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 September 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 31,972,332 shares of Common Stock, par value $0.01 per share as of October 25, 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	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
Part II.	Other Information
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	32
Index to Exhibits		33
Signature		34

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
CV	CV Insulation LLC
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
	September 30,		December 31,
	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	159,384	$	139,779
Receivables, net of an allowance for credit losses of $14,105 at September 30, 2022, and $8,798 at December 31, 2021		815,633		668,419
Inventories, net		447,100		352,801
Prepaid expenses and other current assets		27,416		26,692
Total current assets		1,449,533		1,187,691
Right of use assets		191,731		177,177
Property and equipment, net		248,623		244,574
Goodwill		1,966,234		1,949,763
Other intangible assets, net		631,005		684,209
Other assets		18,991		15,116
Total assets	$	4,506,117	$	4,258,530
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	510,163	$	461,917
Current portion of long-term debt		37,367		38,640
Accrued liabilities		181,455		175,891
Short-term operating lease liabilities		57,268		54,591
Short-term finance lease liabilities		2,328		2,387
Total current liabilities		788,581		733,426
Long-term debt		1,428,935		1,454,483
Deferred tax liabilities, net		244,608		248,243
Long-term portion of insurance reserves		61,243		51,875
Long-term operating lease liabilities		138,923		125,339
Long-term finance lease liabilities		6,170		7,770
Other liabilities		3,218		960
Total liabilities		2,671,678		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; 39,325,465 shares issued and 31,974,006 outstanding at September 30, 2022, and 39,165,024 shares issued and 32,927,185 outstanding at December 31, 2021		393		391
Treasury stock, 7,351,459 shares at September 30, 2022, and 6,237,839 shares at December 31, 2021, at cost		(642,746)		(431,030)
Additional paid-in capital		884,729		873,031
Retained earnings		1,612,830		1,200,676
Accumulated other comprehensive loss		(20,767)		(6,634)
Total equity		1,834,439		1,636,434
Total liabilities and equity	$	4,506,117	$	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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net sales	$	1,300,998	$	845,757	$	3,744,201	$	2,422,810
Cost of sales		905,250		595,466		2,633,155		1,731,581
Gross profit		395,748		250,291		1,111,046		691,229
Selling, general, and administrative expense		172,874		116,485		516,997		333,252
Operating profit		222,874		133,806		594,049		357,977
Other income (expense), net:
Interest expense		(14,561)		(5,503)		(39,936)		(18,210)
Loss on extinguishment of debt		—		—		—		(13,862)
Other, net		(303)		66		103		210
Other expense, net		(14,864)		(5,437)		(39,833)		(31,862)
Income before income taxes		208,010		128,369		554,216		326,115
Income tax expense		(54,264)		(32,934)		(142,060)		(80,457)
Net income	$	153,746	$	95,435	$	412,156	$	245,658
Net income per common share:
Basic	$	4.79	$	2.91	$	12.72	$	7.49
Diluted	$	4.76	$	2.88	$	12.63	$	7.41
Weighted average shares outstanding:
Basic		32,076,285		32,763,311		32,404,275		32,818,145
Diluted		32,279,820		33,088,680		32,643,161		33,155,995

See notes to our unaudited condensed consolidated financial statements.

5

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	153,746	$	95,435	$	412,156	$	245,658
Other comprehensive loss:
Foreign currency translation adjustment		(15,158)		-		(14,133)		-
Comprehensive income	$	138,588	$	95,435	$	398,023	$	245,658

See notes to our unaudited condensed consolidated financial statement

6

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended September 30,
	2022		2021
Cash Flows Provided by (Used in) Operating Activities:
Net income	$	412,156	$	245,658
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		93,051		51,005
Share-based compensation		9,673		8,375
Loss on extinguishment of debt		-		13,862
Loss on sale of property and equipment		76		1,410
Amortization of debt issuance costs		2,147		1,352
Provision for bad debt expense		8,837		5,215
Loss from inventory obsolescence		5,127		1,667
Change in certain assets and liabilities:
Receivables, net		(152,578)		(62,257)
Inventories, net		(101,148)		(30,115)
Prepaid expenses and other current assets		(807)		(2,984)
Accounts payable		49,079		47,907
Accrued liabilities		3,469		30,397
Other, net		6,548		(1,987)
Net cash provided by operating activities		335,630		309,505
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(56,044)		(42,320)
Acquisition of businesses, net of cash acquired		(20,500)		(205,028)
Proceeds from sale of property and equipment		2,877		298
Net cash used in investing activities		(73,667)		(247,050)
Cash Flows Provided by (Used in) Financing Activities:
Proceeds from issuance of long-term debt		-		411,250
Repayment of long-term debt		(28,968)		(427,563)
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		(11,719)		(11,511)
Exercise of stock options		2,028		5,952
Repurchase of shares of common stock		(200,050)		(35,556)
Payment of contingent consideration		(1,674)		(628)
Net cash used in financing activities		(240,383)		(64,556)
Impact of exchange rate changes on cash		(1,975)		-
Net increase (decrease) in cash and cash equivalents		19,605		(2,101)
Cash and cash equivalents- Beginning of period		139,779		330,007
Cash and cash equivalents- End of period	$	159,384	$	327,906
Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	$	80,186	$	51,190
Accruals for property and equipment		395		580

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
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

									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
Net income		-		-		-		153,746		-		153,746
Share-based compensation		-		-		2,611		-		-		2,611
Repurchase of 142,351 shares pursuant to the settlement of the 2022 ASR Agreement		-		(20,000)		20,000		-		-		-
Repurchase of 269,544 shares		-		(49,999)		-		-		-		(49,999)
7,111 shares issued upon exercise of stock options		-		-		576		-		-		576
Other comprehensive loss, net of tax		-		-		-		-		(15,158)		(15,158)
Balance at September 30, 2022	$	393	$	(642,746)	$	884,729	$	1,612,830	$	(20,767)	$	1,834,439

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 September 30, 2022, our results of operations and comprehensive income for the three and nine months ended September 30, 2022 and 2021, and our cash flows for the nine months ended September 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. We made the material acquisition of DI in October 2021 and it is therefore not included in the comparative periods of three and nine months ended September 30, 2021.

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 September 30,
	2022								2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Residential	$	662,005	$	245,549	$	(54,533)	$	853,021	$	501,494	$	206,951	$	(36,018)	$	672,427
Commercial		121,051		228,433		(11,068)		338,416		111,406		69,447		(7,523)		173,330
Industrial		-		109,561		-		109,561		-		-		-		-
Net sales	$	783,056	$	583,543	$	(65,601)	$	1,300,998	$	612,900	$	276,398	$	(43,541)	$	845,757

	Nine Months Ended September 30,
	2022								2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Residential	$	1,859,386	$	729,787	$	(147,962)	$	2,441,211	$	1,405,837	$	602,059	$	(106,076)	$	1,901,820
Commercial		349,331		677,775		(31,750)		995,356		345,441		199,304		(23,755)		520,990
Industrial		-		307,634		-		307,634		-		-		-		-
Net sales	$	2,208,717	$	1,715,196	$	(179,712)	$	3,744,201	$	1,751,278	$	801,363	$	(129,831)	$	2,422,810

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

	Three Months Ended September 30, 2022								Three Months Ended September 30, 2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Insulation and accessories	$	619,613	$	516,214	$	(56,368)	$	1,079,459	$	487,798	$	219,441	$	(36,406)	$	670,833
Glass and windows		60,375		-		-		60,375		46,096		-		-		46,096
Gutters		28,729		48,972		(8,110)		69,591		23,057		40,555		(6,422)		57,190
All other		74,339		18,357		(1,123)		91,573		55,949		16,402		(713)		71,638
Net sales	$	783,056	$	583,543	$	(65,601)	$	1,300,998	$	612,900	$	276,398	$	(43,541)	$	845,757

	Nine Months Ended September 30, 2022								Nine Months Ended September 30, 2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Insulation and accessories	$	1,746,054	$	1,514,481	$	(153,520)	$	3,107,015	$	1,383,472	$	651,192	$	(108,125)	$	1,926,539
Glass and windows		168,692		-		-		168,692		136,309		-		-		136,309
Gutters		78,926		146,481		(23,207)		202,200		64,831		103,244		(17,992)		150,083
All other		215,045		54,234		(2,985)		266,294		166,666		46,927		(3,714)		209,879
Net sales	$	2,208,717	$	1,715,196	$	(179,712)	$	3,744,201	$	1,751,278	$	801,363	$	(129,831)	$	2,422,810

10

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	September 30,		December 31,
	Balance Sheets	2022		2021
Contract Assets:
Receivables, unbilled	Receivables, net	$	83,232	$	71,401
Contract Liabilities:
Deferred revenue	Accrued liabilities	$	21,991	$	14,310

The aggregate amount remaining on uncompleted performance obligations was $425.5 million as of September 30, 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 trade receivables, which is a component of Receivables, net on our condensed consolidated balance sheets and were $59.8 million and $57.6 million as of September 30, 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 and there were no indicators of impairment for the nine months ended September 30, 2022.

Changes in the carrying amount of goodwill for nine months ended September 30, 2022, by segment, were as follows, in thousands:

					Fx				Accumulated
	Gross Goodwill				Translation		Gross Goodwill		Impairment		Net Goodwill
	December 31, 2021		Additions		Adjustment		September 30, 2022		Losses		September 30, 2022
Goodwill, by segment:
Installation	$	1,818,872	$	8,107		-	$	1,826,979	$	(762,021)	$	1,064,958
Specialty Distribution		892,912		10,585		(2,221)		901,276		-		901,276
Total goodwill	$	2,711,784	$	18,692	$	(2,221)	$	2,728,255	$	(762,021)	$	1,966,234

See Note 12 – Business Combinations for goodwill recognized on acquisitions that occurred during the quarter.

11

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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
	September 30,		December 31,
	2022		2021
Gross definite-lived intangible assets	$	781,374	$	783,843
Accumulated amortization		(150,369)		(99,634)
Net definite-lived intangible assets	$	631,005	$	684,209

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Amortization expense	$	16,970	$	7,082	$	50,809	$	20,424

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
	September 30,		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		573,750		596,250
Equipment notes		10,625		17,085
Unamortized debt issuance costs		(18,073)		(20,212)
Total debt, net of unamortized debt issuance costs		1,466,302		1,493,123
Less: current portion of long-term debt		37,367		38,640
Total long-term debt	$	1,428,935	$	1,454,483

The following table sets forth our remaining principal payments for our outstanding debt balances as of September 30, 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		7,500		33,750		45,000		48,750		438,750		-		573,750
Equipment notes		2,191		6,325		2,109		-		-		-		10,625
Total	$	9,691	$	40,075	$	47,109	$	48,750	$	438,750	$	900,000	$	1,484,375

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.

Amendment No. 1 to Credit Agreement extended the maturity date 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%. Additional provisions were made for the eventual replacement of LIBOR with another alternate benchmark rate.

12

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On October 7, 2021, the Company entered into Amendment No. 2 to Credit Agreement. Amendment No. 2 to Credit Agreement provides for a term loan facility in an aggregate principal amount of $600.0 million, comprised of a $300.0 million term loan facility and a $300.0 million delayed draw term loan commitment, all of which was drawn on October 7, 2021, and a revolving facility with an aggregate borrowing capacity of $500.0 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. 2 to Credit Agreement was extended from March 2026 to October 2026. Additional provisions were also made for the eventual replacement of LIBOR with an alternative benchmark rate.

The following table outlines the key terms of our Amendment No. 2 to Credit Agreement (dollars in thousands):

Senior secured term loan facility	$	300,000
Additional delayed draw term loan	$	300,000
Additional term loan and/or revolver capacity available under incremental facility (a)	$	300,000
Revolving facility	$	500,000
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 September 30, 2022		3.52	%
Scheduled maturity date		10/7/2026

(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 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%.

Amendment No. 2 to Credit Agreement contemplates future amendment by the Company and the agent to provide for the replacement of LIBOR with an alternative 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 Amendment No. 2 to 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.  

13

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

	As of
	September 30,		December 31,
	2022		2021
Revolving facility	$	500,000	$	500,000
Less: standby letters of credit		(67,689)		(69,936)
Availability under revolving facility	$	432,311	$	430,064

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.

3.625% Senior Notes

On March 15, 2021, the Company completed a private offering of $400.0 million aggregate principal amount of 3.625% Senior Notes due 2029. The Company used the proceeds from the issuance of the 3.625% Senior Notes, together with cash on hand, to redeem 100% of its $400.0 million aggregate principal amount of 5.625% Senior Notes due 2026.   The 3.625% 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 began September 15, 2021. The 3.625% 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 3.625% 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 3.625% Senior 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 3.625% Senior 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 3.625% Senior 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 3.625% Senior Notes originally issued remains outstanding.

4.125% Senior Notes

On October 14, 2021, the Company completed a private offering of $500.0 million aggregate principal amount of 4.125% Senior Notes due 2032. The 4.125% Senior Notes are senior unsecured obligations and bear interest at 4.125% per year, payable semiannually in arrears on February 15 and August 15, beginning on August 15, 2022. The 4.125% Senior Notes mature on February 15, 2032, unless redeemed early or repurchased. If we undergo a change in control, we must make an offer to repurchase all of the 4.125% 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 4.125% Senior Notes, in whole or in part, at any time on or after October 15, 2026 at the redemption prices specified in the notes plus accrued and unpaid interest if redeemed during the 12 month period commencing on October 15 of the years set for: 2026 – 102.063%, 2027 – 101.375%, 2028 – 100.688%, 2029 and thereafter – 100.000%. The Company may also redeem a make-whole redemption of the 4.125% Senior Notes at any time prior to October 15, 2026 at the treasury rate plus 50 bps. Additionally, the Company may redeem up to 40% of the aggregate principal amount of the 4.125% Senior Notes prior to October 15, 2024 with the net cash proceeds of certain sales of its capital stock at 104.125% 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.

14

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Equipment Notes

As of September 30, 2022, the company has outstanding $10.6 million of equipment notes for the purpose of financing the purchase of vehicles and equipment. No equipment notes were issued during the nine months ended September 30, 2022. 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 indentures governing our 3.625% Senior Notes and our 4.125% Senior Notes (together, our “Senior Notes”) contain 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 indentures provide 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 each of our Senior Notes then outstanding may declare the principal of, premium, if any, and accrued interest on the Senior Notes subject to such declaration immediately due and payable. The Senior Notes and related guarantees have not been registered under the Securities Act of 1933, and we are not required to register either the Senior Notes or the guarantees in the future.

