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 ended ~~March 31,~~June 30, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-36870

TopBuild Corp.

(Exact name of Registrant as Specified in its Charter)

Delaware

(State or Other Jurisdiction of Incorporation or
Organization)

47-3096382

(I.R.S. Employer
Identification No.)

475 North Williamson Boulevard

Daytona Beach, Florida

(Address of Principal Executive Offices)

32114

(Zip Code)

(386) 304-2200

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	BLD	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.⌧ Yes ◻ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ⌧ Yes ◻ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The registrant had outstanding ~~32,777,901~~32,378,790 shares of Common Stock, par value $0.01 per share as of ~~April 28,~~July 27, 2022.

Table of Contents

TOPBUILD CORP.

TABLE OF CONTENTS


		Page No.
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Operations	5

	Condensed Consolidated Statements of Comprehensive Income	6

	Condensed Consolidated Statements of Cash Flows	7

	Condensed Consolidated Statements of Changes in Equity	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2931

Item 4.	Controls and Procedures	3032

Part II.	Other Information

Item 1.	Legal Proceedings	3032

Item 1A.	Risk Factors	3032

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3032

Item 3.	Defaults upon Senior Securities	3033

Item 4.	Mine Safety Disclosures	3133

Item 5.	Other Information	3133

Item 6.	Exhibits	3133

Index to Exhibits		3234

Signature		3335

Table of Contents

GLOSSARY

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


Term		Definition
3.625% Senior Notes	TopBuild's 3.625% senior unsecured notes issued March 15, 2021 and due March 15, 2029
4.125% Senior Notes	TopBuild's 4.125% senior unsecured notes issued October 14, 2021 and due February 15, 2032
5.625% Senior Notes	TopBuild's 5.625% senior unsecured notes which were due on May 1, 2026 and redeemed in full on March 15, 2021
2015 LTIP	2015 Long-Term Incentive Program authorizes the Board to grant stock options, stock appreciation rights, restricted shares, restricted share units, performance awards, and dividend equivalents
2022 ASR Agreement	$100 million accelerated share repurchase agreement with Bank of America, N.A.
2019 Repurchase Program	$200 million share repurchase program authorized by the Board on February 22, 2019
2021 Repurchase Program	$200 million share repurchase program authorized by the Board on July 26, 2021
2022 Repurchase Program	$200 million share repurchase program authorized by the Board on July 25, 2022
ABS	American Building Systems, Inc.
Amendment No. 1 to Credit Agreement	Amendment No. 1 to the Credit Agreement dated March 8, 2021
Amendment No. 2 to Credit Agreement	Amendment No. 2 to the Credit Agreement dated October 7, 2021
Annual Report	Annual report filed with the SEC on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
Assured	Assured Insulating Inc.
Board	Board of Directors of TopBuild
BofA	Bank of America, N.A.
Billings	Billings Insulation Service, Inc.
~~Cooper~~	~~Cooper Glass Company, LLC~~
Current Report	Current report filed with the SEC on Form 8-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
DI	DI Super Holdings, Inc.
EBITDA	Earnings before interest, taxes, depreciation, and amortization
Exchange Act	The Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
GAAP	Generally accepted accounting principles in the United States of America
~~Garland~~	~~Garland Insulating, Ltd.~~
Green Energy	Green Energy Solutions, Inc.
~~Hunter~~	~~J.P. Hunter Enterprises, Inc.~~
~~IBR~~	~~Incremental borrowing rate, as defined in ASC 842~~
Lenders	Bank of America, N.A., together with the other lenders party to "Credit Agreement"
LCR	L.C.R. Contractors, LLC
LIBOR	London interbank offered rate
Net Leverage Ratio	As defined in the “Credit Agreement,” the ratio of outstanding indebtedness, less up to $100 million of unrestricted cash, to EBITDA
NYSE	New York Stock Exchange
Credit Agreement	Senior secured credit agreement and related security and pledge agreement dated May 5, 2017, as amended and restated on March 20, 2020, and further amended by Amendment No. 1 to Credit Agreement and Amendment No. 2 to Credit Agreement
Quarterly Report	Quarterly report filed with the SEC on Form 10-Q pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
ROU	Right of use (asset), as defined in ASC 842
RSA	Restricted stock award
SEC	United States Securities and Exchange Commission
Secured Leverage Ratio	As defined in the “Credit Agreement,” the ratio of outstanding indebtedness, including letters of credit, to EBITDA
Southwest	Southwest Insulation, Inc.
TopBuild	TopBuild Corp. and its wholly-owned consolidated domestic subsidiaries. Also, the "Company," ~~"we,~~"we," "us," and "our"

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

TOPBUILD CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands except share data)


	As of				As of
	March 31,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	126,553	$	139,779	$	123,869	$	139,779
Receivables, net of an allowance for credit losses of $10,487 at March 31, 2022, and $8,798 at December 31, 2021		735,452		668,419
Receivables, net of an allowance for credit losses of $12,558 at June 30, 2022, and $8,798 at December 31, 2021						773,744		668,419
Inventories, net		390,061		352,801		431,098		352,801
Prepaid expenses and other current assets		29,102		26,692		25,835		26,692
Total current assets		1,281,168		1,187,691		1,354,546		1,187,691

Right of use assets		184,762		177,177		174,361		177,177
Property and equipment, net		248,438		244,574		250,051		244,574
Goodwill		1,964,297		1,949,763		1,968,603		1,949,763
Other intangible assets, net		669,797		684,209		653,458		684,209
Deferred tax assets, net		-		1,905		-		1,905
Other assets		13,101		13,211		19,965		13,211
Total assets	$	4,361,563	$	4,258,530	$	4,420,984	$	4,258,530

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	473,918	$	461,917	$	508,227	$	461,917
Current portion of long-term debt		38,723		38,640		38,162		38,640
Accrued liabilities		207,377		175,891		197,308		175,891
Short-term operating lease liabilities		55,293		54,591		55,284		54,591
Short-term finance lease liabilities		2,610		2,387		2,712		2,387
Total current liabilities		777,921		733,426		801,693		733,426

Long-term debt		1,445,473		1,454,483		1,437,102		1,454,483
Deferred tax liabilities, net		245,674		248,243		245,687		248,243
Long-term portion of insurance reserves		53,111		51,875		60,805		51,875
Long-term operating lease liabilities		133,297		125,339		124,191		125,339
Long-term finance lease liabilities		7,631		7,770		7,055		7,770
Other liabilities		1,216		960		1,788		960
Total liabilities		2,664,323		2,622,096		2,678,321		2,622,096

Commitments and contingencies

Equity:
Preferred stock, $0.01 par value: 10,000,000 shares authorized; 0 shares issued and outstanding		-		-		-		-
Common stock, $0.01 par value: 250,000,000 shares authorized; 39,306,564 shares issued and 32,776,363 outstanding at March 31, 2022, and 39,165,024 shares issued and 32,927,185 outstanding at December 31, 2021		393		391
Treasury stock, 6,530,201 shares at March 31, 2022, and 6,237,839 shares at December 31, 2021, at cost		(492,688)		(431,030)
Common stock, $0.01 par value: 250,000,000 shares authorized; 39,318,617 shares issued and 32,379,053 outstanding at June 30, 2022, and 39,165,024 shares issued and 32,927,185 outstanding at December 31, 2021						393		391
Treasury stock, 6,939,564 shares at June 30, 2022, and 6,237,839 shares at December 31, 2021, at cost						(572,747)		(431,030)
Additional paid-in capital		877,564		873,031		861,542		873,031
Retained earnings		1,315,387		1,200,676		1,459,084		1,200,676
Accumulated other comprehensive loss		(3,416)		(6,634)		(5,609)		(6,634)
Total equity		1,697,240		1,636,434		1,742,663		1,636,434
Total liabilities and equity	$	4,361,563	$	4,258,530	$	4,420,984	$	4,258,530

See notes to our unaudited condensed consolidated financial statements.

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TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands except share and per common share data)

Three Months Ended March 31,

2022

2021

Net sales

$
1,168,918

$
742,798

Cost of sales

837,717

545,039

Gross profit

331,201

197,759

Selling, general, and administrative expense

167,247

101,872

Operating profit

163,954

95,887

Other income (expense), net:

Interest expense

(11,966)

(6,603)

Loss on extinguishment of debt

-

(13,862)

Other, net

684

77

Other expense, net

(11,282)

(20,388)

Income before income taxes

152,672

75,499

Income tax expense

(37,961)

(15,657)

Net income

$
114,711

$
59,842

Net income per common share:

Basic

$
3.50

$
1.82

Diluted

$
3.47

$
1.80

Weighted average shares outstanding:

Basic

32,738,525

32,826,515

Diluted

33,042,490

33,202,563


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net sales	$	1,274,285	$	834,255	$	2,443,203	$	1,577,053
Cost of sales		890,188		591,075		1,727,905		1,136,114
Gross profit		384,097		243,180		715,298		440,939

Selling, general, and administrative expense		176,876		114,894		344,123		216,767
Operating profit		207,221		128,286		371,175		224,172

Other income (expense), net:
Interest expense		(13,410)		(6,105)		(25,375)		(12,707)
Loss on extinguishment of debt		—		—		—		(13,862)
Other, net		(279)		66		406		144
Other expense, net		(13,689)		(6,039)		(24,969)		(26,425)
Income before income taxes		193,532		122,247		346,206		197,747

Income tax expense		(49,835)		(31,867)		(87,796)		(47,525)
Net income	$	143,697	$	90,380	$	258,410	$	150,222

Net income per common share:
Basic	$	4.43	$	2.75	$	7.93	$	4.57
Diluted	$	4.41	$	2.72	$	7.87	$	4.53

Weighted average shares outstanding:
Basic		32,405,292		32,865,303		32,570,988		32,846,016
Diluted		32,614,449		33,177,435		32,827,549		33,190,107

See notes to our unaudited condensed consolidated financial statements.

