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TopBuild Corp

TopBuild CorpBLDEarnings & Financial Report

NYSE · Industrials · IT infrastructure

HashiCorp, Inc. is an American software company with a freemium business model based in San Francisco, California. HashiCorp provides tools and products that enable developers, operators and security professionals to provision, secure, run and connect cloud-computing infrastructure. It was founded in 2012 by Mitchell Hashimoto and Armon Dadgar. The company name HashiCorp is a portmanteau of co-founder last name Hashimoto and Corporation.

What changed in TopBuild Corp's 10-K — 2022 vs 2023

Top changes in TopBuild Corp's 2023 10-K

168 paragraphs added · 160 removed · 138 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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We source the majority of our fiberglass building products from four primary U.S.-based residential fiberglass insulation manufacturers: Knauf, CertainTeed, Johns Manville, and Owens Corning.
We source the majority of our fiberglass building products from four primary U.S.-based residential fiberglass insulation manufacturers: CertainTeed, Johns Manville, Knauf, and Owens Corning.
We recognize that competition for the installation and sale of insulation and other building material products occurs in localized geographic markets in the U.S. and Canada, and, as such, our operating model is based on geographically diverse branches that develop and maintain local customer relationships.
We recognize that competition for the installation and sale of insulation and other building material products occurs in localized geographic markets across the U.S. and Canada, and, as such, our operating model is based on geographically diverse branches that develop and maintain local customer relationships.
Builders and contractors in each local market have different options in terms of choosing among insulation installers and specialty distributors for their projects, and value local relationships, quality, and timeliness. Our Installation branches are locally branded businesses that are recognized within the communities in which they operate.
Builders and contractors in each local market have different options in terms of choosing among insulation installers and specialty distributors for their projects, and for local relationships, quality, and timeliness. Our Installation branches are locally branded businesses that are recognized within the communities in which they operate.
Further, as discussed in our Item 1A (Risk Factors), if we do not effectively and timely comply with legal requirements and industry standards, our operating results could be negatively affected. ​ Additional Information ​ We provide our Annual Reports, Quarterly Reports, Current Reports and amendments to those reports free of charge on our website, www.topbuild.com, as soon as reasonably practicable after these reports are filed with or furnished to the SEC.
Further, as discussed in our Item 1A (Risk Factors), if we do not effectively and timely comply with legal requirements and industry standards, our operating results could be negatively affected. ​ 11 ​ Table of Contents Additional Information ​ We provide our Annual Reports, Quarterly Reports, Current Reports and amendments to those reports free of charge on our website, www.topbuild.com, as soon as reasonably practicable after these reports are filed with or furnished to the SEC.
Being a leader in both installation and specialty distribution allows us to more effectively reach a broader set of builder customers and contractors, regardless of their size or geographic location within the U.S. and Canada, and leverage new construction housing, and commercial/industrial growth wherever it occurs. Diversified lines of business.
We believe that being a leader in both installation and specialty distribution allows us to more effectively reach a broader set of builder customers and contractors, regardless of their size or geographic location within the U.S. and Canada, and leverage new construction housing, and commercial/industrial growth, wherever it occurs. ​ Diversified lines of business.
Machado, age 60 ● Vice President, General Counsel and Corporate Secretary since August 2020 ● Vice President, General Counsel and Secretary of CTS Corporation from 2015 – August 2020 ● Senior Vice President, Legal, and Assistant Secretary of L Brands, Inc. from 2010 – 2015 ​ Jennifer J.
Machado, age 61 • Vice President, General Counsel and Corporate Secretary since August 2020 • Vice President, General Counsel and Secretary of CTS Corporation from 2015 – August 2020 • Senior Vice President, Legal, and Assistant Secretary of L Brands, Inc. from 2010 – 2015 ​ Jennifer J.
Visitors to our website can also register to receive automatic e-mail and other notifications alerting them when new information is made available. ​ 11 ​ Table of Contents
Visitors to our website can also register to receive automatic e-mail and other notifications alerting them when new information is made available. ​ 12 ​ Table of Contents
At the same time, our local operations benefit from centralized functions, such as purchasing, information technology, sales support, and credit and collections, and the resources and scale efficiencies of an installation and distribution business that has a presence across the U.S. and Canada. 6 ​ Table of Contents Unique ability to offset decreases in demand for services with our Specialty Distribution business.
At the same time, our local operations benefit from centralized functions, such as purchasing, information technology, sales support, and accounting and finance, and the resources and scale efficiencies of an installation and distribution business that has a presence across the U.S. and Canada. 6 ​ Table of Contents Unique ability to offset decreases in demand for services with our Specialty Distribution business.
On July 1, 2015, we began trading on the NYSE under the symbol “BLD.” ​ Segment Overview ​ We operate in two segments: our Installation segment, which accounts for approximately 59% of our sales, and our Specialty Distribution segment, which accounts for approximately 41% of our sales. ​ We believe that having both Installation and Specialty Distribution provides us with a number of distinct competitive advantages.
On July 1, 2015, we began trading on the NYSE under the symbol “BLD.” ​ Segment Overview ​ We operate in two segments: our Installation segment, which accounts for approximately 61% of our sales, and our Specialty Distribution segment, which accounts for approximately 39% of our sales. ​ We believe that having both Installation and Specialty Distribution provides us with a number of distinct competitive advantages.
Our top customer accounted for approximately three percent of our total revenues for the year ended December 31, 2022. Our top ten customers accounted for approximately 12 percent of our total sales in 2022. ​ Suppliers ​ Our businesses depend on our ability to obtain an adequate supply of high-quality products and components from manufacturers and other suppliers.
Our top customer accounted for approximately three percent of our total revenues for the year ended December 31, 2023. Our top ten customers accounted for approximately 11 percent of our total sales in 2023. ​ Suppliers ​ Our businesses depend on our ability to obtain an adequate supply of high-quality products and components from manufacturers and other suppliers.
