit Agreement (Details) - USD ($) $ in Thousands				3 Months Ended
	Mar. 15, 2021	Mar. 08, 2021	Mar. 07, 2021	Mar. 31, 2021	Dec. 31, 2020
Long-Term Debt
Amount outstanding				$ 723,399
Debt Instrument Redemption Option One | Prior to March 15, 2024
Long-Term Debt
Redemption price as a percentage of principal				100.00%
Debt Instrument Redemption Option Two | Prior to March 15, 2024
Long-Term Debt
Redemption price as a percentage of principal				103.625%
Debt instrument, conditional redemption, threshold percentage of aggregate principal amount originally issued remains outstanding				60.00%
Debt Instrument Redemption Option Two | Maximum | Prior to March 15, 2024
Long-Term Debt
Redemption price, percentage of principal amount redeemed				40.00%
Revolving credit facility
Long-Term Debt
Availability				$ 450,000	$ 450,000
Term Loan Facility
Long-Term Debt
Amount outstanding				$ 300,000	288,750
Senior Notes
Long-Term Debt
Interest rate (as a percent)				3.625%
Amount outstanding				$ 400,000	400,000
Equipment Notes
Long-Term Debt
Principal amount of debt					41,600
Amount outstanding				23,399	$ 25,451
Equipment notes issued				$ 0
Debt term				5 years
Equipment Notes | Minimum
Long-Term Debt
Interest rate (as a percent)				2.80%
Equipment Notes | Maximum
Long-Term Debt
Interest rate (as a percent)				4.40%
Amended Credit Agreement
Long-Term Debt
Additional term loan and/or revolver capacity available under incremental facility				$ 300,000
Scheduled maturity date				Mar. 20, 2026
Amended Credit Agreement | Minimum
Long-Term Debt
Commitment fee (as a percent)				0.15%
Amended Credit Agreement | Maximum
Long-Term Debt
Commitment fee (as a percent)				0.275%
Amended Credit Agreement | Base Rate
Long-Term Debt
Debt instrument, floor rate		1.00%	1.50%
Amended Credit Agreement | Eurodollar
Long-Term Debt
Debt instrument, floor rate		0.00%	0.50%
Amended Credit Agreement | Base Rate Borrowings | Minimum
Long-Term Debt
Applicable margin based on total leverage ratio				0.00%
Amended Credit Agreement | Base Rate Borrowings | Maximum
Long-Term Debt
Applicable margin based on total leverage ratio				1.00%
Amended Credit Agreement | Base Rate Borrowings | Federal Funds Rate
Long-Term Debt
Basis spread				0.50%
Amended Credit Agreement | Base Rate Borrowings | LIBOR
Long-Term Debt
Basis spread				1.00%
Maturity of the reference rate				1 month
Amended Credit Agreement | LIBOR Rate Borrowings
Long-Term Debt
Interest rate floor (as a percent)				0.00%
Amended Credit Agreement | LIBOR Rate Borrowings | Minimum
Long-Term Debt
Applicable margin based on total leverage ratio				1.00%
Amended Credit Agreement | LIBOR Rate Borrowings | Maximum
Long-Term Debt
Applicable margin based on total leverage ratio				2.50%
Amended Credit Agreement | Revolving credit facility
Long-Term Debt
Availability		$ 450,000		$ 450,000
Sublimit for issuance of letters of credit under Revolving Facility*		100,000		100,000
Sublimit for swingline loans under Revolving Facility*		35,000		$ 35,000
Interest rate				1.11%
Amended Credit Agreement | Term Loan Facility
Long-Term Debt
Availability		$ 300,000		$ 300,000
Amended Credit Agreement | Senior Notes | Change in Control Scenario
Long-Term Debt
Redemption price as a percentage of principal				101.00%
Senior Notes Due 2029 | Senior Notes
Long-Term Debt
Interest rate	3.625%
Interest rate (as a percent)	3.625%
Principal amount of debt	$ 400,000
Senior Notes Due 2026 | Senior Notes
Long-Term Debt
Interest rate (as a percent)	5.625%
Principal amount of debt	$ 400,000
Redemption price, percentage of principal amount redeemed	100.00%

