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 March 31, 2023


☐	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 31,749,321 shares of Common Stock, par value $0.01 per share as of April 27, 2023.

Table of Contents

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	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	25

Part II.	Other Information

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 3.	Defaults upon Senior Securities	26

Item 4.	Mine Safety Disclosures	26

Item 5.	Other Information	26

Item 6.	Exhibits	26

Index to Exhibits		27

Signature		28

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GLOSSARY

We use acronyms, abbreviations, and other defined terms throughout this quarterly report on Form 10-Q, which are defined in the glossary below:


Term		Definition
3.625% Senior Notes		TopBuild's 3.625% senior unsecured notes issued March 15, 2021 and due March 15, 2029
4.125% Senior Notes		TopBuild's 4.125% senior unsecured notes issued October 14, 2021 and due February 15, 2032
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 Repurchase Program		$200 million share repurchase program authorized by the Board on July 25, 2022
Amendment No. 3 to Credit Agreement		Amendment No. 3 to the Credit Agreement dated December 9, 2022
Annual Report		Annual report filed with the SEC on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
Board		Board of Directors of TopBuild
BofA		Bank of America, N.A.
Billings		Billings Insulation Service, Inc.
Credit Agreement		Amended and Restated Credit Agreement, dated March 20, 2020, among TopBuild Corp., Bank of America, N.A. as administrative agent, and the other lenders and agents party thereto.
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
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
Lenders		Bank of America, N.A., together with the other lenders party to "Credit Agreement"
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
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
SOFR		Secured overnight financing rate
SRI		SRI Holdings, LLC
Term Loan		Amendment No. 2 to Credit Agreement provided for a term loan facility in an aggregate principal amount of $600.0 million with a maturity date of October 2026
TopBuild		TopBuild Corp. and its wholly-owned consolidated domestic subsidiaries. Also, the "Company," "we," "us," and "our"

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PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

TOPBUILD CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands except share data)


	As of
	March 31,		December 31,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	333,778	$	240,069
Receivables, net of an allowance for credit losses of $16,007 at March 31, 2023, and $16,281 at December 31, 2022		833,959		836,071
Inventories, net		422,229		438,644
Prepaid expenses and other current assets		22,861		34,257
Total current assets		1,612,827		1,549,041

Right of use assets		211,381		205,892
Property and equipment, net		260,146		253,484
Goodwill		1,992,394		1,966,994
Other intangible assets, net		607,683		614,967
Other assets		16,483		16,453
Total assets	$	4,700,914	$	4,606,831

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	450,963	$	487,114
Current portion of long-term debt		42,371		40,068
Accrued liabilities		193,347		199,370
Short-term operating lease liabilities		62,110		60,880
Short-term finance lease liabilities		2,452		2,207
Total current liabilities		751,243		789,639

Long-term debt		1,405,931		1,417,257
Deferred tax liabilities, net		252,044		251,481
Long-term portion of insurance reserves		61,466		59,783
Long-term operating lease liabilities		154,844		149,943
Long-term finance lease liabilities		4,983		6,673
Other liabilities		5,259		2,349
Total liabilities		2,635,770		2,677,125

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; 39,465,688 shares issued and 31,750,010 outstanding at March 31, 2023, and 39,325,916 shares issued and 31,642,832 outstanding at December 31, 2022		395		393
Treasury stock, 7,715,678 shares at March 31, 2023, and 7,683,084 shares at December 31, 2022, at cost		(699,149)		(692,799)
Additional paid-in capital		891,530		887,367
Retained earnings		1,892,535		1,756,665
Accumulated other comprehensive loss		(20,167)		(21,920)
Total equity		2,065,144		1,929,706
Total liabilities and equity	$	4,700,914	$	4,606,831

See notes to our unaudited condensed consolidated financial statements.

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TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands except share and per common share data)


	Three Months Ended March 31,
	2023		2022
Net sales	$	1,265,238	$	1,168,918
Cost of sales		895,023		837,717
Gross profit		370,215		331,201

Selling, general, and administrative expense		170,784		167,247
Operating profit		199,431		163,954

Other income (expense), net:
Interest expense		(18,039)		(11,966)
Other, net		1,923		684
Other expense, net		(16,116)		(11,282)
Income before income taxes		183,315		152,672

Income tax expense		(47,445)		(37,961)
Net income	$	135,870	$	114,711

Net income per common share:
Basic	$	4.31	$	3.50
Diluted	$	4.28	$	3.47

Weighted average shares outstanding:
Basic		31,550,658		32,738,525
Diluted		31,713,239		33,042,490

See notes to our unaudited condensed consolidated financial statements.