We believe we generally have positive relationships with our suppliers and are in continuous contact and work closely with our suppliers regarding the quality of materials.
We have positive relationships with our suppliers and are in continuous contact and work closely with our suppliers regarding the quality of materials.
Buck, age 53 ● Chief Executive Officer and President since January 1, 2021 ● President and Chief Operating Officer from June 2015 – December 2020 ● Group Vice President of Masco from 2014 – June 2015, responsible for the Installation and Other Services Segment consisting of both Masco Contractor Services and Specialty Distribution ● President of Masco Contractor Services from 2009 – 2014 ​ Joseph M.
Buck, age 54 • Chief Executive Officer and President since January 1, 2021 • President and Chief Operating Officer from June 2015 – December 2020 • Group Vice President of Masco from 2014 – June 2015, responsible for the Installation and Other Services Segment consisting of both Masco Contractor Services and Specialty Distribution • President of Masco Contractor Services from 2009 – 2014 ​ Robert M.
As a result, this helps to reduce our exposure to cyclical swings in our business. ​ Installation ​ We provide insulation installation services nationwide through our Installation segment which has approximately 230 branches located across the United States. ​ Various insulation applications we install include: ​ ● Fiberglass batts and rolls ● Blown-in loose fill fiberglass ● Polyurethane spray foam ● Blown-in loose fill cellulose ​ 4 ​ Table of Contents In addition to insulation products, which represented 79% of our Installation segment’s sales during the year ended December 31, 2022, we install other building products including glass and windows, rain gutters, afterpaint 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.
As a result, this helps to reduce our exposure to cyclical swings in our business. ​ Installation ​ We provide insulation installation services nationwide through our Installation segment which has approximately 240 branches located across the United States. ​ ​ ​ ​ ​ 4 ​ Table of Contents Various insulation applications we install include: ​ • Fiberglass batts and rolls • Blown-in loose fill fiberglass • Polyurethane spray foam • Blown-in loose fill cellulose ​ In addition to insulation products, which represented 79% of our Installation segment’s sales during the year ended December 31, 2023, we install other building products including, glass and windows, rain gutters, garage doors, closet shelving, and fireplaces, among other items. ​ We handle every stage of the installation process including material procurement supplied by leading manufacturers, project scheduling and logistics, multi-phase professional installation, and installation quality assurance.
At the same time, our dispersed branches benefit from centralized functions such as purchasing, information technology, sales and marketing support, and credit and collections. ​ Competitive Advantages ​ The market for the distribution and installation of building product materials is highly fragmented and competitive.
At the same time, our dispersed branches benefit from centralized functions such as purchasing, information technology, sales and marketing support, and accounting and finance. ​ Competitive Advantages ​ The market for the distribution and installation of building product materials is highly fragmented and competitive.
In addition to complying with currently effective legal requirements and preparing for proposed future requirements, even more stringent legal requirements could eventually be imposed on our industries. Additionally, some of our products and services require certification by industry or other organizations.
In addition to complying with currently effective legal requirements and preparing for upcoming requirements, even more stringent legal requirements could be imposed on our industries. Additionally, some of our products and services require certification by industry or other organizations.
During industry downturns many insulation contractors, who buy directly from manufacturers during industry peaks, return to purchasing through distributors for small, “Less Than Full Truckload” shipments. This tends to drive incremental customers to our Specialty Distribution business, which could offset a decrease in demand for installation services in our Installation business because of a downturn.
During industry downturns many insulation contractors, who buy directly from manufacturers during industry peaks, return to purchasing through distributors for smaller shipments, less than a full truckload. This tends to drive incremental customers to our Specialty Distribution business, which could offset a decrease in demand for installation services in our Installation business because of a downturn.
Insulation and insulation accessories, primarily fiberglass and spray foam, comprise approximately 89% of our Specialty Distribution sales. We have approximately 162 distribution centers across the United States and 17 distribution centers in Canada.
Insulation and insulation accessories, primarily fiberglass and spray foam, comprise approximately 89% of our Specialty Distribution sales. We have approximately 150 distribution centers across the United States and 18 distribution centers in Canada.
Barriers to entry for local competitors are relatively low, increasing the risk that additional competitors will emerge. Our ability to maintain our competitive position depends on a number of factors including our scale, sales channels, diversified product lines, operation capabilities and strong local presence. ​ Scale.
Barriers to entry for local competitors are relatively low, increasing the risk that additional competitors will emerge. Our ability to maintain our competitive position depends on several factors including our scale, sales channels, diversified product lines, operational capabilities and strong local presence. ​ Scale.
Kuhns, age 49 ​ ● Vice President and Chief Financial Officer since March 2022 ● Vice President, Controller from July 2018 – March 2022 ● Senior Director, Assistant Corporate Controller of Mohawk Industries, Inc. from July 2015 – July 2018 ● Senior Director, International Finance of Mohawk Industries, Inc. from March 2013 – July 2015 ​ Luis F.
Kuhns, age 50 ​ • Vice President and Chief Financial Officer since March 2022 • Vice President, Controller from July 2018 – March 2022 • Senior Director, Assistant Corporate Controller of Mohawk Industries, Inc. from July 2015 – July 2018 • Senior Director, International Finance of Mohawk Industries, Inc. from March 2013 – July 2015 ​ ​ 10 ​ Table of Contents Luis F.
Viselli, age 55 ​ ● Vice President and Chief Operating Officer since October 2022 ● Senior Vice President and General Manager of Distribution International from June 2020 – October 2022 ● Senior Vice President and General Manager of Silvercote from June 2019 – October 2022 ● General Manager of Silvercote and Senior Vice President of Knauf Insulation from February 2017 – June 2019 ​ Robert M.