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Long-Term Debt - Other (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 08, 2021	Dec. 31, 2020
Debt covenants
Maximum Net Leverage Ratio	3.50
Minimum Interest Coverage Ratio	3.00
Senior Notes | Event of Default Scenario | Amended Credit Agreement
Debt covenants
Minimum percentage of principal of debt holders to declare debt immediately due and payable	30.00%
Revolving credit facility
Long-Term Debt
Revolving Facility	$ 450,000		$ 450,000
Less: standby letters of credit	(60,382)		(60,382)
Availability under Revolving Facility	389,618		$ 389,618
Revolving credit facility | Amended Credit Agreement
Long-Term Debt
Revolving Facility	$ 450,000	$ 450,000

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Fair Value Measurements (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Fair Value on Non-Recurring Basis
Amount outstanding	$ 723,399
Senior Notes
Fair Value on Non-Recurring Basis
Amount outstanding	400,000	$ 400,000
Fair Value on Non-Recurring Basis | Level 1 fair value measurement | Senior Notes
Fair Value on Non-Recurring Basis
Fair value	$ 415,600

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Segment Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Segment information
Net sales	$ 742,798	$ 653,228
Operating profit	95,887	69,989
Other expense, net	(20,388)	(8,503)
Income before income taxes	75,499	61,486
Gutters
Segment information
Net sales	39,892	33,534
Operating Segment
Segment information
Operating profit	102,493	79,187
Operating Segment | Installation
Segment information
Net sales	532,753	475,873
Operating profit	73,636	60,351
Operating Segment | Installation | Gutters
Segment information
Net sales	19,358	18,930
Operating Segment | Distribution
Segment information
Net sales	251,601	214,223
Operating profit	35,385	24,669
Operating Segment | Distribution | Gutters
Segment information
Net sales	25,839	19,991
Intercompany Eliminations and Other Adjustments
Segment information
Net sales	(41,556)	(36,868)
Intercompany Eliminations and Other Adjustments | Gutters
Segment information
Net sales	(5,305)	(5,387)
Intercompany Eliminations
Segment information
Net sales	(41,556)	(36,868)
Operating profit	(6,528)	(5,833)
Corporate
Segment information
General corporate expense, net	$ (6,606)	$ (9,198)

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Leases - Components of lease expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Components of lease expense:
Operating lease cost	$ 11,810	$ 12,271
Short-term lease cost	3,354	3,064
Sublease income	(206)	(62)
Net lease cost	14,958	15,273
Variable lease cost	$ 1,697	$ 1,444

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Leases - Future minimum lease payments (Details) $ in Thousands	Mar. 31, 2021 USD ($)
Future minimum lease payments under non-cancellable operating leases:
2021	$ 29,428
2022	30,287
2023	19,595
2024	12,704
2025	8,229
2026 & Thereafter	5,218
Total future minimum lease payments	105,461
Less: imputed interest	(7,654)
Lease liability at March 31, 2021	$ 97,807

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Leases - Cash flows and other (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Leases
Weighted average remaining lease term	3 years 7 months 6 days
Weighted average discount rate (as a percent)	3.60%
Cash paid for amounts included in the measurement of lease liabilities	$ (10,150)	$ (10,801)

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Taxes
Effective tax rate (as a percent)	20.70%	17.40%
Tax benefit related to share-based compensation	$ 3,093	$ 5,500

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Income Per Share - Calculation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Net income - basic and diluted	$ 59,842	$ 50,771
Weighted average number of common shares outstanding - basic	32,826,515	33,168,453
Dilutive effect of common stock equivalents:
Stock options	144,311	179,371
Weighted average number of common shares outstanding - diluted	33,202,563	33,599,847
Basic net income per common share	$ 1.82	$ 1.53
Diluted net income per common share	$ 1.80	$ 1.51
Service-based conditions
Dilutive effect of common stock equivalents:
Restricted stock awards	35,619	71,221
Market-based conditions
Dilutive effect of common stock equivalents:
Restricted stock awards	147,098	131,024
Performance-based conditions
Dilutive effect of common stock equivalents:
Restricted stock awards	49,020	49,778

