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, 2022


☐	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 32,777,901 shares of Common Stock, par value $0.01 per share as of April 28, 2022.

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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 issued March 15, 2021 and due 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 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.
Amendment No. 1 to Credit Agreement		Amendment No. 1 to the Credit Agreement dated March 8, 2021
Amendment No. 2 to Credit Agreement		Amendment No. 2 to the 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.
Billings		Billings Insulation Service, Inc.
Cooper		Cooper Glass Company, LLC
Current Report		Current report filed with the SEC on Form 8-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
DI		DI 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.
Green Energy		Green Energy Solutions, Inc.
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 "Credit Agreement"
LCR		L.C.R. Contractors, LLC
LIBOR		London interbank offered rate
Net Leverage Ratio		As defined in the “Credit Agreement,” the ratio of outstanding indebtedness, less up to $100 million of unrestricted cash, to EBITDA
NYSE		New York Stock Exchange
Credit Agreement		Senior secured credit agreement and related security and pledge agreement dated May 5, 2017, as amended and restated on March 20, 2020, and further amended by Amendment No. 1 to Credit Agreement and Amendment No. 2 to Credit Agreement
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
ROU		Right of use (asset), as defined in ASC 842
RSA		Restricted stock award
SEC		United States Securities and Exchange Commission
Secured Leverage Ratio		As defined in the “Credit Agreement,” the ratio of outstanding indebtedness, including letters of credit, to EBITDA
Southwest		Southwest Insulation, Inc.
TopBuild		TopBuild Corp. and its wholly-owned consolidated domestic subsidiaries. Also, the "Company," "we," "us," and "our"

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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,
	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	126,553	$	139,779
Receivables, net of an allowance for credit losses of $10,487 at March 31, 2022, and $8,798 at December 31, 2021		735,452		668,419
Inventories, net		390,061		352,801
Prepaid expenses and other current assets		29,102		26,692
Total current assets		1,281,168		1,187,691

Right of use assets		184,762		177,177
Property and equipment, net		248,438		244,574
Goodwill		1,964,297		1,949,763
Other intangible assets, net		669,797		684,209
Deferred tax assets, net		-		1,905
Other assets		13,101		13,211
Total assets	$	4,361,563	$	4,258,530

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	473,918	$	461,917
Current portion of long-term debt		38,723		38,640
Accrued liabilities		207,377		175,891
Short-term operating lease liabilities		55,293		54,591
Short-term finance lease liabilities		2,610		2,387
Total current liabilities		777,921		733,426

Long-term debt		1,445,473		1,454,483
Deferred tax liabilities, net		245,674		248,243
Long-term portion of insurance reserves		53,111		51,875
Long-term operating lease liabilities		133,297		125,339
Long-term finance lease liabilities		7,631		7,770
Other liabilities		1,216		960
Total liabilities		2,664,323		2,622,096

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; 39,306,564 shares issued and 32,776,363 outstanding at March 31, 2022, and 39,165,024 shares issued and 32,927,185 outstanding at December 31, 2021		393		391
Treasury stock, 6,530,201 shares at March 31, 2022, and 6,237,839 shares at December 31, 2021, at cost		(492,688)		(431,030)
Additional paid-in capital		877,564		873,031
Retained earnings		1,315,387		1,200,676
Accumulated other comprehensive loss		(3,416)		(6,634)
Total equity		1,697,240		1,636,434
Total liabilities and equity	$	4,361,563	$	4,258,530

See notes to our unaudited condensed consolidated financial statements.

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TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands except share and per common share data)


	Three Months Ended March 31,
	2022		2021
Net sales	$	1,168,918	$	742,798
Cost of sales		837,717		545,039
Gross profit		331,201		197,759

Selling, general, and administrative expense		167,247		101,872
Operating profit		163,954		95,887

Other income (expense), net:
Interest expense		(11,966)		(6,603)
Loss on extinguishment of debt		-		(13,862)
Other, net		684		77
Other expense, net		(11,282)		(20,388)
Income before income taxes		152,672		75,499

Income tax expense		(37,961)		(15,657)
Net income	$	114,711	$	59,842

Net income per common share:
Basic	$	3.50	$	1.82
Diluted	$	3.47	$	1.80

Weighted average shares outstanding:
Basic		32,738,525		32,826,515
Diluted		33,042,490		33,202,563

See notes to our unaudited condensed consolidated financial statements.