Viselli, age 56 ​ • Vice President and Chief Operating Officer since October 2022 • Senior Vice President and General Manager of Distribution International from June 2020 – October 2022 • Senior Vice President and General Manager of Silvercote from June 2019 – October 2022 • General Manager of Silvercote and Senior Vice President of Knauf Insulation from February 2017 – June 2019 ​ Steven P.
To support these objectives, we have designed and implemented a human capital management program that fosters a culture of inclusivity, collaboration, support, and innovation where every voice is welcome, heard, and respected. ​ Employee Recruiting & Retention ​ As of December 31, 2022, we had 13,119 employees (excluding contingent workers), of which 7,832 were installers.
To support these objectives, we have designed and implemented a human capital management program that fosters a culture of inclusivity, collaboration, support, and innovation where every voice is welcome, heard, and respected. ​ Employee Recruiting & Retention ​ As of December 31, 2023, we had 14,012 employees (excluding contingent workers), of which 8,542 were installers.
Our corporate leadership team (Managers and above) self-identifies as approximately 47% female and 24% non-white or undisclosed. ​ ​ *Sums to >100% due to multi-racial reporting. ​ We acknowledge and are committed to respecting and upholding the human rights and dignity of all individuals within our operations.
Our corporate leadership team (managers and above) self-identified as approximately 43% female, and of all leaders (managers and above) 25.7% identify as non-white or undisclosed. ​ ​ ​ ​ *Sums to >100% due to multi-racial reporting. ​ We acknowledge and are committed to respecting and upholding the human rights and dignity of all individuals within our operations.
This program has been very successful since its launch in 2020. In 2022, it led to the hiring and retention of 1,424 installers.
This program has been very successful since its launch in 2020 and in 2023 led to the hiring and retention of 1,388 installers.
We attribute our effective retention rate to an engaging culture, competitive wages, comprehensive benefits, and positive employee relations. ​ To build a pipeline of leadership talent, we recruit internally and externally into our Manager in Training program, which fosters development of participants into leaders of our company and high performers in our industry.
We attribute our effective retention rate to meaningful work, competitive wages, comprehensive benefits, and positive employee relations. ​ To build a pipeline of leadership talent, we recruit internally and externally into our Manager in Training (MIT) program, which is designed to foster the development of participants into leaders of our Company and high performers in our industry.
Raia, age 67 ● President, TruTeam Operations since March 2019 ● Senior Vice President of Operations, from November 2015 – March 2019 ● Various operations management and roles in insulation businesses prior to 2015 ​ Robert J.
Raia, age 68 • President, TopBuild Special Operations and Executive Adviser since January 2024 • President, TruTeam Operations from March 2019 – January 2024 • Senior Vice President of Operations, from November 2015 – March 2019 • Various operations management and roles in insulation businesses prior to 2015 ​ Robert J.
Shoffner, age 50 ● Chief Human Resources Officer since August 2020 ● Vice President, Talent Management from February 2020 – August 2020 ● Vice President, Human Resources of Liberty Hardware, a Masco Company, from 2006 – 2011 and 2013 – January 2020 ​ 10 ​ Table of Contents Steven P.
Shoffner, age 51 • Chief Human Resources Officer since August 2020 • Vice President, Talent Management from February 2020 – August 2020 • Vice President, Human Resources of Liberty Hardware, a Masco Company, from 2006 – 2011 and 2013 – January 2020 ​ Joseph M.
As of December 31, 2022, our employees self-identified as 44.8% Hispanic, 37.1% White, 7.8% Black, and 10.3% Other or Undisclosed. Our employees represent a higher racial diversification in comparison to both the construction industry and the total U.S. workforce, as reported by the Bureau of Labor Statistics (December 2022).
As of December 31, 2023, our employees self-identified as 45.7% Hispanic, 34.1% White, 7.7% Black, 4% Other, and 8.5% Undisclosed. Our employees represent a higher racial diversification than both the construction industry average and the total U.S. workforce, as reported by the Bureau of Labor Statistics (December 2023).
In addition to hiring directly from the local communities in which our branches operate, we partner with organizations that help source talent with diverse backgrounds, including veterans, refugees, and trade school students and graduates. ​ Voluntary turnover across all employees in 2022 was 33.2%.
In addition, we hire directly from the local communities in which our branches operate, and we partner with organizations that help source talent with diverse backgrounds, including organizations in support of veterans, refugees, and trade school students and graduates. 7 ​ Table of Contents ​ Voluntary turnover across all employee categories in 2023 was 30%, which is an improvement from our 2022 turnover rate of 33.2%.
Our incident rate does not include the impact of acquired companies in the year of acquisition or potential work-related COVID-19 exposures. ​ ​ ​ Community Involvement ​ TopBuild has a long-standing commitment to service in our communities. We provided ongoing support to a number of national and local charitable organizations in 2022, including: ​ Habitat For Humanity .
Our incident rates do not include the impact of acquired companies in the year of acquisition. ​ ​ ​ ​ Community Involvement ​ TopBuild has a longstanding commitment to service in our communities, and we provided ongoing support to many national and local charitable organizations in 2023, including: ​ Habitat For Humanity .
Franklin, age 63 ● President, Specialty Distribution since October 2022 ● President, Service Partners Operations from September 2019 to October 2022 ● Vice President of Operations, TruTeam from 2017 – September 2019 ● Regional Leader, TruTeam from 2015 – 2016 ● Various operations management and roles in insulation businesses prior to 2015 ​ Legislation and Regulation ​ We are subject to U.S. and Canadian federal, state, provincial, and local laws and regulations, particularly those pertaining to health and safety (including protection of employees and consumers), labor standards/regulations, contractor licensing, and environmental issues.