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TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)

Three Months Ended March 31,

2022

2021
Net income

$
114,711

$
59,842
Other comprehensive income:

Foreign currency translation adjustment

3,218

-
Comprehensive income

$
117,929

$
59,842


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	143,697	$	90,380	$	258,410	$	150,222
Other comprehensive (loss) income:
Foreign currency translation adjustment		(2,193)		-		1,026		-
Comprehensive income	$	141,504	$	90,380	$	259,436	$	150,222

See notes to our unaudited condensed consolidated financial statement

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TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Three Months Ended March 31,				Six Months Ended June 30,
	2022		2021		2022		2021
Cash Flows Provided by (Used in) Operating Activities:
Net income	$	114,711	$	59,842	$	258,410	$	150,222
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		30,499		15,519		60,621		33,221
Share-based compensation		3,727		3,111		7,061		5,377
Loss on extinguishment of debt		-		13,862		-		13,862
Loss on sale of property and equipment		207		56		525		833
Amortization of debt issuance costs		706		422		1,427		858
Provision for bad debt expense		2,512		1,765		6,404		4,037
Loss from inventory obsolescence		868		653		3,610		1,129
Gain on foreign exchange		(649)		-
Deferred income taxes, net		(81)		(183)
Change in certain assets and liabilities
Receivables, net		(65,031)		(20,831)		(107,739)		(36,277)
Inventories, net		(38,570)		(2,088)		(82,621)		(8,055)
Prepaid expenses and other current assets		(2,347)		3,517		648		(2,273)
Accounts payable		12,663		(2,244)		47,540		21,782
Accrued liabilities		29,523		16,591		16,884		17,693
Other, net		745		(570)		4,927		(206)
Net cash provided by operating activities		89,483		89,422		217,697		202,203

Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(18,413)		(12,284)		(36,034)		(28,560)
Acquisition of businesses, net of cash acquired		(13,967)		(61,092)		(18,746)		(195,411)
Proceeds from sale of property and equipment		253		56		618		193
Net cash used in investing activities		(32,127)		(73,320)		(54,162)		(223,778)

Cash Flows Provided by (Used in) Financing Activities:
Proceeds from issuance of long-term debt		-		411,250		-		411,250
Repayment of long-term debt		(9,634)		(415,856)		(19,287)		(421,716)
Payment of debt issuance costs		-		(6,500)		-		(6,500)
Proceeds from revolving credit facility						70,000		-
Repayment of revolving credit facility						(70,000)		-
Taxes withheld and paid on employees' equity awards		(11,658)		(11,480)		(11,667)		(11,491)
Exercise of stock options		808		5,952		1,452		5,952
Repurchase of shares of common stock		(50,000)		(9,856)		(150,050)		(24,038)
Payment of contingent consideration		(23)		-		(35)		(150)
Net cash used in financing activities		(70,507)		(26,490)		(179,587)		(46,693)
Impact of exchange rate changes on cash		(75)		-		142		-
Net decrease in cash and cash equivalents		(13,226)		(10,388)		(15,910)		(68,268)
Cash and cash equivalents- Beginning of period		139,779		330,007		139,779		330,007
Cash and cash equivalents- End of period	$	126,553	$	319,619	$	123,869	$	261,739

Supplemental disclosure of cash paid for:
Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities	$	22,449	$	20,322	$	36,129	$	39,135
Accruals for property and equipment		213		524		563		460

See notes to our unaudited condensed consolidated financial statements.

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TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)

(In thousands except share data)

Accumulated

Common

Treasury

Additional

Other

Stock

Stock

Paid-in

Retained

Comprehensive

($0.01 par value)

at cost

Capital

Earnings

(Loss) Income

Equity
Balance at December 31, 2020
$
389

$
(386,669)

$
858,414

$
876,660

$
-

$
1,348,794
Net income

-

-

-

59,842

-

59,842
Share-based compensation

-

-

3,111

-

-

3,111
Issuance of 30,284 restricted share awards under long-term equity incentive plan

1

-

(1)

-

-

-
Repurchase of 49,284 shares

-

(9,856)

-

-

-

(9,856)
43,290 shares withheld to pay taxes on employees' equity awards

-

-

(11,480)

-

-

(11,480)
51,915 shares issued upon exercise of stock options

-

-

5,952

-

-

5,952
Balance at March 31, 2021
$
390

$
(396,525)

$
855,996

$
936,502

$
-

$
1,396,363


									Accumulated
	Common		Treasury		Additional				Other
	Stock		Stock		Paid-in		Retained		Comprehensive
	($0.01 par value)		at cost		Capital		Earnings		(Loss) Income		Equity
Balance at December 31, 2020	$	389	$	(386,669)	$	858,414	$	876,660	$	-	$	1,348,794
Net income		-		-		-		59,842		-		59,842
Share-based compensation		-		-		3,111		-		-		3,111
Issuance of 30,284 restricted share awards under long-term equity incentive plan		1		-		(1)		-		-		-
Repurchase of 49,284 shares		-		(9,856)		-		-		-		(9,856)
43,290 shares withheld to pay taxes on employees' equity awards		-		-		(11,480)		-		-		(11,480)
51,915 shares issued upon exercise of stock options		-		-		5,952		-		-		5,952
Balance at March 31, 2021	$	390	$	(396,525)	$	855,996	$	936,502	$	-	$	1,396,363
Net income		-		-		-		90,380		-		90,380
Share-based compensation		-		-		2,266		-		-		2,266
Repurchase of 73,747 shares		-		(14,182)		-		-		-		(14,182)
50 shares withheld to pay taxes on employees' equity awards		-		-		(11)		-		-		(11)
Balance at June 30, 2021	$	390	$	(410,707)	$	858,251	$	1,026,882	$	-	$	1,474,816

Accumulated

Common

Treasury

Additional

Other

Stock

Stock

Paid-in

Retained

Comprehensive

($0.01 par value)

at cost

Capital

Earnings

(Loss) Income

Equity
Balance at December 31, 2021
$
391

$
(431,030)

$
873,031

$
1,200,676

$
(6,634)

$
1,636,434
Net income

-

-

-

114,711

-

114,711
Share-based compensation

-

-

3,727

-

-

3,727
Issuance of 52,940 restricted share awards under long-term equity incentive plan

2

-

(2)

-

-

-
Repurchase of 238,154 shares

-

(50,000)

-

-

-

(50,000)
53,073 shares withheld to pay taxes on employees' equity awards

-

(11,658)

-

-

-

(11,658)
12,269 shares issued upon exercise of stock options

-

-

808

-

-

808
Other comprehensive income, net of tax

-

-

-

-

3,218

3,218
Balance at March 31, 2022
$
393

$
(492,688)

$
877,564

$
1,315,387

$
(3,416)

$
1,697,240


									Accumulated
	Common		Treasury		Additional				Other
	Stock		Stock		Paid-in		Retained		Comprehensive
	($0.01 par value)		at cost		Capital		Earnings		(Loss) Income		Equity
Balance at December 31, 2021	$	391	$	(431,030)	$	873,031	$	1,200,676	$	(6,634)	$	1,636,434
Net income		-		-		-		114,711		-		114,711
Share-based compensation		-		-		3,727		-		-		3,727
Issuance of 52,940 restricted share awards under long-term equity incentive plan		2		-		(2)		-		-		-
Repurchase of 238,154 shares		-		(50,000)		-		-		-		(50,000)
53,073 shares withheld to pay taxes on employees' equity awards		-		(11,658)		-		-		-		(11,658)
12,269 shares issued upon exercise of stock options		-		-		808		-		-		808
Other comprehensive income, net of tax		-		-		-		-		3,218		3,218
Balance at March 31, 2022	$	393	$	(492,688)	$	877,564	$	1,315,387	$	(3,416)	$	1,697,240
Net income		-		-				143,697		-		143,697
Share-based compensation		-		-		3,334		-		-		3,334
Repurchase of 409,312 shares pursuant to 2022 ASR Agreement		-		(80,050)		(20,000)		-		-		(100,050)
51 shares withheld to pay taxes on employees' equity awards		-		(9)		-		-		-		(9)
5,835 shares issued upon exercise of stock options		-		-		644		-		-		644
Other comprehensive loss, net of tax		-		-		-		-		(2,193)		(2,193)
Balance at June 30, 2022	$	393	$	(572,747)	$	861,542	$	1,459,084	$	(5,609)	$	1,742,663

See notes to our unaudited condensed consolidated financial statements.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

TopBuild was formed on June 30, 2015, and is listed on the NYSE under the ticker symbol “BLD.” We report our business in 2 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,~~June 30, 2022, ~~and~~ our results of operations and comprehensive income for the three and six months ended June 30, 2022 and 2021, and our cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021. The condensed consolidated balance sheet at December 31, 2021, was derived from our audited financial statements, but does not include all disclosures required by GAAP.

These condensed consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report for the year ended December 31, 2021, as filed with the SEC on February 22, 2022.

2. ACCOUNTING POLICIES

Financial Statement Presentation. Our condensed consolidated financial statements have been developed in conformity with GAAP, which requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from these estimates. All significant intercompany transactions between TopBuild entities have been eliminated.

