10-Q

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, 2024

☐ 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 31,817,709 shares of Common Stock, par value $0.01 per share as of April 30, 2024.

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	26
Item 4.	Controls and Procedures	27
Part II.	Other Information
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
Index to Exhibits		28
Signature		29

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
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
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.
Brabble	Brabble Insulation, 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"
Morris Black	Morris Black & Sons, Inc.
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
PCI	Pest Control Insulation, LLC
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
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
	March 31,		December 31,
	2024		2023
ASSETS
Current assets:
Cash and cash equivalents	$	968,809	$	848,565
Receivables, net of an allowance for credit losses of $22,398 at March 31, 2024, and $23,948 at December 31, 2023		829,221		799,009
Inventories		375,056		364,731
Prepaid expenses and other current assets		29,376		36,939
Total current assets		2,202,462		2,049,244
Right of use assets		201,392		204,629
Property and equipment, net		266,422		264,487
Goodwill		2,052,319		2,042,568
Other intangible assets, net		578,335		591,058
Other assets		9,522		10,865
Total assets	$	5,310,452	$	5,162,851
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	467,863	$	469,585
Current portion of long-term debt		46,230		47,039
Accrued liabilities		201,402		187,217
Short-term operating lease liabilities		67,041		65,780
Short-term finance lease liabilities		1,829		1,917
Total current liabilities		784,365		771,538
Long-term debt		1,362,498		1,373,028
Deferred tax liabilities, net		243,622		243,930
Long-term portion of insurance reserves		60,179		58,783
Long-term operating lease liabilities		142,552		146,213
Long-term finance lease liabilities		3,716		4,150
Other liabilities		1,487		1,554
Total liabilities		2,598,419		2,599,196
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; 39,549,030 shares issued and 31,818,099 outstanding at March 31, 2024, and 39,492,037 shares issued and 31,776,039 outstanding at December 31, 2023		395		394
Treasury stock, 7,730,931 shares at March 31, 2024, and 7,715,998 shares at December 31, 2023, at cost		(705,386)		(699,327)
Additional paid-in capital		912,481		906,334
Retained earnings		2,523,300		2,370,919
Accumulated other comprehensive loss		(18,757)		(14,665)
Total equity		2,712,033		2,563,655
Total liabilities and equity	$	5,310,452	$	5,162,851

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 March 31,
	2024		2023
Net sales	$	1,278,717	$	1,265,238
Cost of sales		891,567		895,023
Gross profit		387,150		370,215
Selling, general, and administrative expense		172,642		170,784
Operating profit		214,508		199,431
Other income (expense), net:
Interest expense		(18,795)		(18,039)
Other, net		11,282		1,923
Other expense, net		(7,513)		(16,116)
Income before income taxes		206,995		183,315
Income tax expense		(54,614)		(47,445)
Net income	$	152,381	$	135,870
Net income per common share:
Basic	$	4.82	$	4.31
Diluted	$	4.79	$	4.28
Weighted average shares outstanding:
Basic		31,641,454		31,550,658
Diluted		31,843,818		31,713,239

See notes to our unaudited condensed consolidated financial statements.

5

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)

	Three Months Ended March 31,
	2024		2023
Net income	$	152,381	$	135,870
Other comprehensive (loss) income:
Foreign currency translation adjustment		(4,092)		1,753
Comprehensive income	$	148,289	$	137,623

See notes to our unaudited condensed consolidated financial statements.

6

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Three Months Ended March 31,
	2024		2023
Cash Flows Provided by (Used in) Operating Activities:
Net income	$	152,381	$	135,870
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		34,257		32,100
Share-based compensation		5,127		3,135
(Gain)/loss on sale of assets		(561)		185
Amortization of debt issuance costs		720		720
Provision for bad debt expense		4,464		1,338
Provision for inventory obsolescence		2,902		1,642
Deferred income taxes, net		(240)		563
Change in certain assets and liabilities:
Receivables, net		(28,486)		(10,847)
Inventories		(12,056)		20,096
Prepaid expenses and other current assets		7,541		11,579
Accounts payable		(2,659)		(25,480)
Accrued liabilities		16,170		(3,339)
Other, net		(783)		2,239
Net cash provided by operating activities		178,777		169,801
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(19,881)		(15,580)
Acquisition of businesses, net of cash acquired		(22,240)		(45,845)
Proceeds from sale of assets		1,608		455
Net cash used in investing activities		(40,513)		(60,970)
Cash Flows Provided by (Used in) Financing Activities:
Repayment of long-term debt		(12,059)		(9,743)
Taxes withheld and paid on employees' equity awards		(6,059)		(6,350)
Exercise of stock options		1,020		1,029
Net cash used in financing activities		(17,098)		(15,064)
Impact of exchange rate changes on cash		(922)		(58)
Net increase in cash and cash equivalents		120,244		93,709
Cash and cash equivalents - Beginning of period		848,565		240,069
Cash and cash equivalents - End of period	$	968,809	$	333,778
Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	$	13,737	$	18,271
Accruals for property and equipment		307		835

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, 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

									Accumulated
	Common		Treasury		Additional				Other
	Stock		Stock		Paid-in		Retained		Comprehensive
	($0.01 par value)		at cost		Capital		Earnings		Loss		Equity
Balance at December 31, 2023	$	394	$	(699,327)	$	906,334	$	2,370,919	$	(14,665)	$	2,563,655
Net income		-		-		-		152,381		-		152,381
Share-based compensation		-		-		5,127		-		-		5,127
Issuance of 51,236 restricted share awards under long-term equity incentive plan, net of forfeitures		1		-		-		-		-		1
14,933 shares withheld to pay taxes on employees' equity awards		-		(6,059)		-		-		-		(6,059)
5,757 shares issued upon exercise of stock options		-		-		1,020		-		-		1,020
Other comprehensive loss, net of tax		-		-		-		-		(4,092)		(4,092)
Balance at March 31, 2024	$	395	$	(705,386)	$	912,481	$	2,523,300	$	(18,757)	$	2,712,033

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 March 31, 2024, our results of operations and comprehensive income for the three months ended March 31, 2024 and 2023, and our cash flows for the three months ended March 31, 2024 and 2023. The condensed consolidated balance sheet at December 31, 2023 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, 2023, as filed with the SEC on February 28, 2024.

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.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures”.  This standard amends Topic 280 to require all entities to disclose, on an annual and interim basis, significant segment expenses and an amount for other segment items by reportable segment.  This standard is effective for fiscal years beginning after December 15, 2023, with early adoption permitted.  We do not anticipate that this standard will affect our consolidated results of operations, financial position or cash flows and we are assessing the impact of adoption in our disclosures to the consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740), Improvements to Income Tax Disclosures”.  This standard amends Topic 740 to require all entities to disclose specific categories in the rate reconciliation, income taxes paid and other income tax information.  This standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted and should be applied on a prospective basis.  We do not anticipate that this standard will affect our consolidated results of operations, financial position or cash flows and we are assessing the impact of its adoption in our disclosures to our consolidated financial statements.

9

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.  REVENUE RECOGNITION

Revenue is disaggregated between our Installation and Specialty Distribution segments and further based on market and product, as we believe this best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.  

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

	Three Months Ended March 31,
	2024								2023
	Installation		Specialty Distribution		Eliminations		Total		Installation		Specialty Distribution		Eliminations		Total
Residential	$	674,436	$	216,397	$	(55,990)	$	834,843	$	645,703	$	224,326	$	(51,390)	$	818,639
Commercial/Industrial		124,307		329,397		(9,830)		443,874		121,387		334,049		(8,837)		446,599
Net sales	$	798,743	$	545,794	$	(65,820)	$	1,278,717	$	767,090	$	558,375	$	(60,227)	$	1,265,238

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

	Three Months Ended March 31,
	2024								2023
	Installation		Specialty Distribution		Eliminations		Total		Installation		Specialty Distribution		Eliminations		Total
Insulation and accessories	$	643,650	$	490,669	$	(57,509)	$	1,076,810	$	600,767	$	502,802	$	(51,973)	$	1,051,596
Glass and windows		58,117		-		-		58,117		63,442		-		-		63,442
Gutters		27,967		40,316		(7,309)		60,974		28,278		39,842		(7,165)		60,955
All other		69,009		14,809		(1,002)		82,816		74,603		15,731		(1,089)		89,245
Net sales	$	798,743	$	545,794	$	(65,820)	$	1,278,717	$	767,090	$	558,375	$	(60,227)	$	1,265,238

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

	Included in Line Item on	As of
		March 31,		December 31,
	Condensed Consolidated Balance Sheets	2024		2023
Contract Assets:
Receivables, unbilled	Receivables, net	$	70,591	$	64,882
Contract Liabilities:
Deferred revenue	Accrued liabilities	$	15,716	$	18,365

The aggregate amount remaining on uncompleted performance obligations was $392.4 million as of March 31, 2024. 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 $82.2 million and $81.9 million as of March 31, 2024 and December 31, 2023, respectively.

10

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 such unit and determination of its fair value.  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 2023, 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, 2024.

Changes in the carrying amount of goodwill for the three months ended March 31, 2024, by segment, were as follows, in thousands:

									Accumulated
	Gross Goodwill				FX Translation		Gross Goodwill		Impairment		Net Goodwill
	December 31, 2023		Additions		Adjustment		March 31, 2024		Losses		March 31, 2024
Goodwill, by segment:
Installation	$	1,901,160	$	4,916	$	-	$	1,906,076	$	(762,021)	$	1,144,055
Specialty Distribution		903,429		6,261		(1,426)		908,264		-		908,264
Total goodwill	$	2,804,589	$	11,177	$	(1,426)	$	2,814,340	$	(762,021)	$	2,052,319

See Note 11 – Business Combinations for goodwill recognized on acquisitions that occurred during the three months ended March 31, 2024.

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, 2024		December 31, 2023
Gross definite-lived intangible assets	$	832,327	$	827,793
Accumulated amortization		(253,992)		(236,735)
Other intangible assets, net	$	578,335	$	591,058

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

	Three Months Ended March 31,
	2024		2023
Amortization expense	$	17,686	$	16,896

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, 2024		December 31, 2023
3.625% Senior Notes due 2029	$	400,000	$	400,000
4.125% Senior Notes due 2032		500,000		500,000
Term loan due 2026		521,250		532,500
Equipment notes		1,230		2,039
Unamortized debt issuance costs		(13,752)		(14,472)
Total debt, net of unamortized debt issuance costs		1,408,728		1,420,067
Less: current portion of long-term debt		46,230		47,039
Total long-term debt	$	1,362,498	$	1,373,028

11

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table sets forth our remaining principal payments for our outstanding debt balances as of March 31, 2024, in thousands:

	2024		2025		2026		2027		2028		Thereafter		Total
3.625% Senior Notes	$	-	$	-	$	-	$	-	$	-	$	400,000	$	400,000
4.125% Senior Notes		-		-		-		-		-		500,000		500,000
Term loan		33,750		48,750		438,750		-		-		-		521,250
Equipment notes		1,230		-		-		-		-		-		1,230
Total	$	34,980	$	48,750	$	438,750	$	-	$	-	$	900,000	$	1,422,480

Credit Agreement

On July 26, 2023, we entered into Amendment No. 4 to our Credit Agreement, which provided for a new $550.0 million Term Facility Two, the proceeds of which were intended to be used, in part, to finance the acquisition of SPI, including the payment of related fees and expenses.  Refer to Note 14 – Subsequent Events for details regarding the termination of our agreement to acquire SPI and Term Facility Two.

The following table outlines the key terms of the Credit Agreement (dollars in thousands):

Senior secured term loan facility	$	600,000
Revolving facility (a)	$	500,000
Sublimit for issuance of letters of credit under revolving facility	$	100,000
Sublimit for swingline loans under revolving facility	$	35,000
Interest rate as of March 31, 2024		6.43	%
Scheduled maturity date		10/7/2026

(a) Use of the sublimits for the issuance of letters of credit and swingline loans reduces the availability under the revolving facility.

Interest expense 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 (Term Facility One); 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 for Term Facility One and in the case of SOFR rate borrowings, the applicable margin ranges from 1.00 percent to 2.50 percent for Term Facility One. 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.  

12

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes our availability under the revolving facility, in thousands:

	As of
	March 31, 2024		December 31, 2023
Revolving facility	$	500,000	$	500,000
Less: standby letters of credit		(63,770)		(63,770)
Availability under revolving facility	$	436,230	$	436,230

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.

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.

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, 2024. The balance of equipment notes, which were issued for the purpose of financing vehicles and equipment, was $1.2 million as of March 31, 2024. The Company’s equipment notes each have a five year term maturing in 2024 and bear interest at fixed rates between 2.8% and 4.4%.

13

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:

	As of March 31, 2024
Maximum Net Leverage Ratio	3.50:1.00
Minimum Interest Coverage Ratio	3.00:1.00
Compliance as of period end	In Compliance

6. FAIR VALUE MEASUREMENTS

Fair Value on Recurring Basis

The carrying values of cash and cash equivalents, receivables, net, and accounts payable are considered to be representative of their respective fair values due to the short-term nature of these instruments. We measure our contingent consideration
liabilities related to business combinations at fair value.