Krestancic, age 40 • President, TruTeam since January 2024 • Senior Vice President, TruTeam Operations from May 2023 – January 2024 • Vice President, TruTeam Operations from July 2021 to May 2023 • Regional Director, TruTeam from April 2017 to July 2021 • Various operations management and roles in insulation business prior to April 2017 ​ Legislation and Regulation ​ We are subject to U.S. and Canadian federal, state, provincial, and local laws and regulations, particularly those pertaining to health and safety (including protection of employees and consumers), labor standards/regulations, contractor licensing, and environmental issues.
Over 800 of our employees are currently covered by 65 collective bargaining agreements that expire on various dates through 2026. We believe that our relationship with our unions is good. ​ The residential new construction housing market remained strong through most of 2022, which continued the shortage of construction industry labor.
Over 730 of our employees are currently covered by 61 collective bargaining agreements that expire on various dates through 2027. We believe that our relationships with our union partners are good. ​ The residential new construction housing market remained strong through most of 2023, and continued to be a tight construction industry labor market.
Our branches go to market with the local brands that regional and custom builders recognize and value, and our national footprint is appealing to large builders who value consistency across a broad geography.
We believe that having both installation and specialty distribution businesses provides many advantages to reaching our customers. Our Installation business customer base includes builders of all sizes. Our branches go to market with the local brands that regional and custom builders recognize and value, and our national footprint is appealing to large builders who value consistency across a broad geography.
In addition, our regional Safety Managers audit both field locations and our Branch Support Center to assess compliance with company policy, practices, and procedures. ​ We closely monitor injury trends and conduct extensive research to better understand and improve our work environments. We have realized continuous improvement in our safety performance year-over-year as indicated in the graphs below.
Further, our regional Safety Managers audit field locations and our Branch Support Center to assess compliance with our policies and procedures. ​ We closely monitor injury trends and conduct extensive research to better understand and improve our safety performance. In 2023, we experienced no fatalities.
The amount of insulation installed in a new home or commercial/industrial building is regulated by various building and energy codes. ​ Our Installation customer base includes national and regional single-family homebuilders, single-family custom builders, multi-family builders, commercial/industrial general contractors, remodelers, and individual homeowners. ​ Through our TopBuild Home Services, Inc. subsidiary (“Home Services”) and our Environments for Living ® program, we offer services and tools designed to assist builders with applying the principles of building science to new home construction.
The amount of insulation installed in a new home or commercial project is regulated by various building and energy codes. ​ Our Installation customer base includes national and regional single-family homebuilders, single-family custom builders, multi-family builders, commercial general contractors, remodelers, and individual homeowners. ​ Specialty Distribution ​ We distribute building and mechanical insulation, insulation accessories, rain gutters and other building product materials for the residential and commercial/industrial end markets through our Specialty Distribution business.
This score is made up of key questions related to pride in the company, sense of accomplishment, and intent to stay. We shared the results with our leadership at all levels and locations and with our Board. The leaders reviewed areas of satisfaction and dissatisfaction and continue to work with their teams to prioritize actions and activities in response.
This score represents positive employee feedback on key questions related to pride in the Company, sense of accomplishment, and intent to stay. We shared the results of our survey with our employees, leadership at all levels and locations, and with our Board.
In addition, our workforce female representation as of December 31, 2022, was higher than the U.S. construction industry.
In addition, our workforce self-identifying as female as of December 31, 2023, was 11.5%, which is higher than the U.S. construction industry female workforce of 9.9%, as reported by the Bureau of Labor Statistics (December 2023).
Our Specialty Distribution centers service primarily local contractors, lumberyards, retail stores and others who, in turn, service local homebuilders and other customers, while also servicing industrial customers with customized recurring requirements.
For residential housing, our Specialty Distribution centers service primarily local contractors, lumberyards, retail stores and others who, in turn, service local homebuilders and other customers. For commercial/industrial mechanical insulation, we primarily service mechanical insulation installers, general contractors and end-users.
While our ultimate goal is to have zero incidents, we set aggressive annual targets based on reductions from prior year performance across each business segment and the company as a whole.
While we ultimately strive to have zero incidents, we set an aggressive annual target based on prior year performance as compared against industry average at the company level and for each business segment.
For 2022, the total incident rate safety target for our company was 2.55 and our actual incident rate incurred was 1.92, which significantly beat our target and remained well below the industry average of 3.4 as reported by the Bureau of Labor and Statistics for NAICS 23831 (2021).
Our company-wide injury rate was 1.97 and our lost time case rate was 0.57, each of which is significantly below the industry average of 2.7 and 1.3, respectively, as reported by the Bureau of Labor and Statistics for NAICS 23831 (2022).
A primary responsibility of our employees is to provide a safe environment for their co-workers, our customers, and our suppliers. To align our team with our safety goals, a portion of our annual incentive compensation for all eligible employees, including our senior leadership, is tied to our safety performance.
During 2023, we assigned each of our employees an average of 15.4 hours of safety training. ​ To align our workforce with our safety goals, a portion of our annual incentive compensation for all eligible employees, including our senior leadership, is tied to our safety performance.
In 2022, we added new hire and exit surveys and use their feedback to continually improve our offerings and communication. Additionally, we conduct an all-employee survey bi-annually, most recently in 2021, and 62% of our employees responded. Our engagement index score was 84%.
In addition to new hire and exit surveys, we conduct an all-employee survey bi-annually, which is administered by a third party and was most recently completed in 2023. 60% of our employees responded to our 2023 survey and we are proud that our engagement index score was 85%.
Overall areas of strength include employee perception of a solid culture of safety within our company and satisfaction with our company’s direction and culture. ​ Executive Officers ​ Set forth below is information about our executive officers. There are no family relationships among any of the officers named below. Robert M.
