TopBuild(BLD) - 2024 Q4 - Annual Report

Part I Business Overview TopBuild Corp. is a leading installer and specialty distributor of insulation and building materials in the U.S. and Canada, operating through Installation and Specialty Distribution segments, driven by construction and strategic acquisitions Segment Sales Distribution | Segment | Sales Contribution | | :--- | :--- | | Installation | ~62% | | Specialty Distribution | ~38% | - The company's competitive advantages include its scale, dual avenues to market (installation and distribution), diversified business lines across residential and commercial sectors, and a strong local presence supported by centralized functions[22][23][25] - TopBuild has a diversified customer base, with its top customer accounting for approximately 4% of total revenues and the top ten customers accounting for about 12% in 2024[30] Human Capital Metrics (as of Dec 31, 2024) | Metric | Value | | :--- | :--- | | Total Employees | 13,984 | | Installers | 8,394 | | Employees under Collective Bargaining | 714 | | 2024 Voluntary Turnover | 24.7% (down from 30% in 2023) | - The company's safety performance in 2024 includes an injury rate of 1.95 and a lost time case rate of 0.61, both significantly below the industry averages of 3.6 and 1.5, respectively[45] Risk Factors The company faces material risks including supply chain dependency, margin compression, cyclical construction, labor challenges, acquisition integration, litigation, regulatory compliance, cybersecurity, and indebtedness - The company is dependent on a limited number of large suppliers for building products, primarily insulation. The loss of a major supplier or supply shortages could adversely affect operating results[63] - Business performance is highly sensitive to the cyclical nature of residential new construction, commercial construction, and industrial manufacturing activity, influenced by macroeconomic conditions like interest rates and consumer confidence[99] - The ability to attract, develop, and retain talented personnel, including installers, branch managers, and drivers, is critical, as high turnover and competition for qualified labor could increase costs and impact operations[73][74] - Strategic acquisitions involve risks such as failure to identify attractive targets, incorrect valuation assumptions, and difficulties in successfully integrating acquired businesses, potentially affecting operating results[79][80] - Operations are dependent on information technology systems, where a disruption or cybersecurity incident could lead to operational interruptions, data corruption, and significant remediation costs[108][110] - Existing indebtedness and associated covenants could limit financial flexibility, making it more difficult to fund working capital, acquisitions, and other corporate requirements[113] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[126] Cybersecurity Risk Management, Strategy and Governance TopBuild implements a comprehensive cybersecurity risk management program based on the NIST framework, overseen by the Board, and has not experienced a material cyber breach in the last three years - The company's cybersecurity program is based on the National Institute of Standards and Technology (NIST) framework and includes periodic independent third-party reviews[130] - Oversight is provided by the full Board of Directors, which receives regular updates from the Chief Information Officer, with cybersecurity risk integrated into the company-wide enterprise risk management (ERM) process[135][137] - The company has not experienced a material cyber breach in the last three years and does not believe that known cybersecurity threats are reasonably likely to have a material impact on its business, operations, or financial condition[132] Properties The company operates approximately 440 leased locations, including 250 Installation branches and 190 Specialty Distribution centers, plus its leased corporate headquarters - TopBuild operates approximately 440 locations, including 250 Installation branches and 190 Specialty Distribution centers, the majority of which are leased properties[138] Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 11 of the Financial Statements and Supplementary Data - For details on legal proceedings, refer to Note 11 in Item 8 of this report[139] Mine Safety Disclosures This item is not applicable to the company - Not applicable[140] Part II Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities TopBuild's common stock trades on the NYSE under "BLD", with no dividends paid in 2023 or 2024, and the company repurchased shares for approximately $47.1 million in Q4 2024, with $188.1 million remaining under its program - The company's common stock is