Fair Value on Non-Recurring Basis

Fair value measurements were applied to our long-term debt portfolio. We believe the carrying value of our term loan and equipment notes approximate their fair market value primarily due to the fact that the non-performance risk of servicing our debt obligations, as reflected in our business and credit risk profile, has not materially changed since we assumed our debt obligations under the Credit Agreement. In addition, due to the floating-rate nature of our term loan, the market value is not subject to variability solely due to changes in the general level of interest rates as is the case with a fixed-rate debt obligation. Based on market trades of our 3.625% Senior Notes and our 4.125% Senior Notes close to March 31, 2024 (Level 1 fair value measurement), we estimate the fair value of each in the table below:  

	As of March 31, 2024
		Fair Value		Gross Carrying Value
3.625% Senior Notes	$	364,940	$	400,000
4.125% Senior Notes	$	445,000	$	500,000

14

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.  SEGMENT INFORMATION

The following tables set forth our net sales and operating results by segment, in thousands:

	Three Months Ended March 31,
	2024		2023		2024		2023
	Net Sales				Operating Profit (b)
Operations by segment (a):
Installation	$	798,743	$	767,090	$	156,757	$	146,897
Specialty Distribution		545,794		558,375		77,579		73,333
Intercompany eliminations		(65,820)		(60,227)		(10,761)		(9,971)
Total	$	1,278,717	$	1,265,238		223,575		210,259
General corporate expense, net (c)						(9,067)		(10,828)
Operating profit, as reported						214,508		199,431
Other expense, net						(7,513)		(16,116)
Income before income taxes					$	206,995	$	183,315

(a) All of our operations are located primarily in the U.S. and to a lesser extent Canada.

(b) Segment operating profit includes an allocation of general corporate expenses attributable to the operating segments which is based on direct benefit or usage (such as salaries of corporate employees who directly support the segment).

(c) General corporate expense, net includes expenses not specifically attributable to our segments for functions such as corporate human resources, finance, and legal, including salaries, benefits, and other related costs.

8.  INCOME TAXES    

Our effective tax rates were 26.4 percent and 25.9 percent for the three months ended March 31, 2024 and March 31, 2023, respectively. The higher 2024 tax rate was primarily related to an increase in tax expense related to share-based compensation.

A tax expense of $2.0 million related to share-based compensation was recognized in our condensed consolidated statements of operations as a discrete item in income tax expense for the three months ended March 31, 2024.

15

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. NET INCOME PER SHARE

Basic net income per share is calculated by dividing net income by the number of weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net income per share is calculated by adjusting the number of weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury stock method.

Basic and diluted net income per share were computed as follows:

	Three Months Ended March 31,
	2024		2023
Net income (in thousands)	$	152,381	$	135,870
Weighted average number of common shares outstanding - basic		31,641,454		31,550,658
Dilutive effect of common stock equivalents:
RSAs with service-based conditions		41,832		22,643
RSAs with market-based conditions		50,955		24,861
RSAs with performance-based conditions		14,429		29,031
Stock options		95,148		86,046
Weighted average number of common shares outstanding - diluted		31,843,818		31,713,239
Basic net income per common share	$	4.82	$	4.31
Diluted net income per common share	$	4.79	$	4.28

The following table summarizes shares excluded from the calculation of diluted net income per share because their effect would have been anti-dilutive:

	Three Months Ended March 31,
	2024		2023
Anti-dilutive common stock equivalents:
RSAs with service-based conditions		14		11,163
RSAs with market-based conditions		-		8,933
RSAs with performance-based conditions		-		-
Stock options		-		22,280
Total anti-dilutive common stock equivalents		14		42,376

10. SHARE-BASED COMPENSATION

Eligible employees participate in the 2015 LTIP, which authorizes the Board to grant stock options, stock appreciation rights, restricted shares, restricted share units, performance awards, and dividend equivalents.  All grants are made by issuing new shares and no more than 4.0 million shares of common stock may be issued under the 2015 LTIP. As of March 31, 2024, we had 1.7 million shares remaining available for issuance under the 2015 LTIP.

Share-based compensation expense is included in selling, general, and administrative expense. The income tax effect associated with share-based compensation awards is included in income tax expense.  

16

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents share-based compensation amounts recognized in our condensed consolidated statements of operations, in thousands:

	Three Months Ended March 31,
	2024		2023
Share-based compensation expense	$	5,127	$	3,135
Income tax expense	$	(2,009)	$	(45)

The following table presents a summary of our share-based compensation activity for the three months ended March 31, 2024, in thousands, except per share amounts:

	RSAs			Stock Options
	Number of Shares	Weighted Average Grant Date Fair Value Per Share		Number of Shares	Weighted Average Grant Date Fair Value Per Share		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Balance December 31, 2023	195.5	$	223.49	128.7	$	36.65	$	98.58	$	35,462.8
Granted	42.6	$	419.56	—	$	—	$	—		—
Converted/Exercised	(48.2)	$	230.09	(5.8)	$	70.25	$	177.53	$	1,355.3
Forfeited/Expired	(2.2)	$	276.34	—	$	—	$	—		—
Balance March 31, 2024	187.7	$	265.84	122.9	$	35.08	$	94.88	$	42,498.1
Exercisable March 31, 2024 (a)				122.9	$	35.08	$	94.88	$	42,498.1

(a) The weighted average remaining contractual term for vested stock options is approximately 5.1 years.

We have unrecognized share-based compensation expense related to unvested awards as shown in the following table, dollars in thousands:

	As of March 31, 2024
	Unrecognized Compensation Expense on Unvested Awards		Weighted Average Remaining Compensation Expense Period
RSAs	$	31,455		1.2
Stock options		—		—
Total unrecognized compensation expense related to unvested awards	$	31,455

Our RSAs with performance-based conditions are evaluated on a quarterly basis with adjustments to compensation expense based on the likelihood of the performance target being achieved or exceeded. The following table shows the range of payouts and the related expense for our outstanding RSAs with performance-based conditions, in thousands:

			Payout Ranges and Related Expense
RSAs with Performance-Based Conditions	Grant Date Fair Value		0%		25%		100%		200%
February 15, 2022	$	2,986	$	-	$	747	$	2,986	$	5,972
February 21, 2023	$	4,054	$	-	$	1,014	$	4,054	$	8,108
February 21, 2024	$	4,846	$	-	$	1,212	$	4,846	$	9,692

During the first quarter of 2024, RSAs with performance-based conditions that were granted on February 16, 2021 vested based on cumulative three-year achievement of 200%. Total compensation expense recognized over the three-year performance period, net of forfeitures, was $4.4 million.

17

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair value of our RSAs with a market-based condition granted under the 2015 LTIP was determined using a Monte Carlo simulation. The following are key inputs in the Monte Carlo analysis for awards granted in 2024, 2023, and 2022:

	2024			2023			2022
Measurement period (years)		2.86			2.86			2.87
Risk free interest rate		4.36	%		4.42	%		1.76	%
Dividend yield		0.00	%		0.00	%		0.00	%
Estimated fair value of market-based RSAs at grant date	$	503.68		$	270.64		$	298.20

11. BUSINESS COMBINATIONS

Acquiring businesses is a key part of our ongoing strategy to grow our company and expand our market share. Each acquisition has been accounted for as a business combination under ASC 805, “Business Combinations.” Acquisition related costs were $0.5 million and $1.7 million in the three months ended March 31, 2024 and 2023, respectively. Acquisition related costs are included in selling, general, and administrative expense in our condensed consolidated statements of operations.

On February 15, 2024, we acquired the assets of the residential and light commercial insulation business Brabble. This installation acquisition enhanced our presence in North Carolina. The purchase price of $5.4 million was funded by cash on hand and we recognized $3.0 million of goodwill in connection with this acquisition.

On March 1, 2024, we acquired the assets of the residential insulation business Morris Black. This installation acquisition enhanced our presence in the Pennsylvania market. The purchase price of $3.6 million was funded by cash on hand and we recognized $2.0 million of goodwill in connection with this acquisition.

On March 1, 2024, we acquired the assets of the customized insulation products and accessories business PCI. This specialty distribution acquisition has a national customer base focused on the domestic pest control industry.  The purchase price of $13.3 million was funded by cash on hand and we recognized $6.3 million of goodwill in connection with this acquisition.

The estimate of acquired customer relationships related to our 2024 acquisitions was $6.0 million and the weighted average useful life is 12 years.

As third-party or internal valuations are finalized, certain tax aspects of the foregoing transactions are completed, and customer post-closing reviews are concluded, adjustments may be made to the fair value of assets acquired, and in some cases total purchase price, through the end of each measurement period, generally one year following the applicable acquisition date.  

During the three months ended March 31, 2023, we acquired SRI and the purchase price of $45.3 was funded by cash on hand and we recognized goodwill of $23.1 million in connection with this acquisition.

Goodwill to be recognized in connection with acquisitions is attributable to the synergies expected to be realized and improvements in the businesses after the acquisitions. Primarily all of the $11.2 million and $23.1 million of goodwill recorded from acquisitions completed in the three months ended March 31, 2024 and 2023, respectively, is expected to be deductible for income tax purposes.

18

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12.  ACCRUED LIABILITIES

The following table sets forth the components of accrued liabilities, in thousands:

	As of
	March 31, 2024		December 31, 2023
Accrued liabilities:
Salaries, wages, and bonus/commissions	$	53,145	$	67,471
Income tax payable		46,554		389
Insurance liabilities		31,197		29,920
Sales and property taxes		15,986		17,002
Deferred revenue		15,716		18,365
Customer rebates		12,177		17,326
Interest payable on long-term debt		3,357		12,139
Other		23,270		24,605
Total accrued liabilities	$	201,402	$	187,217

See Note 3 – Revenue Recognition for discussion of our deferred revenue balances. Accrued income taxes payable increased significantly compared to December 31, 2023 due to timing of tax payments, which typically occur later in the year.

13.  OTHER COMMITMENTS AND CONTINGENCIES

Litigation.  We are subject to certain claims, charges, litigation, and other proceedings in the ordinary course of our business, including those arising from or related to contractual matters, intellectual property, personal injury, environmental matters, product liability, product recalls, construction defects, insurance coverage, personnel and employment disputes, antitrust, and other matters, including class actions. We believe we have adequate defenses in these matters, and we do not believe that the ultimate outcome of these matters will have a material adverse effect on us.  However, there is no assurance that we will prevail in any of these pending matters, and we could in the future incur judgments, enter into settlements of claims, or revise our expectations regarding the outcome of these matters, which could materially impact our liquidity and our results of operations.

Other Matters.  We enter into contracts, which include customary indemnities that are standard for the industries in which we operate. Such indemnities include, among other things, claims against our builder customers for issues relating to our workmanship. We generally exclude from our contracts with builder customers indemnity relating to product quality and warranty claims, as we pass such claims directly to the manufacturers of the products we install or distribute. In conjunction with divestitures and other transactions, we occasionally provide customary indemnities relating to various items including, among others, the enforceability of trademarks, legal and environmental issues, and asset valuations. We evaluate the probability that we may incur liabilities under these customary indemnities and appropriately record an estimated liability when deemed probable.

We also maintain indemnification agreements with our directors and officers that may require us to indemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by applicable law.

We occasionally use performance bonds to ensure completion of our work on certain larger customer contracts that can span multiple accounting periods. Performance bonds generally do not have stated expiration dates; rather, we are released from the bonds as the contractual performance is completed. We also have bonds outstanding for license and insurance.

19

TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes our outstanding performance, licensing, insurance, and other bonds, in thousands:

	As of
	March 31, 2024		December 31, 2023
Outstanding bonds:
Performance bonds	$	141,380	$	145,982
Licensing, insurance, and other bonds		27,979		27,415
Total bonds	$	169,359	$	173,397

14.  SUBSEQUENT EVENTS

On April 22, 2024, we agreed to a mutual termination of our previous agreement to acquire SPI, originally announced on July 27, 2023. We withdrew our Hart-Scott Rodino filings and were required to pay a termination fee of $23.0 million to the seller under the terms of the purchase agreement. In connection with the termination of the SPI acquisition, the Company terminated the commitments with respect to its undrawn Term Facility Two which was provided pursuant to Amendment No. 4. All other terms of the Company’s Credit Agreement, as amended, remain in full force and effect.

On May 3, 2024, our Board authorized the 2024 Repurchase Program, pursuant to which the Company may purchase up to $1.0 billion of our common stock.  Share repurchases may be executed through various means including open market purchases, privately negotiated transactions, accelerated share repurchase transactions, or other available means.  The 2024 Repurchase Program does not obligate the Company to purchase any shares and has no expiration date.  Authorization for the 2024 Repurchase Program may be terminated, increased, or decreased by the Board at its discretion at any time.

On May 3, 2024, we entered into an agreement to acquire the assets of the residential insulation business Insulation Works, Inc., which is expected to close in mid-May 2024. This installation acquisition will enhance our presence in the Arkansas market and extend our expertise to the agricultural market. The purchase price of approximately $25.2 million is expected to be funded by cash on hand. This acquisition will be accounted for as a business combination under ASC 805, “Business Combinations.”

20

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

TopBuild, headquartered in Daytona Beach, Florida, is a leading installer and specialty distributor of insulation and other building material products to the construction industry in the United States and Canada.