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

The 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 September 30, 2022
Maximum Net Leverage Ratio	3.50:1.00
Minimum Interest Coverage Ratio	3.00:1.00
Compliance as of period end	In Compliance

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 12 – Business Combinations.

15

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 Amendment No.2 to 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 3.625% Senior Notes and our 4.125% Senior Notes close to September 30, 2022 (Level 1 fair value measurement), we estimate the fair value of each in the table below:  

	As of September 30, 2022
		Fair Value		Gross Carrying Value
3.625% Senior Notes	$	321,000	$	400,000
4.125% Senior Notes	$	391,250	$	500,000

7.  SEGMENT INFORMATION

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

	Three Months Ended September 30,
	2022		2021		2022		2021
	Net Sales				Operating Profit (b)
Our operations by segment were (a):
Installation	$	783,056	$	612,900	$	154,236	$	105,046
Specialty Distribution		583,543		276,398		88,364		47,162
Intercompany eliminations		(65,601)		(43,541)		(10,806)		(7,590)
Total	$	1,300,998	$	845,757		231,794		144,618
General corporate expense, net (c)						(8,920)		(10,812)
Operating profit, as reported						222,874		133,806
Other expense, net						(14,864)		(5,437)
Income before income taxes					$	208,010	$	128,369

	Nine Months Ended September 30,
	2022		2021		2022		2021
	Net Sales				Operating Profit (b)
Our operations by segment were (a):
Installation	$	2,208,717	$	1,751,278	$	406,835	$	277,748
Specialty Distribution		1,715,196		801,363		245,534		125,403
Intercompany eliminations		(179,712)		(129,831)		(29,949)		(21,050)
Total	$	3,744,201	$	2,422,810		622,420		382,101
General corporate expense, net (c)						(28,371)		(24,124)
Operating profit, as reported						594,049		357,977
Other expense, net						(39,833)		(31,862)
Income before income taxes					$	554,216	$	326,115

(a) All of our operations are located primarily in the U.S and to a lesser extent Canada.

(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.

16

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.  INCOME TAXES    

Our effective tax rates were 26.1 percent and 25.6 percent for the three and nine months ended September 30, 2022, respectively. The effective tax rates for the three and nine months ended September 30, 2021 were 25.7 percent and 24.7 percent, respectively.  The higher tax rate for the three months ended September 30, 2022, compared to the three months ended September 30, 2021 was due to state tax adjustments and miscellaneous items, partially offset by a decrease in tax expense related to share-based compensation.

A tax benefit of $1.5 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 nine months ended September 30, 2022.  

9. NET 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income (in thousands)	$	153,746	$	95,435	$	412,156	$	245,658
Weighted average number of common shares outstanding - basic		32,076,285		32,763,311		32,404,275		32,818,145
Dilutive effect of common stock equivalents:
RSAs with service-based conditions		17,175		15,058		14,808		22,044
RSAs with market-based conditions		44,001		115,105		65,677		126,769
RSAs with performance-based conditions		40,995		73,597		48,232		60,595
Stock options		101,364		121,609		110,169		128,442
Weighted average number of common shares outstanding - diluted		32,279,820		33,088,680		32,643,161		33,155,995
Basic net income per common share	$	4.79	$	2.91	$	12.72	$	7.49
Diluted net income per common share	$	4.76	$	2.88	$	12.63	$	7.41

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Anti-dilutive common stock equivalents:
RSAs with service-based conditions		15,222		176		14,782		1,607
RSAs with market-based conditions		134		11,065		200		9,235
RSAs with performance-based conditions		14,611		-		7,506		-
Stock options		22,280		24,066		20,581		19,966
Total anti-dilutive common stock equivalents		52,247		35,307		43,069		30,808

17

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. 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 September 30, 2022, we had 1.9 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Share-based compensation expense	$	2,611	$	2,998	$	9,673	$	8,375
Income tax (expense) benefit	$	(56)	$	(130)	$	1,517	$	3,190

The following table presents a summary of our share-based compensation activity for nine months ended September 30, 2022 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, 2021	244.4	$	119.41	210.5	$	32.35	$	87.30	$	39,692.4
Granted	105.8	$	177.36	—	$	—	$	—		—
Converted/Exercised	(168.1)	$	75.65	(25.2)	$	27.92	$	80.40	$	3,183.0
Forfeited/Expired	(10.6)	$	223.63	(3.1)	$	68.81	$	174.76		—
Balance September 30, 2022	171.5	$	194.71	182.2	$	32.25	$	86.79	$	15,317.8
Exercisable September 30, 2022 (a)				148.4	$	25.71	$	69.94	$	14,443.4

(a) The weighted average remaining contractual term for vested stock options is approximately 5.5 years.

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

	As of September 30, 2022
	Unrecognized Compensation Expense on Unvested Awards		Weighted Average Remaining Compensation Expense Period
RSAs	$	15,203		1.0
Stock options		677		0.7
Total unrecognized compensation expense related to unvested awards	$	15,880

18

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 17, 2020	$	2,526	$	0	$	632	$	2,526	$	5,052
February 16, 2021	$	2,374	$	0	$	594	$	2,374	$	4,748
February 15, 2022	$	3,411	$	0	$	853	$	3,411	$	6,822

During the first quarter of 2022, RSAs with performance-based conditions that were granted on February 18, 2019 vested based on cumulative three-year achievement of 200%. Total compensation expense recognized over the three-year performance period, net of forfeitures, was $4.4 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 2022 and 2021:

	2022			2021
Measurement period (years)		2.87			2.87
Risk free interest rate		1.76	%		0.22	%
Dividend yield		0.00	%		0.00	%
Estimated fair value of market-based RSAs at grant date	$	298.20		$	298.66

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. There were no stock options issued in the first nine months of 2022.

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

11. SHARE REPURCHASE PROGRAM

On July 25, 2022, our Board authorized the 2022 Repurchase Program, pursuant to which the Company may purchase up to $200 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 2022 Repurchase Program does not obligate the Company to purchase any shares and has no expiration date.  Authorization for the 2022 Repurchase Program may be terminated, increased, or decreased by the Board at its discretion at any time.

On July 26, 2021, our Board authorized the 2021 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 2021 Repurchase Program does not obligate the Company to purchase any shares and has no expiration date.  Authorization for the 2021 Repurchase Program may be terminated, increased, or decreased by the Board at its discretion at any time.  As of September 30, 2022, the Company has $4.4 million remaining under the 2021 Repurchase Program.

19

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 Repurchase Program does not obligate the Company to purchase any shares and has no expiration date.  Authorization for the 2019 Repurchase Program may be terminated, increased, or decreased by the Board at its discretion at any time.  As of September 30, 2022 the Company has utilized all amounts authorized under the 2019 Repurchase Program.

On May 5, 2022, the Company entered into the 2022 ASR Agreement under the 2021 Repurchase Program.  We paid $100 million in exchange for an initial delivery of 409,312 shares of our common stock on May 9, 2022, representing an estimated 80% of the total number of shares we expected to receive under the 2022 ASR Agreement at the time we entered into the agreement.  During the quarter ended September 30, 2022, we received an additional 142,351 shares of our common stock representing the final settlement of the 2022 ASR Agreement. We purchased a total of 551,663 shares of our common stock under the 2022 ASR Agreement at an average price per share of $181.27.

The following table sets forth our share repurchases under the Repurchase Programs during the periods presented. These repurchases closed out the 2019 Share Repurchase Program with the balance repurchased under the 2021 Share Repurchase Program.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Number of shares repurchased		411,895 (a)		60,105		1,059,361		183,136
Share repurchase cost (in thousands)	$	50,000	$	11,518	$	200,050	$	35,556

(a) The three months ended September 30, 2022 includes 142,351 shares we received as a final settlement of our 2022 ASR Agreement.

12. BUSINESS COMBINATIONS

Acquiring businesses is a key 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.”  We incurred no acquisition related costs for the three months ended September 30, 2022 and incurred $2.7 million of acquisition related costs in the three months ended September 30, 2021. Acquisition related costs for the nine months ended September 30, 2022 and 2021 were $1.3 million and $3.4 million, respectively. Acquisition related costs are included in selling, general, and administrative expense in our condensed consolidated statements of operations.  On October 15, 2021, we acquired DI for $1.0 billion and its results of operations and financial position are aggregated within our Specialty Distribution segment.

The table below provides a summary as of September 30, 2022 for the businesses acquired during the nine months ended September 30, 2022:

2022 Acquisitions	Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired
Southwest		1/12/2022	$	300	$	—	$	300	$	215
Billings		2/3/2022		7,005		—		7,005		3,313
Green Energy		3/31/2022		1,200		—		1,200		565
Assured		4/7/2022		4,719		500		5,219		3,317
CV		7/21/2022		1,758		—		1,758		946
Total			$	14,982	$	500	$	15,482	$	8,356

20

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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. To that note, during the nine months ended September 30, 2022, DI’s goodwill increased by $10.7 million primarily as a result of the finalization of purchase price adjustments to acquisition date sales and use tax liabilities, net working capital adjustments, property, plant and equipment, and true-ups to supplier rebate receivables.  

The table below represents the final fair value of DI’s assets and liabilities assumed as of September 30, 2022:

Finalized purchase price fair values:
Accounts receivable		145,042
Inventories		133,004
Prepaid and other assets		8,820
Property and equipment		37,562
ROU asset (operating)		66,698
Intangible assets		458,000
Goodwill		450,716
Accounts payable		(68,367)
Lease liabilities		(76,066)
Deferred tax liabilities		(83,590)
All other liabilities		(35,854)
Net assets acquired	$	1,035,965

The table below provides a summary as of September 30, 2022 for the businesses acquired during the nine months ended September 30, 2021:

2021 Acquisitions	Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired
LCR		1/20/2021	$	53,700		—		53,700		19,500
ABS		4/5/2021		124,348		—		124,348		54,229
All others		Various		26,977		1,200		28,177		12,001
Total			$	205,025	$	1,200	$	206,225	$	85,730

Primarily all of the $8.4 million and $85.7 million of goodwill recorded from acquisitions completed in the nine months ended September 30, 2022 and 2021, respectively, is expected to be deductible for income tax purposes.

13.  ACCRUED LIABILITIES

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

	As of
	September 30, 2022		December 31, 2021
Accrued liabilities:
Salaries, wages, and commissions	$	72,367	$	71,664
Insurance liabilities		29,435		24,425
Customer rebates		15,659		15,625
Deferred revenue		21,991		14,311
Employee tax-related liabilities		10,654		12,545
Sales and property taxes		14,552		9,364
Interest payable on long-term debt		3,366		8,798
Other		13,431		19,159
Total accrued liabilities	$	181,455	$	175,891

See Note 3 – Revenue Recognition for discussion of our deferred revenue balances.

21

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14.  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, claims against our builder customers for issues relating to our workmanship.  We generally exclude from our contracts with builder customers indemnity relating to product quality and warranty claims, as we pass such claims directly to the manufacturers of the products we install or distribute.  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
	September 30, 2022		December 31, 2021
Outstanding bonds:
Performance bonds	$	153,358	$	128,173
Licensing, insurance, and other bonds		24,346		21,792
Total bonds	$	177,704	$	149,965

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 and Specialty Distribution. Our Installation segment installs insulation and other building products nationwide.  As of September 30, 2022, we had approximately 230 Installation 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, after paint 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 Specialty Distribution segment sells and distributes building and mechanical insulation, insulation accessories and other building product materials for the residential, commercial, and industrial end markets.  As of September 30, 2022, we had approximately 165 Specialty Distribution branches located across the United States and 18 branches in Canada. Our Specialty Distribution 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 made the material acquisition of DI in October 2021 and is therefore not included in the comparative periods of three and nine months ended September 30, 2021.

We believe that having both Installation and Specialty Distribution provides us with a number of distinct competitive advantages. First, the combined buying power of our two business segments, along with our scale, strengthens our ties to the major manufacturers of insulation and other building material products. This helps to ensure we are buying competitively and ensures the availability of supply to our local branches and Specialty Distribution centers. The overall effect is driving efficiencies through our supply chain. Second, being a leader in both installation and specialty distribution allows us to reach a broader set of builders and contractors more effectively, regardless of their size or geographic location in the U.S. and Canada, and leverage housing, commercial and industrial construction growth wherever it occurs. Third, during housing industry downturns, many insulation contractors who buy directly from manufacturers during industry peaks return to purchasing through specialty distributors, which 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. 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, 2021, as filed with the SEC on February 22, 2022.

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.

23

THIRD QUARTER 2022 VERSUS THIRD QUARTER 2021

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 September 30,
	2022			2021
Net sales	$	1,300,998		$	845,757
Cost of sales		905,250			595,466
Cost of sales ratio		69.6	%		70.4	%
Gross profit		395,748			250,291
Gross profit margin		30.4	%		29.6	%
Selling, general, and administrative expense		172,874			116,485
Selling, general, and administrative expense to sales ratio		13.3	%		13.8	%
Operating profit		222,874			133,806
Operating profit margin		17.1	%		15.8	%
Other expense, net		(14,864)			(5,437)
Income tax expense		(54,264)			(32,934)
Net income	$	153,746		$	95,435
Net margin		11.8	%		11.3	%

Sales and Operations

Net sales increased 53.8% for the three months ended September 30, 2022, from the comparable period of 2021.  The increase was primarily driven by an increase of 31.2% from our acquisitions, a 13.6% increase due to higher selling prices, and an increase of 9.1% in sales volume.

Gross profit margins were 30.4% and 29.6% for the three months ended September 30, 2022 and 2021, respectively.  Gross profit margin improved primarily due to higher selling prices and higher sales volume, partially offset by material inflation.

Selling, general, and administrative expense, as a percent of sales, was 13.3% and 13.8% for the three months ended September 30, 2022 and 2021, respectively.  The decrease in selling, general, and administrative expense as a percent of sales was driven primarily by higher sales, partially offset by the amortization of intangible assets related to purchase accounting.

