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)		<