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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The financial and business analysis below provides information which we believe is relevant to an assessment and understanding of our financial position, results of operations, and cash flows. This financial and business analysis should be read in conjunction with the financial statements and related notes.

In this section, we generally discuss the results of our operations for the year ended December 31, 2024, compared to the year ended December 31, 2023. For a discussion of the year ended December 31, 2023, to the year ended December 31, 2022, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 28, 2024, which discussion is hereby incorporated herein by reference.

Executive Summary

We are a leading installer and specialty distributor of insulation and related building material products to the construction industry in the United States and Canada. Demand for our products and services is driven primarily by residential and commercial/industrial construction and by industrial manufacturing activity. A number of local and national factors influence activity in each of our lines of business, including demographic trends, interest rates, employment levels, business investment, supply and demand for housing, availability of credit, foreclosure rates, consumer confidence, and general economic conditions.

The core of our business is inherently environmentally friendly. The insulation we install and distribute drives thermal efficiency, lowers energy usage, and reduces carbon emissions. We are a leader in delivering these benefits for new and existing homes and commercial/industrial facilities across the United States and Canada.

Strategy

We are committed to creating long-term value for all stakeholders – employees, customers, suppliers, and investors. Our team is focused on driving operational efficiencies and sharing best practices throughout our organization. Our core values include:

• Safety – We put the safety of our people first.

• Integrity – We deliver results with integrity, respect, and accountability.

• Focus – We are customer-focused, grounded in strong relationships.

• Innovation – We are continuously improving and encourage idea sharing.

• Unity – We are united as one team, valuing diversity.

• Community – We make a difference in the communities we serve.

• Empowerment – We are empowered to be our best, individually and as a team.

Our strategy is focused on growth and productivity including:

• Attracting and retaining top talent

• Leveraging technology to streamline processes;

• Acquiring strategically aligned businesses;

• Driving operational efficiencies throughout the business.

Our operating results depend on residential new construction activity, commercial construction activity and industrial manufacturing activity, all of which are subject to business and economic cycles. These cycles have less of an impact on our Specialty Distribution segment due to the repair and replacement component of our mechanical insulation distribution business. We are also dependent on third-party suppliers and manufacturers providing us with an adequate supply of high-quality products.

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Material Trends in Our Business

Residential New Construction

We did not see the acceleration in demand for single-family homes in the back half of 2024 that we anticipated earlier in the year. Demand for single-family homes continues to be uneven across the country.

Multi-family starts were slow throughout 2024 and that has started to negatively impact sales. We expect our multi-family sales will continue to be slow as we move into 2025. Multi-family housing units typically require approximately 40% of the insulation that a single-family unit requires.

As a result of years of underbuilding in the United States an overall shortage of housing exists across the country. In addition, we believe long-term demand for homes will continue to be supported by strengthening energy efficiency requirements and increased household formations. As a result, we continue to be optimistic about the long-term fundamentals of our business.

Commercial and Industrial Construction

Our commercial backlog is strong, and our bidding activity is active, both of which continue to support our positive view of commercial/industrial sales at our Installation and Specialty Distribution segments. Some projects have been delayed in 2024, but we have not seen an uptick in cancellations. In addition, recurring maintenance and repair work on industrial sites serves as a continued driver for our Specialty Distribution business.

Seasonality

Sales across our end markets are typically slower during the winter months due to lower construction activity.

Results of Operations

We report our financial results in conformity with GAAP.

The following table sets forth our net sales, gross profit, operating profit, and margins, as reported in our Consolidated Statements of Operations, in thousands:

Year Ended December 31,

Cost of sales ratio 69.5 % 69.1 %

Gross profit margin 30.5 % 30.9 %

Selling, general, and administrative expense 738,575 724,995

Selling, general, and administrative expense to sales ratio 13.9 % 14.0 %

Operating profit margin 16.6 % 16.9 %

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Comparison of the Years Ended December 31, 2024 and December 31, 2023

Sales and Operations

Net sales for 2024 increased 2.6 percent, or $135.1 million, to $5.3 billion. The increase was driven by a 2.5 percent increase in sales from acquisitions and a 1.1 percent impact from higher selling prices, partially offset by a 0.7 percent decline in sales volume and a decline of 0.3 percent driven by the disposition of a non-core business.

Our gross profit margins were 30.5 percent and 30.9 percent for 2024 and 2023, respectively. The decline in gross profit margin is primarily due to higher material costs and lower benefit of sales mix, partially offset by improved productivity and higher selling prices.

Selling, general, and administrative expenses as a percentage of sales were 13.9 percent and 14.0 percent for 2024 and 2023, respectively.