traded on the New York Stock Exchange (NYSE) under the ticker symbol "BLD"[141] - No dividends were paid in 2024 or 2023, and the company does not expect to declare cash dividends in the foreseeable future[142] Q4 2024 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | Total Cost (approx., in millions) | | :--- | :--- | :--- | :--- | | Oct 2024 | - | - | - | | Nov 2024 | 56,642 | $364.95 | $20.7M | | Dec 2024 | 78,230 | $338.67 | $26.5M | | Total Q4 | 134,872 | $349.71 | $47.2M | - As of December 31, 2024, $188.1 million remained available for repurchase under the 2024 Share Repurchase Program[143] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2024, TopBuild's net sales increased 2.6% to $5.33 billion, operating profit remained flat at $886.3 million, and net income grew to $622.6 million, maintaining strong liquidity with $836.5 million available, driven by acquisitions and operational efficiencies amidst uneven demand Results of Operations For 2024, net sales rose 2.6% to $5.33 billion, driven by acquisitions and pricing, while gross profit margin slightly decreased to 30.5% and operating profit margin contracted to 16.6% due to higher material costs, with net income increasing to $622.6 million Consolidated Results of Operations (in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net sales | $5,329,803 | $5,194,694 | | Gross profit | $1,624,918 | $1,603,820 | | Gross profit margin | 30.5% | 30.9% | | Operating profit | $886,343 | $878,825 | | Operating profit margin | 16.6% | 16.9% | | Net income | $622,602 | $614,254 | - The 2.6% increase in net sales for 2024 was driven by a 2.5% increase from acquisitions and a 1.1% increase from higher selling prices, partially offset by a 0.7% decline in sales volume[158] - The decline in operating margin from 16.9% to 16.6% was primarily attributed to higher material costs and a less favorable sales mix, partially offset by higher selling prices and productivity initiatives[160] Business Segment Results In 2024, Installation segment sales grew 3.3% to $3.29 billion but operating margin declined to 19.7%, while Specialty Distribution sales increased 3.2% to $2.34 billion with an improved operating margin of 15.1% Segment Performance (Year Ended Dec 31) | Segment | 2024 Net Sales (in millions) | 2023 Net Sales (in millions) | % Change | 2024 Operating Margin | 2023 Operating Margin | | :--- | :--- | :--- | :--- | :--- | :--- | | Installation | $3,294.6M | $3,188.2M | 3.3% | 19.7% | 20.2% | | Specialty Distribution | $2,340.8M | $2,268.3M | 3.2% | 15.1% | 14.6% | - Installation segment sales growth was driven by acquisitions (+3.1%) and higher selling prices (+1.3%), partially offset by lower volume (-0.6%), with the operating margin decrease due to higher material costs and sales mix changes[167][168] - Specialty Distribution segment sales growth was attributed to acquisitions (+1.3%), higher sales volume (+1.0%), and higher selling prices (+0.9%), with the operating margin increasing due to productivity initiatives and pricing offsetting higher material costs[169][170] Liquidity and Capital Resources As of December 31, 2024, TopBuild had total liquidity of $836.5 million, with net cash from operating activities decreasing to $776.0 million, and $1.02 billion used in financing activities, primarily for $966.4 million in common stock repurchases Total Liquidity (in thousands) | Component | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $400,318 | $848,565 | | Availability under Revolving facility | $436,230 | $436,230 | | Total liquidity | $836,548 | $1,284,795 | Summary of Cash Flows (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $776,026 | $849,409 | | Net cash used in investing activities | ($203,523) | ($198,170) | | Net cash used in financing activities | ($1,016,272) | ($43,836) | - Net cash used in financing activities in 2024 was $1.0 billion, primarily driven by $966.4 million used for the repurchase of common stock[178] Critical Accounting Policies and Estimates The company's critical accounting policies involve significant judgments in Revenue Recognition (cost-to-cost method), Business Combinations (purchase price allocation and goodwill valuation), Goodwill and Other Intangible Assets (annual impairment testing), and Income Taxes (deferred tax assets and uncertain tax positions) - Revenue for the Installation segment is recognized over time using a cost-to-cost measure of progress, which requires judgment in estimating total expected costs for each project[181] - For business combinations, the company allocates the purchase price to the fair values of acquired assets and liabilities, with goodwill recorded when consideration exceeds the fair value of identifiable net assets[186] - Goodwill is tested for impairment