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TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)


	Three Months Ended March 31,
	2023		2022
Net income	$	135,870	$	114,711
Other comprehensive income:
Foreign currency translation adjustment		1,753		3,218
Comprehensive income	$	137,623	$	117,929

See notes to our unaudited condensed consolidated financial statement

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TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


	Three Months Ended March 31,
	2023		2022
Cash Flows Provided by (Used in) Operating Activities:
Net income	$	135,870	$	114,711
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		32,100		30,499
Share-based compensation		3,135		3,727
Loss on sale of property and equipment		185		207
Amortization of debt issuance costs		720		706
Provision for bad debt expense		1,338		2,512
Loss from inventory obsolescence		1,642		868
Deferred income taxes, net		563		(81)
Change in certain assets and liabilities:
Receivables, net		(10,847)		(65,031)
Inventories, net		20,096		(38,570)
Prepaid expenses and other current assets		11,579		(2,347)
Accounts payable		(25,480)		12,663
Accrued liabilities		(3,339)		29,523
Other, net		2,239		96
Net cash provided by operating activities		169,801		89,483

Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(15,580)		(18,413)
Acquisition of businesses, net of cash acquired		(45,845)		(13,967)
Proceeds from sale of property and equipment		455		253
Net cash used in investing activities		(60,970)		(32,127)

Cash Flows Provided by (Used in) Financing Activities:
Repayment of long-term debt		(9,743)		(9,634)
Taxes withheld and paid on employees' equity awards		(6,350)		(11,658)
Exercise of stock options		1,029		808
Repurchase of shares of common stock		—		(50,000)
Payment of contingent consideration		—		(23)
Net cash used in financing activities		(15,064)		(70,507)
Impact of exchange rate changes on cash		(58)		(75)
Net increase (decrease) in cash and cash equivalents		93,709		(13,226)
Cash and cash equivalents- Beginning of period		240,069		139,779
Cash and cash equivalents- End of period	$	333,778	$	126,553

Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	$	18,271	$	22,449
Accruals for property and equipment		835		213

See notes to our unaudited condensed consolidated financial statements.

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TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)

(In thousands except share data)


									Accumulated
	Common		Treasury		Additional				Other
	Stock		Stock		Paid-in		Retained		Comprehensive
	($0.01 par value)		at cost		Capital		Earnings		(Loss) Income		Equity
Balance at December 31, 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


									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, 2022	$	393	$	(692,799)	$	887,367	$	1,756,665	$	(21,920)	$	1,929,706
Net income		-		-		-		135,870		-		135,870
Share-based compensation		-		-		3,135		-		-		3,135
Issuance of 95,012 restricted share awards under long-term equity incentive plan		2		-		-		-		-		2
32,594 shares withheld to pay taxes on employees' equity awards		-		(6,350)		-		-		-		(6,350)
28,840 shares issued upon exercise of stock options		-		-		1,028		-		-		1,028
Other comprehensive income, net of tax		-		-		-		-		1,753		1,753
Balance at March 31, 2023	$	395	$	(699,149)	$	891,530	$	1,892,535	$	(20,167)	$	2,065,144

See notes to our unaudited condensed consolidated financial statements.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

TopBuild was formed on June 30, 2015, and is listed on the NYSE under the ticker symbol “BLD.” We report our business in two segments: Installation and Specialty Distribution. Our Installation segment primarily installs insulation and other building products. Our Specialty Distribution segment primarily sells and distributes insulation and other building products. Our segments are based on our operating units, for which financial information is regularly evaluated by our chief operating decision maker.

We believe the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to state fairly our financial position as of March 31, 2023, our results of operations, comprehensive income and cash flows for the three months ended March 31, 2023 and 2022. The condensed consolidated balance sheet at December 31, 2022 was derived from our audited financial statements, but does not include all disclosures required by GAAP.

These condensed consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report for the year ended December 31, 2022 as filed with the SEC on February 23, 2023.

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 intercompany transactions between TopBuild entities have been eliminated.

Recently Adopted Accounting Pronouncements

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 became effective for us on January 1, 2023, and did not have a material impact to our financial statements upon adoption.

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.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents our revenues disaggregated by market (in thousands):


	Three Months Ended March 31,
	2023								2022
		Installation		Specialty Distribution		Eliminations		Total		Installation		Specialty Distribution		Eliminations		Total
Residential	$	645,703	$	224,326	$	(51,390)	$	818,639	$	563,303	$	236,411	$	(43,421)	$	756,293
Commercial/Industrial		121,387		334,049		(8,837)		446,599		113,390		307,451		(8,216)		412,625
Net sales	$	767,090	$	558,375	$	(60,227)	$	1,265,238	$	676,693	$	543,862	$	(51,637)	$	1,168,918

The following table presents our revenues disaggregated by product (in thousands):


	Three Months Ended March 31,
	2023								2022
		Installation		Specialty Distribution		Eliminations		Total		Installation		Specialty Distribution		Eliminations		Total
Insulation and accessories	$	600,767	$	502,802	$	(51,973)	$	1,051,596	$	536,341	$	479,760	$	(43,810)	$	972,291
Glass and windows		63,442		-		-		63,442		51,196		-		-		51,196
Gutters		28,278		39,842		(7,165)		60,955		22,957		46,631		(7,002)		62,586
All other		74,603		15,731		(1,089)		89,245		66,199		17,471		(825)		82,845
Net sales	$	767,090	$	558,375	$	(60,227)	$	1,265,238	$	676,693	$	543,862	$	(51,637)	$	1,168,918