(Source: Great Place To Work® 2021 Global Employee Engagement Study.) ​ Executive Officers ​ Set forth below is information about our executive officers. There are no family relationships among any of the officers named below. Robert M.
In 2022, more than 50% of those promoted from the Manager in Training program were women. ​ Diversity and Inclusion ​ We are taking steps as an employer to embrace and expand diversity and inclusion as part of our culture and talent practices.
We average 18-22 participants in our MIT program and, upon completion, successful participants are regularly promoted into branch leadership roles within our Company. ​ Diversity and Inclusion ​ We continue to take steps as an employer to embrace and expand diversity and inclusion as part of our culture and talent practices.
Company policies, including the Human Rights Policy, are published in the ESG section of our website. ​ Safety ​ The success of our business is fundamentally connected to safety. Safety is one of our core values, is engrained in our culture, and is an important metric in how we measure our success as a company.
Company policies, including the Human Rights Policy, are published in the ESG section of our website. ​ Safety ​ We prioritize a culture of safety that innovates better and safer ways to work, emphasizes best practices, and rewards ongoing improvement in our safety performance.
In 2022, TopBuild matched employee giving and donated more than $35,000 for those affected by hurricanes Ian and Nicole. ​ Our people are our most valuable resources, and together with our affiliate partnerships, we remain committed to supporting and improving the communities where we live and work. ​ ​ 9 ​ Table of Contents Employee Feedback ​ Employee engagement is important to us as we continue to establish and develop our initiatives to create a positive employee experience.
Our teams competed in fundraising competitions ahead of the event to raise money for supplies and backpacks and volunteered to help ensure thousands of under-served children in our Daytona Beach, FL community had the essentials for their first day of school. ​ Our people are our most valuable resource, and together with our affiliate partnerships, we remain committed to supporting and improving the communities where we live and work. ​ Employee Feedback ​ Employee engagement is important to us as we continue to create a positive employee experience.
We sponsored Payit4ward’s annual summer Back to School Drive for the 5th year running, which provided supplies and backpacks to over 3,000 children. The American Red Cross . We regularly donate to the American Red Cross, helping to ensure they have the necessary funding throughout the year to assist families recovering from natural disasters.
We continued our support to the American Red Cross in 2023, helping to ensure the charity has the necessary funding to assist families reeling from the effects of hurricanes, tornadoes, and other natural disasters. Payit4ward . TopBuild was the proud sponsor of Payit4ward’s annual summer Back to School Drive for the 6th year running.
To attract and retain experienced employees in such a tight labor market, we strive to offer a competitive compensation and benefits program to all our employees that meets their diverse needs, such as tuition reimbursement, career growth, matching 401k contributions, multiple dental and medical plan options, and paid time off, including for entry-level employees. ​ 7 ​ Table of Contents We take proactive steps to recruit construction labor, led by our Friends and Family Referral Program which we expanded in 2022.
Our benefits program is designed to meet the needs of a diverse employee workforce and includes tuition reimbursement, career growth and professional development, matching 401(k) contributions, multiple dental and medical plan options, and paid time off. ​ We take proactive steps to find quality sources of construction labor and our Friends and Family Referral Program is our best source for recruiting and retaining installers.
Our focus and investment in safety has led to consistent improvement year-over-year, as reflected in the graphs below. 8 ​ Table of Contents ​ We strive to achieve continuous improvement in safety by providing our employees with ongoing, specialized safety training sessions, information, and programs.
We believe our focus on safety is a key differentiator in our industry, and it is an important indicator in how we measure our Company’s success. ​ 8 ​ Table of Contents To achieve continuous improvement in safety, we provide our employees with ongoing safety training, information, and programs.
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We offer pre-construction plan reviews using industry-standard home-energy analysis software, various inspection services, and diagnostic testing.
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In addition, we provide industrial customers with mechanical insulation for maintenance and repair operations which must be performed on a scheduled basis as mechanical insulation is often exposed to extreme temperatures.
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TopBuild Home Services is one of the top ten Home Energy Rating System Index (HERS) raters in the U.S. ​ Specialty Distribution ​ We distribute building and mechanical insulation, insulation accessories, rain gutters and other building product materials for the residential and commercial/industrial end markets through our Specialty Distribution business.
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To attract and retain experienced employees, we offer a positive culture and a competitive compensation and benefits program to all our employees.
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We believe that having both installation and specialty distribution businesses provides a number of advantages to reaching our customers and driving share gains. Our Installation business customer base includes builders of all sizes.
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Training commences upon employee onboarding and continues with regular sessions delivered throughout the year. All new hires must complete our standard safety curriculum and we require a minimum number of annual training hours thereafter. We provide training sessions in-person, online or on-demand, with specific training assigned by job and work scope.
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As reported by Gallup (August 2022), annual turnover below 40% is considered low in today’s employment environment.
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All safety training programs are available in the employee’s preferred language and attending employees are evaluated for understanding through written, verbal, and skill-based assessments.
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At any time, we have 15-20 employees enrolled in our Manager in Training program and, upon completion of the program, they are promoted into branch leadership roles within our company.
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Our 2023 Habitat for Humanity Golf Tournament was our most successful event to date and raised approximately $0.7 million for Habitat for Humanity. Since 2016, TopBuild and its partners have raised approximately $3.8 million in support of the charity’s vision for creating a world where everyone has a healthy and affordable place to call home.
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This training commences at hiring, with additional sessions delivered at every branch operation and at our Branch Support Center in Daytona Beach, Florida throughout the year. During 2022, we assigned each of our employees an average of 17.4 hours of safety training.
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These monetary donations, combined with our donations of construction materials and volunteer hours contributed by our employees, have helped low-income families purchase their first home, supported disaster response initiatives, and revitalized communities. Salvation Army . TopBuild is a proud supporter of the Salvation Army and their annual Angel Tree program.