Operating margins were 16.6 percent and 16.9 percent for 2024 and 2023, respectively. The decline in operating margin was due to higher material costs and lower benefit sales mix, partially offset by higher selling prices and productivity initiatives.

Other Expense, Net

Other expense, net, decreased $7.8 million to $45.6 million in 2024 from $53.3 million in 2023. The decrease is primarily related to $5.1 million higher interest income due to higher average levels of invested cash balances throughout the year and $1.5 million lower interest expense due to declining interest rates in the fourth quarter of 2024.

Income Tax Expense

Our effective tax rate increased from 25.6 percent in 2023 to 26.0 percent in 2024. The higher 2024 rate was primarily related to share-based compensation.

2024 and 2023 Business Segment Results

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

Year Ended December 31,

Net sales by business segment:

Operating profit by business segment (a):

Intercompany eliminations (49,834) (44,438)

General corporate expense, net (b) (65,416) (52,067)

Operating profit margins:

Installation 19.7 % 20.2 %

Specialty Distribution 15.1 % 14.6 %

Operating profit margin before general corporate expense 17.9 % 17.9 %

Operating profit margin 16.6 % 16.9 %

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2024 and 2023 Business Segment Results Discussion

Changes in operating profit margins in the following business segment results discussion exclude general corporate expense, net in 2024 and 2023, as applicable.

Installation

Sales

Sales increased $106.4 million, or 3.3 percent, in 2024 compared to 2023. Sales increased 3.1 percent from our acquisitions and 1.3 percent from higher selling prices, partially offset by 0.6 percent decrease from lower sales volume and by a decline of 0.5 percent driven by the disposition of a non-core business.

Operating Results

Operating margins in the Installation segment were 19.7 percent and 20.2 percent for 2024 and 2023, respectively. The decrease in operating margin was driven higher material costs and change in sales mix, partially offset by productivity initiatives and higher selling prices.

Specialty Distribution

Sales

Sales increased $72.5 million, or 3.2 percent, in 2024 compared to 2023. Sales increased 1.3 percent from our acquisitions, 1.0 percent from higher sales volume and 0.9 from higher selling prices.

Operating Results

Operating margins in the Specialty Distribution segment were 15.1 percent and 14.6 percent for 2024 and 2023, respectively. The increase in operating margin was driven by productivity initiatives and higher selling prices, partially offset by higher material costs.

Commitments and Contingencies

We are subject to certain claims, charges, litigation, and other proceedings in the ordinary course of our business. 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. For additional information see Item 8. Financial Statements and Supplementary Data – Note 11. Other Commitments and Contingencies.

Liquidity and Capital Resources

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 total liquidity, in thousands:

As of December 31,

Less: standby letters of credit (63,770) (63,770)

Availability under Revolving facility 436,230 436,230

We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to support our ongoing operations and known contractual obligations including funding our debt service requirements, capital expenditures, lease obligations and working capital needs for at least the next twelve months. We also have adequate liquidity to maintain off-balance sheet arrangements for short-term leases, letters of credit, and performance and license bonds. See Item 8. Financial Statements and Supplementary Data of this Annual Report for related disclosures.

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

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

As of December 31,

Outstanding bonds:

Licensing, insurance, and other bonds 28,462 27,415

Cash Flows

The following table presents a summary of our cash flows provided by (used in) operating, investing and financing activities for the periods indicated, in thousands:

Year Ended December 31,

Changes in cash and cash equivalents:

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)

Impact of exchange rate changes on cash (4,478) 1,093

Net (decrease) increase in cash and cash equivalents $ (448,247) $ 608,496

Net cash flows provided by operating activities decreased $73.4 million for the year ended December 31, 2024, as compared to December 31, 2023. Net income increased $8.3 million, or 1.4 percent, compared with the prior year period, driven by the impact of higher selling prices and our acquisitions, as well as productivity initiatives. We also incurred increases in working capital accounts, specifically inventory and accounts payable, leading to more cash used in operations.

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Net cash used in investing activities was $203.5 million for the year ended December 31, 2024, primarily comprised of $136.8 million for acquisitions and $69.3 million for purchases of property and equipment (primarily vehicles, equipment and computer hardware and software). Those uses were partially offset by $2.6 million of proceeds received from the sale of assets. Net cash used in investing activities was $198.2 million for the year ended December 31, 2023, primarily comprised of $149.2 million for acquisitions and $64.0 million for purchases of property and equipment (primarily vehicles, equipment and computer hardware and software). Those uses were partially offset by $15.0 million of proceeds received from the sale of assets.