Recently Adopted Accounting Pronouncements

The following table summarizes additional ASUs which were adopted, but did not have a material impact on our accounting policies or our consolidated financial statements and related disclosures:


ASU	Description	Period Adopted	Method
ASU 2019-12	Income Taxes - Simplifying the Accounting for Income Taxes	01/01/21	Modified Retrospective
ASU 2021-01	Reference Rate Reform	01/01/21	Prospective

Recently Issued Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. This standard improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability, as well as payment terms and their effect on subsequent revenue recognized by the acquirer. This standard is effective for us beginning January 1, 2023, with early adoption permitted. We are evaluating the impact that adoption of this standard may have on our financial position and results of operations.

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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 June 30,
	Three Months Ended March 31, 2022								2022								2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Residential	$	563,303	$	236,411	$	(43,421)	$	756,293	$	634,078	$	247,827	$	(50,007)	$	831,898	$	486,266	$	203,063	$	(36,719)	$	652,610
Commercial		113,390		215,514		(8,216)		320,688		114,890		233,828		(12,467)		336,251		119,359		70,301		(8,015)		181,645
Industrial		—		91,937		—		91,937		-		106,136		-		106,136		-		-		-		-
Net sales	$	676,693	$	543,862	$	(51,637)	$	1,168,918	$	748,968	$	587,791	$	(62,474)	$	1,274,285	$	605,625	$	273,364	$	(44,734)	$	834,255


									Six Months Ended June 30,
	Three Months Ended March 31, 2021								2022								2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Residential	$	418,077	$	192,045	$	(33,338)	$	576,784	$	1,197,382	$	484,238	$	(93,429)	$	1,588,191	$	904,343	$	395,108	$	(70,057)	$	1,229,394
Commercial		114,676		59,556		(8,218)		166,014		228,279		449,342		(20,682)		656,939		234,035		129,857		(16,233)		347,659
Industrial										-		198,073		-		198,073		-		-		-		-
Net sales	$	532,753	$	251,601	$	(41,556)	$	742,798	$	1,425,661	$	1,131,653	$	(114,111)	$	2,443,203	$	1,138,378	$	524,965	$	(86,290)	$	1,577,053

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


	Three Months Ended March 31, 2022								Three Months Ended June 30, 2022								Three Months Ended June 30, 2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Insulation and accessories	$	536,341	$	452,011	$	(43,810)	$	944,542	$	590,099	$	486,325	$	(53,343)	$	1,023,081	$	478,076	$	220,257	$	(37,193)	$	661,140
Glass and windows		51,196		—		—		51,196		57,121		-		-		57,121		47,167		-		-		47,167
Gutters		22,957		46,631		(7,002)		62,586		27,240		50,879		(8,094)		70,025		22,416		36,851		(6,264)		53,003
All other		66,199		45,220		(825)		110,594		74,508		50,587		(1,037)		124,058		57,966		16,256		(1,277)		72,945
Net sales	$	676,693	$	543,862	$	(51,637)	$	1,168,918	$	748,968	$	587,791	$	(62,474)	$	1,274,285	$	605,625	$	273,364	$	(44,734)	$	834,255


	Three Months Ended March 31, 2021								Six Months Ended June 30, 2022								Six Months Ended June 30, 2021
		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total		Installation		Specialty Distribution		Elims		Total
Insulation and accessories	$	417,597	$	211,494	$	(34,527)	$	594,564	$	1,126,440	$	938,337	$	(97,153)	$	1,967,624	$	895,673	$	431,751	$	(71,720)	$	1,255,704
Glass and windows		43,047		—		—		43,047		108,317		-		-		108,317		90,214		-		-		90,214
Gutters		19,358		25,839		(5,305)		39,892		50,198		97,509		(15,096)		132,611		41,774		62,689		(11,569)		92,894
All other		52,751		14,268		(1,724)		65,295		140,706		95,807		(1,862)		234,651		110,717		30,525		(3,001)		138,241
Net sales	$	532,753	$	251,601	$	(41,556)	$	742,798	$	1,425,661	$	1,131,653	$	(114,111)	$	2,443,203	$	1,138,378	$	524,965	$	(86,290)	$	1,577,053

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

Included in Line Item on

As of

Condensed

March 31,

December 31,

Balance Sheets

2022

2021
Contract Assets:

Receivables, unbilled
Receivables, net

$
72,996

$
71,401

Contract Liabilities:

Deferred revenue
Accrued liabilities

$
15,926

$
14,310

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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


	Included in Line Item on	As of
	Condensed	June 30,		December 31,
	Balance Sheets	2022		2021
Contract Assets:
Receivables, unbilled	Receivables, net	$	81,095	$	71,401

Contract Liabilities:
Deferred revenue	Accrued liabilities	$	18,850	$	14,310

The aggregate amount remaining on uncompleted performance obligations was ~~$346.3~~$390.7 million as of ~~March 31,~~June 30, 2022. We expect to satisfy the performance obligations and recognize revenue on substantially all of these uncompleted contracts over the next 18 months.

Certain customer contracts contain provisions whereby customers are entitled to withhold an agreed upon percentage of the total contract value until the customer’s project is satisfactorily complete. This amount held back is referred to as retainage and is a common practice in the construction industry. Retainage receivables are classified as trade receivables, which is a component of Receivables, net on our condensed consolidated balance sheets and were ~~$57.1~~$56.7 million and $57.6 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

4. GOODWILL AND OTHER INTANGIBLES

We have 2 reporting units which are also our operating and reporting segments: Installation and Specialty Distribution. Both reporting units contain goodwill. Assets acquired and liabilities assumed are assigned to the applicable reporting unit based on whether the acquired assets and liabilities relate to the operations of and determination of the fair value of such unit. Goodwill assigned to the reporting unit is the excess of the fair value of the acquired business over the fair value of the individual assets acquired and liabilities assumed for the reporting unit.

In the fourth quarter of 2021, we performed an annual assessment on our goodwill resulting in 0 ~~impairment.~~impairment and there were no indicators of impairment for the six months ended June 30, 2022.

Changes in the carrying amount of goodwill for the ~~three~~six months ended ~~March 31,~~June 30, 2022, by segment, were as follows, in thousands:


					Fx				Accumulated								Fx				Accumulated
	Gross Goodwill				Translation		Gross Goodwill		Impairment		Net Goodwill		Gross Goodwill				Translation		Gross Goodwill		Impairment		Net Goodwill
	December 31, 2021		Additions		Adjustment		March 31, 2022		Losses		March 31, 2022		December 31, 2021		Additions		Adjustment		June 30, 2022		Losses		June 30, 2022
Goodwill, by segment:
Installation	$	1,818,872	$	5,348		-	$	1,824,220	$	(762,021)	$	1,062,199	$	1,818,872	$	8,065		-	$	1,826,937	$	(762,021)	$	1,064,916
Specialty Distribution		892,912		5,126		4,060		902,098		-		902,098		892,912		8,838		1,937		903,687		-		903,687
Total goodwill	$	2,711,784	$	10,474	$	4,060	$	2,726,318	$	(762,021)	$	1,964,297	$	2,711,784	$	16,903	$	1,937	$	2,730,624	$	(762,021)	$	1,968,603

See Note 13 – Business Combinations for goodwill recognized on acquisitions that occurred during the quarter.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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				As of
	March 31,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
Gross definite-lived intangible assets	$	785,288	$	783,843	$	787,670	$	783,843
Accumulated amortization		(115,491)		(99,634)		(134,212)		(99,634)
Net definite-lived intangible assets	$	669,797	$	684,209	$	653,458	$	684,209

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

Three Months Ended March 31,

2022

2021
Amortization expense

$
17,825

$
6,143

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~~TOPBUILD CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Amortization expense	$	16,809	$	7,199	$	33,839	$	13,342

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				As of
	March 31,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
3.625% Senior Notes due 2029	$	400,000	$	400,000	$	400,000	$	400,000
4.125% Senior Notes due 2032		500,000		500,000		500,000		500,000
Term loan		588,750		596,250		581,250		596,250
Equipment notes		14,959		17,085		12,807		17,085
Unamortized debt issuance costs		(19,513)		(20,212)		(18,793)		(20,212)
Total debt, net of unamortized debt issuance costs		1,484,196		1,493,123		1,475,264		1,493,123
Less: current portion of long-term debt		38,723		38,640		38,162		38,640
Total long-term debt	$	1,445,473	$	1,454,483	$	1,437,102	$	1,454,483

The following table sets forth our remaining principal payments for our outstanding debt balances as of ~~March 31,~~June 30, 2022, in thousands:


	Payments Due by Period														Payments Due by Period
	2022		2023		2024		2025		2026		Thereafter		Total		2022		2023		2024		2025		2026		Thereafter		Total
3.625% Senior Notes	$	—	$	—	$	—	$	—	$	—	$	400,000	$	400,000	$	-	$	-	$	-	$	-	$	-	$	400,000	$	400,000
4.125% Senior Notes		—		—		—		—		—		500,000		500,000		-		-		-		-		-		500,000		500,000
Term loan		22,500		33,750		45,000		48,750		438,750		—		588,750		15,000		33,750		45,000		48,750		438,750		-		581,250
Equipment notes		6,513		6,325		2,121		—		—		—		14,959		4,361		6,325		2,121		-		-		-		12,807
Total	$	29,013	$	40,075	$	47,121	$	48,750	$	438,750	$	900,000	$	1,503,709	$	19,361	$	40,075	$	47,121	$	48,750	$	438,750	$	900,000	$	1,494,057

Amendments to Credit Agreement and Senior Secured Term Loan Facility

On March 8, 2021, the Company entered into Amendment No. 1 to Credit Agreement. Amendment No. 1 to Credit Agreement provided for a term loan facility in an aggregate principal amount of $300.0 million, all of which was drawn on March 8, 2021, and a revolving facility with an aggregate borrowing capacity of $450.0 million, including a $100.0 million letter of credit sublimit and up to a $35.0 million swingline sublimit.

