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 September 30, 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 32,925,108 shares of Common Stock, par value $0.01 per share as of October 26, 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	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
Part II.	Other Information
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34
Index to Exhibits		35
Signature		36

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
3.625% Senior Notes	TopBuild's 3.625% senior unsecured notes due on March 15, 2029
4.125% Senior Notes	TopBuild's 4.125% senior unsecured notes issued October 14, 2021 and due February 15, 2032
5.625% Senior Notes	TopBuild's 5.625% senior unsecured notes which were due on May 1, 2026 and redeemed in full on March 15, 2021
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
2021 Repurchase Program	$200 million share repurchase program authorized by the Board on July 26, 2021
ABS	American Building Systems, Inc.
Amended Credit Agreement	Senior secured credit agreement and related security and pledge agreement dated March 8, 2021
Amendment No.2	Amendment No. 2 to the "Amended Credit Agreement" dated October 7, 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.
CBP	California Building Products, Inc.
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
DI	Distribution International Super Holdings, Inc.
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
NYSE	New York Stock Exchange
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"
Valley	Valley Gutter Supply, Inc.
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
	September 30,		December 31,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	327,906	$	330,007
Receivables, net of an allowance for credit losses of $8,856 at September 30, 2021, and $6,926 at December 31, 2020		516,941		427,340
Inventories, net		202,018		161,369
Prepaid expenses and other current assets		21,240		17,689
Total current assets		1,068,105		936,405
Right of use assets		104,047		83,490
Property and equipment, net		203,530		180,053
Goodwill		1,496,737		1,410,685
Other intangible assets, net		234,872		190,605
Deferred tax assets, net		2,751		2,728
Other assets		10,646		11,317
Total assets	$	3,120,688	$	2,815,283
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	382,932	$	331,710
Current portion of long-term debt		23,557		23,326
Accrued liabilities		141,261		107,949
Short-term lease liabilities		37,048		33,492
Total current liabilities		584,798		496,477
Long-term debt		675,567		683,396
Deferred tax liabilities, net		166,240		168,568
Long-term portion of insurance reserves		47,775		50,657
Long-term lease liabilities		71,290		53,749
Other liabilities		13,307		13,642
Total liabilities		1,558,977		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; 39,119,507 shares issued and 32,925,383 outstanding at September 30, 2021, and 39,029,913 shares issued and 33,018,925 outstanding at December 31, 2020		391		389
Treasury stock, 6,194,124 shares at September 30, 2021, and 6,010,988 shares at December 31, 2020, at cost		(422,225)		(386,669)
Additional paid-in capital		861,228		858,414
Retained earnings		1,122,317		876,660
Total equity		1,561,711		1,348,794
Total liabilities and equity	$	3,120,688	$	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 September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net sales	$	845,757	$	697,223	$	2,422,810	$	1,996,551
Cost of sales		595,466		498,895		1,731,581		1,448,210
Gross profit		250,291		198,328		691,229		548,341
Selling, general, and administrative expense		116,485		96,805		333,252		296,372
Operating profit		133,806		101,523		357,977		251,969
Other income (expense), net:
Interest expense		(5,503)		(7,692)		(18,210)		(24,711)
Loss on extinguishment of debt		—		—		(13,862)		(233)
Other, net		66		86		210		648
Other expense, net		(5,437)		(7,606)		(31,862)		(24,296)
Income before income taxes		128,369		93,917		326,115		227,673
Income tax expense		(32,934)		(23,921)		(80,457)		(51,407)
Net income	$	95,435	$	69,996	$	245,658	$	176,266
Net income per common share:
Basic	$	2.91	$	2.13	$	7.49	$	5.35
Diluted	$	2.88	$	2.11	$	7.41	$	5.29
Weighted average shares outstanding:
Basic		32,763,311		32,847,652		32,818,145		32,960,969
Diluted		33,088,680		33,210,545		33,155,995		33,337,259

See notes to our unaudited condensed consolidated financial statements.

5

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In Thousands)