Net cash used in financing activities was $1.0 billion for the year ended December 31, 2024. During the year ended December 31, 2024, we used $966.4 million for the repurchase of common stock, $47.0 million for debt repayments, and $2.9 million net activity related to exercise of share-based incentive awards and stock options. Net cash used in financing activities was $43.8 million for the year ended December 31, 2023. During the year ended December 31, 2023, we used $40.1 million for debt repayments and $3.4 million net activity related to exercise of share-based incentive awards and stock options.

Critical Accounting Policies and Estimates

We prepare our 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 and disclosure of assets and liabilities, and any related contingencies, at the date of the financial statements, as well as the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates.

Our significant accounting policies are more fully described in Item 8. Financial Statements and Supplementary Data – Note 1. Summary of Significant Accounting Policies. However, certain of our accounting policies considered critical are those we believe are both most important to the portrayal of our financial condition and operating results and require our most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. We consider the following policies to be most critical in understanding the judgments that are involved in preparing our Consolidated Financial Statements.

Revenue Recognition and Receivables

Revenue is disaggregated between our Installation and Specialty Distribution segments. A reconciliation of disaggregated revenue by segment is included in Item 8. Financial Statements and Supplementary Data – Note 8. Segment Information. We recognize revenue for our Installation segment over time as the related performance obligation is satisfied with respect to each particular order within a given customer’s contract. Progress toward complete satisfaction of the performance obligation is measured using a cost-to-cost measure of progress method. The cost input is based on the amount of material installed at that customer’s location and the associated labor costs, as compared to the total expected cost for the particular order. The total expected cost is an estimate in the revenue recognition process, requires judgment, and is subject to variability throughout the duration of the contract as a result of contract modifications and other circumstances impacting job completion. Generally, this results in revenue being recognized as the customer is able to receive and utilize the benefits provided by our services. Each contract contains one or more individual orders, which are based on services delivered. When material and installation services are bundled in a contract, we combine these items into one performance obligation as the overall promise is to transfer the combined item.

Revenue from our Specialty Distribution segment is recognized when title to products and risk of loss transfers to our customers. This represents the point in time when the customer is able to direct the use of and obtain substantially all the benefits from the product. The determination of when control is deemed transferred depends on the delivery terms that are agreed upon in the contract.

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The transaction price is the amount of consideration the Company expects to receive based on the arrangement with the customer. The duration of our contracts with customers is relatively short, generally less than a 90-day period, therefore there is not a significant financing component when considering the determination of the transaction price which gets allocated to the individual performance obligations, generally based on standalone selling prices. Additionally, we consider shipping costs charged to a customer as a fulfillment cost rather than a promised service and expense as incurred. Sales taxes, when incurred, are recorded as a liability and excluded from revenue on a net basis.

We record a contract asset when we have satisfied our performance obligation prior to billing and a contract liability when a customer payment is received prior to the satisfaction of our performance obligation. The difference between the beginning and ending balances of our contract assets and liabilities primarily results from the timing of our performance and the customer’s payment. See Note 3 – Revenue Recognition for more information.

We maintain allowances for estimated losses resulting from the inability of customers to make required payments. In addition, we monitor our customer receivable balances and the credit worthiness of our customers on an on-going basis. During downturns in our markets, declines in the financial condition and creditworthiness of customers impact the credit risk of the receivables involved and we have incurred additional bad debt expense related to customer defaults.

Business Combinations

The purchase price for business combinations is allocated to the estimated fair values of acquired tangible and intangible assets, including goodwill, and assumed liabilities, where applicable. Additionally, we recognize customer relationships, trademarks and trade names, and non-compete agreements as identifiable intangible assets, which are recorded at fair value as of the transaction date. The fair value of the customer relationships intangible assets is determined by management using the multi-period excess earnings method under the income approach. Assumptions used in determining the fair value of the customer relationships intangible asset include forecasted revenue growth rate, customer attrition rate, and discount rate. The fair value of other intangible assets is determined primarily using current industry information. Goodwill is recorded when consideration transferred exceeds the fair value of identifiable assets and liabilities. Measurement-period adjustments to assets acquired and liabilities assumed with a corresponding offset to goodwill are recorded in the period they occur, which may include up to one year from the acquisition date. Contingent consideration is recorded at fair value at the acquisition date.

Goodwill and Other Intangible Assets

We have two reporting units, which are also our operating and reporting segments: Installation and Specialty Distribution, and both contain goodwill. Our operating segments engage in business activities for which discrete financial information including long range forecasts is available, and we complete the impairment testing of goodwill at this level, as defined by accounting guidance. Assets acquired and liabilities assumed are assigned to the applicable reporting unit based on whether the acquired assets and liabilities relate to the operations of such unit and determination of its fair value. Goodwill assigned to the reporting unit is the excess of the fair value of the acquired business over the fair value of the individual assets acquired and liabilities assumed for the reporting unit.

