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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

Table of Contents

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

Table of Contents

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

$