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Income Per Share - Anti-dilutive common stock equivalents (Details) - shares	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Anti-dilutive common stock equivalents
Total anti-dilutive common stock equivalents	20,109	45,679
Restricted Stock Awards | Service-based conditions
Anti-dilutive common stock equivalents
Total anti-dilutive common stock equivalents	2,831	5,271
Restricted Stock Awards | Market-based conditions
Anti-dilutive common stock equivalents
Total anti-dilutive common stock equivalents	5,512	8,341
Stock Options
Anti-dilutive common stock equivalents
Total anti-dilutive common stock equivalents	11,766	32,067

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Share-Based Compensation - Expense (Details) - USD ($) $ in Thousands, shares in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Share-Based Compensation
Share-based compensation expense	$ 3,111	$ 3,908
Income tax benefit realized	$ 3,093	$ 5,500
2015 Plan
Share-Based Compensation
Number of shares available	2.0
2015 Plan | Maximum
Share-Based Compensation
Number of shares authorized	4.0

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Share-Based Compensation - Activity (Details) - USD ($)				3 Months Ended
	Feb. 16, 2021	Feb. 17, 2020	Feb. 18, 2019	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Stock Options, Number of Shares
Converted/Exercised (in shares)				(51,915)
Stock options, additional disclosures
Weighted average remaining contractual term for vested stock options				6 years 6 months
Unrecognized share-based compensation expense
Restricted stock awards, Unrecognized compensation expense				$ 14,062,000
Restricted stock awards, Weighted average remaining vesting period				1 year 4 months 24 days
Stock options, Unrecognized compensation expense				$ 2,801,000
Stock options, Weighted average remaining vesting period				1 year 3 months 18 days
Total unrecognized compensation expense related to unvested awards				$ 16,863,000
Restricted Stock Awards
Restricted Stock Awards, Number of Shares
Balance at beginning of period (in shares)				324,800
Granted (in shares)				56,800
Converted/Exercised (in shares)				(134,100)
Balance at end of period (in shares)				247,500
Restricted Stock Awards, Weighted Average Grant Date Fair Value Per Share
Balance at beginning of period (in dollars per share)				$ 87.79
Granted (in dollars per share)				248.17
Converted/Exercised (in dollars per share)				81.03
Balance at end of period (in dollars per share)				$ 109.33
Assumptions used to estimate the fair values of the awards granted:
Measurement period (years)				2 years 10 months 13 days	2 years 10 months 17 days
Risk free interest rate (as a percent)				0.22%	1.40%
Dividend yield (as a percent)				0.00%	0.00%
Estimated fair value of market-based RSAs at grant date (in dollars per share)				$ 298.66	$ 158.24
Restricted Stock Awards | Performance-based conditions
Restricted stock awards, additional disclosures
Grant date fair value	$ 2,596,000	$ 2,694,000	$ 2,281,000
Restricted Stock Awards | Performance-based conditions | Payout Range-0%
Restricted stock awards, additional disclosures
Payout range (as a percent)	0.00%	0.00%	0.00%
Restricted Stock Awards | Performance-based conditions | Payout Range-25%
Restricted stock awards, additional disclosures
Payout range (as a percent)	25.00%	25.00%	25.00%
Related expenses	$ 649,000	$ 674,000	$ 570,000
Restricted Stock Awards | Performance-based conditions | Payout Range-100%
Restricted stock awards, additional disclosures
Payout range (as a percent)	100.00%	100.00%	100.00%
Related expenses	$ 2,596,000	$ 2,694,000	$ 2,281,000
Restricted Stock Awards | Performance-based conditions | Payout Range-200%
Restricted stock awards, additional disclosures
Payout range (as a percent)	200.00%	200.00%	200.00%
Related expenses	$ 5,192,000	$ 5,388,000	$ 4,562,000
RSAs granted February 19, 2018 | Performance-based conditions
Restricted stock awards, additional disclosures
Cumulative period of achievement				3 years
Cumulative achievement percentage				200.00%
Total compensation expense recognized over the performance period, net of forfeitures				$ 3,700,000
Stock Options
Stock Options, Number of Shares
Balance at beginning of period (in shares)				239,700
Granted (in shares)				24,100
Converted/Exercised (in shares)				(51,900)
Balance at end of period (in shares)				211,900
Stock Options, Weighted Average Grant Date Fair Value Per Share
Balance at beginning of period (in dollars per share)				$ 24.33
Granted (in dollars per share)				89.59
Converted/Exercised (in dollars per share)				21.97
Balance at end of period (in dollars per share)				32.33
Stock Options, Weighted Average Exercise Price Per Share
Balance at beginning of period (in dollars per share)				68.86
Granted (in dollars per share)				214.58
Converted/Exercised (in dollars per share)				61.30
Balance at end of period (in dollars per share)				$ 87.28
Stock options, additional disclosures
Aggregate intrinsic value				$ 25,997,000.0		$ 27,612,100
Converted/Exercised aggregate intrinsic value				$ 7,039,900
Exercisable, Number of shares				115,700
Exercisable, Weighted Average Grant Date Fair Value Per Share				$ 20.97
Exercisable Weighted Average Exercise Price Per Share				$ 57.86
Exercisable, Aggregate Intrinsic Value				$ 17,535,300
Assumptions used to estimate the fair values of the awards granted:
Risk free interest rate (as a percent)				0.76%	1.53%
Expected volatility using historical return volatility and implied volatility (as a percent)				43.29%	31.50%
Expected life (in years)				6 years	6 years
Dividend yield (as a percent)				0.00%	0.00%
Estimated fair value of market-based RSAs at grant date (in dollars per share)				$ 89.59	$ 39.49