We perform our annual impairment testing of goodwill in the fourth quarter of each year, or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. When assessing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, wedetermine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.If we conclude otherwise, then no further action is taken.We also have the option to bypass the qualitative assessment and only perform a quantitative assessment. For the years ended December 31, 2024 and 2023, we performed qualitative assessments.

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Fair value for our reporting units is determined using a discounted cash flow method and a market multiple approach (with a 50% weighting of each), both which include significant unobservable inputs (Level 3 inputs). We believe these methodologies are comparable to what would be used by other market participants. Using the discounted cash flow method requires us to make significant estimates and assumptions, including long term projections of cash flows, market conditions, and appropriate discount rates. Our judgments are based on historical experience, current market trends, consultations with external valuation specialists and other information. The market approach includes a comparison of the multiple of a reporting unit's carrying value to its earnings before interest, taxes, depreciation and amortization with the multiples of similar businesses or guideline companies whose securities are actively traded in the public markets. While we believe that the estimates and assumptions underlying the valuation methodologies are reasonable, changes to estimates and assumptions could result in different outcomes. In estimating future cash flows, we rely on internally generated long-range forecasts for sales and operating profits, and generally a one to three percent long term assumed annual growth rate of cash flows for periods after the long-range forecast. We generally develop these forecasts based upon, among other things, recent sales data for existing products, and estimated U.S. housing starts.

When necessary, an impairment loss is recognized to the extent that a reporting unit’s recorded goodwill exceeds its fair value. In the fourth quarters of 2024 and 2023, we performed an assessment on our goodwill and determined that the estimated fairvalue of each reporting unit substantially exceeded its carrying value, and therefore the goodwillwas not impaired.

We did not recognize any impairment charges for goodwill for the years ended December 31, 2024, 2023, and 2022. As of December 31, 2024, net goodwill reflected $762.0 million of accumulated impairment losses, relating primarily to impairment charges taken in 2008-2010 following the substantial decrease in U.S. housing starts after the financial crisis of 2007-2008.

Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives. We evaluate the remaining useful lives of amortizable identifiable intangible assets at each reporting period to determine whether events and circumstances warrant a revision to the remaining periods of amortization.

Income Taxes

If, based upon all available evidence, both positive and negative, it is more likely than not (more than 50 percent likely) deferred tax assets will not be realized, a valuation allowance is recorded. Significant weight is given to positive and negative evidence that is objectively verifiable. A company’s three-year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable and the accounting guidance restricts the amount of reliance we can place on projected taxable income to support the recovery of deferred tax assets.

While we believe we have adequately assessed for our uncertain tax positions, amounts asserted by taxing authorities could vary from our assessment of uncertain tax positions. Accordingly, provisions for tax-related matters, including interest and penalties, could be recorded in income tax expense in the period revised assessments are made. These unrecognized tax positions including associated interest and penalties are not material to our consolidated financial statements for the periods presented.

Additionally, we generally do not provide for taxes related to undistributed earnings as such earnings would not be taxable when remitted or would be considered to be indefinitely reinvested.

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements and their expected or actual effect on our reported results of operations are addressed in Item 8. Financial Statements and Supplementary Data – Note 1. Summary of Significant Accounting Policies.

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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We have a Term Loan outstanding with a principal balance of $487.5 million and a revolving facility with an aggregate borrowing capacity of $500.0 million. We also have outstanding 3.625% Senior Notes with an aggregate principal balance of $400.0 million and 4.125% Senior Notes with an aggregate principal balance of $500.0 million. The 3.625% Senior Notes and 4.125% Senior Notes bear a fixed rate of interest and therefore are excluded from the calculation below as they are not subject to fluctuations in interest rates.

Interest payable on both the aggregate Term Loan and revolving facility is based on a variable interest rate. As a result, we are exposed to market risks related to fluctuations in interest rates on this outstanding indebtedness. As of December 31, 2024, the applicable interest rate as of such date was 5.46%. Based on our outstanding borrowings as of December 31, 2024, a 100-basis point increase in the interest rate would result in a $4.7 million increase in our annualized interest expense. There was no outstanding balance under the revolving facility as of December 31, 2024.