Operating margins were 17.1% and 15.8% for the three months ended September 30, 2022 and 2021, respectively. The increase in operating margins was due to higher selling prices and higher sales volume partially offset by material inflation and amortization of intangible assets related to purchase accounting.

24

Business Segment Results

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

	Three Months Ended September 30,
	2022			2021			Percent Change
Net sales by business segment:
Installation	$	783,056		$	612,900		27.8	%
Specialty Distribution		583,543			276,398		111.1	%
Intercompany eliminations		(65,601)			(43,541)
Net sales	$	1,300,998		$	845,757		53.8	%
Operating profit by business segment:
Installation	$	154,236		$	105,046		46.8	%
Specialty Distribution		88,364			47,162		87.4	%
Intercompany eliminations		(10,806)			(7,590)
Operating profit before general corporate expense		231,794			144,618		60.3	%
General corporate expense, net		(8,920)			(10,812)
Operating profit	$	222,874		$	133,806		66.6	%
Operating profit margins:
Installation		19.7	%		17.1	%
Specialty Distribution		15.1	%		17.1	%
Operating profit margin before general corporate expense		17.8	%		17.1	%
Operating profit margin		17.1	%		15.8	%

Installation

Sales

Sales in our Installation segment increased $170.2 million, or 27.8%, for the three months ended September 30, 2022, as compared to the same period in 2021.  The increase was due to a 13.8% increase in higher selling prices, a 12.3% increase in sales volume, and a 1.7% increase from our acquisitions.

Operating margins

Operating margins in our Installation segment were 19.7% and 17.1% for the three months ended September 30, 2022 and 2021, respectively.  The increase in operating margins was driven by higher selling prices and sales volume, partially offset by material inflation.

Specialty Distribution

Sales

Sales in our Specialty Distribution segment increased $307.1 million, or 111.1%, for the three months ended September 30, 2022, as compared to the same period in 2021. Of the 111.1% increase, acquisitions accounted for 92.4%, 13.0% was due to higher selling prices and 5.7% was from an increase in sales volume.  

Operating margins

Operating margins in our Specialty Distribution segment were 15.1% and 17.1% for the three months ended September 30, 2022 and 2021, respectively.  The decrease in operating margins was partially driven by the amortization of intangible assets related to purchase accounting and material inflation partially offset by higher selling prices and higher sales volume.

25

OTHER ITEMS

Other expense, net

Other expense, net, was $14.9 million and $5.4 million for the three months ended September 30, 2022 and 2021, respectively. The change primarily related to interest expense, which increased by $9.0 million for the three months ended September 30, 2022, as compared to the same period in 2021.  This increase was due to higher long-term debt balances during the three months ended September 30, 2022, including the balance on the 4.125% Senior Notes which were issued in the fourth quarter of 2021 to finance the acquisition of DI and higher interest rates on borrowings under the Credit Agreement.

Income tax expense

Income tax expense was $54.3 million, an effective tax rate of 26.1 percent, for the three months ended September 30, 2022, compared to $32.9 million, an effective tax rate of 25.7 percent, for the comparable period in 2021.  The tax rate for the three months ended September 30, 2022, was higher due to state tax adjustments and miscellaneous items, partially offset by a decrease in tax expense related to share-based compensation.

FIRST NINE MONTHS 2022 VERSUS FIRST NINE MONTHS 2021

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:

	Nine Months Ended September 30,
	2022			2021
Net sales	$	3,744,201		$	2,422,810
Cost of sales		2,633,155			1,731,581
Cost of sales ratio		70.3	%		71.5	%
Gross profit		1,111,046			691,229
Gross profit margin		29.7	%		28.5	%
Selling, general, and administrative expense		516,997			333,252
Selling, general, and administrative expense to sales ratio		13.8	%		13.8	%
Operating profit		594,049			357,977
Operating profit margin		15.9	%		14.8	%
Other expense, net		(39,833)			(31,862)
Income tax expense		(142,060)			(80,457)
Net income	$	412,156		$	245,658
Net margin		11.0	%		10.1	%

Sales and Operations

Net sales increased 54.5% for the nine months ended September 30, 2022, from the comparable period of 2021.  The increase was primarily driven by a 33.8% impact from our acquisitions, a 15.0% increase due to higher selling prices and a 5.8% increase in sales volume.

Gross profit margins were 29.7% and 28.5% for the nine months ended September 30, 2022 and 2021, respectively.  Gross profit margin improved primarily due to higher selling prices and higher sales volume partially offset by an increase in cost of material.

26

Selling, general, and administrative expense, as a percent of sales, was 13.8% for both the nine months ended September 30, 2022 and 2021.  Selling, general, and administrative expense as a percent of sales remained flat to the prior year as the impact of higher selling prices was offset by was the amortization of intangible assets related to purchase accounting and increased insurance costs.

Operating margins were 15.9% and 14.8% for the nine months ended September 30, 2022 and 2021, respectively. The increase in operating margins was due to higher selling prices and volume, partially offset by an increase in cost of material and the amortization of intangible assets related to purchase accounting.

Business Segment Results

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

	Nine Months Ended September 30,
	2022			2021			Percent Change
Net sales by business segment:
Installation	$	2,208,717		$	1,751,278		26.1	%
Specialty Distribution		1,715,196			801,363		114.0	%
Intercompany eliminations		(179,712)			(129,831)
Net sales	$	3,744,201		$	2,422,810		54.5	%
Operating profit by business segment (a):
Installation	$	406,835		$	277,748		46.5	%
Specialty Distribution		245,534			125,403		95.8	%
Intercompany eliminations		(29,949)			(21,050)
Operating profit before general corporate expense		622,420			382,101		62.9	%
General corporate expense, net (b)		(28,371)			(24,124)
Operating profit	$	594,049		$	357,977		65.9	%
Operating profit margins:
Installation		18.4	%		15.9	%
Specialty Distribution		14.3	%		15.6	%
Operating profit margin before general corporate expense		16.6	%		15.8	%
Operating profit margin		15.9	%		14.8	%

Installation

Sales

Sales in our Installation segment increased $457.4 million, or 26.1%, for the nine months ended September 30, 2022, as compared to the same period in 2021.  The increase was due to a 13.7% increase from higher selling prices, a 8.1% increase in sales volume, and a 4.3% impact from our acquisitions.

Operating margins

Operating margins in our Installation segment were 18.4% and 15.9% for the nine months ended September 30, 2022 and 2021, respectively.  The increase in operating margins was driven by higher sales from selling prices and volumes, partially offset by an increase in cost of material.

27

Specialty Distribution

Sales

Sales in our Specialty Distribution segment increased $913.8 million, or 114.0%, for the nine months ended September 30, 2022, as compared to the same period in 2021.  This increase was due to a 93.5% impact from our acquisitions, a 18.5% increase due to higher selling prices and a 2.1% increase in sales volume.

Operating margins

Operating margins in our Specialty Distribution segment were 14.3% and 15.6% for the nine months ended September 30, 2022 and 2021, respectively.  The decrease in operating margins was driven by the amortization of intangible assets related to purchase accounting and material inflation partially offset by higher selling prices and higher sales volume.

OTHER ITEMS

Other expense, net

Other expense, net, which primarily consisted of interest expense, was $39.8 million and $31.9 million for the nine months ended September 30, 2022 and 2021, respectively.  Interest expense increased by $21.7 million for the nine months ended September 30, 2022, as compared to the same period in 2021.  This increase was due to higher long-term debt balances during the nine months ended September 30, 2022, including the balance on the 4.125% Senior Notes which were issued in the fourth quarter of 2021 to finance the acquisition of DI, and higher interest rates on our borrowings under the Credit Agreement. 2021 was also impacted by a $13.9 million charge incurred to redeem our 5.625% Senior Notes during the nine months ended September 30, 2021. 

Income tax expense

Income tax expense was $142.1 million, an effective tax rate of 25.6%, for the nine months ended September 30, 2022 compared to $80.5 million, an effective tax rate of 24.7%, for the comparable period in 2021. The tax rate for the nine months ended September 30, 2022 was higher due to permanent items including share-based compensation.

Cash Flows and Liquidity

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

	Nine Months Ended September 30,
	2022		2021
Changes in cash and cash equivalents:
Net cash provided by operating activities	$	335,630	$	309,505
Net cash used in investing activities		(73,667)		(247,050)
Net cash used in financing activities		(240,383)		(64,556)
Impact of exchange rate changes on cash		(1,975)		-
Net increase (decrease) in cash and cash equivalents	$	19,605	$	(2,101)

Net cash flows provided by operating activities increased $26.1 million for the nine months ended September 30, 2022, as compared to the prior year period.  Net income was up $166.5 million, or 67.8%, compared with the prior year period, driven by the impact of our acquisitions, higher sales prices and sale volumes.  That increase was largely offset by the impact of higher levels of working capital, also driven by the impact of our acquisitions on accounts receivable, inventories, accounts payable and accrued liabilities.

Net cash used in investing activities was $73.7 million for the nine months ended September 30, 2022, primarily composed of $56.0 million for purchases of property and equipment, mainly vehicles, and $20.5 million for acquisitions.  Net cash used in investing activities was $247.1 million for the nine months ended September 30, 2021, primarily composed of $205.0 million for acquisitions and $42.3 million for purchases of property and equipment, primarily vehicles.

28

Net cash used in financing activities was $240.4 million for the nine months ended September 30, 2022.  During the nine months ended September 30, 2022, we used $200.0 million for the repurchase of common stock pursuant to the 2021 Repurchase Program, $29.0 million for debt repayments, and $9.7 million net activity related to exercise of share-based incentive awards and stock options.  Additionally, we borrowed and repaid $70 million on our Revolving Facility, all within the second quarter of 2022. Net cash used in financing activities was $64.6 million for the nine months ended September 30, 2021. During the nine months ended September 30, 2021, we used $35.6 million for the repurchase of common stock pursuant to the 2019 Repurchase Program, $16.3 million net payments for redemption of our 5.625% Senior Notes, issuance of our 3.625% Senior Notes, proceeds from the increase in our term loan from our Amended Credit Agreement, and payments on equipment notes, $6.5 million in debt issuance costs as a result of entering into our Amended Credit Agreement and 3.625% Senior Notes, and $5.5 million net activity related to exercise of share-based incentive awards and stock options.

We have access to liquidity through our cash from operations and available borrowing capacity under our Credit Agreement, which provides for borrowing and/or standby letter of credit issuances of up to $500 million under the revolving facility.  Additional information regarding our outstanding debt and borrowing capacity is incorporated by reference from Note 5 – Long-term Debt to our unaudited condensed consolidated financial statements contained in Part 1, Item 1 of this Quarterly Report.  

The following table summarizes our liquidity, in thousands:

	As of
	September 30,		December 31,
	2022		2021
Cash and cash equivalents (a)	$	159,384	$	139,779
Revolving facility		500,000		500,000
Less: standby letters of credit		(67,689)		(69,936)
Availability under revolving facility		432,311		430,064
Total liquidity	$	591,695	$	569,843

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

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 to fund our debt service requirements, capital expenditures and working capital needs for at least the next twelve months.

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 September 30, 2022 is incorporated by reference from Note 14 – Other Commitments and Contingencies to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report.

OUTLOOK

We believe a number of macroeconomic factors, including rising interest rates, inflation and the overall health of the economy, are impacting consumer demand for housing.  Although the decreased demand may have a possible impact in the mid-term, we remain cautiously optimistic about the long-term health of the U.S. housing market. 

With the acquisition of DI, we have diversified our mix of business and increased our penetration in the commercial and industrial end markets.  These end markets operate on a different cycle than residential housing.  Although these end markets are dealing with higher material costs, labor constraints, and are impacted by economic volatility, our bid activity and backlog remain strong.

29

OFF-BALANCE SHEET ARRANGEMENTS

We had no material off-balance sheet arrangements during the nine months ended September 30, 2022, 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, 2021, as filed with the SEC on February 22, 2022.

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 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, 2021, as filed with the SEC on February 22, 2022.

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,” “should,” “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 events outside of our control affecting the economy or our industry including, but not limited to, the duration and impact of pandemics or similar health emergencies, supply chain disruptions resulting from global events including conflicts, sanctions, or blockades, and economic events affecting affordability or the market at large including inflation and interest rates.  Our future performance may also be affected by conditions or events relating to our business including, but not limited to, 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, 2021, as filed with the SEC on February 22, 2022, 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.

30

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

On October 7, 2021, the Company entered into Amendment No. 2 to Credit Agreement. Amendment No. 2 to Credit Agreement provides for a term loan facility in an aggregate principal amount of $600.0 million, comprised of a $300.0 term loan facility and $300.0 million delayed draw term loan commitment, all of which was drawn on October 7, 2021 and a revolving facility with an aggregate borrowing capacity of $500.0 million. We also have outstanding 3.625% Senior Notes with an aggregate principal balance of $400.0 million and 4.125% Senior Notes which 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 aggregate term loan facility and revolving facility under Amendment No. 2 to 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 September 30, 2022, we had $573.8 million outstanding under our term loan facility, and the applicable interest rate as of such date was 3.52%. Based on our outstanding borrowings under Amendment No. 2 to Credit Agreement as of September 30, 2022, a 100 basis point increase in the interest rate would result in a $5.6 million increase in our annualized interest expense. There was no outstanding balance under the revolving facility as of September 30, 2022.

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 September 30, 2022.

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 September 30, 2022, 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, 2021, as filed with the SEC on February 22, 2022 which are incorporated by reference herein.

31

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 September 30, 2022, 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
July 1, 2022 - July 31, 2022	-	$	-	-	$	54,406
August 1, 2022 - August 31, 2022	158,201	$	189.39	158,201	$	24,445
September 1, 2022 - September 30, 2022 (a)	111,343	$	179.97	253,694	$	4,406
Total	269,544	$	185.50	411,895

______________

(a) In the one month period ended September 30, 2022, the number of shares purchased as part of publicly announced plans or programs includes 142,351 shares we received as final settlement of our 2022 ASR Agreement.  For more information, see Note 11 – Share Repurchase Program to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report, which note is incorporated in this Item 2 by reference.  

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.