We operate in two segments: Installation and Specialty Distribution. Our Installation segment installs insulation and other building products nationwide. As of March 31, 2024, we had approximately 240 Installation branches located across the United States. We install various insulation applications, including fiberglass batts and rolls, blown-in loose fill fiberglass, polyurethane spray foam, and blown-in loose fill cellulose. Additionally, we install other building products including glass and windows, rain gutters, garage doors, closet shelving, and fireplaces, among other items. We handle every stage of the installation process, including material procurement supplied by leading manufacturers, project scheduling and logistics, multi-phase professional installation, and installation quality assurance.

Our Specialty Distribution segment distributes building and mechanical insulation, insulation accessories, rain gutters, and other building product materials for the residential and commercial/industrial end markets. As of March 31, 2024, we had approximately 150 distribution centers located across the United States and 18 distribution centers in Canada. Our Specialty Distribution customer base consists of thousands of insulation contractors of all sizes serving a wide variety of residential and commercial/industrial industries, gutter contractors, weatherization contractors, other contractors, dealers, metal building erectors, and modular home builders.

We believe that having both Installation and Specialty Distribution provides us with several distinct competitive advantages.  First, the combined buying power of our two business segments, along with our scale, strengthens our ties to the major manufacturers of insulation and other building material products. This helps to ensure we are buying competitively and ensures the availability of supply to our local branches and distribution centers.  The overall effect is driving efficiencies through our supply chain. Second, being a leader in both installation and specialty distribution allows us to reach a broader set of builders and contractors more effectively, regardless of their size or geographic location in the U.S. and Canada, and leverage housing and commercial/industrial construction growth wherever it occurs. Third, during housing industry downturns, many insulation contractors who buy directly from manufacturers during industry peaks return to purchasing through specialty distributors. As a result, this helps to reduce our exposure to cyclical swings in our business.

For additional details pertaining to our operating results by segment, see Note 7 – Segment Information to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report. For additional details regarding our strategy, material trends in our business and seasonality, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the year ended December 31, 2023, as filed with the SEC on February 28, 2024.

The following discussion and analysis contains forward-looking statements and should be read in conjunction with the unaudited condensed consolidated financial statements, the notes thereto, and the section entitled “Forward-Looking Statements” included in this Quarterly Report.

21

FIRST QUARTER 2024 VERSUS FIRST QUARTER 2023

The following table sets forth our net sales, gross profit, operating profit, and margins, as reported in our condensed consolidated statements of operations, in thousands:

	Three Months Ended March 31,
	2024			2023
Net sales	$	1,278,717		$	1,265,238
Cost of sales		891,567			895,023
Cost of sales ratio		69.7	%		70.7	%
Gross profit		387,150			370,215
Gross profit margin		30.3	%		29.3	%
Selling, general, and administrative expense		172,642			170,784
Selling, general, and administrative expense to sales ratio		13.5	%		13.5	%
Operating profit		214,508			199,431
Operating profit margin		16.8	%		15.8	%
Other expense, net		(7,513)			(16,116)
Income tax expense		(54,614)			(47,445)
Net income	$	152,381		$	135,870
Net margin		11.9	%		10.7	%

Sales and Operations

Net sales increased 1.1% for the three months ended March 31, 2024, from the comparable period of 2023. The increase was primarily driven by a 2.3% increase in sales from acquisitions and a 1.3% impact from higher selling prices, partially offset by a 2.0% decline in sales volume and a decline of 0.5% driven by the disposition of a non-core business.

Gross profit margins were 30.3% and 29.3% for the three months ended March 31, 2024 and 2023, respectively. Gross profit margin improved primarily due to productivity initiatives and higher selling prices.

Selling, general, and administrative expenses as a percentage of sales were 13.5% for the three months ended March 31, 2024 and 2023, respectively. Selling, general, and administrative expenses were relatively flat to the prior year period.

Operating margins were 16.8% and 15.8% for the three months ended March 31, 2024 and 2023, respectively. The increase in operating margins was due to productivity initiatives and higher selling prices, partially offset by higher material costs and lower sales volume in our Specialty Distribution segment.

22

Business Segment Results

The following table sets forth our net sales and operating profit margins by business segment, in thousands:

	Three Months Ended March 31,
	2024			2023			Percent Change
Net sales by business segment:
Installation	$	798,743		$	767,090		4.1	%
Specialty Distribution		545,794			558,375		(2.3)	%
Intercompany eliminations		(65,820)			(60,227)
Net sales	$	1,278,717		$	1,265,238		1.1	%
Operating profit by business segment:
Installation	$	156,757		$	146,897		6.7	%
Specialty Distribution		77,579			73,333		5.8	%
Intercompany eliminations		(10,761)			(9,971)
Operating profit before general corporate expense		223,575			210,259		6.3	%
General corporate expense, net		(9,067)			(10,828)
Operating profit	$	214,508		$	199,431		7.6	%
Operating profit margins:
Installation		19.6	%		19.1	%
Specialty Distribution		14.2	%		13.1	%
Operating profit margin before general corporate expense		17.5	%		16.6	%
Operating profit margin		16.8	%		15.8	%

Installation

Sales

Sales in our Installation segment increased $31.7 million, or 4.1%, for the three months ended March 31, 2024, as compared to the same period in 2023. Sales increased 3.5% from acquisitions, 1.2% from higher selling prices, and 0.3% due to higher sales volume, partially offset by a decline of 0.9% driven by the disposition of a non-core business.

Operating margins

Operating margins in our Installation segment were 19.6% and 19.1% for the three months ended March 31, 2024 and 2023, respectively. The increase in operating margin was driven by productivity initiatives and higher selling prices which were partially offset by higher material costs.

Specialty Distribution

Sales

Sales in our Specialty Distribution segment decreased $12.6 million, or 2.3%, for the three months ended March 31, 2024, as compared to the same period in 2023. Sales decreased 4.2% from decline of sales volume, partially offset by 1.5% increase in higher selling prices and 0.4% increase from acquisitions.

Operating margins

Operating margins in our Specialty Distribution segment were 14.2% and 13.1% for the three months ended March 31, 2024 and 2023, respectively.  The increase in operating margin was driven by productivity initiatives and higher selling prices, partially offset by higher material costs and lower sales volume.

23

OTHER ITEMS

Other expense, net

Other expense, net, decreased to $7.5 million for the three months ended March 31, 2024 from $16.1 million in the three months ended March 31, 2023. The decrease was driven by $9.0 million higher interest income due to increased cash balances and higher deposit rates compared to the three months ended March 31, 2023. Interest expense increased by $0.8 million for the three months ended March 31, 2024 due to higher interest rates on borrowings under the Credit Agreement compared to the same period in 2023.

Income tax expense

Income tax expense was $54.6 million, an effective tax rate of 26.4 percent, for the three months ended March 31, 2024, compared to $47.4 million, an effective tax rate of 25.9 percent, for the comparable period in 2023. The tax rate for the three months ended March 31, 2024, was higher primarily related to an increase in tax expense related to share-based compensation.

Cash Flows and Liquidity

Significant sources (uses) of cash and cash equivalents are summarized for the periods indicated, in thousands:

	Three Months Ended March 31,
	2024		2023
Changes in cash and cash equivalents:
Net cash provided by operating activities	$	178,777	$	169,801
Net cash used in investing activities		(40,513)		(60,970)
Net cash used in financing activities		(17,098)		(15,064)
Impact of exchange rate changes on cash		(922)		(58)
Net increase in cash and cash equivalents	$	120,244	$	93,709

Net cash flows provided by operating activities increased $9.0 million for the three months ended March 31, 2024, as compared to the prior year period primarily due to the increase of net income of $16.5 million compared with the prior year period.

Net cash used in investing activities was $40.5 million for the three months ended March 31, 2024, primarily composed of $22.2 million for our acquisitions and $19.9 million for purchases of property and equipment, mainly vehicles, partially offset by $1.6 million proceeds received from the sale of assets. Net cash used in investing activities was $61.0 million for the three months ended March 31, 2023, primarily composed of $45.8 million for the acquisition of SRI and $15.6 million for purchases of property and equipment, mainly vehicles and machinery & equipment.

Net cash used in financing activities was $17.1 million for the three months ended March 31, 2024.  During the three months ended March 31, 2024, we used $12.1 million for debt repayments and incurred $5.0 million net cash outflow related to exercise of share-based incentive awards and stock options. Net cash used in financing activities was $15.1 million for the three months ended March 31, 2023. During the three months ended March 31, 2023, we used $9.7 million for debt repayments, and $5.3 million net activity related to exercise of share-based incentive awards and stock options.

We have access to liquidity through our cash from operations and available borrowing capacity under our Credit Agreement, which provides for borrowing and/or standby letter of credit issuances of up to $500 million under the Revolving Facility. Additional information regarding our outstanding debt and borrowing capacity is incorporated by reference from Note 5 – Long-term Debt to our unaudited condensed consolidated financial statements contained in Part 1, Item 1 of this Quarterly Report.  

24

The following table summarizes our liquidity, in thousands:

	As of
	March 31,		December 31,
	2024		2023
Cash and cash equivalents (a)	$	968,809	$	848,565
Revolving facility		500,000		500,000
Less: standby letters of credit		(63,770)		(63,770)
Availability under Revolving facility		436,230		436,230
Total liquidity	$	1,405,039	$	1,284,795

(a) Our cash and cash equivalents consist of AAA-rated money market funds as well as cash held in our demand deposit accounts.

We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to support our ongoing operations and known contractual obligations including funding our debt service requirements, capital expenditures, lease obligations and working capital needs for at least the next twelve months. We also have adequate liquidity to maintain off-balance sheet arrangements for short-term leases, letters of credit, and performance and license bonds. Information regarding our outstanding bonds as of March 31, 2024, is incorporated by reference from Note 13 – Other Commitments and Contingencies to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report.

OUTLOOK

Residential New Construction

Home builders continue to report improving demand resulting in single-family housing starts that improved in the first quarter in comparison to the prior year.  Multifamily construction activity also remains strong but starts have slowed, in comparison to the prior year.  While there is a strong backlog of multi-family units that need to be completed, we do expect multifamily activity to decline as we move towards 2025. Single-family housing is a larger proportion of the overall housing market as well as a larger proportion of our market share. Overall, despite uncertainty around the economy and the impact of higher interest rates, we remain optimistic about the long-term fundamentals of the U.S. housing market, supported by a limited supply of both new and existing homes, favorable demographic trends, and increasing household formations. 

Commercial and Industrial Construction

Our commercial backlog is strong, and our bidding activity is active, both of which continue to support our optimistic view of commercial/industrial sales at our Installation and Specialty Distribution segments.  There are many major projects being planned across several different industries fueling demand. In addition, maintenance and repair work on industrial sites will serve as a continued driver for our Specialty Distribution business.

OFF-BALANCE SHEET ARRANGEMENTS

We had no material off-balance sheet arrangements during the three months ended March 31, 2024, other than short-term leases, letters of credit, and performance and license bonds, which have been disclosed in Part 1, Item 1 of this Quarterly report.

CONTRACTUAL OBLIGATIONS

There have been no material changes to our contractual obligations from those previously disclosed in our Annual Report for the year ended December 31, 2023, as filed with the SEC on February 28, 2024.

25

CRITICAL ACCOUNTING POLICIES

We prepare our condensed consolidated financial statements in conformity with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. Our critical accounting policies have not changed from those previously reported in our Annual Report for the year ended December 31, 2023, as filed with the SEC on February 28, 2024.

APPLICATION OF NEW ACCOUNTING STANDARDS

Information regarding application of new accounting standards is incorporated by reference from Note 2 – Accounting Policies to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report.

FORWARD-LOOKING STATEMENTS

Statements contained in this report that reflect our views about future periods, including our future plans and performance, constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “will,” “would,” “should,” “anticipate,” “expect,” “believe,” “designed,” “plan,” “may,” “project,” “estimate”  or “intend,” the negative of these terms, and similar references to future periods.  These views involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forward-looking statements. We caution you against unduly relying on any of these forward-looking statements. Our future performance may be affected by the duration and impact of negative macro-economic impacts on the United States economy, specifically with respect to residential, commercial/industrial construction, our ability to collect our receivables from our customers, our reliance on residential new construction, residential repair/remodel, and commercial/industrial construction; our reliance on third-party suppliers and manufacturers; our ability to attract, develop, and retain talented personnel and our sales and labor force; our ability to maintain consistent practices across our locations; our ability to maintain our competitive position; and our ability to realize the expected benefits of our acquisitions. We discuss the material risks we face under the caption entitled “Risk Factors” in our Annual Report for the year ended December 31, 2023, as filed with the SEC on February 28, 2024, as well as under the caption entitled “Risk Factors” in subsequent reports that we file with the SEC. Our forward-looking statements in this filing speak only as of the date of this filing. Factors or events that could cause our actual results to differ may emerge from time to time and it is not possible for us to predict all of them.  Unless required by law, we undertake no obligation to update publicly any forward-looking statements as a result of new information, future events, or otherwise.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We have a Term Loan outstanding with a principal balance of $521.3 million and a revolving facility with an aggregate borrowing capacity of $500.0 million. We also have outstanding 3.625% Senior Notes with an aggregate principal balance of $400.0 million and 4.125% Senior Notes with an aggregate principal balance of $500.0 million. The 3.625% Senior Notes and 4.125% Senior Notes bear a fixed rate of interest and therefore are excluded from the calculation below as they are not subject to fluctuations in interest rates.

