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 June 30, 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 31,757,295 shares of Common Stock, par value $0.01 per share as of July 27, 2023.

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	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	29
Part II.	Other Information
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
Index to Exhibits		30
Signature		31

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
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
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
2022 ASR Agreement	$100 million accelerated share repurchase agreement with Bank of America, N.A.
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
Assured	Assured Insulating Inc.
ASU	Accounting Standards Update
Best Insulation	Best Insulation Holdings LLC
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, BofA 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
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
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
Rocky Mountain	Rocky Mountain Spray Foam & Waterproofing, LLC
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
SPI	SPI LLC, d/b/a Specialty Products & Insulation
SRI	SRI Holdings, LLC
Term Loan	TopBuild's secured borrowings under the Credit Agreement due October 7, 2026.
TopBuild	TopBuild Corp. and its wholly-owned consolidated domestic subsidiaries.

3

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

TOPBUILD CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands except share data)

	As of
	June 30,		December 31,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	526,327	$	240,069
Receivables, net of an allowance for credit losses of $16,778 at June 30, 2023, and $16,281 at December 31, 2022		857,664		836,071
Inventories, net		385,049		438,644
Prepaid expenses and other current assets		25,556		34,257
Total current assets		1,794,596		1,549,041
Right of use assets		204,044		205,892
Property and equipment, net		258,746		253,484
Goodwill		1,991,949		1,966,994
Other intangible assets, net		595,706		614,967
Other assets		12,905		16,453
Total assets	$	4,857,946	$	4,606,831
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	468,602	$	487,114
Current portion of long-term debt		45,142		40,068
Accrued liabilities		180,594		199,370
Short-term operating lease liabilities		61,825		60,880
Short-term finance lease liabilities		2,180		2,207
Total current liabilities		758,343		789,639
Long-term debt		1,394,794		1,417,257
Deferred tax liabilities, net		254,777		251,481
Long-term portion of insurance reserves		57,217		59,783
Long-term operating lease liabilities		148,709		149,943
Long-term finance lease liabilities		4,519		6,673
Other liabilities		1,541		2,349
Total liabilities		2,619,900		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; 39,473,298 shares issued and 31,757,620 outstanding at June 30, 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 June 30, 2023, and 7,683,084 shares at December 31, 2022, at cost		(699,149)		(692,799)
Additional paid-in capital		895,749		887,367
Retained earnings		2,056,935		1,756,665
Accumulated other comprehensive loss		(15,884)		(21,920)
Total equity		2,238,046		1,929,706
Total liabilities and equity	$	4,857,946	$	4,606,831

See notes to our unaudited condensed consolidated financial statements.

4

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands except share and per common share data)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net sales	$	1,317,262	$	1,274,285	$	2,582,500	$	2,443,203
Cost of sales		895,462		890,188		1,790,485		1,727,905
Gross profit		421,800		384,097		792,015		715,298
Selling, general, and administrative expense		184,697		176,876		355,481		344,123
Operating profit		237,103		207,221		436,534		371,175
Other income (expense), net:
Interest expense		(18,558)		(13,410)		(36,597)		(25,375)
Other, net		4,605		(279)		6,528		406
Other expense, net		(13,953)		(13,689)		(30,069)		(24,969)
Income before income taxes		223,150		193,532		406,465		346,206
Income tax expense		(58,750)		(49,835)		(106,195)		(87,796)
Net income	$	164,400	$	143,697	$	300,270	$	258,410
Net income per common share:
Basic	$	5.20	$	4.43	$	9.51	$	7.93
Diluted	$	5.18	$	4.41	$	9.47	$	7.87
Weighted average shares outstanding:
Basic		31,599,744		32,405,292		31,575,337		32,570,988
Diluted		31,731,807		32,614,449		31,722,660		32,827,549

See notes to our unaudited condensed consolidated financial statements.