annually in the fourth quarter at the reporting unit level (Installation and Specialty Distribution), with qualitative assessments performed in 2024 and 2023 indicating no impairment[187][188][191] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to interest rate risk from its variable-rate Term Loan of $487.5 million, where a 100-basis point increase would raise annualized interest expense by $4.7 million - The primary market risk is interest rate fluctuations on the variable-rate Term Loan, which has a principal balance of $487.5 million[198] - A 100-basis point (1%) increase in the interest rate would lead to an estimated $4.7 million increase in the company's annual interest expense[199] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for the fiscal year ended December 31, 2024, along with the independent auditor's report from PricewaterhouseCoopers LLP - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion, stating that the financial statements are presented fairly in all material respects and that the company maintained effective internal control over financial reporting as of December 31, 2024[203] Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $400,318 | $848,565 | | Total current assets | $1,598,974 | $2,049,244 | | Goodwill | $2,112,259 | $2,042,568 | | Total assets | $4,735,426 | $5,162,851 | | Liabilities & Equity | | | | Total current liabilities | $767,182 | $771,538 | | Long-term debt | $1,327,159 | $1,373,028 | | Total liabilities | $2,525,808 | $2,599,196 | | Total equity | $2,209,618 | $2,563,655 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net sales | $5,329,803 | $5,194,694 | $5,008,744 | | Gross profit | $1,624,918 | $1,603,820 | $1,486,719 | | Operating profit | $886,343 | $878,825 | $797,164 | | Net income | $622,602 | $614,254 | $555,989 | | Diluted EPS | $20.29 | $19.33 | $17.14 | Consolidated Statement of Cash Flows Highlights (in thousands) | Account | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $776,026 | $849,409 | $495,801 | | Net cash used in investing activities | ($203,523) | ($198,170) | ($93,907) | | Net cash used in financing activities | ($1,016,272) | ($43,836) | ($300,073) | | Net (decrease) increase in cash | ($448,247) | $608,496 | $100,290 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on any matter of accounting principles, practices, or financial statement disclosure - None[355] Controls and Procedures As of December 31, 2024, management concluded that the company's disclosure controls and procedures, as well as internal control over financial reporting, were effective, with no material changes during the fourth quarter - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2024[356] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2024, based on the COSO framework (2013)[359] Other Information No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the fourth quarter of 2024 - No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the quarter ended December 31, 2024[362] Part III Directors, Executive Officers, and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive proxy statement for the 2025 Annual Meeting of Shareholders - Information required by this item will be provided in the 2025 Proxy Statement and is incorporated by reference[364] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement for the 2025 Annual Meeting of Shareholders - Information required by this item will be provided in the 2025 Proxy Statement and is incorporated by reference[369] Security Ownership of Certain Beneficial Owners and Management, and Related Shareholder Matters Information regarding security ownership is incorporated by reference from the company's definitive proxy statement for the 2025 Annual Meeting of Shareholders - Information required by this item will be provided in the 2025 Proxy Statement and is incorporated by reference[370] Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the company's definitive proxy statement for the 2025 Annual Meeting of Shareholders - Information required by this item will be provided in the 2025 Proxy Statement and is incorporated by reference[371] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's definitive proxy statement for the 2025 Annual Meeting of Shareholders - Information required by this item will be provided in the 2025 Proxy Statement and is incorporated by reference[373] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements and provides an index to all exhibits filed as part of the Form 10-K, including governance documents, material contracts, and certifications - This section lists the financial statements and provides an index to all exhibits filed with the Form 10-K[376][377] Form 10-K Summary The company has not provided a Form 10-K summary - None[375]