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Share Repurchase Program (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		17 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Mar. 31, 2021	Nov. 05, 2019	Feb. 22, 2019
Share Repurchase Program
Number of shares repurchased (in shares)	49,284	261,555
Share repurchase cost	$ 9,856	$ 14,127
2019 Share Repurchase Program
Share Repurchase Program
Amount remaining under repurchase program	$ 30,100		$ 30,100
2019 ASR Agreement
Share Repurchase Program
Initial number of shares delivered under ASR agreement (in shares)				392,501
Initial percentage of shares delivered under ASR agreement				85.00%
Initial value of shares delivered under ASR agreement				$ 50,000
Number of shares repurchased (in shares)		73,455	465,956
Average price per share (in dollars per share)			$ 107.31
Maximum | 2019 Share Repurchase Program
Share Repurchase Program
Share repurchase program, authorized amount					$ 200,000

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Business Combinations - Summary (Details) - USD ($) $ in Thousands					3 Months Ended		12 Months Ended
	Mar. 03, 2021	Jan. 20, 2021	Feb. 24, 2020	Feb. 20, 2020	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Business Combinations
Acquisition related costs					$ 700	$ 200
Estimated fair values
Goodwill					1,430,913		$ 1,410,685
2021 Acquisitions
Summary
Cash Paid					61,237
Total Purchase Price					61,237
Goodwill Acquired					21,310
Net Sales					8,873
Operating (Loss) Income					(671)
Goodwill expected to be deducted for income tax purposes					21,300
Estimated fair values
Accounts receivable					16,417
Inventories					1,184
Prepaid and other assets					83
Property and equipment					4,101
Intangible assets					20,650
Goodwill					21,310
Accounts payable					(1,468)
Accrued liabilities					(1,040)
Net assets acquired					61,237
LCR Contractors
Summary
Cash Paid		$ 53,833
Total Purchase Price		53,833
Goodwill Acquired		17,863
Net Sales		8,306
Operating (Loss) Income		$ (705)
Estimated fair values
Accounts receivable					16,041
Inventories					806
Prepaid and other assets					83
Property and equipment					3,792
Intangible assets					17,750
Goodwill					17,863
Accounts payable					(1,464)
Accrued liabilities					(1,038)
Net assets acquired					53,833
Ozark Foam
Summary
Cash Paid	$ 7,404
Total Purchase Price	7,404
Goodwill Acquired	3,447
Net Sales	567
Operating (Loss) Income	$ 34
Estimated fair values
Accounts receivable					376
Inventories					378
Property and equipment					309
Intangible assets					2,900
Goodwill					3,447
Accounts payable					(4)
Accrued liabilities					(2)
Net assets acquired					$ 7,404
2020 Acquisitions
Summary
Cash Paid							19,600
Contingent consideration							1,000
Total Purchase Price							20,600
Goodwill Acquired							$ 11,000
Goodwill expected to be deducted for income tax purposes						$ 11,000
Cooper Glass
Summary
Cash Paid				$ 10,500
Contingent consideration				1,000
Total Purchase Price				11,500
Goodwill Acquired				$ 5,700
Hunter
Summary
Cash Paid			$ 9,100
Total Purchase Price			9,100
Goodwill Acquired			$ 5,300