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In 2022, our total incident rate improved by over 25% against prior year to 1.92 per the OSHA guidelines with no fatalities, and our lost time case rate of 0.56 remains below industry average of 1.5 as reported by the Bureau of Labor and Statistics for NAICS 23831 (2021) and has continually improved.
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In 2023, we collected donations to help provide holiday gifts to nearly 100 children and to provide food, shelter, and utility assistance to families in need throughout the year. 9 ​ Table of Contents NASCAR Foundation . TopBuild continued its partnership with the NASCAR Foundation in 2023.
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One of our most impactful partnerships is Habitat for Humanity. Our annual fundraiser raised $650,000 in 2022, increasing the total raised to over $2.6M over the past 6 years with this event.
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Through a combination of fundraising and volunteering, our employees helped build playsets for pediatric cancer patients, decorated pediatric centers, and provided year-round support to the foundation and its efforts to improve the lives of children in our communities. American Red Cross .
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In addition to monetary donations to Habitat for Humanity, our teams in the field support families on their journey towards home ownership by donating material, volunteering their time at local Habitat Builds, and attending dedication ceremonies, where the impacts of living our core values of Unity and Community are truly seen and felt. The Salvation Army .
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Our leaders reviewed areas of satisfaction and improvement with their teams and continue to prioritize actions and activities in response to the survey results.
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We continued to sponsor the Salvation Army’s Angel Tree initiative, which provides new clothing and toys to families in need each year during the holiday season. The NASCAR Foundation . We continued our partnership with the NASCAR foundation and expanded our sponsorship commitment to fund and build playsets for pediatric cancer patients. Payit4ward .
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Overall areas of strength include employee perception of a solid culture of safety and ethical behavior within our Company and a strong understanding of work expectations and how employee efforts contribute to the Company’s success. ​ In 2023, TopBuild was certified as a Great Place to Work.
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This certification is a two-step process that includes employee feedback to a third-party survey and a questionnaire about the workforce. 80% of employees said TopBuild is a great place to work, – compared to 57% of employees at a typical U.S-based company.
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Franklin, age 64 • President, Specialty Distribution since October 2022 • President, Service Partners Operations from September 2019 to October 2022 • Vice President of Operations, TruTeam from 2017 – September 2019 • Regional Leader, TruTeam from 2015 – 2016 • Various operations management and roles in insulation businesses prior to 2015 ​ Jeffrey M.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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We urge investors to consider carefully the risk factors described below in evaluating the information contained in this Annual Report. ​ Risks Which May Be Material to Our Business ​ Risks Relating to Products and Supply Chain ​ We are dependent on third-party suppliers and manufacturers to provide us with an adequate supply of high-quality products, and the loss of a large supplier or manufacturer could negatively affect our operating results. ​ Failure by our suppliers to provide us with an adequate supply of high-quality products on commercially reasonable terms, or to comply with applicable legal requirements, could have a material adverse effect on our financial condition or operating results.
We urge investors to carefully consider the risk factors described below in evaluating the information contained in this Annual Report. ​ Risks Which May Be Material to Our Business ​ Risks Relating to Products and Supply Chain ​ We are dependent on third-party suppliers and manufacturers to provide us with an adequate supply of high-quality products, and the loss of a large supplier or manufacturer could negatively affect our operating results. ​ Failure by our suppliers to provide us with an adequate supply of high-quality products on commercially reasonable terms, or to comply with applicable legal requirements, could have a material adverse effect on our financial condition or operating results.
If any significant accident, judgment, claim, or other event is not fully insured or indemnified against, it could have a material adverse impact on our business, financial condition, and results of operations. ​ Compliance with government regulation and industry standards could impact our operating results. ​ We are subject to national, state, provincial, and local government regulations, particularly those pertaining to health and safety, including protection of employees and consumers, employment laws, including immigration and wage and hour regulations, contractor licensing, data privacy, cybersecurity, and climate and environmental issues.
If any significant accident, judgment, claim, or other event is not fully insured or indemnified against, it could have a material adverse impact on our business, financial condition, and results of operations. ​ Compliance with government regulation and industry standards could impact our operating results. ​ We are subject to national, state, provincial, and local government regulations, particularly those pertaining to health and safety, including protection of employees and consumers, employment laws, including immigration and wage and hour regulations, contractor licensing, data privacy, cybersecurity, and climate and environmental laws and regulations.
If we cannot obtain adequate capital, we may not be able to fully implement our business strategy and our business, operational results and financial condition could be adversely affected. ​ Our indebtedness and restrictions in our existing credit facility, Senior Notes or any other indebtedness we may incur in the future, could adversely affect our business, financial condition, results of operations, ability to make distributions to shareholders, and the value of our common stock. ​ Our indebtedness could have significant consequences on our future operations, including: ​ ● making it more difficult for us to meet our payments and other obligations; ​ ● reducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions or strategic investments and other general corporate requirements, and limiting our ability to obtain additional financing for these purposes; ​ ● subjecting us to increased interest expense related to our indebtedness with variable interest rates, including borrowings under our credit facility; ​ ● limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to changes in our business, the industry in which we operate and the general economy; and ​ ● placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged. ​ Any of the above-listed factors could have an adverse effect on our business, financial condition, results of operations, or ability to meet our payment obligations.
If we cannot obtain adequate capital, we may not be able to fully implement our business strategy and our business, operational results and financial condition could be adversely affected. ​ Our indebtedness and restrictions in our existing credit facility, Senior Notes or any other indebtedness we may incur in the future, could adversely affect our business, financial condition, results of operations, ability to make distributions to shareholders, and the value of our common stock. ​ Our indebtedness could have significant consequences on our future operations, including but not limited to: ​ • making it more difficult for us to meet our payments and other obligations; • reducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions or strategic investments and other general corporate requirements, and limiting our ability to obtain additional financing for these purposes; • subjecting us to increased interest expense related to our indebtedness with variable interest rates, including borrowings under our credit facility; • limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to changes in our business, the industry in which we operate and the general economy; and • placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged. ​ Any of the above-listed factors could have an adverse effect on our business, financial condition, results of operations, or ability to meet our payment obligations.