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


	Included in Line Item on	As of
	Condensed Consolidated	March 31,		December 31,
	Balance Sheets	2023		2022
Contract Assets:
Receivables, unbilled	Receivables, net	$	78,034	$	75,481

Contract Liabilities:
Deferred revenue	Accrued liabilities	$	20,738	$	21,940

The aggregate amount remaining on uncompleted performance obligations was $395.5 million as of March 31, 2023. We expect to satisfy the performance obligations and recognize revenue on substantially all of these uncompleted contracts over the next 18 months.

On certain of our long-term contracts, a percentage of the total project cost is withheld and not invoiced to the customer and collected until satisfactory completion of the customer’s project, typically within a year. This amount is referred to as retainage and is common practice in the construction industry. Retainage receivables are classified as a component of Receivables, net on our condensed consolidated balance sheets and were $66.7 million and $63.0 million as of March 31, 2023 and December 31, 2022, 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 2022, we performed an annual assessment on our goodwill resulting in no impairment and there were no indicators of impairment for the three months ended March 31, 2023.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Changes in the carrying amount of goodwill for three months ended March 31, 2023, by segment, were as follows, in thousands:


									Accumulated
	Gross Goodwill				Fx Translation		Gross Goodwill		Impairment		Net Goodwill
	December 31, 2022		Additions		Adjustment		March 31, 2023		Losses		March 31, 2023
Goodwill, by segment:
Installation	$	1,826,979	$	25,384	$	-	$	1,852,363	$	(762,021)	$	1,090,342
Specialty Distribution		902,036		-		16		902,052		-		902,052
Total goodwill	$	2,729,015	$	25,384	$	16	$	2,754,415	$	(762,021)	$	1,992,394

See Note 11 – Business Combinations for goodwill recognized on acquisitions that occurred during the quarter.

Other intangible assets, net includes customer relationships, non-compete agreements, and trademarks / trade names. The following table sets forth our other intangible assets, in thousands:


	As of
	March 31, 2023		December 31, 2022
Gross definite-lived intangible assets	$	791,939	$	782,316
Accumulated amortization		(184,256)		(167,349)
Net definite-lived intangible assets	$	607,683	$	614,967

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

5. LONG-TERM DEBT

The following table reconciles the principal balances of our outstanding debt to our condensed consolidated balance sheets, in thousands:


	As of
	March 31, 2023		December 31, 2022
3.625% Senior Notes due 2029	$	400,000	$	400,000
4.125% Senior Notes due 2032		500,000		500,000
Term loan		558,750		566,250
Equipment notes		6,185		8,427
Unamortized debt issuance costs		(16,633)		(17,352)
Total debt, net of unamortized debt issuance costs		1,448,302		1,457,325
Less: current portion of long-term debt		42,371		40,068
Total long-term debt	$	1,405,931	$	1,417,257

The following table sets forth our remaining principal payments for our outstanding debt balances as of March 31, 2023, in thousands:



	2023		2024		2025		2026		2027		Thereafter		Total
3.625% Senior Notes	$	-	$	-	$	-	$	-	$	-	$	400,000	$	400,000
4.125% Senior Notes		-		-		-		-		-		500,000		500,000
Term loan		26,250		45,000		48,750		438,750		-		-		558,750
Equipment notes		4,076		2,109		-		-		-		-		6,185
Total	$	30,326	$	47,109	$	48,750	$	438,750	$	-	$	900,000	$	1,464,935

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Credit Agreement

The following table outlines the key terms of the 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 March 31, 2023		5.91	%
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 SOFR rate for U.S. dollar deposits with a term of one month, plus 1.00 percent; or

●

A SOFR 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%.

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 1.50 percent and in the case of SOFR rate borrowings, the applicable margin ranges from 1.00 percent to 2.50 percent. Borrowings under the 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
	March 31, 2023		December 31, 2022
Revolving facility	$	500,000	$	500,000
Less: standby letters of credit		(67,689)		(67,689)
Availability under revolving facility	$	432,311	$	432,311

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.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.625% Senior Notes

The 3.625% Senior Notes are $400.0 million senior unsecured obligations and bear interest at 3.625% per year, payable semiannually in arrears on March 15 and September 15, beginning on 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 notes), 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

The 4.125% Senior Notes are $500.0 million 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 basis points. 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

We did not issue equipment notes during the three months ended March 31, 2023. The company has issued $41.6 million of equipment notes for the purpose of financing the purchase of vehicles and equipment. The Company’s equipment notes each have a five year term maturing in 2023 and 2024 and bear interest at fixed rates between 2.8% and 4.4%.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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:

Three Months Ended March 31,

Amortization expense