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TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Three Months Ended March 31,
	2022		2021
Cash Flows Provided by (Used in) Operating Activities:
Net income	$	114,711	$	59,842
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		30,499		15,519
Share-based compensation		3,727		3,111
Loss on extinguishment of debt		-		13,862
Loss on sale of property and equipment		207		56
Amortization of debt issuance costs		706		422
Provision for bad debt expense		2,512		1,765
Loss from inventory obsolescence		868		653
Gain on foreign exchange		(649)		-
Deferred income taxes, net		(81)		(183)
Change in certain assets and liabilities
Receivables, net		(65,031)		(20,831)
Inventories, net		(38,570)		(2,088)
Prepaid expenses and other current assets		(2,347)		3,517
Accounts payable		12,663		(2,244)
Accrued liabilities		29,523		16,591
Other, net		745		(570)
Net cash provided by operating activities		89,483		89,422

Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(18,413)		(12,284)
Acquisition of businesses, net of cash acquired		(13,967)		(61,092)
Proceeds from sale of property and equipment		253		56
Net cash used in investing activities		(32,127)		(73,320)

Cash Flows Provided by (Used in) Financing Activities:
Proceeds from issuance of long-term debt		-		411,250
Repayment of long-term debt		(9,634)		(415,856)
Payment of debt issuance costs		-		(6,500)
Taxes withheld and paid on employees' equity awards		(11,658)		(11,480)
Exercise of stock options		808		5,952
Repurchase of shares of common stock		(50,000)		(9,856)
Payment of contingent consideration		(23)		-
Net cash used in financing activities		(70,507)		(26,490)
Impact of exchange rate changes on cash		(75)		-
Net decrease in cash and cash equivalents		(13,226)		(10,388)
Cash and cash equivalents- Beginning of period		139,779		330,007
Cash and cash equivalents- End of period	$	126,553	$	319,619

Supplemental disclosure of cash paid for:
Leased assets obtained in exchange for new operating lease liabilities	$	22,449	$	20,322
Accruals for property and equipment		213		524

See notes to our unaudited condensed consolidated financial statements.

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TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)

(In thousands except share data)


									Accumulated
	Common		Treasury		Additional				Other
	Stock		Stock		Paid-in		Retained		Comprehensive
	($0.01 par value)		at cost		Capital		Earnings		(Loss) Income		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		-		(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


									Accumulated
	Common		Treasury		Additional				Other
	Stock		Stock		Paid-in		Retained		Comprehensive
	($0.01 par value)		at cost		Capital		Earnings		(Loss) Income		Equity
Balance at December 31, 2021	$	391	$	(431,030)	$	873,031	$	1,200,676	$	(6,634)	$	1,636,434
Net income		-		-		-		114,711		-		114,711
Share-based compensation		-		-		3,727		-		-		3,727
Issuance of 52,940 restricted share awards under long-term equity incentive plan		2		-		(2)		-		-		-
Repurchase of 238,154 shares		-		(50,000)		-		-		-		(50,000)
53,073 shares withheld to pay taxes on employees' equity awards		-		(11,658)		-		-		-		(11,658)
12,269 shares issued upon exercise of stock options		-		-		808		-		-		808
Other comprehensive income, net of tax		-		-		-		-		3,218		3,218
Balance at March 31, 2022	$	393	$	(492,688)	$	877,564	$	1,315,387	$	(3,416)	$	1,697,240

See notes to our unaudited condensed consolidated financial statements.

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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 Specialty Distribution. Our Installation segment primarily installs insulation and other building products. Our Specialty 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, 2022, and our results of operations, comprehensive income and cash flows for the three months ended March 31, 2022 and 2021. The condensed consolidated balance sheet at December 31, 2021, 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, 2021, as filed with the SEC on February 22, 2022.

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

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 2019-12	Income Taxes - Simplifying the Accounting for Income Taxes	01/01/21	Modified Retrospective
ASU 2021-01	Reference Rate Reform	01/01/21	Prospective

Recently Issued Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. This standard improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability, as well as payment terms and their effect on subsequent revenue recognized by the acquirer. This standard is effective for us beginning January 1, 2023, with early adoption permitted. We are evaluating the impact that adoption of this standard may have on our financial position and results of operations.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. REVENUE RECOGNITION

Revenue is disaggregated between our Installation and Specialty 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, 2022
		Installation		Specialty Distribution		Elims		Total
Residential	$	563,303	$	236,411	$	(43,421)	$	756,293
Commercial		113,390		215,514		(8,216)		320,688
Industrial		—		91,937		—		91,937
Net sales	$	676,693	$	543,862	$	(51,637)	$	1,168,918