~~The maturity date for the loans under~~ Amendment No. 1 to Credit Agreement ~~was~~ extended the maturity date from March 2025 to March 2026, the floor for base rate loans was reduced from 1.5% to 1.0%, and the floor for Eurodollar rate loans was reduced from 0.5% to 0.0%. Additional provisions were made for the eventual replacement of LIBOR with another alternate benchmark rate.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On October 7, 2021, the Company entered into Amendment No. 2 to Credit Agreement. Amendment No. 2 to Credit Agreement provides for a term loan facility in an aggregate principal amount of $600.0 million, comprised of a $300.0 million term loan facility and a $300.0 million delayed draw term loan commitment, all of which was drawn on October 7, 2021, and a revolving facility with an aggregate borrowing capacity of $500.0 million, including a $100.0 million letter of credit sublimit and up to a $35.0 million swingline sublimit. The maturity date for the loans under Amendment No. 2 to Credit Agreement was extended from March 2026 to October 2026. Additional provisions were also made for the eventual replacement of LIBOR with an alternative benchmark rate.

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~~TOPBUILD CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

The following table outlines the key terms of our Amendment No. 2 to Credit Agreement (dollars in thousands):


Senior secured term loan facility	$	300,000		$	300,000
Additional delayed draw term loan	$	300,000		$	300,000

Additional term loan and/or revolver capacity available under incremental facility (a)	$	300,000		$	300,000

Revolving facility	$	500,000		$	500,000
Sublimit for issuance of letters of credit under revolving facility (b)	$	100,000		$	100,000
Sublimit for swingline loans under revolving facility (b)	$	35,000		$	35,000

Interest rate as of March 31, 2022		1.46	%
Interest rate as of June 30, 2022					2.06	%
Scheduled maturity date		10/7/2026			10/7/2026

(a)	Additional borrowing capacity is available under the incremental facility, subject to certain terms and conditions (including existing or new lenders providing commitments in respect of such additional borrowing capacity).

(b)	Use of the sublimits for the issuance of letters of credit and swingline loans reduces the availability under the Revolving Facility.

Interest payable on borrowings under the Credit Agreement is based on an applicable margin rate plus, at our option, either:

●

A base rate determined by reference to the highest of either (i) the federal funds rate plus 0.50 percent, (ii) BofA’s “prime rate,” and (iii) the LIBOR rate for U.S. dollar deposits with a term of one month, plus 1.00 percent; or

●

A LIBOR rate (or a comparable successor 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%.

Amendment No. 2 to Credit Agreement contemplates future amendment by the Company and the agent to provide for the replacement of LIBOR with an alternative benchmark rate, giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated syndicated credit facilities for such alternative benchmarks, including any related mathematical or other applicable adjustments.

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 1.00 percent and in the case of LIBOR rate borrowings, the applicable margin ranges from 1.00 percent to 2.50 percent. Borrowings under Amendment No. 2 to 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,

December 31,


2022

2021
Revolving facility

$
500,000

$
500,000
Less: standby letters of credit

(69,936)

(69,936)
Availability under revolving facility

$
430,064

$
430,064

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes our availability under the Revolving Facility, in thousands:


	As of
	June 30,		December 31,
	2022		2021
Revolving facility	$	500,000	$	500,000
Less: standby letters of credit		(69,936)		(69,936)
Availability under revolving facility	$	430,064	$	430,064

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

On March 15, 2021, the Company completed a private offering of $400.0 million aggregate principal amount of 3.625% Senior Notes due 2029. The Company used the proceeds from the issuance of the 3.625% Senior Notes, together with cash on hand, to redeem 100% of its $400.0 million aggregate principal amount of 5.625% Senior Notes due 2026. The 3.625% Senior Notes are our senior unsecured obligations and bear interest at 3.625% per year, payable semiannually in arrears on March 15 and September 15 of each year, which ~~begins on~~began September 15, 2021. The 3.625% Senior Notes mature on March 15, 2029, unless redeemed early or repurchased. If we undergo a change in control, we must make an offer to repurchase all of the 3.625% Senior Notes then outstanding at a repurchase price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest (if any) to, but not including, the repurchase date.

The Company may redeem the 3.625% Senior Notes, in whole or in part, at any time on or after March 15, 2024 at the redemption prices specified in the notes. The Company may also redeem all or part of the 3.625% Senior Notes at any time prior to March 15, 2024 at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus the Applicable Premium (as defined in the Indenture), as of, and accrued and unpaid interest to, the redemption date. Additionally, the Company may redeem up to 40% of the aggregate principal amount of the 3.625% Senior Notes prior to March 15, 2024 with the net cash proceeds of certain sales of its capital stock at 103.625% of the principal amount of the notes, plus accrued and unpaid interest, if any, to the date of redemption only if, after the redemption, at least 60% of the aggregate principal amount of the 3.625% Senior Notes originally issued remains outstanding.

4.125% Senior Notes

On October 14, 2021, the Company completed a private offering of $500.0 million aggregate principal amount of 4.125% Senior Notes due 2032. The 4.125% Senior Notes are 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 bps. 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.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Equipment Notes

As of ~~March 31,~~June 30, 2022, the company has ~~issued $41.6~~outstanding $12.8 million of equipment notes for the purpose of financing the purchase of vehicles and equipment. NaN equipment notes were issued during the six months ended June 30, 2022. The Company’s equipment notes each have a five year term maturing from 2023 to 2024 and bear interest at fixed rates between 2.8% and 4.4%.

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~~TOPBUILD CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

Covenant Compliance

The indentures governing our 3.625% Senior Notes and our 4.125% Senior Notes (together, our “Senior Notes”) contain restrictive covenants that, among other things, generally limit the ability of the Company and certain of its subsidiaries (subject to certain exceptions) to (i) create liens, (ii) pay dividends, acquire shares of capital stock and make payments on subordinated debt, (iii) place limitations on distributions from certain subsidiaries, (iv) issue or sell the capital stock of certain subsidiaries, (v) sell assets, (vi) enter into transactions with affiliates and (vii) effect mergers. The indentures provide for customary events of default which include (subject in certain cases to customary grace and cure periods), among others: nonpayment of principal or interest; breach of covenants or other agreements in the indenture; defaults in failure to pay certain other indebtedness; and certain events of bankruptcy or insolvency. Generally, if an event of default occurs and is continuing under the indenture, the trustee or the holders of at least 30% in aggregate principal amount of each of our Senior Notes then outstanding may declare the principal of, premium, if any, and accrued interest on the Senior Notes subject to such declaration immediately due and payable. The Senior Notes and related guarantees have not been registered under the Securities Act of 1933, and we are not required to register either the Senior Notes or the guarantees in the future.

The Credit Agreement contains certain covenants that limit, among other things, the ability of the Company to incur additional indebtedness or liens; to make certain investments or loans; to make certain restricted payments; to enter into consolidations, mergers, sales of material assets, and other fundamental changes; to transact with affiliates; to enter into agreements restricting the ability of subsidiaries to incur liens or pay dividends; or to make certain accounting changes. The Credit Agreement contains customary affirmative covenants and events of default.

The Credit Agreement requires that we maintain a Net Leverage Ratio and minimum Interest Coverage Ratio throughout the term of the agreement. The following table outlines the key financial covenants effective for the period covered by this Quarterly Report:


		As of ~~March 31,~~June 30, 2022
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. For more information see Note 13 – Business Combinations.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 approximates the 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 Amendment No.2 to 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,~~June 30, 2022 (Level 1 fair value measurement), we estimate the fair value of each in the table below:

As of March 31, 2022

Fair Value

Gross Carrying Value
3.625% Senior Notes

$
365,000

$
400,000
4.125% Senior Notes

$
456,250

$
500,000

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~~TOPBUILD CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


	As of June 30, 2022
		Fair Value		Gross Carrying Value
3.625% Senior Notes	$	319,000	$	400,000
4.125% Senior Notes	$	388,750	$	500,000

7. SEGMENT INFORMATION

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


	Three Months Ended March 31,								Three Months Ended June 30,
	2022		2021		2022		2021		2022		2021		2022		2021

	Net Sales				Operating Profit (b)				Net Sales				Operating Profit (b)
Our operations by segment were (a):
Installation	$	676,693	$	532,753	$	112,679	$	73,636	$	748,968	$	605,625	$	139,919	$	99,066
Specialty Distribution		543,862		251,601		70,420		35,385		587,791		273,364		86,749		42,856
Intercompany eliminations		(51,637)		(41,556)		(8,708)		(6,528)		(62,474)		(44,734)		(10,435)		(6,932)
Total	$	1,168,918	$	742,798		174,391		102,493	$	1,274,285	$	834,255		216,233		134,990
General corporate expense, net (c)						(10,437)		(6,606)						(9,012)		(6,704)
Operating profit, as reported						163,954		95,887						207,221		128,286
Other expense, net						(11,282)		(20,388)						(13,689)		(6,039)
Income before income taxes					$	152,672	$	75,499					$	193,532	$	122,247


	Six Months Ended June 30,
	2022		2021		2022		2021

	Net Sales				Operating Profit (b)
Our operations by segment were (a):
Installation	$	1,425,661	$	1,138,378	$	252,598	$	172,702
Specialty Distribution		1,131,653		524,965		157,170		78,241
Intercompany eliminations		(114,111)		(86,290)		(19,144)		(13,460)
Total	$	2,443,203	$	1,577,053		390,624		237,483
General corporate expense, net (c)						(19,449)		(13,311)
Operating profit, as reported						371,175		224,172
Other expense, net						(24,969)		(26,425)
Income before income taxes					$	346,206	$	197,747