Interest payable on both the aggregate Term Loan and Revolving Facility is based on a variable interest rate.  As a result, we are exposed to market risks related to fluctuations in interest rates on this outstanding indebtedness. As of March 31, 2024, the applicable interest rate as of such date was 6.43%. Based on our outstanding borrowings as of March 31, 2024, a 100-basis point increase in the interest rate would result in a $5.0 million increase in our annualized interest expense. There was no outstanding balance under the Revolving Facility as of March 31, 2024.

26

Item 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2024.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) in the most recent fiscal quarter ended March 31, 2024, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

The information set forth under the caption “Litigation” in Note 13 – Other Commitments and Contingencies to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report, is incorporated by reference herein.

Item 1A.  RISK FACTORS

There have been no material changes to our risk factors as previously disclosed in our Annual Report for the year ended December 31, 2023, as filed with the SEC on February 28, 2024 which are incorporated by reference herein.

Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On July 25, 2022, our Board authorized the 2022 Repurchase Program, pursuant to which the Company may purchase up to $200 million of our common stock. There were no share repurchases executed during the three months ended March 31, 2024, leaving $154.4 million remaining under the 2022 Share Repurchase Program. Excluded from this disclosure are shares repurchased to settle statutory employee tax withholdings related to the vesting of stock awards.

Item 3.  DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4.  MINE SAFETY DISCLOSURES

Not applicable.

Item 5.  OTHER INFORMATION

During the quarter ended March 31, 2024, no director or officer (as defined in Rule 16a-1(f) promulgated under the Exchange Act) of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" (as each term is defined in Item 408 of Regulation S-K).

Item 6. EXHIBITS

The Exhibits listed on the accompanying Index to Exhibits are filed or furnished (as noted on such Index) as part of this Quarterly Report and incorporated herein by reference.

27

INDEX TO EXHIBITS

		Incorporated by Reference			Filed
Exhibit No.	Exhibit Title	Form	Exhibit	Filing Date	Herewith
31.1	Principal Executive Officer Certification required by Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
31.2	Principal Financial Officer Certification required by Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
32.1‡	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2‡	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
101.INS	Inline XBRL Instance Document - the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document				X
101.SCH	Inline XBRL Taxonomy Extension Schema Document				X
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document				X
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document				X
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document				X
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document				X
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)				X
	‡Furnished herewith

28

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TOPBUILD CORP.
By:	/s/ Madeline Otero
Name:	Madeline Otero
Title:	Vice President and Chief Accounting Officer
	(Principal Accounting Officer)

May 7, 2024

29

EX-31.1

Exhibit 31.1

Certifications

I, Robert Buck, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TopBuild Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 7, 2024	/s/ Robert Buck
	Robert Buck
	Chief Executive Officer and Director
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certifications

I, Robert Kuhns, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TopBuild Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 7, 2024	/s/ Robert Kuhns
	Robert Kuhns
	Vice President and Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF PERIOD REPORT

I, Robert Buck, Chief Executive Officer and Director of TopBuild Corp. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to the best of my knowledge:

(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 7, 2024	/s/ Robert Buck
	Robert Buck
	Chief Executive Officer and Director
	(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION OF PERIOD REPORT

I, Robert Kuhns, Vice President and Chief Financial Officer of TopBuild Corp. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to the best of my knowledge:

(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 7, 2024	/s/ Robert Kuhns
	Robert Kuhns
	Vice President and Chief Financial Officer
	(Principal Financial Officer)

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2024	Apr. 30, 2024
Cover page.
Document Type	10-Q
Document Period End Date	Mar. 31, 2024
Document Transition Report	false
Entity File Number	001-36870
Entity Registrant Name	TopBuild Corp
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	47-3096382
Entity Address, Address Line One	475 North Williamson Boulevard
Entity Address, City or Town	Daytona Beach
Entity Address, State or Province	FL
Entity Address, Postal Zip Code	32114
City Area Code	386
Local Phone Number	304-2200
Title of 12(b) Security	Common stock, par value $0.01 per share
Trading Symbol	BLD
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		31,817,709
Amendment Flag	false
Entity Central Index Key	0001633931
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2024
Document Fiscal Period Focus	Q1
Document Quarterly Report	true

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Current assets:
Cash and cash equivalents	$ 968,809	$ 848,565
Receivables, net of an allowance for credit losses of $23,948 at March 31, 2024, and $23,948 at December 31, 2023	829,221	799,009
Inventories	375,056	364,731
Prepaid expenses and other current assets	29,376	36,939
Total current assets	2,202,462	2,049,244
Right of use assets	201,392	204,629
Property and equipment, net	266,422	264,487
Goodwill	2,052,319	2,042,568
Other intangible assets, net	578,335	591,058
Other assets	9,522	10,865
Total assets	5,310,452	5,162,851
Current liabilities:
Accounts payable	467,863	469,585
Current portion of long-term debt	46,230	47,039
Accrued liabilities	201,402	187,217
Short-term operating lease liabilities	67,041	65,780
Short-term finance lease liabilities	1,829	1,917
Total current liabilities	784,365	771,538
Long-term debt	1,362,498	1,373,028
Deferred tax liabilities, net	243,622	243,930
Long-term portion of insurance reserves	60,179	58,783
Long-term operating lease liabilities	142,552	146,213
Long-term finance lease liabilities	3,716	4,150
Other liabilities	1,487	1,554
Total liabilities	2,598,419	2,599,196
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; 39,549,030 shares issued and 31,818,099 outstanding at March 31, 2024, and 39,492,037 shares issued and 31,776,039 outstanding at December 31, 2023	395	394
Treasury stock, 7,730,931 shares at March 31, 2024, and 7,715,998 shares at December 31, 2023, at cost	(705,386)	(699,327)
Additional paid-in capital	912,481	906,334
Retained earnings	2,523,300	2,370,919
Accumulated other comprehensive loss	(18,757)	(14,665)
Total equity	2,712,033	2,563,655
Total liabilities and equity	$ 5,310,452	$ 5,162,851

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
CONSOLIDATED BALANCE SHEETS
Allowance for credit losses	$ 22,398	$ 23,948
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares, issued	0	0
Preferred stock, shares, outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	250,000,000	250,000,000
Common stock, shares issued	39,549,030	39,492,037
Common stock, shares outstanding	31,818,099	31,776,039
Treasury stock, shares at cost	7,730,931	7,715,998

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales	$ 1,278,717	$ 1,265,238
Cost of sales	891,567	895,023
Gross profit	387,150	370,215
Selling, general, and administrative expense	172,642	170,784
Operating profit	214,508	199,431
Other income (expense), net:
Interest expense	(18,795)	(18,039)
Other, net	11,282	1,923
Other expense, net	(7,513)	(16,116)
Income before income taxes	206,995	183,315
Income tax expense	(54,614)	(47,445)
Net income	$ 152,381	$ 135,870
Net income per common share:
Basic	$ 4.82	$ 4.31
Diluted	$ 4.79	$ 4.28
Weighted average shares outstanding:
Basic	31,641,454	31,550,658
Diluted	31,843,818	31,713,239

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 152,381	$ 135,870
Other comprehensive (loss) income:
Foreign currency translation adjustment	(4,092)	1,753
Comprehensive income	$ 148,289	$ 137,623

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Cash Flows Provided by (Used in) Operating Activities:
Net income	$ 152,381	$ 135,870
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	34,257	32,100
Share-based compensation	5,127	3,135
(Gain)/loss on sale of assets	(561)	185
Amortization of debt issuance costs	720	720
Provision for bad debt expense	4,464	1,338
Provision for inventory obsolescence	2,902	1,642
Deferred income taxes, net	(240)	563
Change in certain assets and liabilities:
Receivables, net	(28,486)	(10,847)
Inventories	(12,056)	20,096
Prepaid expenses and other current assets	7,541	11,579
Accounts payable	(2,659)	(25,480)
Accrued liabilities	16,170	(3,339)
Other, net	(783)	2,239
Net cash provided by operating activities	178,777	169,801
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment	(19,881)	(15,580)
Acquisition of businesses, net of cash acquired	(22,240)	(45,845)
Proceeds from sale of assets	1,608	455
Net cash used in investing activities	(40,513)	(60,970)
Cash Flows Provided by (Used in) Financing Activities:
Repayment of long-term debt	(12,059)	(9,743)
Taxes withheld and paid on employees' equity awards	(6,059)	(6,350)
Exercise of stock options	1,020	1,029
Net cash (used in) provided by financing activities	(17,098)	(15,064)
Cash and Cash Equivalents
Impact of exchange rate changes on cash	(922)	(58)
Net increase in cash and cash equivalents	120,244	93,709
Cash and cash equivalents- Beginning of period	848,565	240,069
Cash and cash equivalents- End of period	968,809	333,778
Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	13,737	18,271
Accruals for property and equipment	$ 307	$ 835

XML

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock	Treasury Stock at Cost	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive (Loss) Income	Total
Balance at Dec. 31, 2022	$ 393	$ (692,799)	$ 887,367	$ 1,756,665	$ (21,920)	$ 1,929,706
Increase (Decrease) in Stockholders' Equity
Net income				135,870		135,870
Share-based compensation			3,135			3,135
Issuance of restricted share awards under long-term equity incentive plan	2					2
Shares withheld to pay taxes on employees' equity awards		(6,350)				(6,350)
Shares issued upon exercise of stock options			1,028			1,028
Other comprehensive income (loss), net of tax					1,753	1,753
Balance at Mar. 31, 2023	395	(699,149)	891,530	1,892,535	(20,167)	2,065,144
Balance at Dec. 31, 2023	394	(699,327)	906,334	2,370,919	(14,665)	2,563,655
Increase (Decrease) in Stockholders' Equity
Net income				152,381		152,381
Share-based compensation			5,127			5,127
Issuance of restricted share awards under long-term equity incentive plan, net of forfeitures	1					1
Shares withheld to pay taxes on employees' equity awards		(6,059)				(6,059)
Shares issued upon exercise of stock options			1,020			1,020
Other comprehensive income (loss), net of tax					(4,092)	(4,092)
Balance at Mar. 31, 2024	$ 395	$ (705,386)	$ 912,481	$ 2,523,300	$ (18,757)	$ 2,712,033

XML

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Issuance of restricted share awards under long-term equity incentive plan, net of forfeitures (in shares)	51,236	95,012
Number of shares withheld to pay taxes on employees' equity awards (in shares)	14,933	32,594
Shares issued upon exercise of stock options (in shares)	5,757	28,840

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2024

Basis of Presentation

Basis of Presentation

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 March 31, 2024, our results of operations and comprehensive income for the three months ended March 31, 2024 and 2023, and our cash flows for the three months ended March 31, 2024 and 2023. The condensed consolidated balance sheet at December 31, 2023 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, 2023, as filed with the SEC on February 28, 2024.

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Accounting Policies

3 Months Ended

Mar. 31, 2024

Accounting Policies

Accounting Policies

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.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures”.  This standard amends Topic 280 to require all entities to disclose, on an annual and interim basis, significant segment expenses and an amount for other segment items by reportable segment.  This standard is effective for fiscal years beginning after December 15, 2023, with early adoption permitted.  We do not anticipate that this standard will affect our consolidated results of operations, financial position or cash flows and we are assessing the impact of adoption in our disclosures to the consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740), Improvements to Income Tax Disclosures”.  This standard amends Topic 740 to require all entities to disclose specific categories in the rate reconciliation, income taxes paid and other income tax information.  This standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted and should be applied on a prospective basis.  We do not anticipate that this standard will affect our consolidated results of operations, financial position or cash flows and we are assessing the impact of its adoption in our disclosures to our consolidated financial statements.

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Revenue Recognition

3 Months Ended

Mar. 31, 2024

Revenue Recognition

Revenue Recognition

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 March 31,
	2024								2023
	Installation		Specialty Distribution		Eliminations		Total		Installation		Specialty Distribution		Eliminations		Total
Residential	$	674,436	$	216,397	$	(55,990)	$	834,843	$	645,703	$	224,326	$	(51,390)	$	818,639
Commercial/Industrial		124,307		329,397		(9,830)		443,874		121,387		334,049		(8,837)		446,599
Net sales	$	798,743	$	545,794	$	(65,820)	$	1,278,717	$	767,090	$	558,375	$	(60,227)	$	1,265,238

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

	Three Months Ended March 31,
	2024								2023
	Installation		Specialty Distribution		Eliminations		Total		Installation		Specialty Distribution		Eliminations		Total
Insulation and accessories	$	643,650	$	490,669	$	(57,509)	$	1,076,810	$	600,767	$	502,802	$	(51,973)	$	1,051,596
Glass and windows		58,117		-		-		58,117		63,442		-		-		63,442
Gutters		27,967		40,316		(7,309)		60,974		28,278		39,842		(7,165)		60,955
All other		69,009		14,809		(1,002)		82,816		74,603		15,731		(1,089)		89,245
Net sales	$	798,743	$	545,794	$	(65,820)	$	1,278,717	$	767,090	$	558,375	$	(60,227)	$	1,265,238

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

	Included in Line Item on	As of
		March 31,		December 31,
	Condensed Consolidated Balance Sheets	2024		2023
Contract Assets:
Receivables, unbilled	Receivables, net	$	70,591	$	64,882
Contract Liabilities:
Deferred revenue	Accrued liabilities	$	15,716	$	18,365

The aggregate amount remaining on uncompleted performance obligations was $392.4 million as of March 31, 2024. 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 $82.2 million and $81.9 million as of March 31, 2024 and December 31, 2023, respectively.