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of TopBuild Corp.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of TopBuild Corp. and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations, of comprehensive income, of changes in shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that

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transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition from Contracts with Customers

As described in Notes 1 and 3 to the consolidated financial statements, the Company’s total consolidated net sales was $5.3 billion for the year ended December 31, 2024. The Company's Specialty Distribution segment recognizes revenue when title to products and risk of loss transfers to customers. This represents the point in time when the customer is able to direct the use of and obtain substantially all the benefits from the product. The determination of when control is deemed transferred depends on the delivery terms that are agreed upon in the contract. The Company's Installation segment recognizes revenue over time as the related performance obligation is satisfied with respect to each particular order within a given customer’s contract. Progress toward complete satisfaction of the performance obligation is measured using a cost-to-cost measure of progress method. The cost input is based on the amount of material installed at that customer’s location and the associated labor costs, as compared to the total expected cost for the order. Generally, this results in revenue from the Installation segment being recognized as the customer is able to receive and utilize the benefits provided by the Company’s services. The transaction price is the amount of consideration the Company expects to receive based on the arrangement with the customer.

The principal consideration for our determination that performing procedures relating to revenue recognition from contracts with customers is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company's revenue recognition. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s revenue recognition process.

These procedures also included, among others (i) testing revenue recognized for a sample of revenue transactions by obtaining and inspecting source documents such as signed work agreements, purchase orders, contracts and change orders, proof of shipment or receipt, evidence of performance of work, and cash receipts, as applicable and (ii) testing a sample of outstanding customer invoice balances as of December 31, 2024 by obtaining and inspecting source documents, such as contracts, proof of shipment or receipt, evidence of performance of work and subsequent cash receipts, as applicable.

/s/ PricewaterhouseCoopers LLP

Tampa, Florida

February 25, 2025

We have served as the Company’s auditor since 2015.

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TOPBUILD CORP.

CONSOLIDATED BALANCE SHEETS

(In thousands except share amounts)

As of December 31,

ASSETS

Current assets:

Prepaid expenses and other current assets 40,382 36,939

LIABILITIES AND EQUITY

Current liabilities:

Current portion of long-term debt 48,750 47,039

Short-term operating lease liabilities 68,713 65,780

Short-term finance lease liabilities 1,487 1,917

Long-term portion of insurance reserves 57,700 58,783

Long-term operating lease liabilities 129,360 146,213

Long-term finance lease liabilities 2,618 4,150

Commitments and contingencies

Equity:

Accumulated other comprehensive loss (29,206) (14,665)

See notes to our consolidated financial statements.

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TOPBUILD CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except share and per common share amounts)

Year Ended December 31,

Other income (expense), net:

Net income per common share:

Weighted average shares outstanding:

See notes to our consolidated financial statements.

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TOPBUILD CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Year Ended December 31,

Other comprehensive (loss) income:

Foreign currency translation adjustment (14,541) 7,255 (15,286)

See notes to our consolidated financial statements.

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TOPBUILD CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended December 31,

Cash Flows Provided by (Used in) Operating Activities:

Amortization of debt issuance costs 2,881 2,881 2,867

Provision for inventory obsolescence 7,586 4,794 6,659

Prepaid expenses and other current assets (3,143) (2,598) (9,222)

Cash Flows Provided by (Used in) Investing Activities:

Cash Flows Provided by (Used in) Financing Activities:

Proceeds from revolving credit facility — — 70,000

Repayment of revolving credit facility — — (70,000)

Repurchase of shares of common stock (966,352) — (250,050)

Payment of contingent consideration — (300) (1,674)

Impact of exchange rate changes on cash (4,478) 1,093 (1,531)

Supplemental disclosure of cash paid for:

Supplemental disclosure of noncash activities:

Accruals for property and equipment 1,023 912 141

Excise taxes capitalized to treasury stock 9,444 — —

See notes to our consolidated financial statements.

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TOPBUILD CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except share amounts)

Accumulated

Common Treasury Additional Other

Stock Stock Paid-in Retained Comprehensive

($0.01 par value) at cost Capital Earnings (Loss) Income Equity

Share-based compensation - - 12,310 - - 12,310

Share-based compensation - - 15,838 - - 15,838

Other comprehensive income, net of tax - - - - 7,255 7,255

Share-based compensation - - 16,579 - - 16,579

See notes to our consolidated financial statements.

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TOPBUILD CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation. TopBuild is a Delaware corporation and trades on the NYSE under the symbol “BLD.” We report our business in two segments: Installation and Specialty Distribution. Our Installation segment primarily installs insulation and other building products. Our Specialty Distribution segment primarily sells and distributes insulation and other building products. Our segments are based on our operating units, for which further discussion is included in Note 8 – Segment Information.

Financial Statement Presentation. The Consolidated Financial Statements have been developed in conformity with GAAP. All intercompany transactions between the TopBuild entities have been eliminated.

Use of Estimates and Assumptions in the Preparation of Financial Statements. The preparation of our Consolidated Financial Statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of any 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 may differ from these estimates and assumptions.

