UNITED STATES

SECURITIES AND EXCHANGE

COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 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 32,378,790 shares of Common Stock, par value $0.01 per share as of July 27, 2022.

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 Comprehensive Income	6
	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	31
Item 4.	Controls and Procedures	32
Part II.	Other Information
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
Index to Exhibits		34
Signature		35

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 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
2022 ASR Agreement	$100 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
2022 Repurchase Program	$200 million share repurchase program authorized by the Board on July 25, 2022
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
Assured	Assured Insulating Inc.
Board	Board of Directors of TopBuild
BofA	Bank of America, N.A.
Billings	Billings Insulation Service, Inc.
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
Green Energy	Green Energy Solutions, Inc.
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"

3

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

TOPBUILD CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands except share data)

	As of
	June 30,		December 31,
	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	123,869	$	139,779
Receivables, net of an allowance for credit losses of $12,558 at June 30, 2022, and $8,798 at December 31, 2021		773,744		668,419
Inventories, net		431,098		352,801
Prepaid expenses and other current assets		25,835		26,692
Total current assets		1,354,546		1,187,691
Right of use assets		174,361		177,177
Property and equipment, net		250,051		244,574
Goodwill		1,968,603		1,949,763
Other intangible assets, net		653,458		684,209
Deferred tax assets, net		-		1,905
Other assets		19,965		13,211
Total assets	$	4,420,984	$	4,258,530
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	508,227	$	461,917
Current portion of long-term debt		38,162		38,640
Accrued liabilities		197,308		175,891
Short-term operating lease liabilities		55,284		54,591
Short-term finance lease liabilities		2,712		2,387
Total current liabilities		801,693		733,426
Long-term debt		1,437,102		1,454,483
Deferred tax liabilities, net		245,687		248,243
Long-term portion of insurance reserves		60,805		51,875
Long-term operating lease liabilities		124,191		125,339
Long-term finance lease liabilities		7,055		7,770
Other liabilities		1,788		960
Total liabilities		2,678,321		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; 39,318,617 shares issued and 32,379,053 outstanding at June 30, 2022, and 39,165,024 shares issued and 32,927,185 outstanding at December 31, 2021		393		391
Treasury stock, 6,939,564 shares at June 30, 2022, and 6,237,839 shares at December 31, 2021, at cost		(572,747)		(431,030)
Additional paid-in capital		861,542		873,031
Retained earnings		1,459,084		1,200,676
Accumulated other comprehensive loss		(5,609)		(6,634)
Total equity		1,742,663		1,636,434
Total liabilities and equity	$	4,420,984	$	4,258,530

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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net sales	$	1,274,285	$	834,255	$	2,443,203	$	1,577,053
Cost of sales		890,188		591,075		1,727,905		1,136,114
Gross profit		384,097		243,180		715,298		440,939
Selling, general, and administrative expense		176,876		114,894		344,123		216,767
Operating profit		207,221		128,286		371,175		224,172
Other income (expense), net:
Interest expense		(13,410)		(6,105)		(25,375)		(12,707)
Loss on extinguishment of debt		—		—		—		(13,862)
Other, net		(279)		66		406		144
Other expense, net		(13,689)		(6,039)		(24,969)		(26,425)
Income before income taxes		193,532		122,247		346,206		197,747
Income tax expense		(49,835)		(31,867)		(87,796)		(47,525)
Net income	$	143,697	$	90,380	$	258,410	$	150,222
Net income per common share:
Basic	$	4.43	$	2.75	$	7.93	$	4.57
Diluted	$	4.41	$	2.72	$	7.87	$	4.53
Weighted average shares outstanding:
Basic		32,405,292		32,865,303		32,570,988		32,846,016
Diluted		32,614,449		33,177,435		32,827,549		33,190,107

See notes to our unaudited condensed consolidated financial statements.