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Goodwill and Other Intangibles

3 Months Ended

Mar. 31, 2024

Goodwill and Other Intangibles

Goodwill and Other Intangibles

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 such unit and determination of its fair value.  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 2023, 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, 2024.

Changes in the carrying amount of goodwill for the three months ended March 31, 2024, by segment, were as follows, in thousands:

									Accumulated
	Gross Goodwill				FX Translation		Gross Goodwill		Impairment		Net Goodwill
	December 31, 2023		Additions		Adjustment		March 31, 2024		Losses		March 31, 2024
Goodwill, by segment:
Installation	$	1,901,160	$	4,916	$	-	$	1,906,076	$	(762,021)	$	1,144,055
Specialty Distribution		903,429		6,261		(1,426)		908,264		-		908,264
Total goodwill	$	2,804,589	$	11,177	$	(1,426)	$	2,814,340	$	(762,021)	$	2,052,319

See Note 11 – Business Combinations for goodwill recognized on acquisitions that occurred during the three months ended March 31, 2024.

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, 2024		December 31, 2023
Gross definite-lived intangible assets	$	832,327	$	827,793
Accumulated amortization		(253,992)		(236,735)
Other intangible assets, net	$	578,335	$	591,058

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

	Three Months Ended March 31,
	2024		2023
Amortization expense	$	17,686	$	16,896

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Long-Term Debt

3 Months Ended

Mar. 31, 2024

Long-Term Debt

Long-Term Debt

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, 2024		December 31, 2023
3.625% Senior Notes due 2029	$	400,000	$	400,000
4.125% Senior Notes due 2032		500,000		500,000
Term loan due 2026		521,250		532,500
Equipment notes		1,230		2,039
Unamortized debt issuance costs		(13,752)		(14,472)
Total debt, net of unamortized debt issuance costs		1,408,728		1,420,067
Less: current portion of long-term debt		46,230		47,039
Total long-term debt	$	1,362,498	$	1,373,028

The following table sets forth our remaining principal payments for our outstanding debt balances as of March 31, 2024, in thousands:

	2024		2025		2026		2027		2028		Thereafter		Total
3.625% Senior Notes	$	-	$	-	$	-	$	-	$	-	$	400,000	$	400,000
4.125% Senior Notes		-		-		-		-		-		500,000		500,000
Term loan		33,750		48,750		438,750		-		-		-		521,250
Equipment notes		1,230		-		-		-		-		-		1,230
Total	$	34,980	$	48,750	$	438,750	$	-	$	-	$	900,000	$	1,422,480

Credit Agreement

On July 26, 2023, we entered into Amendment No. 4 to our Credit Agreement, which provided for a new $550.0 million Term Facility Two, the proceeds of which were intended to be used, in part, to finance the acquisition of SPI, including the payment of related fees and expenses.  Refer to Note 14 – Subsequent Events for details regarding the termination of our agreement to acquire SPI and Term Facility Two.

The following table outlines the key terms of the Credit Agreement (dollars in thousands):

Senior secured term loan facility	$	600,000
Revolving facility (a)	$	500,000
Sublimit for issuance of letters of credit under revolving facility	$	100,000
Sublimit for swingline loans under revolving facility	$	35,000
Interest rate as of March 31, 2024		6.43	%
Scheduled maturity date		10/7/2026

(a) Use of the sublimits for the issuance of letters of credit and swingline loans reduces the availability under the revolving facility.

Interest expense 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 (Term Facility One); 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 for Term Facility One and in the case of SOFR rate borrowings, the applicable margin ranges from 1.00 percent to 2.50 percent for Term Facility One. 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, 2024		December 31, 2023
Revolving facility	$	500,000	$	500,000
Less: standby letters of credit		(63,770)		(63,770)
Availability under revolving facility	$	436,230	$	436,230

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.

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.

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, 2024. The balance of equipment notes, which were issued for the purpose of financing vehicles and equipment, was $1.2 million as of March 31, 2024. The Company’s equipment notes each have a five year term maturing in 2024 and bear interest at fixed rates between 2.8% and 4.4%.

  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:

	As of March 31, 2024
Maximum Net Leverage Ratio	3.50:1.00
Minimum Interest Coverage Ratio	3.00:1.00
Compliance as of period end	In Compliance

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Fair Value Measurements

3 Months Ended

Mar. 31, 2024

Fair Value Measurements

Fair Value Measurements

6. FAIR VALUE MEASUREMENTS

Fair Value on Recurring Basis

The carrying values of cash and cash equivalents, receivables, net, and accounts payable are considered to be representative of their respective fair values due to the short-term nature of these instruments. We measure our contingent consideration
liabilities related to business combinations at fair value.

Fair Value on Non-Recurring Basis

Fair value measurements were applied to our long-term debt portfolio. We believe the carrying value of our term loan and equipment notes approximate their fair market value primarily due to the fact that the non-performance risk of servicing our debt obligations, as reflected in our business and credit risk profile, has not materially changed since we assumed our debt obligations under the Credit Agreement. In addition, due to the floating-rate nature of our term loan, the market value is not subject to variability solely due to changes in the general level of interest rates as is the case with a fixed-rate debt obligation. Based on market trades of our 3.625% Senior Notes and our 4.125% Senior Notes close to March 31, 2024 (Level 1 fair value measurement), we estimate the fair value of each in the table below:  

	As of March 31, 2024
		Fair Value		Gross Carrying Value
3.625% Senior Notes	$	364,940	$	400,000
4.125% Senior Notes	$	445,000	$	500,000

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Segment Information

3 Months Ended

Mar. 31, 2024

Segment Information

Segment Information

7.  SEGMENT INFORMATION

The following tables set forth our net sales and operating results by segment, in thousands:

	Three Months Ended March 31,
	2024		2023		2024		2023
	Net Sales				Operating Profit (b)
Operations by segment (a):
Installation	$	798,743	$	767,090	$	156,757	$	146,897
Specialty Distribution		545,794		558,375		77,579		73,333
Intercompany eliminations		(65,820)		(60,227)		(10,761)		(9,971)
Total	$	1,278,717	$	1,265,238		223,575		210,259
General corporate expense, net (c)						(9,067)		(10,828)
Operating profit, as reported						214,508		199,431
Other expense, net						(7,513)		(16,116)
Income before income taxes					$	206,995	$	183,315

(a) All of our operations are located primarily in the U.S. and to a lesser extent Canada.

(b) Segment operating profit includes an allocation of general corporate expenses attributable to the operating segments which is based on direct benefit or usage (such as salaries of corporate employees who directly support the segment).

(c) General corporate expense, net includes expenses not specifically attributable to our segments for functions such as corporate human resources, finance, and legal, including salaries, benefits, and other related costs.

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Income Taxes

3 Months Ended

Mar. 31, 2024

Income Taxes

Income Taxes

8.  INCOME TAXES    

Our effective tax rates were 26.4 percent and 25.9 percent for the three months ended March 31, 2024 and March 31, 2023, respectively. The higher 2024 tax rate was primarily related to an increase in tax expense related to share-based compensation.

A tax expense of $2.0 million related to share-based compensation was recognized in our condensed consolidated statements of operations as a discrete item in income tax expense for the three months ended March 31, 2024.

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Net Income Per Share

3 Months Ended

Mar. 31, 2024

Net Income Per Share

Net Income Per Share

9. NET INCOME PER SHARE

Basic net income per share is calculated by dividing net income by the number of weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net income per share is calculated by adjusting the number of weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury stock method.

Basic and diluted net income per share were computed as follows:

	Three Months Ended March 31,
	2024		2023
Net income (in thousands)	$	152,381	$	135,870
Weighted average number of common shares outstanding - basic		31,641,454		31,550,658
Dilutive effect of common stock equivalents:
RSAs with service-based conditions		41,832		22,643
RSAs with market-based conditions		50,955		24,861
RSAs with performance-based conditions		14,429		29,031
Stock options		95,148		86,046
Weighted average number of common shares outstanding - diluted		31,843,818		31,713,239
Basic net income per common share	$	4.82	$	4.31
Diluted net income per common share	$	4.79	$	4.28

The following table summarizes shares excluded from the calculation of diluted net income per share because their effect would have been anti-dilutive:

	Three Months Ended March 31,
	2024		2023
Anti-dilutive common stock equivalents:
RSAs with service-based conditions		14		11,163
RSAs with market-based conditions		-		8,933
RSAs with performance-based conditions		-		-
Stock options		-		22,280
Total anti-dilutive common stock equivalents		14		42,376

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Share-Based Compensation

3 Months Ended

Mar. 31, 2024

Share-Based Compensation.

Share-Based Compensation

10. SHARE-BASED COMPENSATION

Eligible employees participate in the 2015 LTIP, which authorizes the Board to grant stock options, stock appreciation rights, restricted shares, restricted share units, performance awards, and dividend equivalents.  All grants are made by issuing new shares and no more than 4.0 million shares of common stock may be issued under the 2015 LTIP. As of March 31, 2024, we had 1.7 million shares remaining available for issuance under the 2015 LTIP.

Share-based compensation expense is included in selling, general, and administrative expense. The income tax effect associated with share-based compensation awards is included in income tax expense.  

The following table presents share-based compensation amounts recognized in our condensed consolidated statements of operations, in thousands:

	Three Months Ended March 31,
	2024		2023
Share-based compensation expense	$	5,127	$	3,135
Income tax expense	$	(2,009)	$	(45)

The following table presents a summary of our share-based compensation activity for the three months ended March 31, 2024, in thousands, except per share amounts:

	RSAs			Stock Options
	Number of Shares	Weighted Average Grant Date Fair Value Per Share		Number of Shares	Weighted Average Grant Date Fair Value Per Share		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Balance December 31, 2023	195.5	$	223.49	128.7	$	36.65	$	98.58	$	35,462.8
Granted	42.6	$	419.56	—	$	—	$	—		—
Converted/Exercised	(48.2)	$	230.09	(5.8)	$	70.25	$	177.53	$	1,355.3
Forfeited/Expired	(2.2)	$	276.34	—	$	—	$	—		—
Balance March 31, 2024	187.7	$	265.84	122.9	$	35.08	$	94.88	$	42,498.1
Exercisable March 31, 2024 (a)				122.9	$	35.08	$	94.88	$	42,498.1

(a) The weighted average remaining contractual term for vested stock options is approximately 5.1 years.

We have unrecognized share-based compensation expense related to unvested awards as shown in the following table, dollars in thousands:

	As of March 31, 2024
	Unrecognized Compensation Expense on Unvested Awards		Weighted Average Remaining Compensation Expense Period
RSAs	$	31,455		1.2
Stock options		—		—
Total unrecognized compensation expense related to unvested awards	$	31,455

Our RSAs with performance-based conditions are evaluated on a quarterly basis with adjustments to compensation expense based on the likelihood of the performance target being achieved or exceeded. The following table shows the range of payouts and the related expense for our outstanding RSAs with performance-based conditions, in thousands:

			Payout Ranges and Related Expense
RSAs with Performance-Based Conditions	Grant Date Fair Value		0%		25%		100%		200%
February 15, 2022	$	2,986	$	-	$	747	$	2,986	$	5,972
February 21, 2023	$	4,054	$	-	$	1,014	$	4,054	$	8,108
February 21, 2024	$	4,846	$	-	$	1,212	$	4,846	$	9,692

During the first quarter of 2024, RSAs with performance-based conditions that were granted on February 16, 2021 vested based on cumulative three-year achievement of 200%. Total compensation expense recognized over the three-year performance period, net of forfeitures, was $4.4 million.

The fair value of our RSAs with a market-based condition granted under the 2015 LTIP was determined using a Monte Carlo simulation. The following are key inputs in the Monte Carlo analysis for awards granted in 2024, 2023, and 2022:

	2024			2023			2022
Measurement period (years)		2.86			2.86			2.87
Risk free interest rate		4.36	%		4.42	%		1.76	%
Dividend yield		0.00	%		0.00	%		0.00	%
Estimated fair value of market-based RSAs at grant date	$	503.68		$	270.64		$	298.20

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Business Combinations

3 Months Ended

Mar. 31, 2024

Business Combinations

Business Combinations

11. BUSINESS COMBINATIONS

Acquiring businesses is a key part of our ongoing strategy to grow our company and expand our market share. Each acquisition has been accounted for as a business combination under ASC 805, “Business Combinations.” Acquisition related costs were $0.5 million and $1.7 million in the three months ended March 31, 2024 and 2023, respectively. Acquisition related costs are included in selling, general, and administrative expense in our condensed consolidated statements of operations.

On February 15, 2024, we acquired the assets of the residential and light commercial insulation business Brabble. This installation acquisition enhanced our presence in North Carolina. The purchase price of $5.4 million was funded by cash on hand and we recognized $3.0 million of goodwill in connection with this acquisition.