Revenue Recognition. Revenue is disaggregated between our Installation and Specialty Distribution segments. A reconciliation of disaggregated revenue by segment is included in Note 8 – Segment Information.

We recognize revenue for our Installation segment over time as the related performance obligation is satisfied with respect to each particular order within a given customer’s contract. Progress toward complete satisfaction of the performance obligation is measured using a cost-to-cost measure of progress method. The cost input is based on the amount of material installed at that customer’s location and the associated labor costs, as compared to the total expected cost for the particular order. The total expected cost is an estimate in the revenue recognition process which requires judgment and is subject to variability throughout the duration of the contract as a result of contract modifications and other circumstances impacting job completion. Generally, this results in revenue being recognized as the customer is able to receive and utilize the benefits provided by our services. Each contract contains one or more individual orders, which are based on services delivered. When material and installation services are bundled in a contract, we combine these items into one performance obligation as the overall promise is to transfer the combined item.

The transaction price is the amount of consideration we expect to receive based on the arrangement with the customer. The duration of our contracts with customers is relatively short, generally less than a 90-day period, therefore there is not a significant financing component when considering the determination of the transaction price which gets allocated to the individual performance obligations, generally based on standalone selling prices. Additionally, we consider shipping costs charged to a customer as a fulfillment cost rather than a promised service and expense as incurred. Sales taxes, when incurred, are recorded as a liability and excluded from revenue on a net basis.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Business Combinations. The purchase price for business combinations is allocated to the estimated fair values of acquired tangible and intangible assets, including goodwill, and assumed liabilities, where applicable. Additionally, we recognize customer relationships, trademarks and trade names, and non-compete agreements as identifiable intangible assets, which are recorded at fair value as of the transaction date. The fair value of the customer relationships intangible assets are determined by management using the multi-period excess earnings method under the income approach. Assumptions used in determining the fair value of the customer relationships intangible asset include forecasted revenue growth rate, customer attrition rate, and discount rate. The fair value of other intangible assets is determined primarily using current industry information. Goodwill is recorded when consideration transferred exceeds the fair value of identifiable assets and liabilities. Measurement-period adjustments to assets acquired and liabilities assumed with a corresponding offset to goodwill are recorded in the period they occur, which may include up to one year from the acquisition date. Contingent consideration is recorded at fair value at the acquisition date.

Cash and Cash Equivalents. We consider our highly liquid investments with a maturity of three months or less at the time of purchase to be cash and cash equivalents.

Receivables, net. We do business with a significant number of customers, principally homebuilders and contractors. We monitor our exposure for credit losses on our customer receivable balances and the credit worthiness of our customers on an on-going basis. Expected credit losses are measured by segment using historical loss rate information adjusted for current conditions, with changes in the allowance recorded as a provision for (or reversal of) credit loss expense. Expected losses are charged against the allowance when management believes a receivable is uncollectible. During downturns in our markets, declines in the financial condition and creditworthiness of customers impact the credit risk of the receivables involved and we have incurred additional expense related to customer defaults. Receivables, net are presented net of certain allowances, including allowance for credit losses.

Inventories. Inventories consist primarily of insulation and insulation accessories, rain gutters, garage doors, shower enclosures, windows, shelving and other products. We value inventory at the lower of cost or net realizable value, where cost is determined by the first in-first out cost method. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. Inventory value is evaluated at each balance sheet date to ensure that it is carried at the lower of cost or net realizable value.

Inventory provisions are recorded to reduce inventory to the lower of cost or net realizable value for obsolete or slow moving inventory based on assumptions about future demand and marketability of products, the impact of new product introductions, inventory levels and turns, product spoilage, and specific identification of items such as product discontinuance, engineering/material changes, or regulatory-related changes. Our inventory reserve balances were $14.7 million and $10.7 million as of December 31, 2024 and 2023, respectively. As of December 31, 2024, and 2023, primarily all inventory consisted of finished goods.

Property and Equipment, net. Property and equipment, net, including significant improvements to existing facilities, are recorded at cost. Upon retirement or disposal, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the Consolidated Statements of Operations. Maintenance and repair costs are charged against earnings as incurred. Gains and losses on the disposal of equipment are included in selling, general, and administrative expense.