(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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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. LEASES

We lease various assets to support our business including warehouses for our Installation branch locations and Specialty Distribution centers, office space for our Branch Support Center in Daytona Beach, Florida and other administrative locations, as well as fleet vehicles and certain equipment. In addition, we lease certain operating facilities from related parties, primarily former owners (and in certain cases, current management personnel) of companies acquired. These related party leases are immaterial to our condensed consolidated statements of operations.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

The following table presents lease-related assets and liabilities recognized in our condensed consolidated balance sheet, in thousands:


		As of							As of
		March 31,			December 31,				June 30,			December 31,
		2022			2021				2022			2021
Assets	Classification							Classification
Operating	Right of use assets	$	184,762		$	177,177		Right of use assets	$	174,361		$	177,177
Finance	Property and equipment, net		9,158			9,743		Property and equipment, net		7,857			9,743
Total lease assets		$	193,920		$	186,920			$	182,218		$	186,920
Liabilities
Current
Operating	Short-term operating lease liabilities	$	55,293		$	54,591		Short-term operating lease liabilities	$	55,284		$	54,591
Finance	Short-term finance lease liabilities		2,610			2,387		Short-term finance lease liabilities		2,712			2,387
Non-Current
Operating	Long-term operating lease liabilities		133,297			125,339		Long-term operating lease liabilities		124,191			125,339
Finance	Long-term finance lease liabilities		7,631			7,770		Long-term finance lease liabilities		7,055			7,770
Total lease liabilities		$	198,831		$	190,087			$	189,242		$	190,087
Weighted-average remaining lease term:
Operating leases			4.1 years			4.1 years				3.9 years			4.1 years
Finance leases			4.2 years			4.4 years				4.0 years			4.4 years
Weighted-average discount rate:
Operating leases			3.0	%		3.1	%			3.1	%		3.1	%
Finance leases			2.9	%		2.9	%			2.9	%		2.9	%

The components of lease expense were as follows and are primarily included in cost of sales on the accompanying unaudited condensed consolidated statement of operations for operating leases and in selling, general and administrative expenses on the accompanying unaudited condensed consolidated statement of operations for finance leases and operating leases on support centers, in thousands:


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021		2022		2021
Operating lease cost (a)	$	20,512	$	11,810	$	21,675	$	12,636	$	42,186	$	24,446
Financing lease cost:
Amortization of leased assets		795		—		744		-		1,539		-
Interest on finance lease obligations		70		—		66		-		136		-
Short-term lease cost		4,340		3,354		4,001		3,844		8,341		7,198
Sublease income		(218)		(206)		(155)		(215)		(373)		(421)
Net lease cost	$	25,499	$	14,958	$	26,331	$	16,265	$	51,829	$	31,223

(a)	Includes variable cost components of ~~$3,680~~$4,782 and ~~$1,697~~$1,808 in the three months ended ~~March 31,~~June 30, 2022, and 2021, respectively, and $8,461 and $3,505 of variable cost components in the six months ended June 30, 2022, and 2021, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Future minimum lease payments under non-cancellable operating leases as of ~~March 31,~~June 30, 2022, were as follows, in thousands:


Payments due by Period
2022			$	32,614
2023	$	49,287		54,275
2024		54,670		45,418
2025		42,795		34,983
2026		32,669		22,520
2027		20,914
2028 and Thereafter		14,647
2027 and Thereafter				16,550
Total future minimum lease payments		214,982		206,360

Less: imputed interest		(16,151)		(17,118)

Lease liability at March 31, 2022	$	198,831
Lease liability at June 30, 2022			$	189,242

The amount below is included in the cash flows provided by (used in) operating activities section on the accompanying unaudited condensed consolidated statements of cash flows, in thousands:


	Three Months Ended March 31,				Six Months Ended June 30,
	2022		2021		2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	(70)	$	—	$	(136)	$	-
Operating cash flows from operating leases		(16,198)		(10,150)		(31,959)		(21,072)
Financing cash flows from finance leases		(557)		—		(1,130)		-

9. INCOME TAXES

Our effective tax rates were ~~24.9~~25.8 percent and ~~20.7~~25.4 percent for the three and six months ended June 30, 2022, respectively. The effective tax rates for the three and six months ended June 30, 2021 were 26.1 percent and 24.0 percent, respectively. The lower 2022 tax rate for the three months ended ~~March 31,~~June 30, 2022, compared to the three months ended June 30, 2021 was due to state tax adjustments and ~~2021, respectively. The higher 2022 tax rate was primarily related to~~miscellaneous items partially offset by a decrease in the benefit related to share-based ~~compensation and state tax adjustments.~~compensation.

A tax benefit of $1.6 ~~million and $3.1~~ 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~~six months ended ~~March 31, 2022 and 2021, respectively.~~June 30, 2022.

10. 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.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021		2022		2021
Net income (in thousands) - basic and diluted	$	114,711	$	59,842
Net income (in thousands)					$	143,697	$	90,380	$	258,410	$	150,222

Weighted average number of common shares outstanding - basic		32,738,525		32,826,515		32,405,292		32,865,303		32,570,988		32,846,016

Dilutive effect of common stock equivalents:
RSAs with service-based conditions		15,127		35,619		12,123		15,456		13,625		25,538
RSAs with market-based conditions		100,158		147,098		52,871		118,102		76,515		132,600
RSAs with performance-based conditions		64,025		49,020		39,677		59,167		51,851		54,094
Stock options		124,655		144,311		104,486		119,407		114,570		131,859

Weighted average number of common shares outstanding - diluted		33,042,490		33,202,563		32,614,449		33,177,435		32,827,549		33,190,107

Basic net income per common share	$	3.50	$	1.82	$	4.43	$	2.75	$	7.93	$	4.57

Diluted net income per common share	$	3.47	$	1.80	$	4.41	$	2.72	$	7.87	$	4.53

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,				Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021		2022		2021
Anti-dilutive common stock equivalents:
RSAs with service-based conditions		10,244		2,831		18,880		1,815		14,562		2,323
RSAs with market-based conditions		382		5,512		82		11,128		232		8,320
RSAs with performance-based conditions		7,908		—		-		-		3,954		-
Stock options		16,587		11,766		22,875		24,066		19,731		17,916
Total anti-dilutive common stock equivalents		35,121		20,109		41,837		37,009		38,479		28,559

11. SHARE-BASED COMPENSATION

Effective July 1, 2015, our eligible employees commenced participation in the 2015 LTIP. The 2015 LTIP 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,~~June 30, 2022, we had 1.9 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,				Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021		2022		2021
Share-based compensation expense	$	3,727	$	3,111	$	3,334	$	2,266	$	7,061	$	5,377
Income tax benefit	$	1,605	$	3,093
Income tax (expense) benefit					$	(32)	$	228	$	1,573	$	3,320

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents a summary of our share-based compensation activity for the three months ended ~~March 31,~~June 30, 2022, in thousands, except per share amounts:


	RSAs			Stock Options								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			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, 2021	244.4	$	119.41	210.5	$	32.35	$	87.30	$	39,692.4		244.4	$	119.41	210.5	$	32.35	$	87.30	$	39,692.4
Granted	90.5	$	181.51	—	$	—	$	—		—		105.5	$	181.82	—	$	—	$	—		—
Converted/Exercised	(162.9)	$	71.59	(12.3)	$	23.48	$	65.74	$	1,798.4		(166.8)	$	75.10	(18.1)	$	27.85	$	80.14	$	2,282.9
Forfeited/Expired	(0.2)	$	252.91	—	$	—	$	—		—		(9.3)	$	222.20	(3.1)	$	68.81	$	174.76		—
Balance March 31, 2022	171.8	$	197.22	198.2	$	32.90	$	88.63	$	19,180.9
Balance June 30, 2022												173.8	$	194.70	189.3	$	32.19	$	86.57	$	16,311.0

Exercisable March 31, 2022 (a)				161.9	$	26.46	$	72.42	$	17,912.5
Exercisable June 30, 2022 (a)											Exercisable June 30, 2022 (a)				155.5	$	25.82	$	70.45	$	15,391.1

(a)	The weighted average remaining contractual term for vested stock options is approximately ~~6.1~~5.8 years.

Unrecognized share-based compensation expense related to unvested awards is shown in the following table, dollars in thousands:


	As of March 31, 2022				As of June 30, 2022
	Unrecognized Compensation Expense on Unvested Awards		Weighted Average Remaining Vesting Period		Unrecognized Compensation Expense on Unvested Awards		Weighted Average Remaining Vesting Period
RSAs	$	20,376		1.2	$	17,630		1.6
Stock options		1,120		0.9		826		0.8
Total unrecognized compensation expense related to unvested awards	$	21,496			$	18,456

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										Payout Ranges and Related Expense
RSAs with Performance-Based Conditions	Grant Date Fair Value		0%		25%		100%		200%		Grant Date Fair Value		0%		25%		100%		200%
February 17, 2020	$	2,675	$	—	$	669	$	2,675	$	5,350	$	2,535	$	0	$	634	$	2,535	$	5,070
February 16, 2021	$	2,552	$	—	$	638	$	2,552	$	5,104	$	2,404	$	0	$	601	$	2,404	$	4,808
February 15, 2022	$	3,692	$	—	$	923	$	3,692	$	7,384	$	3,464	$	0	$	866	$	3,464	$	6,928

During the first quarter of 2022, RSAs with performance-based conditions that were granted on February 18, 2019 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 2022 and 2021:


	2022			2021
Measurement period (years)		2.87			2.87
Risk free interest rate		1.76	%		0.22	%
Dividend yield		0.00	%		0.00	%
Estimated fair value of market-based RSAs at grant date	$	298.20		$	298.66

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair values of stock options granted under the 2015 LTIP were calculated using the Black-Scholes Options Pricing Model. The following table presents the assumptions used to estimate the fair values of stock options granted in 2021. There were 0 stock options issued in the first ~~quarter~~six months of 2022.