On March 1, 2024, we acquired the assets of the residential insulation business Morris Black. This installation acquisition enhanced our presence in the Pennsylvania market. The purchase price of $3.6 million was funded by cash on hand and we recognized $2.0 million of goodwill in connection with this acquisition.

On March 1, 2024, we acquired the assets of the customized insulation products and accessories business PCI. This specialty distribution acquisition has a national customer base focused on the domestic pest control industry.  The purchase price of $13.3 million was funded by cash on hand and we recognized $6.3 million of goodwill in connection with this acquisition.

The estimate of acquired customer relationships related to our 2024 acquisitions was $6.0 million and the weighted average useful life is 12 years.

As third-party or internal valuations are finalized, certain tax aspects of the foregoing transactions are completed, and customer post-closing reviews are concluded, adjustments may be made to the fair value of assets acquired, and in some cases total purchase price, through the end of each measurement period, generally one year following the applicable acquisition date.  

During the three months ended March 31, 2023, we acquired SRI and the purchase price of $45.3 was funded by cash on hand and we recognized goodwill of $23.1 million in connection with this acquisition.

Goodwill to be recognized in connection with acquisitions is attributable to the synergies expected to be realized and improvements in the businesses after the acquisitions. Primarily all of the $11.2 million and $23.1 million of goodwill recorded from acquisitions completed in the three months ended March 31, 2024 and 2023, respectively, is expected to be deductible for income tax purposes.

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Accrued Liabilities

3 Months Ended

Mar. 31, 2024

Accrued Liabilities.

Accrued Liabilities

12.  ACCRUED LIABILITIES

The following table sets forth the components of accrued liabilities, in thousands:

	As of
	March 31, 2024		December 31, 2023
Accrued liabilities:
Salaries, wages, and bonus/commissions	$	53,145	$	67,471
Income tax payable		46,554		389
Insurance liabilities		31,197		29,920
Sales and property taxes		15,986		17,002
Deferred revenue		15,716		18,365
Customer rebates		12,177		17,326
Interest payable on long-term debt		3,357		12,139
Other		23,270		24,605
Total accrued liabilities	$	201,402	$	187,217

See Note 3 – Revenue Recognition for discussion of our deferred revenue balances. Accrued income taxes payable increased significantly compared to December 31, 2023 due to timing of tax payments, which typically occur later in the year.

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Other Commitments and Contingencies

3 Months Ended

Mar. 31, 2024

Other Commitments and Contingencies

Other Commitments and Contingencies

13.  OTHER COMMITMENTS AND CONTINGENCIES

Litigation.  We are subject to certain claims, charges, litigation, and other proceedings in the ordinary course of our business, including those arising from or related to contractual matters, intellectual property, personal injury, environmental matters, product liability, product recalls, construction defects, insurance coverage, personnel and employment disputes, antitrust, and other matters, including class actions. We believe we have adequate defenses in these matters, and we do not believe that the ultimate outcome of these matters will have a material adverse effect on us.  However, there is no assurance that we will prevail in any of these pending matters, and we could in the future incur judgments, enter into settlements of claims, or revise our expectations regarding the outcome of these matters, which could materially impact our liquidity and our results of operations.

Other Matters.  We enter into contracts, which include customary indemnities that are standard for the industries in which we operate. Such indemnities include, among other things, claims against our builder customers for issues relating to our workmanship. We generally exclude from our contracts with builder customers indemnity relating to product quality and warranty claims, as we pass such claims directly to the manufacturers of the products we install or distribute. In conjunction with divestitures and other transactions, we occasionally provide customary indemnities relating to various items including, among others, the enforceability of trademarks, legal and environmental issues, and asset valuations. We evaluate the probability that we may incur liabilities under these customary indemnities and appropriately record an estimated liability when deemed probable.

We also maintain indemnification agreements with our directors and officers that may require us to indemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by applicable law.

We occasionally use performance bonds to ensure completion of our work on certain larger customer contracts that can span multiple accounting periods. Performance bonds generally do not have stated expiration dates; rather, we are released from the bonds as the contractual performance is completed. We also have bonds outstanding for license and insurance.

The following table summarizes our outstanding performance, licensing, insurance, and other bonds, in thousands:

	As of
	March 31, 2024		December 31, 2023
Outstanding bonds:
Performance bonds	$	141,380	$	145,982
Licensing, insurance, and other bonds		27,979		27,415
Total bonds	$	169,359	$	173,397

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Subsequent Events

3 Months Ended

Mar. 31, 2024

Subsequent Events

Subsequent Events

14.  SUBSEQUENT EVENTS

On April 22, 2024, we agreed to a mutual termination of our previous agreement to acquire SPI, originally announced on July 27, 2023. We withdrew our Hart-Scott Rodino filings and were required to pay a termination fee of $23.0 million to the seller under the terms of the purchase agreement. In connection with the termination of the SPI acquisition, the Company terminated the commitments with respect to its undrawn Term Facility Two which was provided pursuant to Amendment No. 4. All other terms of the Company’s Credit Agreement, as amended, remain in full force and effect.

On May 3, 2024, our Board authorized the 2024 Repurchase Program, pursuant to which the Company may purchase up to $1.0 billion of our common stock.  Share repurchases may be executed through various means including open market purchases, privately negotiated transactions, accelerated share repurchase transactions, or other available means.  The 2024 Repurchase Program does not obligate the Company to purchase any shares and has no expiration date.  Authorization for the 2024 Repurchase Program may be terminated, increased, or decreased by the Board at its discretion at any time.

On May 3, 2024, we entered into an agreement to acquire the assets of the residential insulation business Insulation Works, Inc., which is expected to close in mid-May 2024. This installation acquisition will enhance our presence in the Arkansas market and extend our expertise to the agricultural market. The purchase price of approximately $25.2 million is expected to be funded by cash on hand. This acquisition will be accounted for as a business combination under ASC 805, “Business Combinations.”

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Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2024

Accounting Policies

Financial Statement Presentation

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 and Issued Accounting Pronouncements

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.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures”.  This standard amends Topic 280 to require all entities to disclose, on an annual and interim basis, significant segment expenses and an amount for other segment items by reportable segment.  This standard is effective for fiscal years beginning after December 15, 2023, with early adoption permitted.  We do not anticipate that this standard will affect our consolidated results of operations, financial position or cash flows and we are assessing the impact of adoption in our disclosures to the consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740), Improvements to Income Tax Disclosures”.  This standard amends Topic 740 to require all entities to disclose specific categories in the rate reconciliation, income taxes paid and other income tax information.  This standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted and should be applied on a prospective basis.  We do not anticipate that this standard will affect our consolidated results of operations, financial position or cash flows and we are assessing the impact of its adoption in our disclosures to our consolidated financial statements.

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Revenue Recognition (Tables)

3 Months Ended

Mar. 31, 2024

Revenue Recognition

Schedule of revenues disaggregated by market and product

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

	Three Months Ended March 31,
	2024								2023
	Installation		Specialty Distribution		Eliminations		Total		Installation		Specialty Distribution		Eliminations		Total
Residential	$	674,436	$	216,397	$	(55,990)	$	834,843	$	645,703	$	224,326	$	(51,390)	$	818,639
Commercial/Industrial		124,307		329,397		(9,830)		443,874		121,387		334,049		(8,837)		446,599
Net sales	$	798,743	$	545,794	$	(65,820)	$	1,278,717	$	767,090	$	558,375	$	(60,227)	$	1,265,238

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

	Three Months Ended March 31,
	2024								2023
	Installation		Specialty Distribution		Eliminations		Total		Installation		Specialty Distribution		Eliminations		Total
Insulation and accessories	$	643,650	$	490,669	$	(57,509)	$	1,076,810	$	600,767	$	502,802	$	(51,973)	$	1,051,596
Glass and windows		58,117		-		-		58,117		63,442		-		-		63,442
Gutters		27,967		40,316		(7,309)		60,974		28,278		39,842		(7,165)		60,955
All other		69,009		14,809		(1,002)		82,816		74,603		15,731		(1,089)		89,245
Net sales	$	798,743	$	545,794	$	(65,820)	$	1,278,717	$	767,090	$	558,375	$	(60,227)	$	1,265,238

Schedule of contract assets and contract liabilities with customers

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

	Included in Line Item on	As of
		March 31,		December 31,
	Condensed Consolidated Balance Sheets	2024		2023
Contract Assets:
Receivables, unbilled	Receivables, net	$	70,591	$	64,882
Contract Liabilities:
Deferred revenue	Accrued liabilities	$	15,716	$	18,365

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Goodwill and Other Intangibles (Tables)

3 Months Ended

Mar. 31, 2024

Goodwill and Other Intangibles

Changes in the carrying amount of goodwill by segment

Changes in the carrying amount of goodwill for the three months ended March 31, 2024, by segment, were as follows, in thousands:

									Accumulated
	Gross Goodwill				FX Translation		Gross Goodwill		Impairment		Net Goodwill
	December 31, 2023		Additions		Adjustment		March 31, 2024		Losses		March 31, 2024
Goodwill, by segment:
Installation	$	1,901,160	$	4,916	$	-	$	1,906,076	$	(762,021)	$	1,144,055
Specialty Distribution		903,429		6,261		(1,426)		908,264		-		908,264
Total goodwill	$	2,804,589	$	11,177	$	(1,426)	$	2,814,340	$	(762,021)	$	2,052,319

Schedule of other intangible assets

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, 2024		December 31, 2023
Gross definite-lived intangible assets	$	832,327	$	827,793
Accumulated amortization		(253,992)		(236,735)
Other intangible assets, net	$	578,335	$	591,058

Schedule of amortization expense

	As of
	March 31, 2024		December 31, 2023
Gross definite-lived intangible assets	$	832,327	$	827,793
Accumulated amortization		(253,992)		(236,735)
Other intangible assets, net	$	578,335	$	591,058

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Long-Term Debt (Tables)

3 Months Ended

Mar. 31, 2024

Long-Term Debt

Reconciliation of principal balance of outstanding debt

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

	As of
	March 31, 2024		December 31, 2023
3.625% Senior Notes due 2029	$	400,000	$	400,000
4.125% Senior Notes due 2032		500,000		500,000
Term loan due 2026		521,250		532,500
Equipment notes		1,230		2,039
Unamortized debt issuance costs		(13,752)		(14,472)
Total debt, net of unamortized debt issuance costs		1,408,728		1,420,067
Less: current portion of long-term debt		46,230		47,039
Total long-term debt	$	1,362,498	$	1,373,028

Schedule of remaining principal payments of debt

The following table sets forth our remaining principal payments for our outstanding debt balances as of March 31, 2024, in thousands:

	2024		2025		2026		2027		2028		Thereafter		Total
3.625% Senior Notes	$	-	$	-	$	-	$	-	$	-	$	400,000	$	400,000
4.125% Senior Notes		-		-		-		-		-		500,000		500,000
Term loan		33,750		48,750		438,750		-		-		-		521,250
Equipment notes		1,230		-		-		-		-		-		1,230
Total	$	34,980	$	48,750	$	438,750	$	-	$	-	$	900,000	$	1,422,480

Summary of key terms of the Credit Agreement

The following table outlines the key terms of the Credit Agreement (dollars in thousands):

Senior secured term loan facility	$	600,000
Revolving facility (a)	$	500,000
Sublimit for issuance of letters of credit under revolving facility	$	100,000
Sublimit for swingline loans under revolving facility	$	35,000
Interest rate as of March 31, 2024		6.43	%
Scheduled maturity date		10/7/2026

(a) Use of the sublimits for the issuance of letters of credit and swingline loans reduces the availability under the revolving facility.

Schedule of availability under the Revolving Facility

The following table summarizes our availability under the revolving facility, in thousands:

	As of
	March 31, 2024		December 31, 2023
Revolving facility	$	500,000	$	500,000
Less: standby letters of credit		(63,770)		(63,770)
Availability under revolving facility	$	436,230	$	436,230

Schedule of the key financial covenants

	As of March 31, 2024
Maximum Net Leverage Ratio	3.50:1.00
Minimum Interest Coverage Ratio	3.00:1.00
Compliance as of period end	In Compliance

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2024

Fair Value Measurements

Schedule of fair value of liabilities

	As of March 31, 2024
		Fair Value		Gross Carrying Value
3.625% Senior Notes	$	364,940	$	400,000
4.125% Senior Notes	$	445,000	$	500,000

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Segment Information (Tables)

3 Months Ended

Mar. 31, 2024

Segment Information

Schedule of net sales and operating results by segment

The following tables set forth our net sales and operating results by segment, in thousands:

	Three Months Ended March 31,
	2024		2023		2024		2023
	Net Sales				Operating Profit (b)
Operations by segment (a):
Installation	$	798,743	$	767,090	$	156,757	$	146,897
Specialty Distribution		545,794		558,375		77,579		73,333
Intercompany eliminations		(65,820)		(60,227)		(10,761)		(9,971)
Total	$	1,278,717	$	1,265,238		223,575		210,259
General corporate expense, net (c)						(9,067)		(10,828)
Operating profit, as reported						214,508		199,431
Other expense, net						(7,513)		(16,116)
Income before income taxes					$	206,995	$	183,315

(a) All of our operations are located primarily in the U.S. and to a lesser extent Canada.