In addition, our ability to integrate new products and product lines into our specialty distribution network could affect our ability to compete. ​ Risks Relating to Events Beyond Our Control ​ A decline in general economic conditions could materially reduce demand for our services or the products that we distribute. ​ Demand for our products and services depends heavily on the operating level of our customers and the economic factors that affect them, including general economic conditions.
In addition, the inability to integrate new products and product lines into our specialty distribution network could affect our ability to compete. ​ Risks Relating to Events Beyond Our Control ​ A decline in general economic conditions could materially reduce demand for our services or the products that we distribute. ​ Demand for our products and services depends heavily on the operating level of our customers and the economic factors that affect them, including general economic conditions.
These include provisions: ​ ● authorizing a large number of shares of stock that are not yet issued, which could have the effect of preventing or delaying a change in control if our board of directors issued shares to persons that did not support such change in control, or which could be used to dilute the stock ownership of persons seeking to obtain control; and ​ ● prohibiting stockholders from calling special meetings of stockholders or taking action by written consent. ​ In addition, we are subject to Section 203 of the Delaware General Corporation Law, which may have an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that could have resulted in a premium over the market price for shares of our common stock. ​ These provisions apply even if a takeover offer is considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in our and our stockholders’ best interests. ​ Our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a preferred judicial forum for disputes with us or our directors, officers, or other employees. ​ Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of Delaware General Corporation Law, our certificate of incorporation (including any certificate of designations for any class or series of our preferred stock), or our bylaws, in each case, as amended from time to time, or (iv) any action asserting a claim governed by the internal affairs doctrine, shall be the Court of Chancery of the State of Delaware (provided, however, that in the event that the Court of Chancery of the State of Delaware lacks subject matter jurisdiction over such proceeding, the sole and exclusive forum for such action or proceeding shall be another state or federal court located within the State of Delaware), in all cases subject to the court having personal jurisdiction over the indispensable parties named as defendants.
These include provisions: ​ • authorizing a large number of shares of stock that are not yet issued, which could have the effect of preventing or delaying a change in control if our board of directors issued shares to persons that did not support such change in control, or which could be used to dilute the stock ownership of persons seeking to obtain control; and • prohibiting shareholders from calling special meetings of shareholders or taking action by written consent. ​ In addition, we are subject to Section 203 of the Delaware General Corporation Law, which may have an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that could have resulted in a premium over the market price for shares of our common stock. ​ These provisions apply even if a takeover offer is considered beneficial by some shareholders and could delay or prevent an acquisition that our board of directors determines is not in our and our shareholders’ best interests. ​ Our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a preferred judicial forum for disputes with us or our directors, officers, or other employees. ​ Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee to us or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of Delaware General Corporation Law, our certificate of incorporation (including any certificate of designations for any class or series of our preferred stock), or our bylaws, in each case, as amended from time to time, or (iv) any action asserting a claim governed by the internal affairs doctrine, shall be the Court of Chancery of the State of Delaware (provided, however, that in the event that the Court of Chancery of the State of Delaware lacks subject matter jurisdiction over such proceeding, the sole and exclusive forum for such action or proceeding shall be another state or federal court located within the State of Delaware), in all cases subject to the court having personal jurisdiction over the indispensable parties named as defendants.
Our results of operations for individual quarters can be, and have been, hurt by a delay between the time building product or material cost increases are implemented and the time we are able to increase prices for our installation or specialty distribution services, if at all.
Our results of operations for individual quarters can be, and have been, hurt by a delay between the time product or material cost increases are implemented and the time we are able to increase prices for our installation or specialty distribution services, if at all.
In addition, consolidation among homebuilders and changes in homebuilders’ purchasing policies or payment practices could result in additional pricing pressure. ​ Risks Relating to Our Operations Outside of the United States ​ We face risks relating to our operations outside of the United States. ​ A portion of our operations are conducted in Canada.
In addition, consolidation among homebuilders and changes in homebuilders’ and contractors’ purchasing policies or payment practices could result in additional pricing pressure. ​ Risks Relating to Our Operations Outside of the United States ​ We face risks relating to our operations outside of the United States. ​ A portion of our operations are conducted in Canada.
If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations. ​ Our existing term loan, revolving credit facility and the indentures governing our Senior Notes limit, and any future credit facility or other indebtedness we enter into may limit our ability to, among other things: ​ ● incur or guarantee additional debt; ​ ● make distributions or dividends on, or redeem or repurchase shares of our common stock; ​ ● make certain investments, acquisitions, or other restricted payments; ​ ● incur certain liens or permit them to exist; ​ ● acquire, merge, or consolidate with another company; and ​ ● transfer, sell, or otherwise dispose of substantially all of our assets. ​ 21 ​ Table of Contents Our revolving credit facility contains, and any future credit facility or other debt instrument we may enter into will also likely contain, covenants requiring us to maintain certain financial ratios and meet certain tests, such as an interest coverage ratio, a leverage ratio, and a minimum test.
If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations. ​ Our existing term loan, revolving credit facility and the indentures governing our Senior Notes limit, and any future credit facility or other indebtedness we enter into may limit our ability to, among other things: ​ • incur or guarantee additional debt; • make distributions or dividends on, or redeem or repurchase shares of our common stock; • make certain investments, acquisitions, or other restricted payments; • incur certain liens or permit them to exist; • acquire, merge, or consolidate with another company; and • transfer, sell, or otherwise dispose of substantially all of our assets. ​ Our revolving credit facility contains, and any future credit facility or other debt instrument we may enter into will also likely contain, covenants requiring us to maintain certain financial ratios and meet certain tests, such as an interest coverage ratio, a leverage ratio, and a minimum test.