	2021
Risk free interest rate		0.76	%
Expected volatility, using historical return volatility and implied volatility		43.29	%
Expected life (in years)		6.0
Dividend yield		0.00	%
Estimated fair value of stock options at grant date	$	89.59

12. SHARE REPURCHASE PROGRAM

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. Share repurchases may be executed through various means including open market purchases, privately negotiated transactions, accelerated share repurchase transactions, or other available means. The 2022 Repurchase Program does not obligate the Company to purchase any shares and has no expiration date. Authorization for the 2022 Repurchase Program may be terminated, increased, or decreased by the Board at its discretion at any time.

On July 26, 2021, our Board authorized the 2021 Repurchase Program, pursuant to which the Company may purchase up to $200.0 million 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 2021 Repurchase Program does not obligate the Company to purchase any shares and has no expiration date. Authorization for the 2021 Repurchase Program may be terminated, increased, or decreased by the Board at its discretion at any time. As of ~~March 31,~~June 30, 2022, the Company has ~~$154.4~~$54.4 million remaining under the 2021 Repurchase Program.

On February 22, 2019, our Board authorized the 2019 Repurchase Program, pursuant to which the Company may purchase up to $200.0 million 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 2019 Repurchase Program does not obligate the Company to purchase any shares and has no expiration date. Authorization for the 2019 Repurchase Program may be terminated, increased, or decreased by the Board at its discretion at any time. As of ~~March 31,~~June 30, 2022 the Company has utilized all amounts authorized under the 2019 Repurchase Program.

On May 5, 2022, the Company entered into the 2022 ASR Agreement under the 2021 Repurchase Program. We paid $100 million in exchange for an initial delivery of 409,312 shares of our common stock on May 9, 2022, representing an estimated 80% of the total number of shares we expected to receive under the 2022 ASR Agreement at the time we entered into the agreement. We expect the 2022 ASR to settle in the third quarter of 2022.

The following table sets forth our share repurchases under the Repurchase Programs during the periods presented. These repurchases closed out the 2019 Share Repurchase Program with the balance repurchased under the 2021 Share Repurchase Program.


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021		2022		2021
Number of shares repurchased		238,154		49,284		409,312		73,747		647,466		123,031
Share repurchase cost (in thousands)	$	50,000	$	9,856	$	100,050	$	14,182	$	150,050	$	24,038

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. BUSINESS COMBINATIONS

~~We continue to acquire~~Acquiring businesses asis 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 for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021 were ~~$0.9~~$1.3 million and $0.7 million, respectively. Acquisition related costs are included in selling, general, and administrative expense in our condensed consolidated statements of operations.

~~On January 12,~~

The table below provides a summary as of June 30, 2022 wefor the businesses acquired ~~substantially all~~during the assets of Southwest, an insulation company located in Florida. The purchase price of $0.3 million was funded by cash on hand and we recognized goodwill of $0.2 million in connection with this acquisition.six months ended June 30, 2022:

On February 3, 2022, we acquired substantially all the assets of Billings, a residential insulation installer serving the Montana and Northern Wyoming markets. The purchase price of $6.9 million was funded with cash on hand and we recognized goodwill of $3.8 million in connection with this acquisition.

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~~TOPBUILD CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

On March 31, 2022, we acquired substantially all the assets of Green Energy, an insulation company located in Oregon. The purchase price of $1.2 million was funded with cash on hand and we recognized goodwill of $0.8 million in connection with this acquisition.


2022 Acquisitions	Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired
Southwest		1/12/2022	$	300	$	—	$	300	$	215
Billings		2/3/2022		7,005		—		7,005		3,313
Green Energy		3/31/2022		1,200		—		1,200		504
Assured		4/7/2022		4,719		500		5,219		3,451
Total			$	13,224	$	500	$	13,724	$	7,483

The table below provides a summary as of ~~March 31,~~June 30, 2022 for the businesses acquired during the ~~three~~six months ended ~~March 31,~~June 30, 2021:


2021 Acquisitions	Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired		Date		Cash Paid		Contingent Consideration		Total Purchase Price		Goodwill Acquired
LCR		1/20/2021	$	53,700	$	—	$	53,700	$	19,500		1/20/2021	$	53,700		—		53,700		19,500
Ozark		3/3/2021		7,400		—		7,400		2,900
ABS												4/5/2021		124,348		—		124,348		54,229
All others												Various		15,716		—		15,716		6,223
Total			$	61,100	$	—	$	61,100	$	22,400			$	193,764	$	—	$	193,764	$	79,952

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. To that note, during the ~~three~~six months ended ~~March 31,~~June 30, 2022, DI’s goodwill increased by ~~$5.1~~$8.9 million primarily as a result of purchase price adjustments to acquisition date sales and use tax liabilities, net working capital adjustments, and true-ups to supplier rebate ~~receivables, and sales and use tax liabilities.~~receivables.

~~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 ~~$4.8~~$7.5 million and ~~$22.4~~$80.0 million of goodwill recorded from acquisitions completed in the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively, is expected to be deductible for income tax purposes.

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TOPBUILD CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. ACCRUED LIABILITIES

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


		As of				As of
	��	March 31, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Accrued liabilities:
Salaries, wages, and commissions		$	62,438	$	71,664	$	75,343	$	71,664
Accrued income taxes payable			38,997		2,161
Insurance liabilities			25,525		24,425		24,529		24,425
Customer rebates			8,916		15,625		11,792		15,625
Deferred revenue			15,927		14,311		18,850		14,311
Employee tax-related liabilities			12,709		12,545		10,894		12,545
Sales & Property taxes			13,389		9,364
Sales and property taxes							14,601		9,364
Interest payable on long-term debt			10,318		8,798		19,579		8,798
Other			19,158		16,998		21,720		19,159
Total accrued liabilities		$	207,377	$	175,891	$	197,308	$	175,891

See Note 3 – Revenue Recognition for discussion of our deferred revenue balances. ~~Accrued income taxes payable increased compared to December 31, 2021 due to the timing of tax payments, which typically occur later in the year.~~

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~~TOPBUILD CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

15. 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, customer claims against builders for issues relating to our products and workmanship. We generally exclude indemnity relating to product quality and warranty claims from our agreements as those claims are passed directly to the manufacturers of the products that 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.

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

As of

March 31, 2022

December 31 2021
Outstanding bonds:

Performance bonds

$
120,049

$
128,173
Licensing, insurance, and other bonds

22,156

21,792
Total bonds

$
142,205

$
149,965

~~16. SUBSEQUENT EVENTS~~

On May 5, 2022, the Company announced its plan to enter into an agreement to repurchase $100.0 million of its common stock under an accelerated share repurchase program (“ASR”). The ASR will be executed under previous share repurchase program authorizations, with $154.4 million of remaining authorization as of March 31, 2022.


	As of
	June 30, 2022		December 31 2021
Outstanding bonds:
Performance bonds	$	132,192	$	128,173
Licensing, insurance, and other bonds		24,436		21,792
Total bonds	$	156,628	$	149,965

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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 distributor of insulation and other building products to the U.S. construction industry. We trade on the NYSE under the ticker symbol “BLD.”

We operate in two segments: Installation and Specialty Distribution. Our Installation segment installs insulation and other building products nationwide which, as of ~~March 31,~~June 30, 2022, had approximately ~~235~~230 branches located across the United States. We install various insulation applications, including fiberglass batts and rolls, blown-in loose fill fiberglass, blown-in loose fill cellulose, and polyurethane spray foam. Additionally, we install other building products including glass and windows, rain gutters, after paint products, fireproofing, garage doors, and fireplaces. 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 sells and distributes insulation and other building products, including gutters, fireplaces, closet shelving, and roofing materials, which, as of ~~March 31,~~June 30, 2022, had ~~160~~approximately 165 branches located across the United States and 18 branches in Canada. Our Specialty Distribution customer base consists of thousands of insulation contractors of all sizes, 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 a number of 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 Specialty 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 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, 2021, as filed with the SEC on February 22, 2022.

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.

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~~FIRST~~SECOND QUARTER 2022 VERSUS ~~FIRST~~SECOND QUARTER 2021

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,						Three Months Ended June 30,
	2022			2021			2022			2021
Net sales	$	1,168,918		$	742,798		$	1,274,285		$	834,255
Cost of sales		837,717			545,039			890,188			591,075
Cost of sales ratio		71.7	%		73.4	%		69.9	%		70.9	%

Gross profit		331,201			197,759			384,097			243,180
Gross profit margin		28.3	%		26.6	%		30.1	%		29.1	%

Selling, general, and administrative expense		167,247			101,872			176,876			114,894
Selling, general, and administrative expense to sales ratio		14.3	%		13.7	%		13.9	%		13.8	%

Operating profit		163,954			95,887			207,221			128,286
Operating profit margin		14.0	%		12.9	%		16.3	%		15.4	%

Other expense, net		(11,282)			(20,388)			(13,689)			(6,039)
Income tax expense		(37,961)			(15,657)			(49,835)			(31,867)
Net income	$	114,711		$	59,842		$	143,697		$	90,380
Net margin		9.8	%		8.1	%		11.3	%		10.8	%

Sales and Operations

Net sales increased ~~57.4~~52.7 percent for the three months ended ~~March 31,~~June 30, 2022, from the comparable period of 2021. The increase was primarily driven by a ~~38.6~~32.0 percent impact from our acquisitions, ~~16.5~~15.2 percent increase due to higher selling prices, and ~~2.2~~5.6 percent increase in sales volume.