(b) Segment operating profit includes an allocation of general corporate expenses attributable to the operating segments which is based on direct benefit or usage (such as salaries of corporate employees who directly support the segment).

(c) General corporate expense, net includes expenses not specifically attributable to our segments for functions such as corporate human resources, finance, and legal, including salaries, benefits, and other related costs.

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Net Income Per Share (Tables)

3 Months Ended

Mar. 31, 2024

Net Income Per Share

Schedule of basic and diluted income per share

	Three Months Ended March 31,
	2024		2023
Net income (in thousands)	$	152,381	$	135,870
Weighted average number of common shares outstanding - basic		31,641,454		31,550,658
Dilutive effect of common stock equivalents:
RSAs with service-based conditions		41,832		22,643
RSAs with market-based conditions		50,955		24,861
RSAs with performance-based conditions		14,429		29,031
Stock options		95,148		86,046
Weighted average number of common shares outstanding - diluted		31,843,818		31,713,239
Basic net income per common share	$	4.82	$	4.31
Diluted net income per common share	$	4.79	$	4.28

Summary of shares excluded from the calculation of diluted income per share because their effect would have been anti-dilutive

	Three Months Ended March 31,
	2024		2023
Anti-dilutive common stock equivalents:
RSAs with service-based conditions		14		11,163
RSAs with market-based conditions		-		8,933
RSAs with performance-based conditions		-		-
Stock options		-		22,280
Total anti-dilutive common stock equivalents		14		42,376

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Share-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2024

Share-Based Compensation

Schedule of share-based compensation expense and related income tax benefit

The following table presents share-based compensation amounts recognized in our condensed consolidated statements of operations, in thousands:

	Three Months Ended March 31,
	2024		2023
Share-based compensation expense	$	5,127	$	3,135
Income tax expense	$	(2,009)	$	(45)

Schedule of share-based compensation activity

The following table presents a summary of our share-based compensation activity for the three months ended March 31, 2024, in thousands, except per share amounts:

	RSAs			Stock Options
	Number of Shares	Weighted Average Grant Date Fair Value Per Share		Number of Shares	Weighted Average Grant Date Fair Value Per Share		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Balance December 31, 2023	195.5	$	223.49	128.7	$	36.65	$	98.58	$	35,462.8
Granted	42.6	$	419.56	—	$	—	$	—		—
Converted/Exercised	(48.2)	$	230.09	(5.8)	$	70.25	$	177.53	$	1,355.3
Forfeited/Expired	(2.2)	$	276.34	—	$	—	$	—		—
Balance March 31, 2024	187.7	$	265.84	122.9	$	35.08	$	94.88	$	42,498.1
Exercisable March 31, 2024 (a)				122.9	$	35.08	$	94.88	$	42,498.1

(a) The weighted average remaining contractual term for vested stock options is approximately 5.1 years.

Schedule of unrecognized share-based compensation expense relating to unvested awards

We have unrecognized share-based compensation expense related to unvested awards as shown in the following table, dollars in thousands:

	As of March 31, 2024
	Unrecognized Compensation Expense on Unvested Awards		Weighted Average Remaining Compensation Expense Period
RSAs	$	31,455		1.2
Stock options		—		—
Total unrecognized compensation expense related to unvested awards	$	31,455

Schedule of key inputs used to estimate the fair value of awards

	2024			2023			2022
Measurement period (years)		2.86			2.86			2.87
Risk free interest rate		4.36	%		4.42	%		1.76	%
Dividend yield		0.00	%		0.00	%		0.00	%
Estimated fair value of market-based RSAs at grant date	$	503.68		$	270.64		$	298.20

Performance-based conditions | Restricted Stock Awards

Share-Based Compensation

Schedule of the range of payouts and the related expense for RSAs with performance-based conditions

The following table shows the range of payouts and the related expense for our outstanding RSAs with performance-based conditions, in thousands:

			Payout Ranges and Related Expense
RSAs with Performance-Based Conditions	Grant Date Fair Value		0%		25%		100%		200%
February 15, 2022	$	2,986	$	-	$	747	$	2,986	$	5,972
February 21, 2023	$	4,054	$	-	$	1,014	$	4,054	$	8,108
February 21, 2024	$	4,846	$	-	$	1,212	$	4,846	$	9,692

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Accrued Liabilities (Tables)

3 Months Ended

Mar. 31, 2024

Accrued Liabilities.

Schedule of components of accrued liabilities

The following table sets forth the components of accrued liabilities, in thousands:

	As of
	March 31, 2024		December 31, 2023
Accrued liabilities:
Salaries, wages, and bonus/commissions	$	53,145	$	67,471
Income tax payable		46,554		389
Insurance liabilities		31,197		29,920
Sales and property taxes		15,986		17,002
Deferred revenue		15,716		18,365
Customer rebates		12,177		17,326
Interest payable on long-term debt		3,357		12,139
Other		23,270		24,605
Total accrued liabilities	$	201,402	$	187,217

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Other Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2024

Other Commitments and Contingencies

Summary of outstanding bonds

The following table summarizes our outstanding performance, licensing, insurance, and other bonds, in thousands:

	As of
	March 31, 2024		December 31, 2023
Outstanding bonds:
Performance bonds	$	141,380	$	145,982
Licensing, insurance, and other bonds		27,979		27,415
Total bonds	$	169,359	$	173,397

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Basis of Presentation (Details)	3 Months Ended
	Mar. 31, 2024 segment
Basis of Presentation
Number of reportable segments	2

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Revenue Recognition - Disaggregation (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Revenue Recognition
Net sales	$ 1,278,717	$ 1,265,238
Insulation and accessories
Revenue Recognition
Net sales	1,076,810	1,051,596
Glass and windows
Revenue Recognition
Net sales	58,117	63,442
Gutters
Revenue Recognition
Net sales	60,974	60,955
All other
Revenue Recognition
Net sales	82,816	89,245
Residential
Revenue Recognition
Net sales	834,843	818,639
Commercial and Industrial
Revenue Recognition
Net sales	443,874	446,599
Operating Segment | Installation
Revenue Recognition
Net sales	798,743	767,090
Operating Segment | Installation | Insulation and accessories
Revenue Recognition
Net sales	643,650	600,767
Operating Segment | Installation | Glass and windows
Revenue Recognition
Net sales	58,117	63,442
Operating Segment | Installation | Gutters
Revenue Recognition
Net sales	27,967	28,278
Operating Segment | Installation | All other
Revenue Recognition
Net sales	69,009	74,603
Operating Segment | Installation | Residential
Revenue Recognition
Net sales	674,436	645,703
Operating Segment | Installation | Commercial and Industrial
Revenue Recognition
Net sales	124,307	121,387
Operating Segment | Specialty Distribution
Revenue Recognition
Net sales	545,794	558,375
Operating Segment | Specialty Distribution | Insulation and accessories
Revenue Recognition
Net sales	490,669	502,802
Operating Segment | Specialty Distribution | Gutters
Revenue Recognition
Net sales	40,316	39,842
Operating Segment | Specialty Distribution | All other
Revenue Recognition
Net sales	14,809	15,731
Operating Segment | Specialty Distribution | Residential
Revenue Recognition
Net sales	216,397	224,326
Operating Segment | Specialty Distribution | Commercial and Industrial
Revenue Recognition
Net sales	329,397	334,049
Eliminations
Revenue Recognition
Net sales	(65,820)	(60,227)
Eliminations | Insulation and accessories
Revenue Recognition
Net sales	(57,509)	(51,973)
Eliminations | Gutters
Revenue Recognition
Net sales	(7,309)	(7,165)
Eliminations | All other
Revenue Recognition
Net sales	(1,002)	(1,089)
Eliminations | Residential
Revenue Recognition
Net sales	(55,990)	(51,390)
Eliminations | Commercial and Industrial
Revenue Recognition
Net sales	$ (9,830)	$ (8,837)

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Revenue Recognition - Other (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Dec. 31, 2023
Contract Liabilities
Deferred revenue	$ 15,716	$ 18,365
Uncompleted Performance Obligations
Amount remaining on uncompleted performance obligations	$ 392,400
Expected timing of satisfaction of performance obligations	over the next 18 months
Receivables, net
Contract Assets
Receivables, unbilled	$ 70,591	64,882
Uncompleted Performance Obligations
Retained receivables	82,200	81,900
Accrued liabilities
Contract Liabilities
Deferred revenue	$ 15,716	$ 18,365

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Goodwill and Other Intangibles - Goodwill (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2024 USD ($) item	Dec. 31, 2022 USD ($)	Dec. 31, 2023 USD ($)
Changes in the carrying amount of goodwill
Number of reporting units | item	2
Impairment of goodwill		$ 0
Gross Goodwill, at beginning of period	$ 2,804,589
Additions	11,177
Fx Translation Adjustment	(1,426)
Gross Goodwill, at end of period	2,814,340
Accumulated Impairment Losses	(762,021)
Net Goodwill	2,052,319		$ 2,042,568
Installation
Changes in the carrying amount of goodwill
Gross Goodwill, at beginning of period	1,901,160
Additions	4,916
Gross Goodwill, at end of period	1,906,076
Accumulated Impairment Losses	(762,021)
Net Goodwill	1,144,055
Specialty Distribution
Changes in the carrying amount of goodwill
Gross Goodwill, at beginning of period	903,429
Additions	6,261
Fx Translation Adjustment	(1,426)
Gross Goodwill, at end of period	908,264
Net Goodwill	$ 908,264

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Goodwill and Other Intangibles - Other intangible assets (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023	Dec. 31, 2023
Other intangible assets
Gross Definite-lived intangible assets	$ 832,327		$ 827,793
Accumulated Amortization	(253,992)		(236,735)
Other intangible asset, net	578,335		$ 591,058
Amortization expense	$ 17,686	$ 16,896

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Long-Term Debt - Reconciliation (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Long-Term Debt
Long-term debt	$ 1,422,480
Unamortized debt issuance costs	(13,752)	$ (14,472)
Total debt, net of unamortized debt issuance costs	1,408,728	1,420,067
Less: current portion of long-term debt	46,230	47,039
Total long-term debt	$ 1,362,498	$ 1,373,028
3.625% Senior Notes
Long-Term Debt
Interest rate (as a percent)	3.625%	3.625%
Long-term debt	$ 400,000	$ 400,000
4.125% Senior Notes
Long-Term Debt
Interest rate (as a percent)	4.125%	4.125%
Long-term debt	$ 500,000	$ 500,000
Term Loan Facility
Long-Term Debt
Long-term debt	521,250	532,500
Equipment Notes
Long-Term Debt
Long-term debt	1,230	$ 2,039
Total debt, net of unamortized debt issuance costs	$ 1,200

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Long-Term Debt - Schedule of debt maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Schedule of Debt Maturity by Years:
2024	$ 34,980
2025	48,750
2026	438,750
Thereafter	900,000
Total	1,422,480
3.625% Senior Notes
Schedule of Debt Maturity by Years:
Thereafter	400,000
Total	400,000	$ 400,000
4.125% Senior Notes
Schedule of Debt Maturity by Years:
Thereafter	500,000
Total	500,000	500,000
Term Loan Facility
Schedule of Debt Maturity by Years:
2024	33,750
2025	48,750
2026	438,750
Total	521,250	532,500
Equipment Notes
Schedule of Debt Maturity by Years:
2024	1,230
Total	$ 1,230	$ 2,039

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Long-Term Debt - Key Terms of Credit Agreement (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Dec. 31, 2023	Jul. 26, 2023
Revolving Facility
Long-Term Debt
Availability	$ 500,000	$ 500,000
Credit Agreement
Long-Term Debt
Interest rate	6.43%
Scheduled maturity date	Oct. 07, 2026
Credit Agreement | Base Rate Borrowings | Federal Funds Rate
Long-Term Debt
Basis spread	0.50%
Credit Agreement | Base Rate Borrowings | SOFR
Long-Term Debt
Maturity of the reference rate	1 month
Credit Agreement | SOFR Rate Borrowings
Long-Term Debt
Interest rate floor (as a percent)	0.00%
Credit Agreement | Term Loan Facility
Long-Term Debt
Availability	$ 600,000
Credit Agreement | Term Facility One | Base Rate Borrowings | Minimum
Long-Term Debt
Applicable margin based on total leverage ratio	0.00%
Credit Agreement | Term Facility One | Base Rate Borrowings | Maximum
Long-Term Debt
Applicable margin based on total leverage ratio	1.50%
Credit Agreement | Term Facility One | Base Rate Borrowings | SOFR
Long-Term Debt
Basis spread	1.00%
Credit Agreement | Term Facility One | SOFR Rate Borrowings | Minimum
Long-Term Debt
Applicable margin based on total leverage ratio	1.00%
Credit Agreement | Term Facility One | SOFR Rate Borrowings | Maximum
Long-Term Debt
Applicable margin based on total leverage ratio	2.50%
Credit Agreement | Term Facility Two
Long-Term Debt
Availability			$ 550,000
Credit Agreement | Revolving Facility
Long-Term Debt
Availability	$ 500,000
Sublimit for issuance of letters of credit under Revolving Facility*	100,000
Sublimit for swingline loans under Revolving Facility*	$ 35,000

