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, 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 31,773,944 shares of Common Stock, par value $0.01 per share as of October 24, 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	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
Part II.	Other Information
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	30
Index to Exhibits		31
Signature		32

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
Amendment No. 4	Amendment No. 4 to the Credit Agreement dated July 26, 2023
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	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
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
Term Facility Two	$550 million delayed draw term loan to be used to fund the future acquisition of SPI
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
	September 30,		December 31,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	615,612	$	240,069
Receivables, net of an allowance for credit losses of $17,880 at September 30, 2023, and $16,281 at December 31, 2022		870,890		836,071
Inventories, net		357,179		438,644
Prepaid expenses and other current assets		38,104		34,257
Total current assets		1,881,785		1,549,041
Right of use assets		209,707		205,892
Property and equipment, net		264,581		253,484
Goodwill		2,039,777		1,966,994
Other intangible assets, net		606,940		614,967
Other assets		11,300		16,453
Total assets	$	5,014,090	$	4,606,831
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	455,840	$	487,114
Current portion of long-term debt		48,057		40,068
Accrued liabilities		183,084		199,370
Short-term operating lease liabilities		64,632		60,880
Short-term finance lease liabilities		2,057		2,207
Total current liabilities		753,670		789,639
Long-term debt		1,383,717		1,417,257
Deferred tax liabilities, net		252,419		251,481
Long-term portion of insurance reserves		58,343		59,783
Long-term operating lease liabilities		151,970		149,943
Long-term finance lease liabilities		4,596		6,673
Other liabilities		1,548		2,349
Total liabilities		2,606,263		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; 39,489,942 shares issued and 31,774,264 outstanding at September 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 September 30, 2023, and 7,683,084 shares at December 31, 2022, at cost		(699,149)		(692,799)
Additional paid-in capital		900,936		887,367
Retained earnings		2,224,537		1,756,665
Accumulated other comprehensive loss		(18,892)		(21,920)
Total equity		2,407,827		1,929,706
Total liabilities and equity	$	5,014,090	$	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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net sales	$	1,326,120	$	1,300,998	$	3,908,620	$	3,744,201
Cost of sales		905,430		905,250		2,695,916		2,633,155
Gross profit		420,690		395,748		1,212,704		1,111,046
Selling, general, and administrative expense		183,198		172,874		538,679		516,997
Operating profit		237,492		222,874		674,025		594,049
Other income (expense), net:
Interest expense		(18,830)		(14,561)		(55,427)		(39,936)
Other, net		6,015		(303)		12,542		103
Other expense, net		(12,815)		(14,864)		(42,885)		(39,833)
Income before income taxes		224,677		208,010		631,140		554,216
Income tax expense		(57,075)		(54,264)		(163,270)		(142,060)
Net income	$	167,602	$	153,746	$	467,870	$	412,156
Net income per common share:
Basic	$	5.30	$	4.79	$	14.81	$	12.72
Diluted	$	5.27	$	4.76	$	14.74		12.63
Weighted average shares outstanding:
Basic		31,615,110		32,076,285		31,588,740		32,404,275
Diluted		31,788,812		32,279,820		31,744,856		32,643,161

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,
	2023		2022		2023		2022
Net income	$	167,602	$	153,746	$	467,870	$	412,156
Other comprehensive (loss) income:
Foreign currency translation adjustment		(3,008)		(15,158)		3,029		(14,133)
Comprehensive income	$	164,594	$	138,588	$	470,899	$	398,023

See notes to our unaudited condensed consolidated financial statements.

6

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2023		2022
Cash Flows Provided by (Used in) Operating Activities:
Net income	$	467,870	$	412,156
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		98,216		93,051
Share-based compensation		11,080		9,673
Loss on sale of assets		2,733		76
Amortization of debt issuance costs		2,161		2,147
Provision for bad debt expense		7,380		8,837
Loss from inventory obsolescence		3,617		5,127
Change in certain assets and liabilities:
Receivables, net		(52,482)		(152,578)
Inventories, net		82,960		(101,148)
Prepaid expenses and other current assets		(3,267)		(807)
Accounts payable		(21,361)		49,079
Accrued liabilities		(9,027)		3,469
Other, net		(1,402)		6,548
Net cash provided by operating activities		588,478		335,630
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(48,076)		(56,044)
Acquisition of businesses, net of cash acquired		(147,614)		(20,500)
Proceeds from sale of assets		14,674		2,877
Net cash used in investing activities		(181,016)		(73,667)
Cash Flows Provided by (Used in) Financing Activities:
Repayment of long-term debt		(27,711)		(28,968)
Proceeds from revolving credit facility		—		70,000
Repayment of revolving credit facility		—		(70,000)
Taxes withheld and paid on employees' equity awards		(6,350)		(11,719)
Exercise of stock options		2,489		2,028
Repurchase of shares of common stock		—		(200,050)
Payment of contingent consideration		(300)		(1,674)
Net cash used in financing activities		(31,872)		(240,383)
Impact of exchange rate changes on cash		(47)		(1,975)
Net increase in cash and cash equivalents		375,543		19,605
Cash and cash equivalents - Beginning of period		240,069		139,779
Cash and cash equivalents - End of period	$	615,612	$	159,384
Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	$	45,525	$	80,186
Accruals for property and equipment		305		395

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
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

									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
Net income		-		-		-		167,602		-		167,602
Share-based compensation		-		-		4,194		-		-		4,194
17,409 shares issued upon exercise of stock options		-		-		993		-		-		993
Other comprehensive loss, net of tax		-		-		-		-		(3,008)		(3,008)
Balance at September 30, 2023	$	395	$	(699,149)	$	900,936	$	2,224,537	$	(18,892)	$	2,407,827

See notes to our unaudited condensed consolidated financial statements.

8

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

TopBuild 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, 2023, our results of operations and comprehensive income for the three and nine months ended September 30, 2023 and 2022, and our cash flows for the nine months ended September 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 improved 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 September 30,
	2023								2022
	Installation		Specialty Distribution		Eliminations		Total		Installation		Specialty Distribution		Eliminations		Total
Residential	$	689,232	$	227,245	$	(54,788)	$	861,689	$	662,005	$	245,549	$	(54,533)	$	853,021
Commercial/Industrial		132,441		343,764		(11,774)		464,431		121,051		337,994		(11,068)		447,977
Net sales	$	821,673	$	571,009	$	(66,562)	$	1,326,120	$	783,056	$	583,543	$	(65,601)	$	1,300,998

9

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)