Gross profit margins were ~~28.3~~30.1 percent and ~~26.6~~29.1 percent for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. Gross profit margin improved primarily due to higher selling prices, higher sales volume, and operational efficiencies partially offset by material inflation.

Selling, general, and administrative expense, as a percent of sales, was ~~14.3~~13.9 and ~~13.7~~13.8 percent for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. The increase in selling, general, and administrative expense as a percent of sales was driven primarily by costs associated with acquisitions, the amortization of intangible assets related to purchase ~~accounting.~~accounting and increased insurance costs.

Operating margins were ~~14.0~~16.3 percent and ~~12.9~~15.4 percent for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. The increase in operating margins was due to higher selling prices, higher sales volume and operational efficiencies partially offset by material inflation and amortization of intangible assets related to purchase accounting.

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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,								Three Months Ended June 30,
	2022			2021			Percent Change		2022			2021			Percent Change
Net sales by business segment:
Installation	$	676,693		$	532,753		27.0	%	$	748,968		$	605,625		23.7	%
Specialty Distribution		543,862			251,601		116.2	%		587,791			273,364		115.0	%
Intercompany eliminations		(51,637)			(41,556)					(62,474)			(44,734)
Net sales	$	1,168,918		$	742,798		57.4	%	$	1,274,285		$	834,255		52.7	%

Operating profit by business segment:
Installation	$	112,679		$	73,636		53.0	%	$	139,919		$	99,066		41.2	%
Specialty Distribution		70,420			35,385		99.0	%		86,749			42,856		102.4	%
Intercompany eliminations		(8,708)			(6,528)					(10,435)			(6,932)
Operating profit before general corporate expense		174,391			102,493		70.1	%		216,233			134,990		60.2	%
General corporate expense, net		(10,437)			(6,606)					(9,012)			(6,704)
Operating profit	$	163,954		$	95,887		71.0	%	$	207,221		$	128,286		61.5	%

Operating profit margins:
Installation		16.7	%		13.8	%				18.7	%		16.4	%
Specialty Distribution		12.9	%		14.1	%				14.8	%		15.7	%
Operating profit margin before general corporate expense		14.9	%		13.8	%				17.0	%		16.2	%
Operating profit margin		14.0	%		12.9	%				16.3	%		15.4	%

Installation

Sales

Sales in our Installation segment increased ~~$143.9~~$143.3 million, or ~~27.0~~23.7 percent, for the three months ended ~~March 31,~~June 30, 2022, as compared to the same period in 2021. The increase was due to a ~~14.0~~13.3 percent increase from higher selling prices, ~~10.0~~8.3 percent increase in sales volume, and 2.0 percent impact from our ~~acquisitions, and 3.0 percent increase in sales volume.~~acquisitions.

Operating margins

Operating margins in our Installation segment were ~~16.7~~18.7 percent and ~~13.8~~16.4 percent for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. The increase in operating margins was driven by higher selling prices, sales volume, and operational efficiencies partially offset by material inflation.

Specialty Distribution

Sales

Sales in our Specialty Distribution segment increased ~~$292.3~~$314.4 million, or ~~116.2~~115.0 percent, for the three months ended ~~March 31,~~June 30, 2022, as compared to the same period in 2021. ~~This~~Of the 115.0 percent increase, 94.7 percent increase was due to ~~a 93.3 percent impact from~~ our acquisitions and ~~22.9~~20.0 percent ~~increase~~was due to higher selling prices.

Operating margins

Operating margins in our Specialty Distribution segment were ~~12.9~~14.8 percent and ~~14.1~~15.7 percent for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. The decrease in operating margins was partially driven by the amortization of intangible assets related to purchase accounting and material inflation partially offset by higher selling prices and operational efficiencies.

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OTHER ITEMS

Other expense, net

Other expense, net, was ~~$11.3~~$13.7 million and ~~$20.4~~$6.0 million for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. ~~During the three months ended March 31, 2021, we incurred $13.9 million to redeem our 5.625% Senior Notes.~~ The ~~remaining~~ change primarily ~~relates~~related to interest expense, which increased by ~~$5.4~~$7.3 million for the three months ended ~~March 31,~~June 30, 2022, as compared to the same period in 2021. This increase was due to higher long-term debt balances during the three months ended ~~March 31,~~June 30, 2022, including the balance on the 4.125% Senior Notes which were issued in the fourth quarter of ~~2021.~~2021 to finance the acquisition of DI and higher interest rates on borrowings under the Credit Agreement.

Income tax expense

Income tax expense was ~~$38.0~~$49.8 million, an effective tax rate of ~~24.9~~25.8 percent, for the three months ended ~~March 31,~~June 30, 2022, compared to ~~$15.7~~$31.9 million, an effective tax rate of ~~20.7~~26.1 percent, for the comparable period in 2021. The tax rate for the three months ended ~~March 31,~~June 30, 2022, was ~~higher primarily related~~lower due to state tax adjustments and miscellaneous items partially offset by a decrease in the benefit related to share-based ~~compensation~~compensation.

FIRST SIX MONTHS 2022 VERSUS FIRST SIX MONTHS 2021

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


	Six Months Ended June 30,
	2022			2021
Net sales	$	2,443,203		$	1,577,053
Cost of sales		1,727,905			1,136,114
Cost of sales ratio		70.7	%		72.0	%

Gross profit		715,298			440,939
Gross profit margin		29.3	%		28.0	%

Selling, general, and administrative expense		344,123			216,767
Selling, general, and administrative expense to sales ratio		14.1	%		13.7	%

Operating profit		371,175			224,172
Operating profit margin		15.2	%		14.2	%

Other expense, net		(24,969)			(26,425)
Income tax expense		(87,796)			(47,525)
Net income	$	258,410		$	150,222
Net margin		10.6	%		9.5	%

Sales and Operations

Net sales increased 54.9 percent for the six months ended June 30, 2022, from the comparable period of 2021. The increase was primarily driven by a 35.1 percent impact from our acquisitions, a 15.8 percent increase due to higher selling prices and a 4.0 percent increase in sales volume.

Gross profit margins were 29.3 percent and 28.0 percent for the six months ended June 30, 2022 and 2021, respectively. Gross profit margin improved primarily due to higher selling prices partially offset by an increase in cost of material.

Selling, general, and administrative expense, as a percent of sales, was 14.1 and 13.7 percent for the six months ended June 30, 2022 and 2021, respectively. The increase in selling, general, and administrative expense as a percent of sales was driven primarily by costs associated with acquisitions, the amortization of intangible assets related to purchase accounting and increased insurance costs.

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Operating margins were 15.2 percent and 14.2 percent for the six months ended June 30, 2022 and 2021, respectively. The increase in operating margins was due to higher selling prices and volume, partially offset by an increase in cost of material.

Business Segment Results

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


	Six Months Ended June 30,
	2022			2021			Percent Change
Net sales by business segment:
Installation	$	1,425,661		$	1,138,378		25.2	%
Specialty Distribution		1,131,653			524,965		115.6	%
Intercompany eliminations		(114,111)			(86,290)
Net sales	$	2,443,203		$	1,577,053		54.9	%

Operating profit by business segment (a):
Installation	$	252,598		$	172,702		46.3	%
Specialty Distribution		157,170			78,241		100.9	%
Intercompany eliminations		(19,144)			(13,460)
Operating profit before general corporate expense		390,624			237,483		64.5	%
General corporate expense, net (b)		(19,449)			(13,311)
Operating profit	$	371,175		$	224,172		65.6	%

Operating profit margins:
Installation		17.7	%		15.2	%
Specialty Distribution		13.9	%		14.9	%
Operating profit margin before general corporate expense		16.0	%		15.1	%
Operating profit margin		15.2	%		14.2	%

Installation

Sales

Sales in our Installation segment increased $287.3 million, or 25.2 percent, for the six months ended June 30, 2022, as compared to the same period in 2021. The increase was due to a 13.7 percent increase from higher selling prices, a 5.8 percent increase in sales volume and a 5.7 percent impact from our acquisitions.

Operating margins

Operating margins in our Installation segment were 17.7 percent and 15.2 percent for the six months ended June 30, 2022 and 2021, respectively. The increase in operating margins was driven by higher sales from selling prices and volumes, partially offset by an increase in cost of material.

Specialty Distribution

Sales

Sales in our Specialty Distribution segment increased $606.7 million, or 115.6 percent, for the six months ended June 30, 2022, as compared to the same period in 2021. This increase was due to a 94.0 percent impact from our acquisition and a 21.4 percent increase due to higher selling prices.

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Operating margins

Operating margins in our Specialty Distribution segment were 13.9 percent and 14.9 percent for the six months ended June 30, 2022 and 2021, respectively. The decrease in operating margins was driven by the amortization of intangible assets related to purchase accounting and material inflation partially offset by higher selling prices.

OTHER ITEMS

Other expense, net

Other expense, net, which primarily consisted of interest expense, was $25.0 million and $26.4 million for the six months ended June 30, 2022 and 2021, respectively. Interest expense increased by $12.7 million for the six months ended June 30, 2022, as compared to the same period in 2021. This increase was due to higher long-term debt balances during the six months ended June 30, 2022, including the balance on the 4.125% Senior Notes which were issued in the fourth quarter of 2021 to finance the acquisition of DI, and higher interest rates on our borrowings under the Credit Agreement. The remaining difference primarily relates to $13.9 million incurred to redeem our 5.625% Senior Notes During the six months ended June 30, 2021.