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Long-Term Debt - Revolving Facility (Details) - Revolving Facility - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Dec. 31, 2023
Long-Term Debt
Revolving Facility	$ 500,000	$ 500,000
Less: standby letters of credit	(63,770)	(63,770)
Availability under revolving facility	$ 436,230	$ 436,230
Minimum
Long-Term Debt
Commitment fee (as a percent)	0.15%
Maximum
Long-Term Debt
Commitment fee (as a percent)	0.275%

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Long-Term Debt - Senior Notes and Equipment Notes (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Dec. 31, 2023
Long-Term Debt
Amount outstanding	$ 1,408,728	$ 1,420,067
Equipment Notes
Long-Term Debt
Amount outstanding	$ 1,200
Debt term	5 years
Equipment Notes | Minimum
Long-Term Debt
Interest rate (as a percent)	2.80%
Equipment Notes | Maximum
Long-Term Debt
Interest rate (as a percent)	4.40%
3.625% Senior Notes
Long-Term Debt
Interest rate (as a percent)	3.625%
Principal amount of debt	$ 400,000
3.625% Senior Notes | Change in Control Scenario
Long-Term Debt
Redemption price as a percentage of principal	101.00%
4.125% Senior Notes
Long-Term Debt
Interest rate (as a percent)	4.125%
Principal amount of debt	$ 500,000
4.125% Senior Notes | On or after October 15, 2026
Long-Term Debt
Redemption price as a percentage of principal	102.063%
4.125% Senior Notes | On or after October 15, 2027
Long-Term Debt
Redemption price as a percentage of principal	101.375%
4.125% Senior Notes | On or after October 15, 2028
Long-Term Debt
Redemption price as a percentage of principal	100.688%
4.125% Senior Notes | On October 15, 2029 and thereafter
Long-Term Debt
Redemption price as a percentage of principal	100.00%
4.125% Senior Notes | Prior to October 15, 2026
Long-Term Debt
Basis spread on treasury rate	0.50%
4.125% Senior Notes | Prior to October 15, 2024
Long-Term Debt
Redemption price as a percentage of principal	104.125%
Redemption price, percentage of principal amount redeemed	40.00%
Debt instrument, conditional redemption, threshold percentage of aggregate principal amount originally issued remains outstanding	60.00%
4.125% Senior Notes | Change in Control Scenario
Long-Term Debt
Redemption price as a percentage of principal	101.00%

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Long-Term Debt - Other (Details)	3 Months Ended
	Mar. 31, 2024
Debt covenants
Maximum Net Leverage Ratio	3.50
Minimum Interest Coverage Ratio	3.00
Senior Notes | Event of Default Scenario
Debt covenants
Minimum percentage of principal of debt holders to declare debt immediately due and payable	30.00%
3.625% Senior Notes
Debt covenants
Interest rate (as a percent)	3.625%
4.125% Senior Notes
Debt covenants
Interest rate (as a percent)	4.125%

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Fair Value Measurements (Details) $ in Thousands	Mar. 31, 2024 USD ($)
Fair Value on Non-Recurring Basis
Amount outstanding	$ 1,422,480
3.625% Senior Notes
Fair Value on Non-Recurring Basis
Interest rate (as a percent)	3.625%
Amount outstanding	$ 400,000
3.625% Senior Notes | Fair Value on Non-Recurring Basis | Level 1 fair value measurement
Fair Value on Non-Recurring Basis
Interest rate (as a percent)	3.625%
Fair value	$ 364,940
4.125% Senior Notes
Fair Value on Non-Recurring Basis
Interest rate (as a percent)	4.125%
Amount outstanding	$ 500,000
4.125% Senior Notes | Fair Value on Non-Recurring Basis | Level 1 fair value measurement
Fair Value on Non-Recurring Basis
Interest rate (as a percent)	4.125%
Fair value	$ 445,000

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Segment Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023	Dec. 31, 2023
Segment information
Net sales	$ 1,278,717	$ 1,265,238
Operating profit as, reported	214,508	199,431
Other expense, net	(7,513)	(16,116)
Income before income taxes	206,995	183,315
Total Assets	5,310,452		$ 5,162,851
Operating Segment
Segment information
Operating profit as, reported	223,575	210,259
Operating Segment | Installation
Segment information
Net sales	798,743	767,090
Operating profit as, reported	156,757	146,897
Operating Segment | Specialty Distribution
Segment information
Net sales	545,794	558,375
Operating profit as, reported	77,579	73,333
Eliminations
Segment information
Net sales	(65,820)	(60,227)
Intercompany Eliminations
Segment information
Net sales	(65,820)	(60,227)
Operating profit as, reported	(10,761)	(9,971)
Corporate
Segment information
General corporate expense, net	$ (9,067)	$ (10,828)

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Income Taxes
Effective tax rate (as a percent)	26.40%	25.90%
Tax expense related to share-based compensation	$ 2,009	$ 45

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Net Income Per Share - Calculation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Net income	$ 152,381	$ 135,870
Weighted average number of common shares outstanding - basic	31,641,454	31,550,658
Dilutive effect of common stock equivalents:
Stock options	95,148	86,046
Weighted average number of common shares outstanding - diluted	31,843,818	31,713,239
Basic net income per common share	$ 4.82	$ 4.31
Diluted net income per common share	$ 4.79	$ 4.28
Service-based conditions
Dilutive effect of common stock equivalents:
Restricted stock awards	41,832	22,643
Market-based conditions
Dilutive effect of common stock equivalents:
Restricted stock awards	50,955	24,861
Performance-based conditions
Dilutive effect of common stock equivalents:
Restricted stock awards	14,429	29,031

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Net Income Per Share - Anti-dilutive common stock equivalents (Details) - shares	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Anti-dilutive common stock equivalents
Total anti-dilutive common stock equivalents	14	42,376
Restricted Stock Awards | Service-based conditions
Anti-dilutive common stock equivalents
Total anti-dilutive common stock equivalents	14	11,163
Restricted Stock Awards | Market-based conditions
Anti-dilutive common stock equivalents
Total anti-dilutive common stock equivalents		8,933
Employee Stock Option
Anti-dilutive common stock equivalents
Total anti-dilutive common stock equivalents		22,280

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Share-Based Compensation - Expense (Details) - USD ($) $ in Thousands, shares in Millions	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Share-Based Compensation
Share-based compensation expense	$ 5,127	$ 3,135
Income tax expense	$ (2,009)	$ (45)
2015 Plan
Share-Based Compensation
Number of shares available	1.7
2015 Plan | Maximum
Share-Based Compensation
Number of shares authorized	4.0

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Share-Based Compensation - Activity (Details) - USD ($)				3 Months Ended
	Feb. 21, 2024	Feb. 21, 2023	Feb. 15, 2022	Mar. 31, 2024	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2023
Stock Options, Number of Shares
Converted/Exercised (in shares)				(5,757)	(28,840)
Stock options, additional disclosures
Weighted average remaining contractual term for vested stock options				5 years 1 month 6 days
Unrecognized share-based compensation expense
Total unrecognized compensation expense related to unvested awards				$ 31,455,000
Restricted Stock Awards
Restricted Stock Awards, Number of Shares
Balance at beginning of period (in shares)				195,500
Granted (in shares)				42,600
Converted/Exercised (in shares)				(48,200)
Forfeited/Expired (in shares)				(2,200)
Balance at end of period (in shares)				187,700
Restricted Stock Awards, Weighted Average Grant Date Fair Value Per Share
Balance at beginning of period (in dollars per share)				$ 223.49
Granted (in dollars per share)				419.56
Converted/Exercised (in dollars per share)				230.09
Forfeited/Expired (in dollars per share)				276.34
Balance at end of period (in dollars per share)				$ 265.84
Unrecognized share-based compensation expense
RSAs, Unrecognized Compensation Expense on Unvested Awards				$ 31,455,000
Weighted Average Remaining Compensation Expense Period				1 year 2 months 12 days
Assumptions used to estimate the fair values of the awards granted:
Measurement period (years)				2 years 10 months 9 days	2 years 10 months 9 days	2 years 10 months 13 days
Risk free interest rate (as a percent)				4.36%	4.42%	1.76%
Dividend yield (as a percent)				0.00%	0.00%	0.00%
Estimated fair value of market-based RSAs at grant date (in dollars per share)				$ 503.68	$ 270.64	$ 298.20
Restricted Stock Awards | Performance-based conditions
Restricted stock awards, additional disclosures
Grant date fair value	$ 4,846,000	$ 4,054,000	$ 2,986,000
Restricted Stock Awards | Performance-based conditions | Payout Range-0%
Restricted stock awards, additional disclosures
Payout range (as a percent)	0.00%	0.00%	0.00%
Restricted Stock Awards | Performance-based conditions | Payout Range-25%
Restricted stock awards, additional disclosures
Payout range (as a percent)	25.00%	25.00%	25.00%
Related expenses	$ 1,212,000	$ 1,014,000	$ 747,000
Restricted Stock Awards | Performance-based conditions | Payout Range-100%
Restricted stock awards, additional disclosures
Payout range (as a percent)	100.00%	100.00%	100.00%
Related expenses	$ 4,846,000	$ 4,054,000	$ 2,986,000
Restricted Stock Awards | Performance-based conditions | Payout Range-200%
Restricted stock awards, additional disclosures
Payout range (as a percent)	200.00%	200.00%	200.00%
Related expenses	$ 9,692,000	$ 8,108,000	$ 5,972,000
RSAs granted February 16, 2021 | Performance-based conditions
Restricted stock awards, additional disclosures
Cumulative period of achievement				3 years	3 years
Cumulative achievement percentage					200.00%
Total compensation expense recognized over the performance period, net of forfeitures				$ 4,400,000
Employee Stock Option
Stock Options, Number of Shares
Balance at beginning of period (in shares)				128,700
Converted/Exercised (in shares)				(5,800)
Balance at end of period (in shares)				122,900
Stock Options, Weighted Average Grant Date Fair Value Per Share
Balance at beginning of period (in dollars per share)				$ 36.65
Converted/Exercised (in dollars per share)				70.25
Balance at end of period (in dollars per share)				35.08
Stock Options, Weighted Average Exercise Price Per Share
Balance at beginning of period (in dollars per share)				98.58
Converted/Exercised (in dollars per share)				177.53
Balance at end of period (in dollars per share)				$ 94.88
Stock options, additional disclosures
Aggregate intrinsic value				$ 42,498,100			$ 35,462,800
Converted/Exercised aggregate intrinsic value				$ 1,355,300
Exercisable, Number of shares				122,900
Exercisable, Weighted Average Grant Date Fair Value Per Share				$ 35.08
Exercisable Weighted Average Exercise Price Per Share				$ 94.88
Exercisable, Aggregate Intrinsic Value				$ 42,498,100

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Business Combinations - Summary (Details) - USD ($) $ in Thousands			3 Months Ended
	Mar. 01, 2024	Feb. 15, 2024	Mar. 31, 2024	Mar. 31, 2023	Dec. 31, 2023
Business Combinations
Acquisition related costs			$ 500	$ 1,700
Summary of businesses acquired:
Goodwill expected to be deducted for income tax purposes			11,200	23,100
Estimated fair values
Goodwill			$ 2,052,319		$ 2,042,568
Brabble
Business Combinations
Purchase price		$ 5,400
Goodwill recognized		$ 3,000
Morris Black
Business Combinations
Purchase price	$ 3,600
Goodwill recognized	2,000
PCI
Business Combinations
Purchase price	13,300
Goodwill recognized	$ 6,300
SRI Holdings
Business Combinations
Purchase price				45,300
Goodwill recognized				$ 23,100

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Business Combinations - Intangibles (Details) - 2024 Acquisitions - Customer relationships $ in Millions	3 Months Ended
	Mar. 31, 2024 USD ($)
Estimates of acquired intangible assets
Estimated Fair Value	$ 6.0
Weighted Average Estimated Useful Life (Years)	12 years

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Accrued Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Accrued Liabilities.
Salaries, wages, and bonus/commissions	$ 53,145	$ 67,471
Income taxes payable	46,554	389
Insurance liabilities	31,197	29,920
Customer rebates	12,177	17,326
Deferred revenue	15,716	18,365
Sales and property taxes	15,986	17,002
Interest payable on long-term debt	3,357	12,139
Other	23,270	24,605
Total accrued liabilities	$ 201,402	$ 187,217

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Other Commitments and Contingencies (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Outstanding Bonds
Performance bonds	$ 141,380	$ 145,982
Licensing, insurance, and other bonds	27,979	27,415
Total bonds	$ 169,359	$ 173,397

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Subsequent Events (Details) - Subsequent Event - USD ($) $ in Millions	May 03, 2024	Apr. 22, 2024
SPI
Subsequent Events
Termination fee		$ 23.0
Insulation Works Inc.
Subsequent Events
Expected purchase price	$ 25.2
2024 Share Repurchase Program
Subsequent Events
Share repurchase program, authorized amount	$ 1,000.0

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Pay vs Performance Disclosure - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Pay vs Performance Disclosure
Net Income (Loss)	$ 152,381	$ 135,870

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Insider Trading Arrangements	3 Months Ended
	Mar. 31, 2024
Trading Arrangements, by Individual
Rule 10b5-1 Arrangement Adopted	false
Non-Rule 10b5-1 Arrangement Adopted	false
Rule 10b5-1 Arrangement Terminated	false
Non-Rule 10b5-1 Arrangement Terminated	false