32

INDEX TO EXHIBITS

		Incorporated by Reference			Filed
Exhibit No.	Exhibit Title	Form	Exhibit	Filing Date	Herewith
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

33

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/ Robert Kuhns
Name:	Robert Kuhns
Title:	Vice President and Chief Financial Officer
	(Principal Financial Officer)

November 1, 2022

34

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: November 1, 2022	/s/ Robert Buck
	Robert Buck
	Chief Executive Officer and Director
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certifications

I, Robert Kuhns, 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: November 1, 2022	/s/ Robert Kuhns
	Robert Kuhns
	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 September 30, 2022 (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: November 1, 2022	/s/ Robert Buck
	Robert Buck
	Chief Executive Officer and Director
	(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION OF PERIOD REPORT

I, Robert Kuhns, 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 September 30, 2022 (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: November 1, 2022	/s/ Robert Kuhns
	Robert Kuhns
	Vice President and Chief Financial Officer
	(Principal Financial Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2022	Oct. 25, 2022
Cover page.
Entity Registrant Name	TopBuild Corp
Entity Central Index Key	0001633931
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2022
Document Transition Report	false
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
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		31,972,332
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q3
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 159,384	$ 139,779
Receivables, net of an allowance for credit losses of $14,105 at September 30, 2022, and $8,798 at December 31, 2021	815,633	668,419
Inventories, net	447,100	352,801
Prepaid expenses and other current assets	27,416	26,692
Total current assets	1,449,533	1,187,691
Right of use assets	191,731	177,177
Property and equipment, net	248,623	244,574
Goodwill	1,966,234	1,949,763
Other intangible assets, net	631,005	684,209
Other assets	18,991	15,116
Total assets	4,506,117	4,258,530
Current liabilities:
Accounts payable	510,163	461,917
Current portion of long-term debt	37,367	38,640
Accrued liabilities	181,455	175,891
Short-term operating lease liabilities	57,268	54,591
Short-term finance lease liabilities	2,328	2,387
Total current liabilities	788,581	733,426
Long-term debt	1,428,935	1,454,483
Deferred tax liabilities, net	244,608	248,243
Long-term portion of insurance reserves	61,243	51,875
Long-term operating lease liabilities	138,923	125,339
Long-term finance lease liabilities	6,170	7,770
Other liabilities	3,218	960
Total liabilities	2,671,678	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; 39,325,465 shares issued and 31,974,006 outstanding at September 30, 2022, and 39,165,024 shares issued and 32,927,185 outstanding at December 31, 2021	393	391
Treasury stock, 7,351,459 shares at September 30, 2022, and 6,237,839 shares at December 31, 2021, at cost	(642,746)	(431,030)
Additional paid-in capital	884,729	873,031
Retained earnings	1,612,830	1,200,676
Accumulated other comprehensive loss	(20,767)	(6,634)
Total equity	1,834,439	1,636,434
Total liabilities and equity	$ 4,506,117	$ 4,258,530

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
CONDENSED CONSOLIDATED BALANCE SHEETS
Allowance for doubtful accounts	$ 14,105	$ 8,798
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	39,325,465	39,165,024
Common stock, shares outstanding	31,974,006	32,927,185
Treasury stock, shares at cost	7,351,459	6,237,839

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales	$ 1,300,998	$ 845,757	$ 3,744,201	$ 2,422,810
Cost of sales	905,250	595,466	2,633,155	1,731,581
Gross profit	395,748	250,291	1,111,046	691,229
Selling, general, and administrative expense	172,874	116,485	516,997	333,252
Operating profit	222,874	133,806	594,049	357,977
Other income (expense), net:
Interest expense	(14,561)	(5,503)	(39,936)	(18,210)
Loss on extinguishment of debt				(13,862)
Other, net	(303)	66	103	210
Other expense, net	(14,864)	(5,437)	(39,833)	(31,862)
Income before income taxes	208,010	128,369	554,216	326,115
Income tax expense	(54,264)	(32,934)	(142,060)	(80,457)
Net income	$ 153,746	$ 95,435	$ 412,156	$ 245,658
Net income per common share:
Basic	$ 4.79	$ 2.91	$ 12.72	$ 7.49
Diluted	$ 4.76	$ 2.88	$ 12.63	$ 7.41
Weighted average shares outstanding:
Basic	32,076,285	32,763,311	32,404,275	32,818,145
Diluted	32,279,820	33,088,680	32,643,161	33,155,995

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 153,746	$ 95,435	$ 412,156	$ 245,658
Other comprehensive loss:
Foreign currency translation adjustment	(15,158)		(14,133)
Comprehensive income	$ 138,588	$ 95,435	$ 398,023	$ 245,658

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Cash Flows Provided by (Used in) Operating Activities:
Net income	$ 412,156	$ 245,658
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	93,051	51,005
Share-based compensation	9,673	8,375
Loss on extinguishment of debt		13,862
Loss on sale of property and equipment	76	1,410
Amortization of debt issuance costs	2,147	1,352
Provision for bad debt expense	8,837	5,215
Loss from inventory obsolescence	5,127	1,667
Change in certain assets and liabilities
Receivables, net	(152,578)	(62,257)
Inventories, net	(101,148)	(30,115)
Prepaid expenses and other current assets	(807)	(2,984)
Accounts payable	49,079	47,907
Accrued liabilities	3,469	30,397
Other, net	6,548	(1,987)
Net cash provided by operating activities	335,630	309,505
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment	(56,044)	(42,320)
Acquisition of businesses, net of cash acquired	(20,500)	(205,028)
Proceeds from sale of property and equipment	2,877	298
Net cash used in investing activities	(73,667)	(247,050)
Cash Flows Provided by (Used in) Financing Activities:
Proceeds from issuance of long-term debt		411,250
Repayment of long-term debt	(28,968)	(427,563)
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	(11,719)	(11,511)
Exercise of stock options	2,028	5,952
Repurchase of shares of common stock	(200,050)	(35,556)
Payment of contingent consideration	(1,674)	(628)
Net cash used in financing activities	(240,383)	(64,556)
Cash and Cash Equivalents
Impact of exchange rate changes on cash	(1,975)
Net increase (decrease) in cash and cash equivalents	19,605	(2,101)
Cash and cash equivalents- Beginning of period	139,779	330,007
Cash and cash equivalents- End of period	159,384	327,906
Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	80,186	51,190
Accruals for property and equipment	$ 395	$ 580

XML

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($) $ in Thousands	Common Stock	Treasury Stock at Cost	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive (Loss) Income	Total
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		(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
Balance at Dec. 31, 2020	389	(386,669)	858,414	876,660		1,348,794
Increase (Decrease) in Stockholders' Equity
Net income						245,658
Balance at Sep. 30, 2021	391	(422,225)	861,228	1,122,317		1,561,711
Balance at Mar. 31, 2021	390	(396,525)	855,996	936,502		1,396,363
Increase (Decrease) in Stockholders' Equity
Net income				90,380		90,380
Share-based compensation			2,266			2,266
Repurchase of shares		(14,182)				(14,182)
Shares withheld to pay taxes on employees' equity awards			(11)			(11)
Balance at Jun. 30, 2021	390	(410,707)	858,251	1,026,882		1,474,816
Increase (Decrease) in Stockholders' Equity
Net income				95,435		95,435
Share-based compensation			2,998			2,998
Issuance of restricted share awards under long-term equity incentive plan	1		(1)
Repurchase of shares		(11,518)				(11,518)
Shares withheld to pay taxes on employees' equity awards			(20)			(20)
Balance at Sep. 30, 2021	391	(422,225)	861,228	1,122,317		1,561,711
Balance at Dec. 31, 2021	391	(431,030)	873,031	1,200,676	$ (6,634)	1,636,434
Increase (Decrease) in Stockholders' Equity
Net income				114,711		114,711
Share-based compensation			3,727			3,727
Issuance of restricted share awards under long-term equity incentive plan	2		(2)
Repurchase of shares		(50,000)				(50,000)
Shares withheld to pay taxes on employees' equity awards		(11,658)				(11,658)
Shares issued upon exercise of stock options			808			808
Other comprehensive income, net of tax					3,218	3,218
Balance at Mar. 31, 2022	393	(492,688)	877,564	1,315,387	(3,416)	1,697,240
Balance at Dec. 31, 2021	391	(431,030)	873,031	1,200,676	(6,634)	1,636,434
Increase (Decrease) in Stockholders' Equity
Net income						412,156
Balance at Sep. 30, 2022	393	(642,746)	884,729	1,612,830	(20,767)	1,834,439
Balance at Mar. 31, 2022	393	(492,688)	877,564	1,315,387	(3,416)	1,697,240
Increase (Decrease) in Stockholders' Equity
Net income				143,697		143,697
Share-based compensation			3,334			3,334
Repurchase of shares pursuant to ASR Agreement		(80,050)	(20,000)			(100,050)
Shares withheld to pay taxes on employees' equity awards		(9)				(9)
Shares issued upon exercise of stock options			644			644
Other comprehensive income, net of tax					(2,193)	(2,193)
Balance at Jun. 30, 2022	393	(572,747)	861,542	1,459,084	(5,609)	1,742,663
Increase (Decrease) in Stockholders' Equity
Net income				153,746		153,746
Share-based compensation			2,611			2,611
Repurchase of shares pursuant to the settlement of ASR Agreement		(20,000)	20,000
Repurchase of shares		(49,999)				(49,999)
Shares issued upon exercise of stock options			576			576
Other comprehensive income, net of tax					(15,158)	(15,158)
Balance at Sep. 30, 2022	$ 393	$ (642,746)	$ 884,729	$ 1,612,830	$ (20,767)	$ 1,834,439

XML

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Parenthetical) - $ / shares	3 Months Ended
	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01	$ 0.01	$ 0.01	$ 0.01	$ 0.01
Issuance of restricted share awards under long-term equity incentive plan (in shares)			52,940	897		30,284
Repurchase of shares pursuant to the settlement of ASR Agreement (in shares)	142,351
Repurchase of shares (in shares)	269,544		238,154	60,105	73,747	49,284
Repurchase of shares of common stock pursuant to Accelerated Share Repurchase Program (in shares)		409,312
Number of shares withheld to pay taxes on employees' equity awards (in shares)		51	53,073	100	50	43,290
Shares issued upon exercise of stock options (in shares)	7,111	5,835	12,269			51,915

XML

Basis of Presentation

9 Months Ended

Sep. 30, 2022

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 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 September 30, 2022, our results of operations and comprehensive income for the three and nine months ended September 30, 2022 and 2021, and our cash flows for the nine months ended September 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. We made the material acquisition of DI in October 2021 and it is therefore not included in the comparative periods of three and nine months ended September 30, 2021.

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.

XML

Accounting Policies

9 Months Ended

Sep. 30, 2022

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 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.

XML

Revenue Recognition

9 Months Ended

Sep. 30, 2022

Revenue Recognition

Revenue Recognition

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 September 30,
	2022								2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Residential	$	662,005	$	245,549	$	(54,533)	$	853,021	$	501,494	$	206,951	$	(36,018)	$	672,427
Commercial		121,051		228,433		(11,068)		338,416		111,406		69,447		(7,523)		173,330
Industrial		-		109,561		-		109,561		-		-		-		-
Net sales	$	783,056	$	583,543	$	(65,601)	$	1,300,998	$	612,900	$	276,398	$	(43,541)	$	845,757

	Nine Months Ended September 30,
	2022								2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Residential	$	1,859,386	$	729,787	$	(147,962)	$	2,441,211	$	1,405,837	$	602,059	$	(106,076)	$	1,901,820
Commercial		349,331		677,775		(31,750)		995,356		345,441		199,304		(23,755)		520,990
Industrial		-		307,634		-		307,634		-		-		-		-
Net sales	$	2,208,717	$	1,715,196	$	(179,712)	$	3,744,201	$	1,751,278	$	801,363	$	(129,831)	$	2,422,810

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

	Three Months Ended September 30, 2022								Three Months Ended September 30, 2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Insulation and accessories	$	619,613	$	516,214	$	(56,368)	$	1,079,459	$	487,798	$	219,441	$	(36,406)	$	670,833
Glass and windows		60,375		-		-		60,375		46,096		-		-		46,096
Gutters		28,729		48,972		(8,110)		69,591		23,057		40,555		(6,422)		57,190
All other		74,339		18,357		(1,123)		91,573		55,949		16,402		(713)		71,638
Net sales	$	783,056	$	583,543	$	(65,601)	$	1,300,998	$	612,900	$	276,398	$	(43,541)	$	845,757

	Nine Months Ended September 30, 2022								Nine Months Ended September 30, 2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Insulation and accessories	$	1,746,054	$	1,514,481	$	(153,520)	$	3,107,015	$	1,383,472	$	651,192	$	(108,125)	$	1,926,539
Glass and windows		168,692		-		-		168,692		136,309		-		-		136,309
Gutters		78,926		146,481		(23,207)		202,200		64,831		103,244		(17,992)		150,083
All other		215,045		54,234		(2,985)		266,294		166,666		46,927		(3,714)		209,879
Net sales	$	2,208,717	$	1,715,196	$	(179,712)	$	3,744,201	$	1,751,278	$	801,363	$	(129,831)	$	2,422,810

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

	Included in Line Item on	As of
	Condensed	September 30,		December 31,
	Balance Sheets	2022		2021
Contract Assets:
Receivables, unbilled	Receivables, net	$	83,232	$	71,401
Contract Liabilities:
Deferred revenue	Accrued liabilities	$	21,991	$	14,310

The aggregate amount remaining on uncompleted performance obligations was $425.5 million as of September 30, 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 trade receivables, which is a component of Receivables, net on our condensed consolidated balance sheets and were $59.8 million and $57.6 million as of September 30, 2022 and December 31, 2021, respectively.

XML

Goodwill and Other Intangibles

9 Months Ended

Sep. 30, 2022

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 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 and there were no indicators of impairment for the nine months ended September 30, 2022.