Income tax ~~adjustments.~~expense

Income tax expense was $87.8 million, an effective tax rate of 25.4 percent, for the six months ended June 30, 2022 compared to $47.5 million, an effective tax rate of 24.0 percent, for the comparable period in 2021. The tax rate for the six months ended June 30, 2022 was higher due to permanent items including 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,				Six Months Ended June 30,
	2022		2021		2022		2021
Changes in cash and cash equivalents:
Net cash provided by operating activities	$	89,483	$	89,422	$	217,697	$	202,203
Net cash used in investing activities		(32,127)		(73,320)		(54,162)		(223,778)
Net cash used in financing activities		(70,507)		(26,490)		(179,587)		(46,693)
Impact of exchange rate changes on cash		(75)		-		142		-
Net decrease in cash and cash equivalents	$	(13,226)	$	(10,388)	$	(15,910)	$	(68,268)

Net cash flows provided by operating activities ~~remained flat~~increased $15.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, as compared to the prior year period. ~~While net~~Net income ~~increased~~was up $108.2 million, or 72.0 percent, compared towith the prior year ~~this~~period, driven by the impact of our acquisitions, higher sales prices and sale volumes. That increase was largely offset by the impact of higher levels of working ~~capital.~~capital, also driven by our acquisitions (principally increases in accounts receivable, inventories, accounts payable and accrued expenses).

Net cash used in investing activities was ~~$32.1~~$54.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, primarily composed of ~~$18.4~~$36.0 million for purchases of property and equipment, ~~primarily~~mainly vehicles, and ~~$14.0~~$18.7 million for acquisitions. Net cash used in investing activities was ~~$73.3~~$223.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021, primarily composed of ~~$61.1~~$195.4 million for acquisitions and ~~$12.2~~$28.6 million for purchases of property and equipment, ~~primarily~~mainly vehicles.

Net cash used in financing activities was ~~$70.5~~$179.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022. During the ~~three~~six months ended ~~March 31,~~June 30, 2022, we used ~~$50.0~~$150.1 million for the repurchase of common stock pursuant to the 2021 Repurchase Program, $19.3 million for debt repayments, and $10.2 million net activity related to exercise of share-based incentive awards and stock options. Additionally, we borrowed and repaid $70.0 million on our Revolving Facility, all within the second quarter of 2022. During the six months ended June 30, 2021, we used $24.0 million for the repurchase of common stock pursuant to the 2019 Repurchase Program, ~~and the 2021 Repurchase Program, $10.9~~$10.5 million net ~~activity related to exercise~~payments for redemption of ~~share-based incentive awards~~our Old Senior Notes, issuance of our New Senior Notes, proceeds from the increase in our term loan from our Amended Credit Agreement, and stock options and $9.6 million for debt service requirements. Net cash used in financing activities was $26.5 million for the three months ended March 31, 2021. During the three months ended March 31, 2021, we used $9.9 million for the repurchase of common stock pursuant to the 2019 Repurchase Program,payments on equipment notes, $6.5 million in debt issuance costs as a result of entering into ~~Amendment No.1 to~~our Amended Credit Agreement and ~~3.625%~~New Senior Notes, and $5.5 million net activity related to exercise of share-based incentive awards and stock options ~~and $4.6 million net payments for redemption~~.

Table of ~~our 5.625% Senior Notes, issuance of our 3.625% Senior Notes, proceeds from the increase in our term loan from Amendment No.1 to Credit Agreement, and payments on equipment notes.~~Contents

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. For additional information regarding our outstanding debt and borrowing capacity see Item 8. Financial Statements and Supplementary Data – Note 6. Long-Term Debt.

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The following table summarizes our liquidity, in thousands:


	As of				As of
	March 31,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
Cash and cash equivalents (a)	$	126,553	$	139,779	$	123,869	$	139,779

Revolving facility		500,000		500,000		500,000		500,000
Less: standby letters of credit		(69,936)		(69,936)		(69,936)		(69,936)
Availability under revolving facility		430,064		430,064		430,064		430,064

Total liquidity	$	556,617	$	569,843	$	553,933	$	569,843

(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 to fund our debt service requirements, capital expenditures and working capital needs for at least the next twelve months.

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. Information regarding our outstanding bonds as of ~~March 31,~~June 30, 2022 is incorporated by reference from Note 15 – Other Commitments and Contingencies to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report.

OUTLOOK

We believe a number of macroeconomic factors, including rising interest rates, inflation and the overall health of the economy, ~~can impact~~are impacting consumer demand for ~~housing, causing volatility within this industry. While there are concerns of weakening consumer demand due to a number of these factors, we~~housing. We remain cautiously optimistic about the long-term U.S. housing ~~market. In addition, relatively~~market due to low new home inventory, ~~specifically entry level~~the backlog of homes ~~the widening gap between housing starts and housing completions,~~under construction, and strong household ~~formations should support growth.~~formations.

~~Similarly,~~With the recent acquisition of DI, we ~~expect growth~~have diversified our mix of business and increased our penetration in the commercial and industrial ~~end-markets we serve in connection with construction projects and industries separate from~~end markets. These end markets operate on a different cycle than residential housing. Although these end markets are dealing with higher material costs and are impacted by economic volatility, our bid activity and backlog remain strong.

OFF-BALANCE SHEET ARRANGEMENTS

We had no material off-balance sheet arrangements during the ~~quarter~~six months ended ~~March 31,~~June 30, 2022, 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, 2021, as filed with the SEC on February 22, 2022.

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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 year ended December 31, 2021, as filed with the SEC on February 22, 2022.

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,” 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 events outside of our control affecting the economy or our industry including, but not limited to, the duration and impact of the COVID-19 pandemic or similar health emergencies, supply chain disruptions resulting from global events including conflicts, sanctions, or blockades, and economic events affecting affordability or the market at large including inflation and interest rates. Our future performance may also be affected by conditions or events relating to our business including, but not limited to, our ability to collect receivables from our customers, our reliance on residential new construction, residential repair/remodel, and commercial 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, and our ability to maintain our competitive position. We discuss the material risks we face under the caption entitled “Risk Factors” in our Annual Report for the year ended December 31, 2021, as filed with the SEC on February 22, 2022, 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

On October 7, 2021, the Company entered into Amendment No. 2 to Credit Agreement. Amendment No. 2 to Credit Agreement provides for a term loan facility in an aggregate principal amount of $600.0 million, comprised of a $300.0 term loan facility and $300.0 million delayed draw term loan commitment, all of which was drawn on October 7, 2021 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 which 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 facility and revolving facility under Amendment No. 2 to Credit Agreement 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,~~June 30, 2022, we had ~~$588.8~~$581.3 million outstanding under our term loan facility, and the applicable interest rate as of such date was ~~1.46%~~2.06%. Based on our outstanding borrowings under Amendment No. 2 to Credit Agreement as of ~~March 31,~~June 30, 2022, a 100 basis point increase in the interest rate would result in a ~~$5.8~~$5.7 million increase in our annualized interest expense. There was no outstanding balance under the revolving facility as of ~~March 31,~~June 30, 2022.

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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,~~June 30, 2022.

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,~~June 30, 2022, 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 15 – 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, 2021, as filed with the SEC on February 22, 2022 which are incorporated by reference herein.

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

The following table provides information regarding the repurchase of our common stock for the three months ended ~~March 31,~~June 30, 2022, in thousands, except share and per share data:


Period	Total Number of Shares Purchased	Average Price Paid per Common Share		Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs		Total Number of Shares Purchased	Average Price Paid per Common Share		Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2022 - January 31, 2022	—	$	—	—	$	204,406
February 1, 2022 - February 28, 2022	23,900	$	208.40	23,900	$	199,425
March 1, 2022 - March 31, 2022	214,254	$	210.12	214,254	$	154,406
April 1, 2022 - April 30, 2022							-	$	-	-	$	154,406
May 1, 2022 - May 31, 2022 (a)							409,312	$	195.45	409,312	$	54,406
June 1, 2022 - June 30, 2022							-	$	-	-	$	54,406
Total	238,154	$	209.95	238,154			409,312	$	195.45	409,312

____________________

(a) The one-month period ended May 31, 2022 includes payment of $100.0 million in connection with our 2022 ASR Agreement, with approximately 80% of the shares delivered. The remainder of the shares to be repurchased are expected to be delivered in the third quarter of 2022. For more information see Note 12 – Share Repurchase Program to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report, which note is incorporated in this Item 2 by reference.

All repurchases were made using cash resources. Excluded from this disclosure are shares repurchased to settle statutory employee tax withholding related to the vesting of stock awards.

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Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

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.

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INDEX TO EXHIBITS


		Incorporated by Reference			Filed
Exhibit No.	Exhibit Title	Form	Exhibit	Filing Date	Herewith
~~4.1~~	First Supplemental Indenture, dated November 8, 2021, to indenture dated March 15, 2021, between Company and U.S. Bank National Association, as trustee, relating to the Company’s 3.625% Senior Notes due March 15, 2029				X

~~4.2~~	First Supplemental Indenture, dated November 8, 2021, to indenture dated October 14, 2021, between Company and U.S. Bank National Association, as trustee, relating to the Company’s 4.125% Senior Notes due February 15, 2032				X

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

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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/ Robert Kuhns
	Name:	Robert Kuhns
	Title:	Vice President and Chief Financial Officer
		(Principal Financial Officer)

~~May 5,~~August 2, 2022

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