We review our property and equipment as an event occurs or circumstances change that indicate the carrying value of property and equipment is below its fair value. If the carrying amount is not recoverable from its undiscounted cash flows, we would recognize an impairment loss for the difference between the carrying amount and the current fair value. Further, we evaluate the remaining useful lives of property and equipment at each reporting period to determine whether events and circumstances warrant a revision to the remaining depreciation periods.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Depreciation. Depreciation expense is computed principally using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are generally as follows:

Asset Class Estimated Useful Life

Buildings and land improvements 20 – 40 years

Software 3 – 6 years

Company vehicles 3 – 8 years

Equipment 4 – 8 years

Leases. At the inception of a contract, we determine whether the contract is or contains a lease, based on the unique facts and circumstances present. Our facilities operating leases and various vehicle and equipment finance leases have lease and non-lease fixed cost components, which we account for as one single lease component in calculating the present value of minimum lease payments. Variable lease and non-lease cost components are expensed as incurred and are primarily included in cost of sales on the accompanying Consolidated Statement of Operations.

Lease payments are recognized as an expense in the Consolidated Statements of Operations on a straight-line basis over the lease term, including future option periods the Company reasonably expects to exercise, whereby an equal amount of rent expense is attributed to each period during the term of the lease, regardless of when actual payments are made. This generally results in rent expense in excess of cash payments during the early years of a lease and rent expense less than cash payments in later years. The difference between rent expense recognized and actual rental payments is typically represented as the spread between the ROU asset and lease liability.

We recognize a ROU asset and a lease liability at the lease commencement date. Our leases may include options to extend or terminate the lease, which will be reflected in the calculation of the lease liability and corresponding ROU asset when it is reasonably certain that we will exercise that option. We do not recognize ROU assets and lease liabilities for short-term leases that have an initial lease term of 12 months or less. We recognize the lease payments associated with short-term leases as an expense on a straight-line basis over the lease term.

The lease liability is initially measured as the present value of the unpaid lease payments as of the lease commencement date. The lease liability is discounted based on our incremental borrowing rate (“IBR”) at the time of modification for an existing lease or at the time of lease commencement for new leases. Our IBR includes significant assumptions regarding our secured borrowing rates and adjustments for differences in the remaining lease term, underlying assets and market conditions for companies with similar credit qualities as well as interest rate index fluctuations. The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. The ROU asset is subsequently measured throughout the lease term as the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Certain vehicle lease agreements have residual value guarantees at the end of the lease which require us to return the asset with a specified percentage of the original or other calculated value.

Fair Value. The fair value measurement standard defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (referred to as an “exit price”). A fair value hierarchy is established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices, such as quoted market prices for similar assets or liabilities or other inputs that are observable or can be corroborated by market data.

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Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Goodwill and Other Intangible Assets. We perform our annual impairment testing of goodwill in the fourth quarter of each year, or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We have defined our reporting units and completed the impairment testing of goodwill at the operating segment level. Our operating segments are reporting units that engage in business activities for which discrete financial information, including long-range forecasts, are available. When assessing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, wedetermine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.If we conclude otherwise, then no further action is taken.We also have the option to bypass the qualitative assessment and only perform a quantitative assessment. For the years ended December 31, 2024 and 2023, we performed a qualitative assessment.

Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives. We evaluate the remaining useful lives of amortizable intangible assets at each reporting period to determine whether events and circumstances warrant a revision to the remaining periods of amortization. For additional information, see Note 5 – Goodwill and Other Intangibles.

Insurance Reserves. We use a combination of high deductible and matching deductible insurance programs for a number of risks including, but not limited to, workers’ compensation, general liability, vehicle, and property liabilities. Our workers’ compensation insurance is primarily a high-deductible insurance program and our primary general liability insurance is a matching deductible program. We are insured for covered claims above the deductibles and retentions on an excess basis. The liabilities represent our best estimate of our costs, using generally accepted actuarial reserving methods, of the ultimate obligations for reported claims plus those incurred but not reported claims through December 31, 2024 and 2023. The accruals are adjusted as new information develops or circumstances change that would affect the estimated liability. We also record an insurance receivable for claims that exceeded the stop loss limit included in Other assets on our Consolidated Balance Sheets which offsets an equal liability included within Long-term portion of insurance reserves on our Consolidated Balance Sheets. At December 31, 2024 and 2023, the amount of this receivable and liability was $10.4 million.

Advertising. Advertising costs are expensed as incurred. Advertising expense, net of manufacturers support, was approximately $1.5 million, $3.0 million, and $2.9 million for the years ended December 31, 2024, 2023 and 2022, respectively, and is included in selling, general, and administrative expense.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Share-based Compensation. Our share-based compensation program currently consists of RSAs and stock options. Share-based compensation expense is reported in selling, general, and administrative expense. We do not capitalize any compensation cost related to share-based compensation awards. The income tax benefits and expenses associated with share-based awards are reported as a component of income tax expense. Excess tax benefits and deficiencies are included in net cash provided by (used in) operating activities while shares withheld for tax-withholding are reported in financing activities under the caption “Taxes withheld and paid on employees’ equity awards” in our Consolidated Statements of Cash Flows. Award forfeitures are accounted for in the period they occur.