Changes in the carrying amount of goodwill for nine months ended September 30, 2022, by segment, were as follows, in thousands:

					Fx				Accumulated
	Gross Goodwill				Translation		Gross Goodwill		Impairment		Net Goodwill
	December 31, 2021		Additions		Adjustment		September 30, 2022		Losses		September 30, 2022
Goodwill, by segment:
Installation	$	1,818,872	$	8,107		-	$	1,826,979	$	(762,021)	$	1,064,958
Specialty Distribution		892,912		10,585		(2,221)		901,276		-		901,276
Total goodwill	$	2,711,784	$	18,692	$	(2,221)	$	2,728,255	$	(762,021)	$	1,966,234

See Note 12 – 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
	September 30,		December 31,
	2022		2021
Gross definite-lived intangible assets	$	781,374	$	783,843
Accumulated amortization		(150,369)		(99,634)
Net definite-lived intangible assets	$	631,005	$	684,209

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Amortization expense	$	16,970	$	7,082	$	50,809	$	20,424

XML

Long-Term Debt

9 Months Ended

Sep. 30, 2022

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
	September 30,		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		573,750		596,250
Equipment notes		10,625		17,085
Unamortized debt issuance costs		(18,073)		(20,212)
Total debt, net of unamortized debt issuance costs		1,466,302		1,493,123
Less: current portion of long-term debt		37,367		38,640
Total long-term debt	$	1,428,935	$	1,454,483

The following table sets forth our remaining principal payments for our outstanding debt balances as of September 30, 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		7,500		33,750		45,000		48,750		438,750		-		573,750
Equipment notes		2,191		6,325		2,109		-		-		-		10,625
Total	$	9,691	$	40,075	$	47,109	$	48,750	$	438,750	$	900,000	$	1,484,375

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.

Amendment No. 1 to Credit Agreement extended the maturity date 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%. Additional provisions were made for the eventual replacement of LIBOR with another alternate benchmark rate.

On October 7, 2021, the Company entered into Amendment No. 2 to Credit Agreement. Amendment No. 2 to Credit Agreement provides for a term loan facility in an aggregate principal amount of $600.0 million, comprised of a $300.0 million term loan facility and a $300.0 million delayed draw term loan commitment, all of which was drawn on October 7, 2021, and a revolving facility with an aggregate borrowing capacity of $500.0 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. 2 to Credit Agreement was extended from March 2026 to October 2026. Additional provisions were also made for the eventual replacement of LIBOR with an alternative benchmark rate.

The following table outlines the key terms of our Amendment No. 2 to Credit Agreement (dollars in thousands):

Senior secured term loan facility	$	300,000
Additional delayed draw term loan	$	300,000
Additional term loan and/or revolver capacity available under incremental facility (a)	$	300,000
Revolving facility	$	500,000
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 September 30, 2022		3.52	%
Scheduled maturity date		10/7/2026

(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 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%.

Amendment No. 2 to Credit Agreement contemplates future amendment by the Company and the agent to provide for the replacement of LIBOR with an alternative 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 Amendment No. 2 to 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
	September 30,		December 31,
	2022		2021
Revolving facility	$	500,000	$	500,000
Less: standby letters of credit		(67,689)		(69,936)
Availability under revolving facility	$	432,311	$	430,064

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.

3.625% Senior Notes

On March 15, 2021, the Company completed a private offering of $400.0 million aggregate principal amount of 3.625% Senior Notes due 2029. The Company used the proceeds from the issuance of the 3.625% Senior Notes, together with cash on hand, to redeem 100% of its $400.0 million aggregate principal amount of 5.625% Senior Notes due 2026.   The 3.625% 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 began September 15, 2021. The 3.625% 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 3.625% 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 3.625% Senior 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 3.625% Senior 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 3.625% Senior 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 3.625% Senior Notes originally issued remains outstanding.

4.125% Senior Notes

On October 14, 2021, the Company completed a private offering of $500.0 million aggregate principal amount of 4.125% Senior Notes due 2032. The 4.125% Senior Notes are senior unsecured obligations and bear interest at 4.125% per year, payable semiannually in arrears on February 15 and August 15, beginning on August 15, 2022. The 4.125% Senior Notes mature on February 15, 2032, unless redeemed early or repurchased. If we undergo a change in control, we must make an offer to repurchase all of the 4.125% 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 4.125% Senior Notes, in whole or in part, at any time on or after October 15, 2026 at the redemption prices specified in the notes plus accrued and unpaid interest if redeemed during the 12 month period commencing on October 15 of the years set for: 2026 – 102.063%, 2027 – 101.375%, 2028 – 100.688%, 2029 and thereafter – 100.000%. The Company may also redeem a make-whole redemption of the 4.125% Senior Notes at any time prior to October 15, 2026 at the treasury rate plus 50 bps. Additionally, the Company may redeem up to 40% of the aggregate principal amount of the 4.125% Senior Notes prior to October 15, 2024 with the net cash proceeds of certain sales of its capital stock at 104.125% 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 September 30, 2022, the company has outstanding $10.6 million of equipment notes for the purpose of financing the purchase of vehicles and equipment. No equipment notes were issued during the nine months ended September 30, 2022. 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 indentures governing our 3.625% Senior Notes and our 4.125% Senior Notes (together, our “Senior Notes”) contain 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 indentures provide 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 each of our Senior Notes then outstanding may declare the principal of, premium, if any, and accrued interest on the Senior Notes subject to such declaration immediately due and payable. The Senior Notes and related guarantees have not been registered under the Securities Act of 1933, and we are not required to register either the Senior Notes or the guarantees in the future.

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

The 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 September 30, 2022
Maximum Net Leverage Ratio	3.50:1.00
Minimum Interest Coverage Ratio	3.00:1.00
Compliance as of period end	In Compliance

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2022

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 12 – 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 Amendment No.2 to 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 3.625% Senior Notes and our 4.125% Senior Notes close to September 30, 2022 (Level 1 fair value measurement), we estimate the fair value of each in the table below:  

	As of September 30, 2022
		Fair Value		Gross Carrying Value
3.625% Senior Notes	$	321,000	$	400,000
4.125% Senior Notes	$	391,250	$	500,000

XML

Segment Information

9 Months Ended

Sep. 30, 2022

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 September 30,
	2022		2021		2022		2021
	Net Sales				Operating Profit (b)
Our operations by segment were (a):
Installation	$	783,056	$	612,900	$	154,236	$	105,046
Specialty Distribution		583,543		276,398		88,364		47,162
Intercompany eliminations		(65,601)		(43,541)		(10,806)		(7,590)
Total	$	1,300,998	$	845,757		231,794		144,618
General corporate expense, net (c)						(8,920)		(10,812)
Operating profit, as reported						222,874		133,806
Other expense, net						(14,864)		(5,437)
Income before income taxes					$	208,010	$	128,369

	Nine Months Ended September 30,
	2022		2021		2022		2021
	Net Sales				Operating Profit (b)
Our operations by segment were (a):
Installation	$	2,208,717	$	1,751,278	$	406,835	$	277,748
Specialty Distribution		1,715,196		801,363		245,534		125,403
Intercompany eliminations		(179,712)		(129,831)		(29,949)		(21,050)
Total	$	3,744,201	$	2,422,810		622,420		382,101
General corporate expense, net (c)						(28,371)		(24,124)
Operating profit, as reported						594,049		357,977
Other expense, net						(39,833)		(31,862)
Income before income taxes					$	554,216	$	326,115

(a) All of our operations are located primarily in the U.S and to a lesser extent Canada.

(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.

XML

Income Taxes

9 Months Ended

Sep. 30, 2022

Income Taxes

Income Taxes

8.  INCOME TAXES    

Our effective tax rates were 26.1 percent and 25.6 percent for the three and nine months ended September 30, 2022, respectively. The effective tax rates for the three and nine months ended September 30, 2021 were 25.7 percent and 24.7 percent, respectively.  The higher tax rate for the three months ended September 30, 2022, compared to the three months ended September 30, 2021 was due to state tax adjustments and miscellaneous items, partially offset by a decrease in tax expense related to share-based compensation.

A tax benefit of $1.5 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 nine months ended September 30, 2022.  

XML

Net Income Per Share

9 Months Ended

Sep. 30, 2022

Net Income Per Share

Net Income Per Share

9. NET 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income (in thousands)	$	153,746	$	95,435	$	412,156	$	245,658
Weighted average number of common shares outstanding - basic		32,076,285		32,763,311		32,404,275		32,818,145
Dilutive effect of common stock equivalents:
RSAs with service-based conditions		17,175		15,058		14,808		22,044
RSAs with market-based conditions		44,001		115,105		65,677		126,769
RSAs with performance-based conditions		40,995		73,597		48,232		60,595
Stock options		101,364		121,609		110,169		128,442
Weighted average number of common shares outstanding - diluted		32,279,820		33,088,680		32,643,161		33,155,995
Basic net income per common share	$	4.79	$	2.91	$	12.72	$	7.49
Diluted net income per common share	$	4.76	$	2.88	$	12.63	$	7.41

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Anti-dilutive common stock equivalents:
RSAs with service-based conditions		15,222		176		14,782		1,607
RSAs with market-based conditions		134		11,065		200		9,235
RSAs with performance-based conditions		14,611		-		7,506		-
Stock options		22,280		24,066		20,581		19,966
Total anti-dilutive common stock equivalents		52,247		35,307		43,069		30,808

XML

Share-Based Compensation

9 Months Ended

Sep. 30, 2022

Share-Based Compensation.

Share-Based Compensation

10. 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 September 30, 2022, we had 1.9 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Share-based compensation expense	$	2,611	$	2,998	$	9,673	$	8,375
Income tax (expense) benefit	$	(56)	$	(130)	$	1,517	$	3,190

The following table presents a summary of our share-based compensation activity for nine months ended September 30, 2022 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, 2021	244.4	$	119.41	210.5	$	32.35	$	87.30	$	39,692.4
Granted	105.8	$	177.36	—	$	—	$	—		—
Converted/Exercised	(168.1)	$	75.65	(25.2)	$	27.92	$	80.40	$	3,183.0
Forfeited/Expired	(10.6)	$	223.63	(3.1)	$	68.81	$	174.76		—
Balance September 30, 2022	171.5	$	194.71	182.2	$	32.25	$	86.79	$	15,317.8
Exercisable September 30, 2022 (a)				148.4	$	25.71	$	69.94	$	14,443.4

(a) The weighted average remaining contractual term for vested stock options is approximately 5.5 years.

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

	As of September 30, 2022
	Unrecognized Compensation Expense on Unvested Awards		Weighted Average Remaining Compensation Expense Period
RSAs	$	15,203		1.0
Stock options		677		0.7
Total unrecognized compensation expense related to unvested awards	$	15,880

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 17, 2020	$	2,526	$	0	$	632	$	2,526	$	5,052
February 16, 2021	$	2,374	$	0	$	594	$	2,374	$	4,748
February 15, 2022	$	3,411	$	0	$	853	$	3,411	$	6,822

During the first quarter of 2022, RSAs with performance-based conditions that were granted on February 18, 2019 vested based on cumulative three-year achievement of 200%. Total compensation expense recognized over the three-year performance period, net of forfeitures, was $4.4 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 2022 and 2021:

	2022			2021
Measurement period (years)		2.87			2.87
Risk free interest rate		1.76	%		0.22	%
Dividend yield		0.00	%		0.00	%
Estimated fair value of market-based RSAs at grant date	$	298.20		$	298.66

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. There were no stock options issued in the first nine months of 2022.

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

XML

Share Repurchase Program

9 Months Ended

Sep. 30, 2022

Share Repurchase Program

Share Repurchase Program

11. SHARE REPURCHASE PROGRAM

On July 25, 2022, our Board authorized the 2022 Repurchase Program, pursuant to which the Company may purchase up to $200 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 2022 Repurchase Program does not obligate the Company to purchase any shares and has no expiration date.  Authorization for the 2022 Repurchase Program may be terminated, increased, or decreased by the Board at its discretion at any time.

On July 26, 2021, our Board authorized the 2021 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 2021 Repurchase Program does not obligate the Company to purchase any shares and has no expiration date.  Authorization for the 2021 Repurchase Program may be terminated, increased, or decreased by the Board at its discretion at any time.  As of September 30, 2022, the Company has $4.4 million remaining under the 2021 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 Repurchase Program does not obligate the Company to purchase any shares and has no expiration date.  Authorization for the 2019 Repurchase Program may be terminated, increased, or decreased by the Board at its discretion at any time.  As of September 30, 2022 the Company has utilized all amounts authorized under the 2019 Repurchase Program.

On May 5, 2022, the Company entered into the 2022 ASR Agreement under the 2021 Repurchase Program.  We paid $100 million in exchange for an initial delivery of 409,312 shares of our common stock on May 9, 2022, representing an estimated 80% of the total number of shares we expected to receive under the 2022 ASR Agreement at the time we entered into the agreement.  During the quarter ended September 30, 2022, we received an additional 142,351 shares of our common stock representing the final settlement of the 2022 ASR Agreement. We purchased a total of 551,663 shares of our common stock under the 2022 ASR Agreement at an average price per share of $181.27.

The following table sets forth our share repurchases under the Repurchase Programs during the periods presented. These repurchases closed out the 2019 Share Repurchase Program with the balance repurchased under the 2021 Share Repurchase Program.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Number of shares repurchased		411,895 (a)		60,105		1,059,361		183,136
Share repurchase cost (in thousands)	$	50,000	$	11,518	$	200,050	$	35,556

(a) The three months ended September 30, 2022 includes 142,351 shares we received as a final settlement of our 2022 ASR Agreement.

XML

Business Combinations

9 Months Ended

Sep. 30, 2022

Business Combinations

Business Combinations

12. BUSINESS COMBINATIONS

Acquiring businesses is a key 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.”  We incurred no acquisition related costs for the three months ended September 30, 2022 and incurred $2.7 million of acquisition related costs in the three months ended September 30, 2021. Acquisition related costs for the nine months ended September 30, 2022 and 2021 were $1.3 million and $3.4 million, respectively. Acquisition related costs are included in selling, general, and administrative expense in our condensed consolidated statements of operations.  On October 15, 2021, we acquired DI for $1.0 billion and its results of operations and financial position are aggregated within our Specialty Distribution segment.

The table below provides a summary as of September 30, 2022 for the businesses acquired during the nine months ended September 30, 2022:

2022 Acquisitions	Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired
Southwest		1/12/2022	$	300	$	—	$	300	$	215
Billings		2/3/2022		7,005		—		7,005		3,313
Green Energy		3/31/2022		1,200		—		1,200		565
Assured		4/7/2022		4,719		500		5,219		3,317
CV		7/21/2022		1,758		—		1,758		946
Total			$	14,982	$	500	$	15,482	$	8,356

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. To that note, during the nine months ended September 30, 2022, DI’s goodwill increased by $10.7 million primarily as a result of the finalization of purchase price adjustments to acquisition date sales and use tax liabilities, net working capital adjustments, property, plant and equipment, and true-ups to supplier rebate receivables.  