5

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	164,400	$	143,697	$	300,270	$	258,410
Other comprehensive income (loss):
Foreign currency translation adjustment		4,283		(2,193)		6,037		1,026
Comprehensive income	$	168,683	$	141,504	$	306,307	$	259,436

See notes to our unaudited condensed consolidated financial statement

6

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Six Months Ended June 30,
	2023		2022
Cash Flows Provided by (Used in) Operating Activities:
Net income	$	300,270	$	258,410
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		64,652		60,621
Share-based compensation		6,886		7,061
Loss on sale of property and equipment		621		525
Amortization of debt issuance costs		1,440		1,427
Provision for bad debt expense		4,031		6,404
Loss from inventory obsolescence		3,290		3,610
Change in certain assets and liabilities:
Receivables, net		(37,247)		(107,739)
Inventories, net		54,623		(82,621)
Prepaid expenses and other current assets		8,897		648
Accounts payable		(8,806)		47,540
Accrued liabilities		(13,872)		16,884
Other, net		1,012		4,927
Net cash provided by operating activities		385,797		217,697
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(30,672)		(36,034)
Acquisition of businesses, net of cash acquired		(45,948)		(18,746)
Proceeds from sale of property and equipment		782		618
Net cash used in investing activities		(75,838)		(54,162)
Cash Flows Provided by (Used in) Financing Activities:
Repayment of long-term debt		(18,829)		(19,287)
Proceeds from revolving credit facility		—		70,000
Repayment of revolving credit facility		—		(70,000)
Taxes withheld and paid on employees' equity awards		(6,350)		(11,667)
Exercise of stock options		1,497		1,452
Repurchase of shares of common stock		—		(150,050)
Payment of contingent consideration		(300)		(35)
Net cash used in financing activities		(23,982)		(179,587)
Impact of exchange rate changes on cash		281		142
Net increase (decrease) in cash and cash equivalents		286,258		(15,910)
Cash and cash equivalents- Beginning of period		240,069		139,779
Cash and cash equivalents- End of period	$	526,327	$	123,869
Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	$	26,310	$	36,129
Accruals for property and equipment		1,449		563

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, 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

									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
Net income		-						164,400		-		164,400
Share-based compensation		-		-		3,751		-		-		3,751
Issuance of 18,768 restricted share awards under long-term equity incentive plan		-		-		-		-		-		-
4,762 shares issued upon exercise of stock options		-		-		468		-		-		468
Other comprehensive income, net of tax		-		-		-		-		4,283		4,283
Balance at June 30, 2023	$	395	$	(699,149)	$	895,749	$	2,056,935	$	(15,884)	$	2,238,046

See notes to our unaudited condensed consolidated financial statements.

8

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

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

We believe the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to state fairly our financial position as of June 30, 2023, our results of operations and comprehensive income for the three and six months ended June 30, 2023 and 2022, and our cash flows for the six months ended June 30, 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.  

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

	Three Months Ended June 30,
	2023								2022
		Installation		Specialty Distribution		Eliminations		Total		Installation		Specialty Distribution		Eliminations		Total
Residential	$	668,172	$	227,254	$	(56,667)	$	838,759	$	634,078	$	247,827	$	(50,007)	$	831,898
Commercial/Industrial		140,883		347,234		(9,614)		478,503		114,890		339,964		(12,467)		442,387
Net sales	$	809,055	$	574,488	$	(66,281)	$	1,317,262	$	748,968	$	587,791	$	(62,474)	$	1,274,285

9

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	Six Months Ended June 30,
	2023								2022
		Installation		Specialty Distribution		Eliminations		Total		Installation		Specialty Distribution		Eliminations		Total
Residential	$	1,313,875	$	451,579	$	(108,056)	$	1,657,398	$	1,197,382	$	484,238	$	(93,429)	$	1,588,191
Commercial/Industrial		262,270		681,283		(18,451)		925,102		228,279		647,415		(20,682)		855,012
Net sales	$	1,576,145	$	1,132,862	$	(126,507)	$	2,582,500	$	1,425,661	$	1,131,653	$	(114,111)	$	2,443,203

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

	Three Months Ended June 30,
	2023								2022
	Installation		Specialty Distribution		Eliminations		Total		Installation		Specialty Distribution		Eliminations		Total
Insulation and accessories	$	633,924	$	513,162	$	(57,599)	$	1,089,487	$	590,099	$	518,507	$	(53,343)	$	1,055,263
Glass and windows		68,841		-		-		68,841		57,121		-		-		57,121
Gutters		29,401		44,088		(7,571)		65,918		27,240		50,879		(8,094)		70,025
All other		76,889		17,238		(1,111)		93,016		74,508		18,405		(1,037)		91,876
Net sales	$	809,055	$