5

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	143,697	$	90,380	$	258,410	$	150,222
Other comprehensive (loss) income:
Foreign currency translation adjustment		(2,193)		-		1,026		-
Comprehensive income	$	141,504	$	90,380	$	259,436	$	150,222

See notes to our unaudited condensed consolidated financial statement

6

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Six Months Ended June 30,
	2022		2021
Cash Flows Provided by (Used in) Operating Activities:
Net income	$	258,410	$	150,222
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		60,621		33,221
Share-based compensation		7,061		5,377
Loss on extinguishment of debt		-		13,862
Loss on sale of property and equipment		525		833
Amortization of debt issuance costs		1,427		858
Provision for bad debt expense		6,404		4,037
Loss from inventory obsolescence		3,610		1,129
Change in certain assets and liabilities
Receivables, net		(107,739)		(36,277)
Inventories, net		(82,621)		(8,055)
Prepaid expenses and other current assets		648		(2,273)
Accounts payable		47,540		21,782
Accrued liabilities		16,884		17,693
Other, net		4,927		(206)
Net cash provided by operating activities		217,697		202,203
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(36,034)		(28,560)
Acquisition of businesses, net of cash acquired		(18,746)		(195,411)
Proceeds from sale of property and equipment		618		193
Net cash used in investing activities		(54,162)		(223,778)
Cash Flows Provided by (Used in) Financing Activities:
Proceeds from issuance of long-term debt		-		411,250
Repayment of long-term debt		(19,287)		(421,716)
Payment of debt issuance costs		-		(6,500)
Proceeds from revolving credit facility		70,000		-
Repayment of revolving credit facility		(70,000)		-
Taxes withheld and paid on employees' equity awards		(11,667)		(11,491)
Exercise of stock options		1,452		5,952
Repurchase of shares of common stock		(150,050)		(24,038)
Payment of contingent consideration		(35)		(150)
Net cash used in financing activities		(179,587)		(46,693)
Impact of exchange rate changes on cash		142		-
Net decrease in cash and cash equivalents		(15,910)		(68,268)
Cash and cash equivalents- Beginning of period		139,779		330,007
Cash and cash equivalents- End of period	$	123,869	$	261,739
Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	$	36,129	$	39,135
Accruals for property and equipment		563		460

See notes to our unaudited condensed consolidated financial statements.

7

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
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

									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
Net income		-		-				143,697		-		143,697
Share-based compensation		-		-		3,334		-		-		3,334
Repurchase of 409,312 shares pursuant to 2022 ASR Agreement		-		(80,050)		(20,000)		-		-		(100,050)
51 shares withheld to pay taxes on employees' equity awards		-		(9)		-		-		-		(9)
5,835 shares issued upon exercise of stock options		-		-		644		-		-		644
Other comprehensive loss, net of tax		-		-		-		-		(2,193)		(2,193)
Balance at June 30, 2022	$	393	$	(572,747)	$	861,542	$	1,459,084	$	(5,609)	$	1,742,663

See notes to our unaudited condensed consolidated financial statements.

8

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 June 30, 2022, our results of operations and  comprehensive income for the three and six months ended June 30, 2022 and 2021, and our cash flows for the six months ended June 30, 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.

9

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 June 30,
	2022								2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Residential	$	634,078	$	247,827	$	(50,007)	$	831,898	$	486,266	$	203,063	$	(36,719)	$	652,610
Commercial		114,890		233,828		(12,467)		336,251		119,359		70,301		(8,015)		181,645
Industrial		-		106,136		-		106,136		-		-		-		-
Net sales	$	748,968	$	587,791	$	(62,474)	$	1,274,285	$	605,625	$	273,364	$	(44,734)	$	834,255

	Six Months Ended June 30,
	2022								2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Residential	$	1,197,382	$	484,238	$	(93,429)	$	1,588,191	$	904,343	$	395,108	$	(70,057)	$	1,229,394
Commercial		228,279		449,342		(20,682)		656,939		234,035		129,857		(16,233)		347,659
Industrial		-		198,073		-		198,073		-		-		-		-
Net sales	$	1,425,661	$	1,131,653	$	(114,111)	$	2,443,203	$	1,138,378	$	524,965	$	(86,290)	$	1,577,053

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

	Three Months Ended June 30, 2022						Three Months Ended June 30, 2021
		Installation		Specialty Distribution	Elims	Total		Installation	Specialty Distribution	Elims	Total
Insulation and accessories	$	590,099	$