The table below represents the final fair value of DI’s assets and liabilities assumed as of September 30, 2022:

Finalized purchase price fair values:
Accounts receivable		145,042
Inventories		133,004
Prepaid and other assets		8,820
Property and equipment		37,562
ROU asset (operating)		66,698
Intangible assets		458,000
Goodwill		450,716
Accounts payable		(68,367)
Lease liabilities		(76,066)
Deferred tax liabilities		(83,590)
All other liabilities		(35,854)
Net assets acquired	$	1,035,965

The table below provides a summary as of September 30, 2022 for the businesses acquired during the nine months ended September 30, 2021:

2021 Acquisitions	Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired
LCR		1/20/2021	$	53,700		—		53,700		19,500
ABS		4/5/2021		124,348		—		124,348		54,229
All others		Various		26,977		1,200		28,177		12,001
Total			$	205,025	$	1,200	$	206,225	$	85,730

Primarily all of the $8.4 million and $85.7 million of goodwill recorded from acquisitions completed in the nine months ended September 30, 2022 and 2021, respectively, is expected to be deductible for income tax purposes.

XML

Accrued Liabilities

9 Months Ended

Sep. 30, 2022

Accrued Liabilities.

Accrued Liabilities

13.  ACCRUED LIABILITIES

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

	As of
	September 30, 2022		December 31, 2021
Accrued liabilities:
Salaries, wages, and commissions	$	72,367	$	71,664
Insurance liabilities		29,435		24,425
Customer rebates		15,659		15,625
Deferred revenue		21,991		14,311
Employee tax-related liabilities		10,654		12,545
Sales and property taxes		14,552		9,364
Interest payable on long-term debt		3,366		8,798
Other		13,431		19,159
Total accrued liabilities	$	181,455	$	175,891

See Note 3 – Revenue Recognition for discussion of our deferred revenue balances.

XML

Other Commitments and Contingencies

9 Months Ended

Sep. 30, 2022

Other Commitments and Contingencies

Other Commitments and Contingencies

14.  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, claims against our builder customers for issues relating to our workmanship.  We generally exclude from our contracts with builder customers indemnity relating to product quality and warranty claims, as we pass such claims directly to the manufacturers of the products we install or distribute.  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
	September 30, 2022		December 31, 2021
Outstanding bonds:
Performance bonds	$	153,358	$	128,173
Licensing, insurance, and other bonds		24,346		21,792
Total bonds	$	177,704	$	149,965

XML

Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2022

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 periods.  Actual results could differ materially from these estimates.  All significant intercompany transactions between TopBuild entities have been eliminated.

Recently Adopted and Issued Accounting Pronouncements

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.

XML

Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2022

Accounting Policies

Summary of additional ASUs adopted in fiscal year

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

XML

Revenue Recognition (Tables)

9 Months Ended

Sep. 30, 2022

Revenue Recognition

Schedule of revenues disaggregated by market and product

	Three Months Ended September 30,
	2022								2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Residential	$	662,005	$	245,549	$	(54,533)	$	853,021	$	501,494	$	206,951	$	(36,018)	$	672,427
Commercial		121,051		228,433		(11,068)		338,416		111,406		69,447		(7,523)		173,330
Industrial		-		109,561		-		109,561		-		-		-		-
Net sales	$	783,056	$	583,543	$	(65,601)	$	1,300,998	$	612,900	$	276,398	$	(43,541)	$	845,757

	Nine Months Ended September 30,
	2022								2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Residential	$	1,859,386	$	729,787	$	(147,962)	$	2,441,211	$	1,405,837	$	602,059	$	(106,076)	$	1,901,820
Commercial		349,331		677,775		(31,750)		995,356		345,441		199,304		(23,755)		520,990
Industrial		-		307,634		-		307,634		-		-		-		-
Net sales	$	2,208,717	$	1,715,196	$	(179,712)	$	3,744,201	$	1,751,278	$	801,363	$	(129,831)	$	2,422,810

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

	Three Months Ended September 30, 2022								Three Months Ended September 30, 2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Insulation and accessories	$	619,613	$	516,214	$	(56,368)	$	1,079,459	$	487,798	$	219,441	$	(36,406)	$	670,833
Glass and windows		60,375		-		-		60,375		46,096		-		-		46,096
Gutters		28,729		48,972		(8,110)		69,591		23,057		40,555		(6,422)		57,190
All other		74,339		18,357		(1,123)		91,573		55,949		16,402		(713)		71,638
Net sales	$	783,056	$	583,543	$	(65,601)	$	1,300,998	$	612,900	$	276,398	$	(43,541)	$	845,757

	Nine Months Ended September 30, 2022								Nine Months Ended September 30, 2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Insulation and accessories	$	1,746,054	$	1,514,481	$	(153,520)	$	3,107,015	$	1,383,472	$	651,192	$	(108,125)	$	1,926,539
Glass and windows		168,692		-		-		168,692		136,309		-		-		136,309
Gutters		78,926		146,481		(23,207)		202,200		64,831		103,244		(17,992)		150,083
All other		215,045		54,234		(2,985)		266,294		166,666		46,927		(3,714)		209,879
Net sales	$	2,208,717	$	1,715,196	$	(179,712)	$	3,744,201	$	1,751,278	$	801,363	$	(129,831)	$	2,422,810

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	September 30,		December 31,
	Balance Sheets	2022		2021
Contract Assets:
Receivables, unbilled	Receivables, net	$	83,232	$	71,401
Contract Liabilities:
Deferred revenue	Accrued liabilities	$	21,991	$	14,310

XML

Goodwill and Other Intangibles (Tables)

9 Months Ended

Sep. 30, 2022

Goodwill and Other Intangibles

Changes in the carrying amount of goodwill by segment

Changes in the carrying amount of goodwill for nine months ended September 30, 2022, by segment, were as follows, in thousands:

					Fx				Accumulated
	Gross Goodwill				Translation		Gross Goodwill		Impairment		Net Goodwill
	December 31, 2021		Additions		Adjustment		September 30, 2022		Losses		September 30, 2022
Goodwill, by segment:
Installation	$	1,818,872	$	8,107		-	$	1,826,979	$	(762,021)	$	1,064,958
Specialty Distribution		892,912		10,585		(2,221)		901,276		-		901,276
Total goodwill	$	2,711,784	$	18,692	$	(2,221)	$	2,728,255	$	(762,021)	$	1,966,234

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
	September 30,		December 31,
	2022		2021
Gross definite-lived intangible assets	$	781,374	$	783,843
Accumulated amortization		(150,369)		(99,634)
Net definite-lived intangible assets	$	631,005	$	684,209

Schedule of amortization expense

	As of
	September 30,		December 31,
	2022		2021
Gross definite-lived intangible assets	$	781,374	$	783,843
Accumulated amortization		(150,369)		(99,634)
Net definite-lived intangible assets	$	631,005	$	684,209

XML

Long-Term Debt (Tables)

9 Months Ended

Sep. 30, 2022

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
	September 30,		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		573,750		596,250
Equipment notes		10,625		17,085
Unamortized debt issuance costs		(18,073)		(20,212)
Total debt, net of unamortized debt issuance costs		1,466,302		1,493,123
Less: current portion of long-term debt		37,367		38,640
Total long-term debt	$	1,428,935	$	1,454,483

Schedule of remaining principal payments of debt

The following table sets forth our remaining principal payments for our outstanding debt balances as of September 30, 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		7,500		33,750		45,000		48,750		438,750		-		573,750
Equipment notes		2,191		6,325		2,109		-		-		-		10,625
Total	$	9,691	$	40,075	$	47,109	$	48,750	$	438,750	$	900,000	$	1,484,375

Summary of key terms of Amended Credit Agreement

The following table outlines the key terms of our Amendment No. 2 to Credit Agreement (dollars in thousands):

Senior secured term loan facility	$	300,000
Additional delayed draw term loan	$	300,000
Additional term loan and/or revolver capacity available under incremental facility (a)	$	300,000
Revolving facility	$	500,000
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 September 30, 2022		3.52	%
Scheduled maturity date		10/7/2026

(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
	September 30,		December 31,
	2022		2021
Revolving facility	$	500,000	$	500,000
Less: standby letters of credit		(67,689)		(69,936)
Availability under revolving facility	$	432,311	$	430,064

Schedule of the key financial covenants

	As of September 30, 2022
Maximum Net Leverage Ratio	3.50:1.00
Minimum Interest Coverage Ratio	3.00:1.00
Compliance as of period end	In Compliance

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2022

Fair Value Measurements

Schedule of fair value of liabilities

	As of September 30, 2022
		Fair Value		Gross Carrying Value
3.625% Senior Notes	$	321,000	$	400,000
4.125% Senior Notes	$	391,250	$	500,000

XML

Segment Information (Tables)

9 Months Ended

Sep. 30, 2022

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 September 30,
	2022		2021		2022		2021
	Net Sales				Operating Profit (b)
Our operations by segment were (a):
Installation	$	783,056	$	612,900	$	154,236	$	105,046
Specialty Distribution		583,543		276,398		88,364		47,162
Intercompany eliminations		(65,601)		(43,541)		(10,806)		(7,590)
Total	$	1,300,998	$	845,757		231,794		144,618
General corporate expense, net (c)						(8,920)		(10,812)
Operating profit, as reported						222,874		133,806
Other expense, net						(14,864)		(5,437)
Income before income taxes					$	208,010	$	128,369

	Nine Months Ended September 30,
	2022		2021		2022		2021
	Net Sales				Operating Profit (b)
Our operations by segment were (a):
Installation	$	2,208,717	$	1,751,278	$	406,835	$	277,748
Specialty Distribution		1,715,196		801,363		245,534		125,403
Intercompany eliminations		(179,712)		(129,831)		(29,949)		(21,050)
Total	$	3,744,201	$	2,422,810		622,420		382,101
General corporate expense, net (c)						(28,371)		(24,124)
Operating profit, as reported						594,049		357,977
Other expense, net						(39,833)		(31,862)
Income before income taxes					$	554,216	$	326,115

(a) All of our operations are located primarily in the U.S and to a lesser extent Canada.

(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.

XML

Net Income Per Share (Tables)

9 Months Ended

Sep. 30, 2022

Net 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income (in thousands)	$	153,746	$	95,435	$	412,156	$	245,658
Weighted average number of common shares outstanding - basic		32,076,285		32,763,311		32,404,275		32,818,145
Dilutive effect of common stock equivalents:
RSAs with service-based conditions		17,175		15,058		14,808		22,044
RSAs with market-based conditions		44,001		115,105		65,677		126,769
RSAs with performance-based conditions		40,995		73,597		48,232		60,595
Stock options		101,364		121,609		110,169		128,442
Weighted average number of common shares outstanding - diluted		32,279,820		33,088,680		32,643,161		33,155,995
Basic net income per common share	$	4.79	$	2.91	$	12.72	$	7.49
Diluted net income per common share	$	4.76	$	2.88	$	12.63	$	7.41

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Anti-dilutive common stock equivalents:
RSAs with service-based conditions		15,222		176		14,782		1,607
RSAs with market-based conditions		134		11,065		200		9,235
RSAs with performance-based conditions		14,611		-		7,506		-
Stock options		22,280		24,066		20,581		19,966
Total anti-dilutive common stock equivalents		52,247		35,307		43,069		30,808

XML

Share-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2022

Share-Based Compensation

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Share-based compensation expense	$	2,611	$	2,998	$	9,673	$	8,375
Income tax (expense) benefit	$	(56)	$	(130)	$	1,517	$	3,190

Schedule of share-based compensation activity

The following table presents a summary of our share-based compensation activity for nine months ended September 30, 2022 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, 2021	244.4	$	119.41	210.5	$	32.35	$	87.30	$	39,692.4
Granted	105.8	$	177.36	—	$	—	$	—		—
Converted/Exercised	(168.1)	$	75.65	(25.2)	$	27.92	$	80.40	$	3,183.0
Forfeited/Expired	(10.6)	$	223.63	(3.1)	$	68.81	$	174.76		—
Balance September 30, 2022	171.5	$	194.71	182.2	$	32.25	$	86.79	$	15,317.8
Exercisable September 30, 2022 (a)				148.4	$	25.71	$	69.94	$	14,443.4

(a) The weighted average remaining contractual term for vested stock options is approximately 5.5 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 September 30, 2022
	Unrecognized Compensation Expense on Unvested Awards		Weighted Average Remaining Compensation Expense Period
RSAs	$	15,203		1.0
Stock options		677		0.7
Total unrecognized compensation expense related to unvested awards	$	15,880

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

	2022			2021
Measurement period (years)		2.87			2.87
Risk free interest rate		1.76	%		0.22	%
Dividend yield		0.00	%		0.00	%
Estimated fair value of market-based RSAs at grant date	$	298.20		$	298.66

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

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

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 17, 2020	$	2,526	$	0	$	632	$	2,526	$	5,052
February 16, 2021	$	2,374	$	0	$	594	$	2,374	$	4,748
February 15, 2022	$	3,411	$	0	$	853	$	3,411	$	6,822

XML

Share Repurchase Program (Tables)

9 Months Ended

Sep. 30, 2022

Share Repurchase Program

Schedule of share repurchase program

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Number of shares repurchased		411,895 (a)		60,105		1,059,361		183,136
Share repurchase cost (in thousands)	$	50,000	$	11,518	$	200,050	$	35,556

XML

Business Combinations (Tables)

9 Months Ended

Sep. 30, 2022

2022 Acquisitions

Business Combinations

Summary of businesses acquired

2022 Acquisitions	Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired
Southwest		1/12/2022	$	300	$	—	$	300	$	215
Billings		2/3/2022		7,005		—		7,005		3,313
Green Energy		3/31/2022		1,200		—		1,200		565
Assured		4/7/2022		4,719		500		5,219		3,317
CV		7/21/2022		1,758		—		1,758		946
Total			$	14,982	$	500	$	15,482	$	8,356

2021 Acquisitions

Business Combinations

Summary of businesses acquired

2021 Acquisitions	Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired
LCR		1/20/2021	$	53,700		—		53,700		19,500
ABS		4/5/2021		124,348		—		124,348		54,229
All others		Various		26,977		1,200		28,177		12,001
Total			$	205,025	$	1,200	$	206,225	$	85,730

DI

Business Combinations

Schedule of fair value of assets and liabilities assumed

The table below represents the final fair value of DI’s assets and liabilities assumed as of September 30, 2022:

Finalized purchase price fair values:
Accounts receivable		145,042
Inventories		133,004
Prepaid and other assets		8,820
Property and equipment		37,562
ROU asset (operating)		66,698
Intangible assets		458,000
Goodwill		450,716
Accounts payable		(68,367)
Lease liabilities		(76,066)
Deferred tax liabilities		(83,590)
All other liabilities		(35,854)
Net assets acquired	$	1,035,965

XML

Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2022

Accrued Liabilities.