	Nine Months Ended September 30,
	2021		2020
Cash Flows Provided by (Used in) Operating Activities:
Net income	$	245,658	$	176,266
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		51,005		47,527
Share-based compensation		8,375		12,159
Loss on extinguishment of debt		13,862		233
Loss on sale or abandonment of property and equipment		1,410		290
Amortization of debt issuance costs		1,352		1,103
Provision for bad debt expense		5,215		5,625
Loss from inventory obsolescence		1,667		1,908
Deferred income taxes, net		(1,661)		(709)
Change in certain assets and liabilities
Receivables, net		(62,257)		(13,645)
Inventories, net		(30,115)		4,759
Prepaid expenses and other current assets		(2,984)		(14,989)
Accounts payable		47,907		2,152
Accrued liabilities		30,397		33,436
Payment of contingent consideration		(22)		(413)
Other, net		(304)		21
Net cash provided by operating activities		309,505		255,723
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(42,320)		(27,206)
Acquisition of businesses		(205,028)		(21,450)
Proceeds from sale of property and equipment		298		2,332
Net cash used in investing activities		(247,050)		(46,324)
Cash Flows Provided by (Used in) Financing Activities:
Proceeds from issuance of long-term debt		411,250		300,000
Repayment of long-term debt		(427,563)		(319,168)
Payment of debt issuance costs		(6,500)		(2,280)
Taxes withheld and paid on employees' equity awards		(11,511)		(14,781)
Exercise of stock options		5,952		1,438
Repurchase of shares of common stock		(35,556)		(43,149)
Payment of contingent consideration		(628)		(928)
Net cash used in financing activities		(64,556)		(78,868)
Cash and Cash Equivalents
(Decrease) increase for the period		(2,101)		130,531
Beginning of period		330,007		184,807
End of period	$	327,906	$	315,338
Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	$	51,190	$	27,098
Accruals for property and equipment		580		278

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		—		(14,127)		—		—		(14,127)
97,144 shares withheld to pay taxes on employees' equity awards		—		—		(10,399)		—		(10,399)
Balance at March 31, 2020	$	389	$	(351,645)	$	850,665	$	680,408	$	1,179,817
Net income		—		—		—		55,496		55,496
Share-based compensation		—		—		5,130		—		5,130
Repurchase of 262,889 shares		—		(20,025)		—		—		(20,025)
38,379 shares withheld to pay taxes on employees' equity awards		—		—		(2,766)		—		(2,766)
Balance at June 30, 2020	$	389	$	(371,670)	$	853,029	$	735,904	$	1,217,652
Net income		—		—		—		69,996		69,996
Share-based compensation		—		—		3,121		—		3,121
Repurchase of 57,810 shares		—		(8,997)		—		—		(8,997)
6,402 shares withheld to pay taxes on employees' equity awards		—		—		(1,616)		—		(1,616)
19,242 shares issued upon exercise of stock options		—		—		1,438		—		1,438
Balance at September 30, 2020	$	389	$	(380,667)	$	855,972	$	805,900	$	1,281,594

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		—		(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
Net income		—		—		—		90,380		90,380
Share-based compensation		—		—		2,266		—		2,266
Repurchase of 73,747 shares		—		(14,182)		—		—		(14,182)
50 shares withheld to pay taxes on employees' equity awards		—		—		(11)		—		(11)
Balance at June 30, 2021	$	390	$	(410,707)	$	858,251	$	1,026,882	$	1,474,816
Net income		—		—		—		95,435		95,435
Share-based compensation		—		—		2,998		—		2,998
Issuance of 897 restricted share awards under long-term equity incentive plan		1		—		(1)		—		—
Repurchase of 60,105 shares		—		(11,518)		—		—		(11,518)
100 shares withheld to pay taxes on employees' equity awards		—		—		(20)		—		(20)
Balance at September 30, 2021	$	391	$	(422,225)	$	861,228	$	1,122,317	$	1,561,711

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 September 30, 2021, our results of operations for the three and nine months ended September 30, 2021 and 2020, and cash flows for the nine months ended September 30, 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 periods.  Actual results could differ materially from these estimates.  All significant 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 September 30,
	2021								2020
		Installation		Distribution		Elims		Total		Installation		Distribution		Elims		Total
Residential	$	501,494	$	206,951	$	(36,018)	$	672,427	$	390,101	$	186,408	$	(30,821)	$	545,688
Commercial		111,406		69,447		(7,523)		173,330		102,105		57,705		(8,275)		151,535
Net sales	$	612,900	$	276,398	$	(43,541)	$	845,757	$	492,206	$	244,113	$	(39,096)	$	697,223

	Nine Months Ended September 30,
	2021								2020
		Installation		Distribution		Elims		Total		Installation		Distribution		Elims		Total
Residential	$	1,405,837	$	602,059	$	(106,076)	$	1,901,820	$	1,134,350	$	512,479	$	(88,875)	$	1,557,954
Commercial		345,441		199,304		(23,755)		520,990		300,298		162,193		(23,894)		438,597
Net sales	$	1,751,278	$	801,363	$	(129,831)	$	2,422,810	$	1,434,648	$	674,672	$	(112,769)	$	1,996,551

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

	Three Months Ended September 30,
	2021								2020
		Installation		Distribution		Elims		Total		Installation		Distribution		Elims	Total
Insulation and accessories	$	487,798	$	219,441	$	(36,406)	$	670,833	$	379,958	$	200,210	$	(