The following table summarizes certain information regarding our restricted share awards and our stock options:

Restricted Share Awards

†Stock options expire no later than 10 years after the grant date.

‡Expense is reversed if award is forfeited prior to vesting.

Debt Issuance Costs. Debt issuance costs are amortized to interest expense over the life of the respective debt, which approximates the effective interest rate method. Unamortized debt issuance costs are presented as a direct deduction from the related debt on our Consolidated Balance Sheets.

Income Taxes. We account for income taxes using the asset and liability method, which requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax basis and financial reporting basis of our assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which we operate.

Valuation allowances are established against deferred tax assets when it is more likely than not that the realization of those deferred tax assets will not occur. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence. If, based upon all available evidence, both positive and negative, it is more likely than not (more than 50 percent likely) such deferred tax assets will not be realized, a valuation allowance is recorded. Significant weight is given to positive and negative evidence that is objectively verifiable.

Only those income tax positions that have a greater than 50 percent likelihood of being sustained upon examination by taxing authorities are recognized. There is an increased potential for volatility in our effective tax rate because of future changes in the income tax environment and the inherent complexities of income tax law in the various jurisdictions. Accordingly, provisions for tax-related matters, including interest and penalties, could be recorded in income tax expense in the period revised assessments are made.

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Additionally, we generally do not provide for taxes related to undistributed earnings as such earnings would not be taxable when remitted or would be considered to be indefinitely reinvested.

Foreign Currency. Foreign currency assets and liabilities are translated into United States dollars using the exchange rates in effect at the end of each reporting period. Equity accounts are translated at historical rates, except for the change in retained earnings during the year, which is the result of the income statement translation process. Revenue and expense accounts are translated using the weighted average exchange rate during the period. The cumulative translation adjustments associated with the net assets of foreign subsidiaries are recorded in accumulated other comprehensive (loss) income on our Consolidated Statement of Shareholders’ Equity. Net foreign currency transaction gains and losses arising during the normal course of business are included in Other, net on our Consolidated Statement of Operations.

Recently Adopted Accounting Pronouncements

Segment Reporting. In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures”. This standard amends Topic 280 to require all entities to disclose, on an annual and interim basis, significant segment expenses and an amount for other segment items by reportable segment. This standard became effective for us in this Annual Report. Its adoption had no impact on our consolidated results of operations, financial position or cash flows. See Note 8 – Segment Information for required disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

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

In November 2024, the FASB issued ASU 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40)”. This standard requires disclosure, in the notes to financial statements, of specified information about certain costs and expenses. This standard is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. This standard may be applied either prospectively or retrospectively. We do not anticipate that this standard will affect our consolidated results of operations, financial position or cash flows and we are assessing the impact of its adoption in our disclosures to our consolidated financial statements.

2. 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 Consolidated Statements of Operations.

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The following table presents lease-related assets and liabilities and their classification on our Consolidated Balance Sheets, in thousands:

As of December 31,

Assets Classification

Finance Property and equipment, net 3,771 5,577

Liabilities

Current

Operating Short-term operating lease liabilities $ 68,713 $ 65,780

Finance Short-term finance lease liabilities 1,487 1,917

Non-Current

Operating Long-term operating lease liabilities 129,360 146,213

Finance Long-term finance lease liabilities 2,618 4,150

As of December 31,

Weighted-average remaining lease term:

Operating leases 3.4 years 3.6 years

Finance leases 3.2 years 3.8 years

Weighted-average discount rate:

Operating leases 4.9 % 4.0 %

Finance leases 3.5 % 3.3 %

The components of lease expense were as follows and are primarily included in cost of sales and in selling, general and administrative expenses on the accompanying Consolidated Statement of Operations for finance leases and operating leases, in thousands:

Year Ended December 31,

Financing lease cost:

Interest on finance lease obligations 166 210 268

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future minimum lease payments under non-cancellable operating and finance leases as of December 31, 2024, were as follows, in thousands:

Payments due by Period

Total future minimum lease payments 221,436

Less: imputed interest (19,258)

The amounts below are included in the cash flows provided by operating activities section on the accompanying Consolidated Statement of Cash Flows, in thousands:

Year Ended December 31,

Operating cash flows from finance leases $ (166) $ (210) $ (268)

Financing cash flows from finance leases (1,934) (2,776) (2,361)

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):

Year Ended December 31, 2024

Installation Specialty Distribution Eliminations Total

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BLD · 10-K · period ended 2024-12-31

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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BLD · 10-K · period ended 2024-12-31

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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