Schedule of components of accrued liabilities

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

	As of
	September 30, 2022		December 31, 2021
Accrued liabilities:
Salaries, wages, and commissions	$	72,367	$	71,664
Insurance liabilities		29,435		24,425
Customer rebates		15,659		15,625
Deferred revenue		21,991		14,311
Employee tax-related liabilities		10,654		12,545
Sales and property taxes		14,552		9,364
Interest payable on long-term debt		3,366		8,798
Other		13,431		19,159
Total accrued liabilities	$	181,455	$	175,891

XML

Other Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2022

Other Commitments and Contingencies

Summary of outstanding bonds

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

	As of
	September 30, 2022		December 31, 2021
Outstanding bonds:
Performance bonds	$	153,358	$	128,173
Licensing, insurance, and other bonds		24,346		21,792
Total bonds	$	177,704	$	149,965

XML

Basis of Presentation (Details)	9 Months Ended
	Sep. 30, 2022 segment
Basis of Presentation
Number of reportable segments	2

XML

Revenue Recognition - Disaggregation (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Revenue Recognition
Net sales	$ 1,300,998	$ 845,757	$ 3,744,201	$ 2,422,810
Insulation and accessories
Revenue Recognition
Net sales	1,079,459	670,833	3,107,015	1,926,539
Glass and windows
Revenue Recognition
Net sales	60,375	46,096	168,692	136,309
Gutters
Revenue Recognition
Net sales	69,591	57,190	202,200	150,083
All other
Revenue Recognition
Net sales	91,573	71,638	266,294	209,879
Residential
Revenue Recognition
Net sales	853,021	672,427	2,441,211	1,901,820
Commercial
Revenue Recognition
Net sales	338,416	173,330	995,356	520,990
Industrial
Revenue Recognition
Net sales	109,561		307,634
Operating Segment | Installation
Revenue Recognition
Net sales	783,056	612,900	2,208,717	1,751,278
Operating Segment | Installation | Insulation and accessories
Revenue Recognition
Net sales	619,613	487,798	1,746,054	1,383,472
Operating Segment | Installation | Glass and windows
Revenue Recognition
Net sales	60,375	46,096	168,692	136,309
Operating Segment | Installation | Gutters
Revenue Recognition
Net sales	28,729	23,057	78,926	64,831
Operating Segment | Installation | All other
Revenue Recognition
Net sales	74,339	55,949	215,045	166,666
Operating Segment | Installation | Residential
Revenue Recognition
Net sales	662,005	501,494	1,859,386	1,405,837
Operating Segment | Installation | Commercial
Revenue Recognition
Net sales	121,051	111,406	349,331	345,441
Operating Segment | Specialty Distribution
Revenue Recognition
Net sales	583,543	276,398	1,715,196	801,363
Operating Segment | Specialty Distribution | Insulation and accessories
Revenue Recognition
Net sales	516,214	219,441	1,514,481	651,192
Operating Segment | Specialty Distribution | Gutters
Revenue Recognition
Net sales	48,972	40,555	146,481	103,244
Operating Segment | Specialty Distribution | All other
Revenue Recognition
Net sales	18,357	16,402	54,234	46,927
Operating Segment | Specialty Distribution | Residential
Revenue Recognition
Net sales	245,549	206,951	729,787	602,059
Operating Segment | Specialty Distribution | Commercial
Revenue Recognition
Net sales	228,433	69,447	677,775	199,304
Operating Segment | Specialty Distribution | Industrial
Revenue Recognition
Net sales	109,561		307,634
Intercompany Eliminations and Other Adjustments
Revenue Recognition
Net sales	(65,601)	(43,541)	(179,712)	(129,831)
Intercompany Eliminations and Other Adjustments | Insulation and accessories
Revenue Recognition
Net sales	(56,368)	(36,406)	(153,520)	(108,125)
Intercompany Eliminations and Other Adjustments | Gutters
Revenue Recognition
Net sales	(8,110)	(6,422)	(23,207)	(17,992)
Intercompany Eliminations and Other Adjustments | All other
Revenue Recognition
Net sales	(1,123)	(713)	(2,985)	(3,714)
Intercompany Eliminations and Other Adjustments | Residential
Revenue Recognition
Net sales	(54,533)	(36,018)	(147,962)	(106,076)
Intercompany Eliminations and Other Adjustments | Commercial
Revenue Recognition
Net sales	$ (11,068)	$ (7,523)	$ (31,750)	$ (23,755)

XML

Revenue Recognition - Other (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Contract Liabilities
Deferred revenue	$ 21,991	$ 14,311
Uncompleted Performance Obligations
Amount remaining on uncompleted performance obligations	$ 425,500
Expected timing of satisfaction of performance obligations	over the next 18 months
Receivables, net
Contract Assets
Receivables, unbilled	$ 83,232	71,401
Accrued liabilities
Contract Liabilities
Deferred revenue	21,991	14,310
Accounts Receivable, Net Current
Uncompleted Performance Obligations
Retained receivables	$ 59,800	$ 57,600

XML

Goodwill and Other Intangibles - Goodwill (Details) $ in Thousands	3 Months Ended	9 Months Ended
	Dec. 31, 2021 USD ($)	Sep. 30, 2022 USD ($) item
Changes in the carrying amount of goodwill
Number of reporting units | item		2
Impairment of goodwill	$ 0
Gross Goodwill, at beginning of period		$ 2,711,784
Additions		18,692
Fx Translation Adjustment		(2,221)
Gross Goodwill, at end of period	2,711,784	2,728,255
Accumulated Impairment Losses		(762,021)
Net Goodwill	1,949,763	1,966,234
Installation
Changes in the carrying amount of goodwill
Gross Goodwill, at beginning of period		1,818,872
Additions		8,107
Gross Goodwill, at end of period	1,818,872	1,826,979
Accumulated Impairment Losses		(762,021)
Net Goodwill		1,064,958
Specialty Distribution
Changes in the carrying amount of goodwill
Gross Goodwill, at beginning of period		892,912
Additions		10,585
Fx Translation Adjustment		(2,221)
Gross Goodwill, at end of period	$ 892,912	901,276
Net Goodwill		$ 901,276

XML

Goodwill and Other Intangibles - Other intangible assets (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Other intangible assets
Gross Definite-lived intangible assets	$ 781,374		$ 781,374		$ 783,843
Accumulated Amortization	(150,369)		(150,369)		(99,634)
Net definite-lived intangible assets	631,005		631,005		$ 684,209
Amortization expense	$ 16,970	$ 7,082	$ 50,809	$ 20,424

XML

Long-Term Debt - Reconciliation (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Long-Term Debt
Long-term debt	$ 1,484,375
Unamortized debt issuance costs	(18,073)	$ (20,212)
Total debt, net of unamortized debt issuance costs	1,466,302	1,493,123
Less: current portion of long-term debt	37,367	38,640
Total long-term debt	$ 1,428,935	$ 1,454,483
3.625% Senior Notes
Long-Term Debt
Interest rate (as a percent)	3.625%	3.625%
Long-term debt	$ 400,000	$ 400,000
4.125% Senior Notes
Long-Term Debt
Interest rate (as a percent)	4.125%	4.125%
Long-term debt	$ 500,000	$ 500,000
Term Loan Facility
Long-Term Debt
Long-term debt	573,750	596,250
Equipment Notes
Long-Term Debt
Long-term debt	10,625	$ 17,085
Total debt, net of unamortized debt issuance costs	$ 10,600

XML

Long-Term Debt - Schedule of debt maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Schedule of Debt Maturity by Years:
2022	$ 9,691
2023	40,075
2024	47,109
2025	48,750
2026	438,750
Thereafter	900,000
Total principal maturities	1,484,375
3.625% Senior Notes
Schedule of Debt Maturity by Years:
Thereafter	400,000
Total principal maturities	400,000	$ 400,000
4.125% Senior Notes
Schedule of Debt Maturity by Years:
Thereafter	500,000
Total principal maturities	500,000	500,000
Term Loan Facility
Schedule of Debt Maturity by Years:
2022	7,500
2023	33,750
2024	45,000
2025	48,750
2026	438,750
Total principal maturities	573,750	596,250
Equipment Notes
Schedule of Debt Maturity by Years:
2022	2,191
2023	6,325
2024	2,109
Total principal maturities	$ 10,625	$ 17,085

XML

Long-Term Debt - Key Terms of Credit Agreement (Details) - USD ($) $ in Thousands			9 Months Ended
	Mar. 08, 2021	Mar. 07, 2021	Sep. 30, 2022	Dec. 31, 2021	Oct. 07, 2021
Revolving Facility
Long-Term Debt
Availability			$ 500,000	$ 500,000
Revolving Facility | Minimum
Long-Term Debt
Commitment fee (as a percent)			0.15%
Revolving Facility | Maximum
Long-Term Debt
Commitment fee (as a percent)			0.275%
Term Loan Facility
Long-Term Debt
Availability					$ 300,000
Amendment No. 1 to Credit Agreement | Base Rate
Long-Term Debt
Debt instrument, floor rate	1.00%	1.50%
Amendment No. 1 to Credit Agreement | Eurodollar
Long-Term Debt
Debt instrument, floor rate	0.00%	0.50%
Amendment No. 1 to Credit Agreement | Revolving Facility
Long-Term Debt
Availability	$ 450,000
Sublimit for issuance of letters of credit under Revolving Facility*	100,000
Sublimit for swingline loans under Revolving Facility*	35,000
Amendment No. 1 to Credit Agreement | Term Loan Facility
Long-Term Debt
Availability	$ 300,000
Amendment No. 2 to Credit Agreement
Long-Term Debt
Availability					300,000
Additional delayed draw term loan			$ 300,000
Additional term loan and/or revolver capacity available under incremental facility			$ 300,000
Scheduled maturity date			Oct. 07, 2026
Amendment No. 2 to Credit Agreement | Base Rate Borrowings | Minimum
Long-Term Debt
Applicable margin based on total leverage ratio			0.00%
Amendment No. 2 to Credit Agreement | Base Rate Borrowings | Maximum
Long-Term Debt
Applicable margin based on total leverage ratio			1.00%
Amendment No. 2 to Credit Agreement | Base Rate Borrowings | Federal Funds Rate
Long-Term Debt
Basis spread			0.50%
Amendment No. 2 to Credit Agreement | Base Rate Borrowings | LIBOR
Long-Term Debt
Basis spread			1.00%
Maturity of the reference rate			1 month
Amendment No. 2 to Credit Agreement | LIBOR Rate Borrowings
Long-Term Debt
Interest rate floor (as a percent)			0.00%
Amendment No. 2 to Credit Agreement | LIBOR Rate Borrowings | Minimum
Long-Term Debt
Applicable margin based on total leverage ratio			1.00%
Amendment No. 2 to Credit Agreement | LIBOR Rate Borrowings | Maximum
Long-Term Debt
Applicable margin based on total leverage ratio			2.50%
Amendment No. 2 to Credit Agreement | Revolving Facility
Long-Term Debt
Availability			$ 500,000		500,000
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			3.52%
Amendment No. 2 to Credit Agreement | Term Loan Facility
Long-Term Debt
Availability			$ 300,000		$ 600,000

XML

Long-Term Debt - Revolving Facility (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Debt covenants
Maximum Net Leverage Ratio	3.50
Minimum Interest Coverage Ratio	3.00
Revolving Facility
Long-Term Debt
Revolving Facility	$ 500,000	$ 500,000
Less: standby letters of credit	(67,689)	(69,936)
Availability under Revolving Facility	$ 432,311	$ 430,064
Revolving Facility | Minimum
Long-Term Debt
Commitment fee (as a percent)	0.15%
Revolving Facility | Maximum
Long-Term Debt
Commitment fee (as a percent)	0.275%

XML

Long-Term Debt - Senior Notes and Equipment Notes (Details) - USD ($) $ in Thousands			9 Months Ended
	Oct. 14, 2021	Mar. 15, 2021	Sep. 30, 2022	Dec. 31, 2021	Oct. 07, 2021
Long-Term Debt
Amount outstanding			$ 1,466,302	$ 1,493,123
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%
Term Loan Facility
Long-Term Debt
Availability					$ 300,000
Equipment Notes
Long-Term Debt
Amount outstanding			$ 10,600
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%
3.625% Senior Notes
Long-Term Debt
Interest rate (as a percent)		3.625%	3.625%
Principal amount of debt		$ 400,000
3.625% Senior Notes | Change in Control Scenario
Long-Term Debt
Redemption price as a percentage of principal			101.00%
4.125% Senior Notes
Long-Term Debt
Interest rate (as a percent)	4.125%		4.125%
Principal amount of debt	$ 500,000
4.125% Senior Notes | On or after October 15, 2026
Long-Term Debt
Redemption price as a percentage of principal	102.063%
4.125% Senior Notes | On or after October 15, 2027
Long-Term Debt
Redemption price as a percentage of principal	101.375%
4.125% Senior Notes | On or after October 15, 2028
Long-Term Debt
Redemption price as a percentage of principal	100.688%
4.125% Senior Notes | On October 15, 2029 and thereafter
Long-Term Debt
Redemption price as a percentage of principal	100.00%
4.125% Senior Notes | Prior to October 15, 2024
Long-Term Debt
Redemption price as a percentage of principal	104.125%
Redemption price, percentage of principal amount redeemed	40.00%
Debt instrument, conditional redemption, threshold percentage of aggregate principal amount originally issued remains outstanding	60.00%
4.125% Senior Notes | Change in Control Scenario
Long-Term Debt
Redemption price as a percentage of principal			101.00%
5.625% 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%