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Business Combinations - Intangibles (Details) - 2021 Acquisitions $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($)
Estimates of acquired intangible assets
Estimated Fair Value	$ 20,650
Weighted Average Estimated Useful Life (Years)	12 years
Customer relationships
Estimates of acquired intangible assets
Estimated Fair Value	$ 19,220
Weighted Average Estimated Useful Life (Years)	12 years
Trademarks and trade names
Estimates of acquired intangible assets
Estimated Fair Value	$ 1,430
Weighted Average Estimated Useful Life (Years)	10 years

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Business Combinations - Contingent Consideration (Details) $ in Thousands			3 Months Ended	12 Months Ended
	Feb. 20, 2020 USD ($)	Jul. 15, 2019 USD ($)	Mar. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)
Viking
Contingent Consideration
Contingent consideration, payment period		3 years
Contingent consideration, low end of range			$ 0
Contingent consideration, high end of range			1,500
Fair value of contingent consideration recognized at acquisition date		$ 1,243
Fair value of contingent consideration
Contingent consideration at beginning of period			910
Change in fair value of contingent consideration			22
Liability balance for contingent consideration at end of period			$ 932	$ 910
Viking | Contingent Consideration | Level 3
Contingent Consideration
Business Combination, Contingent Consideration, Liability, Measurement Input [Extensible List]			us-gaap:MeasurementInputDiscountRateMember
Discount rate (as a percent)			10.0
Fair value of contingent consideration recognized at acquisition date		$ 1,200
Fair value of contingent consideration
Payment of contingent consideration				(500)
Cooper Glass
Contingent Consideration
Contingent consideration, payment period	2 years
Contingent consideration, low end of range			$ 0
Contingent consideration, high end of range			1,000
Fair value of contingent consideration recognized at acquisition date	$ 1,000
Fair value of contingent consideration
Contingent consideration at beginning of period			1,000
Change in fair value of contingent consideration			(350)
Liability balance for contingent consideration at end of period			$ 650	$ 1,000

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Accrued Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Accrued Liabilities
Salaries, wages, and commissions	$ 39,131	$ 34,584
Insurance liabilities	22,414	22,007
Income taxes payable	13,124	129
Employee tax-related liabilities	12,666	12,603
Deferred revenue	8,091	6,542
Sales & property taxes	7,451	6,939
Customer rebates	4,720	6,191
Interest payable on long-term debt	155	3,924
Other	17,194	15,030
Total accrued liabilities	$ 124,946	$ 107,949

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Other Commitments and Contingencies (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Outstanding Bonds
Performance bonds	$ 108,964	$ 102,534
Licensing, insurance, and other bonds	27,716	27,633
Total bonds	$ 136,680	$ 130,167

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Subsequent Events (Details) - Subsequent Event - USD ($) $ in Millions	Apr. 07, 2021	Apr. 05, 2021
ABS
Subsequent Events
Purchase price		$ 126.2
Creative
Subsequent Events
Purchase price	$ 6.8