	Three Months Ended March 31, 2021
		Installation		Specialty 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

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


	Three Months Ended March 31, 2022
		Installation		Specialty Distribution		Elims		Total
Insulation and accessories	$	536,341	$	452,011	$	(43,810)	$	944,542
Glass and windows		51,196		—		—		51,196
Gutters		22,957		46,631		(7,002)		62,586
All other		66,199		45,220		(825)		110,594
Net sales	$	676,693	$	543,862	$	(51,637)	$	1,168,918


	Three Months Ended March 31, 2021
		Installation		Specialty 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

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	2022		2021
Contract Assets:
Receivables, unbilled	Receivables, net	$	72,996	$	71,401

Contract Liabilities:
Deferred revenue	Accrued liabilities	$	15,926	$	14,310

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The aggregate amount remaining on uncompleted performance obligations was $346.3 million as of March 31, 2022. We expect to satisfy the performance obligations and recognize revenue on substantially all of these uncompleted contracts over the next 18 months.

Certain customer contracts contain provisions whereby customers are entitled to withhold an agreed upon percentage of the total contract value until the customer’s project is satisfactorily complete. This amount held back is referred to as retainage and is a common practice in the construction industry. Retainage receivables are classified as a component of Receivables, net on our condensed consolidated balance sheets and were $57.1 million and $57.6 million as of March 31, 2022 and December 31, 2021, respectively.

4. GOODWILL AND OTHER INTANGIBLES

We have two reporting units which are also our operating and reporting segments: Installation and Specialty 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 2021, 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, 2022, by segment, were as follows, in thousands:


					Fx				Accumulated
	Gross Goodwill				Translation		Gross Goodwill		Impairment		Net Goodwill
	December 31, 2021		Additions		Adjustment		March 31, 2022		Losses		March 31, 2022
Goodwill, by segment:
Installation	$	1,818,872	$	5,348		-	$	1,824,220	$	(762,021)	$	1,062,199
Specialty Distribution		892,912		5,126		4,060		902,098		-		902,098
Total goodwill	$	2,711,784	$	10,474	$	4,060	$	2,726,318	$	(762,021)	$	1,964,297

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,
	2022		2021
Gross definite-lived intangible assets	$	785,288	$	783,843
Accumulated amortization		(115,491)		(99,634)
Net definite-lived intangible assets	$	669,797	$	684,209

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

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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,
	2022		2021
3.625% Senior Notes due 2029	$	400,000	$	400,000
4.125% Senior Notes due 2032		500,000		500,000
Term loan		588,750		596,250
Equipment notes		14,959		17,085
Unamortized debt issuance costs		(19,513)		(20,212)
Total debt, net of unamortized debt issuance costs		1,484,196		1,493,123
Less: current portion of long-term debt		38,723		38,640
Total long-term debt	$	1,445,473	$	1,454,483

The following table sets forth our remaining principal payments for our outstanding debt balances as of March 31, 2022, in thousands:


	Payments Due by Period
	2022		2023		2024		2025		2026		Thereafter		Total
3.625% Senior Notes	$	—	$	—	$	—	$	—	$	—	$	400,000	$	400,000
4.125% Senior Notes		—		—		—		—		—		500,000		500,000
Term loan		22,500		33,750		45,000		48,750		438,750		—		588,750
Equipment notes		6,513		6,325		2,121		—		—		—		14,959
Total	$	29,013	$	40,075	$	47,121	$	48,750	$	438,750	$	900,000	$	1,503,709

Amendments to Credit Agreement and Senior Secured Term Loan Facility

On March 8, 2021, the Company entered into Amendment No. 1 to Credit Agreement. Amendment No. 1 to Credit Agreement provided 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 Amendment No. 1 to Credit Agreement was extended from March 2025 to March 2026, the floor for base rate loans was reduced from 1.5% to 1.0%, and the floor for Eurodollar rate loans was reduced from 0.5% to 0.0


		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	7

	Condensed Consolidated Statements of Changes in Equity	8

	Notes to Condensed Consolidated Financial Statements	9

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	30

Part II.	Other Information

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults upon Senior Securities	30

Item 4.	Mine Safety Disclosures	31

Item 5.	Other Information	31

Item 6.	Exhibits	31

Index to Exhibits		32

Signature		33

Three Months Ended March 31,

Amortization expense