XML

Long-Term Debt - Other (Details)	9 Months Ended
	Sep. 30, 2022	Oct. 14, 2021	Mar. 15, 2021
Debt covenants
Maximum Net Leverage Ratio	3.50
Minimum Interest Coverage Ratio	3.00
Senior Notes | Event of Default Scenario
Debt covenants
Minimum percentage of principal of debt holders to declare debt immediately due and payable	30.00%
3.625% Senior Notes
Debt covenants
Interest rate (as a percent)	3.625%		3.625%
4.125% Senior Notes
Debt covenants
Interest rate (as a percent)	4.125%	4.125%

XML

Fair Value Measurements (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Oct. 14, 2021	Mar. 15, 2021
Fair Value on Non-Recurring Basis
Amount outstanding	$ 1,484,375
3.625% Senior Notes
Fair Value on Non-Recurring Basis
Interest rate (as a percent)	3.625%		3.625%
Amount outstanding	$ 400,000
3.625% Senior Notes | Fair Value on Non-Recurring Basis | Level 1 fair value measurement
Fair Value on Non-Recurring Basis
Interest rate (as a percent)	3.625%
Fair value	$ 321,000
4.125% Senior Notes
Fair Value on Non-Recurring Basis
Interest rate (as a percent)	4.125%	4.125%
Amount outstanding	$ 500,000
4.125% Senior Notes | Fair Value on Non-Recurring Basis | Level 1 fair value measurement
Fair Value on Non-Recurring Basis
Interest rate (as a percent)	4.125%
Fair value	$ 391,250

XML

Segment Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Segment information
Net sales	$ 1,300,998	$ 845,757	$ 3,744,201	$ 2,422,810
Operating profit as, reported	222,874	133,806	594,049	357,977
Other expense, net	(14,864)	(5,437)	(39,833)	(31,862)
Income before income taxes	208,010	128,369	554,216	326,115
Operating Segment
Segment information
Operating profit as, reported	231,794	144,618	622,420	382,101
Operating Segment | Installation
Segment information
Net sales	783,056	612,900	2,208,717	1,751,278
Operating profit as, reported	154,236	105,046	406,835	277,748
Operating Segment | Specialty Distribution
Segment information
Net sales	583,543	276,398	1,715,196	801,363
Operating profit as, reported	88,364	47,162	245,534	125,403
Intercompany Eliminations
Segment information
Net sales	(65,601)	(43,541)	(179,712)	(129,831)
Operating profit as, reported	(10,806)	(7,590)	(29,949)	(21,050)
Corporate
Segment information
General corporate expense, net	$ (8,920)	$ (10,812)	$ (28,371)	$ (24,124)

XML

Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Income Taxes
Effective tax rate (as a percent)	26.10%	25.70%	25.60%	24.70%
Benefit related to share-based compensation	$ (56)	$ (130)	$ 1,517	$ 3,190

XML

Net Income Per Share - Calculation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021	Sep. 30, 2022	Sep. 30, 2021
Net income - basic and diluted	$ 153,746	$ 143,697	$ 114,711	$ 95,435	$ 90,380	$ 59,842	$ 412,156	$ 245,658
Weighted average number of common shares outstanding - basic	32,076,285			32,763,311			32,404,275	32,818,145
Dilutive effect of common stock equivalents:
Stock options	101,364			121,609			110,169	128,442
Weighted average number of common shares outstanding - diluted	32,279,820			33,088,680			32,643,161	33,155,995
Basic net income per common share	$ 4.79			$ 2.91			$ 12.72	$ 7.49
Diluted net income per common share	$ 4.76			$ 2.88			$ 12.63	$ 7.41
Service-based conditions
Dilutive effect of common stock equivalents:
Restricted stock awards	17,175			15,058			14,808	22,044
Market-based conditions
Dilutive effect of common stock equivalents:
Restricted stock awards	44,001			115,105			65,677	126,769
Performance-based conditions
Dilutive effect of common stock equivalents:
Restricted stock awards	40,995			73,597			48,232	60,595

XML

Net Income Per Share - Anti-dilutive common stock equivalents (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Anti-dilutive common stock equivalents
Total anti-dilutive common stock equivalents	52,247	35,307	43,069	30,808
Restricted Stock Awards | Service-based conditions
Anti-dilutive common stock equivalents
Total anti-dilutive common stock equivalents	15,222	176	14,782	1,607
Restricted Stock Awards | Market-based conditions
Anti-dilutive common stock equivalents
Total anti-dilutive common stock equivalents	134	11,065	200	9,235
Restricted Stock Awards | Performance-based conditions
Anti-dilutive common stock equivalents
Total anti-dilutive common stock equivalents	14,611		7,506
Stock Options
Anti-dilutive common stock equivalents
Total anti-dilutive common stock equivalents	22,280	24,066	20,581	19,966

XML

Share-Based Compensation - Expense (Details) - USD ($) $ in Thousands, shares in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Share-Based Compensation
Share-based compensation expense	$ 2,611	$ 2,998	$ 9,673	$ 8,375
Income tax (expense) benefit	$ (56)	$ (130)	$ 1,517	$ 3,190
2015 Plan | Maximum
Share-Based Compensation
Number of shares authorized	4.0		4.0

XML

Share-Based Compensation - Activity (Details) - USD ($)					3 Months Ended				9 Months Ended
	Sep. 30, 2022	Feb. 15, 2022	Feb. 16, 2021	Feb. 17, 2020	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Mar. 31, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Restricted Stock Awards, Number of Shares
Granted (in shares)									0
Stock Options, Number of Shares
Converted/Exercised (in shares)					(7,111)	(5,835)	(12,269)	(51,915)
Stock options, additional disclosures
Weighted average remaining contractual term for vested stock options									5 years 6 months
Unrecognized share-based compensation expense
Total unrecognized compensation expense related to unvested awards	$ 15,880,000				$ 15,880,000				$ 15,880,000
Restricted Stock Awards
Restricted Stock Awards, Number of Shares
Balance at beginning of period (in shares)							244,400		244,400
Granted (in shares)									105,800
Converted/Exercised (in shares)									(168,100)
Forfeited/Expired (in shares)									(10,600)
Balance at end of period (in shares)	171,500				171,500				171,500
Restricted Stock Awards, Weighted Average Grant Date Fair Value Per Share
Balance at beginning of period (in dollars per share)							$ 119.41		$ 119.41
Granted (in dollars per share)									177.36
Converted/Exercised (in dollars per share)									75.65
Forfeited/Expired (in dollars per share)									223.63
Balance at end of period (in dollars per share)	$ 194.71				$ 194.71				$ 194.71
Unrecognized share-based compensation expense
RSAs, Unrecognized Compensation Expense on Unvested Awards	$ 15,203,000				$ 15,203,000				$ 15,203,000
Weighted Average Remaining Compensation Expense Period	1 year
Assumptions used to estimate the fair values of the awards granted:
Measurement period (years)									2 years 10 months 13 days	2 years 10 months 13 days
Risk free interest rate (as a percent)									1.76%	0.22%
Dividend yield (as a percent)									0.00%	0.00%
Estimated fair value of market-based RSAs at grant date (in dollars per share)									$ 298.20	$ 298.66
Restricted Stock Awards | Performance-based conditions
Restricted stock awards, additional disclosures
Grant date fair value		$ 3,411,000	$ 2,374,000	$ 2,526,000
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%
Related expenses		$ 0	$ 0	$ 0
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		$ 853,000	$ 594,000	$ 632,000
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		$ 3,411,000	$ 2,374,000	$ 2,526,000
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		$ 6,822,000	$ 4,748,000	$ 5,052,000
RSAs granted February 18, 2019 | 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							$ 4,400,000
Stock Options
Stock Options, Number of Shares
Balance at beginning of period (in shares)							210,500		210,500
Converted/Exercised (in shares)									(25,200)
Forfeited/Expired (in shares)									(3,100)
Balance at end of period (in shares)	182,200				182,200				182,200
Stock Options, Weighted Average Grant Date Fair Value Per Share
Balance at beginning of period (in dollars per share)							$ 32.35		$ 32.35
Converted/Exercised (in dollars per share)									27.92
Forfeited/Expired (in dollars per share)									68.81
Balance at end of period (in dollars per share)	$ 32.25				$ 32.25				32.25
Stock Options, Weighted Average Exercise Price Per Share
Balance at beginning of period (in dollars per share)							$ 87.30		87.30
Converted/Exercised (in dollars per share)									80.40
Forfeited/Expired (in dollars per share)									174.76
Balance at end of period (in dollars per share)	$ 86.79				$ 86.79				$ 86.79
Stock options, additional disclosures
Aggregate intrinsic value	$ 15,317,800				$ 15,317,800				$ 15,317,800		$ 39,692,400
Converted/Exercised aggregate intrinsic value									$ 3,183,000.0
Exercisable, Number of shares	148,400				148,400				148,400
Exercisable, Weighted Average Grant Date Fair Value Per Share									$ 25.71
Exercisable Weighted Average Exercise Price Per Share	$ 69.94				$ 69.94				$ 69.94
Exercisable, Aggregate Intrinsic Value	$ 14,443,400				$ 14,443,400				$ 14,443,400
Unrecognized share-based compensation expense
Stock options, Unrecognized Compensation Expense on Unvested Awards	$ 677,000				$ 677,000				$ 677,000
Weighted Average Remaining Compensation Expense Period	8 months 12 days
Assumptions used to estimate the fair values of the awards granted:
Risk free interest rate (as a percent)									0.76%
Expected volatility using historical return volatility and implied volatility (as a percent)									43.29%
Expected life (in years)									6 years
Dividend yield (as a percent)									0.00%
Estimated fair value of market-based RSAs at grant date (in dollars per share)									$ 89.59

XML

Share Repurchase Program (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		5 Months Ended	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2022	Sep. 30, 2021	Jul. 25, 2022	May 09, 2022	Jul. 26, 2021	Feb. 22, 2019
Share Repurchase Program
Number of shares repurchased (in shares)	411,895	60,105		1,059,361	183,136
Share repurchase cost	$ 50,000	$ 11,518		$ 200,050	$ 35,556
2022 Share Repurchase Program
Share Repurchase Program
Share repurchase program, authorized amount						$ 200,000
2021 Share Repurchase Program
Share Repurchase Program
Amount remaining under repurchase program	$ 4,400		$ 4,400	$ 4,400
2022 ASR Agreement
Share Repurchase Program
Initial number of shares delivered under ASR agreement (in shares)							409,312
Initial percentage of shares delivered under ASR agreement							80.00%
Initial value of shares delivered under ASR agreement							$ 100,000
Number of shares repurchased (in shares)	142,351		551,663
Average price per share (in dollars per share)			$ 181.27
Maximum | 2019 Share Repurchase Program
Share Repurchase Program
Share repurchase program, authorized amount									$ 200,000
Maximum | 2021 Share Repurchase Program
Share Repurchase Program
Share repurchase program, authorized amount								$ 200,000

XML

Business Combinations - Summary (Details) - USD ($) $ in Thousands									3 Months Ended		9 Months Ended
	Jul. 21, 2022	Apr. 07, 2022	Mar. 31, 2022	Feb. 03, 2022	Jan. 12, 2022	Oct. 15, 2021	Apr. 05, 2021	Jan. 20, 2021	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Business Combinations
Acquisition related costs									$ 0	$ 2,700	$ 1,300	$ 3,400
Summary
Goodwill									1,966,234		1,966,234		$ 1,949,763
Goodwill expected to be deducted for income tax purposes									8,400	$ 85,700	8,400	85,700
Estimated fair values
Goodwill									1,966,234		1,966,234		$ 1,949,763
2022 Acquisitions
Summary
Cash Paid											14,982
Contingent Consideration											500
Total Purchase Price											15,482
Goodwill Acquired											8,356
Southwest
Summary
Cash Paid					$ 300
Total Purchase Price					300
Goodwill Acquired					$ 215
Billings
Summary
Cash Paid				$ 7,005
Total Purchase Price				7,005
Goodwill Acquired				$ 3,313
Green Energy
Summary
Cash Paid			$ 1,200
Total Purchase Price			1,200
Goodwill Acquired			$ 565
Assured
Summary
Cash Paid		$ 4,719
Contingent Consideration		500
Total Purchase Price		5,219
Goodwill Acquired		$ 3,317
CV
Summary
Cash Paid	$ 1,758
Total Purchase Price	1,758
Goodwill Acquired	$ 946
2021 Acquisitions
Summary
Cash Paid												205,025
Contingent Consideration												1,200
Total Purchase Price												206,225
Goodwill Acquired												85,730
LCR
Summary
Cash Paid								$ 53,700
Total Purchase Price								53,700
Goodwill Acquired								$ 19,500
ABS
Summary
Cash Paid							$ 124,348
Total Purchase Price							124,348
Goodwill Acquired							$ 54,229
DI
Business Combinations
Increase in goodwill											10,700
Summary
Goodwill									450,716		450,716
Total Purchase Price						$ 1,000,000
Estimated fair values
Accounts receivable									145,042		145,042
Inventories									133,004		133,004
Prepaid and other assets									8,820		8,820
Property and equipment									37,562		37,562
ROU asset (operating)									66,698		66,698
Intangible assets									458,000		458,000
Goodwill									450,716		450,716
Accounts payable									(68,367)		(68,367)
Lease liabilities									(76,066)		(76,066)
Deferred tax liabilities									(83,590)		(83,590)
All other liabilities									(35,854)		(35,854)
Net assets acquired									$ 1,035,965		$ 1,035,965
All others
Summary
Cash Paid												26,977
Contingent Consideration												1,200
Total Purchase Price												28,177
Goodwill Acquired												$ 12,001

XML

Accrued Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Accrued Liabilities.
Salaries, wages, and commissions	$ 72,367	$ 71,664
Insurance liabilities	29,435	24,425
Customer rebates	15,659	15,625
Deferred revenue	21,991	14,311
Employee tax-related liabilities	10,654	12,545
Sales and property taxes	14,552	9,364
Interest payable on long-term debt	3,366	8,798
Other	13,431	19,159
Total accrued liabilities	$ 181,455	$ 175,891

XML

Other Commitments and Contingencies (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Outstanding Bonds
Performance bonds	$ 153,358	$ 128,173
Licensing, insurance, and other bonds	24,346	21,792
Total bonds	$ 177,704	$ 149,965