In a recession or economic downturn, our customers may materially reduce construction activities because of lower consumer demand, which in turn will decrease their need for our services and the products that we distribute.
In a recession or economic downturn, our customers may materially reduce construction or industrial activities because of lower consumer demand, which in turn will decrease their need for our services and the products that we distribute.
There can be no assurance, however, that our efforts will prevent the risk of a security breach of our databases or systems that could adversely affect our business. ​ Risks Relating to Liquidity and Our Ability to Finance Our Operations ​ If we are required to take significant non-cash charges, our financial resources could be reduced, and our financial flexibility may be negatively affected. ​ We have significant goodwill and other intangible assets related to business combinations on our balance sheet.
There can be no assurance, however, that our efforts will prevent the occurrence of a security breach of our databases or systems that could adversely affect our business. ​ Risks Relating to Liquidity and Our Ability to Finance Our Operations ​ If we are required to take significant non-cash charges, our financial resources could be reduced, and our financial flexibility may be negatively affected. ​ We have significant goodwill and other intangible assets related to business combinations on our balance sheet.
The process of integrating acquired businesses, may expose us to operational challenges and risks, including, but not limited to: ​ ● the ability to profitably manage acquired businesses or successfully integrate the acquired business’ operations, financial reporting, and accounting control systems into our business; ​ ● the expense of integrating acquired businesses; ​ ​ ● increased indebtedness; ​ ● the loss of installers, suppliers, customers or other significant business partners of acquired businesses; ​ ● potential impairment of goodwill and other intangible assets; ​ ● risks associated with the internal controls and accounting policies of acquired businesses; ​ ● diversion of management’s attention due to the increase in the size of our business; ​ ● the ability to fund cash flow shortages that may occur if anticipated revenue is not realized or is delayed, whether by general economic or market conditions, or unforeseen internal difficulties; ​ 15 ​ Table of Contents ● the availability of funding sufficient to meet increased capital needs; ​ ● difficulties in the assimilation of different corporate cultures and business practices; ​ ● the ability to retain vital employees or hire qualified personnel required for expanded operations; ​ ● failure to identify all known and contingent liabilities during due diligence investigations; and ​ ● the indemnification granted to us by sellers of acquired companies may not be sufficient. ​ Failure to successfully integrate any acquired business may result in reduced levels of revenue, earnings, or operating efficiency than might have been achieved if we had not acquired such business.
The process of integrating acquired businesses, may expose us to operational challenges and risks, including, but not limited to: ​ • the ability to profitably manage acquired businesses or successfully integrate the acquired business’ operations, financial reporting, and accounting control systems into our business; • the expense of integrating acquired businesses; • increased indebtedness; • the loss of installers, suppliers, customers or other significant business partners of acquired businesses; • potential impairment of goodwill and other intangible assets; • risks associated with the internal controls and accounting policies of acquired businesses; 16 ​ Table of Contents • diversion of management’s attention due to the increase in the size of our business; • the ability to fund cash flow shortages that may occur if anticipated revenue is not realized or is delayed, whether by general economic or market conditions, or unforeseen internal or external difficulties; • the availability of funding sufficient to meet increased capital needs; • difficulties in the assimilation of different corporate cultures and business practices; • the ability to retain vital employees or hire qualified personnel required for expanded operations; • failure to identify all known and contingent liabilities during due diligence investigations; and • the insufficiency of indemnification granted to us by sellers of acquired companies. ​ Failure to successfully integrate any acquired business may result in reduced levels of revenue, earnings, or operating efficiency than might have been achieved if we had not acquired such business.
In addition, environmental laws and regulations, including those related to energy use and climate change, may become more stringent over time, and any future laws and regulations could have a material impact on our operations or require us to incur material additional expenses to comply with any such future laws and regulations. ​ Changes in building codes and consumer preferences could affect our ability to market our service offerings and our profitability.
In addition, environmental laws and regulations, including those related to energy use and climate change, may become more stringent over time, and any future laws and regulations could have a material impact on our operations or require us to incur material additional expenses to comply. ​ Changes in building codes and consumer preferences could affect our ability to market our service offerings and our profitability.
In the event that increased demand leads to higher prices for the products we sell and install, we may have limited ability to pass on price increases in a timely manner, or at all, due to the fragmented and competitive nature of our industry. ​ 18 ​ Table of Contents Our business is seasonal and is susceptible to adverse weather conditions and natural disasters.
In the event that increased demand leads to higher prices for the products we sell and install, we may have limited ability to pass on price increases in a timely manner, or at all, due to the fragmented and competitive nature of our industry. ​ 19 ​ Table of Contents Our business is seasonal and is susceptible to adverse weather conditions and natural disasters.
Moreover, if we do not respond to evolving customer preferences or changes in building standards, or if we do not maintain or expand our leadership in building science, our business, results of operation, financial condition, and cash flow would be adversely affected. ​ Each of our lines of business is impacted by building codes and consumer preferences, including a growing focus on energy efficiency.
Moreover, if we do not respond to evolving customer preferences or changes in building standards, or if we do not maintain or expand our expertise in building science, our business, results of operation, financial condition, and cash flow would be adversely affected. ​ Each of our lines of business is impacted by building codes and consumer preferences, including a growing focus on energy efficiency.
If we do not effectively and timely comply with such regulations and industry standards, our results of operations could be negatively affected, and we could become subject to substantial penalties or other legal liability. ​ 17 ​ Table of Contents We are subject to environmental regulation and potential exposure to environmental liabilities. ​ We are subject to various federal, state, provincial, and local environmental laws and regulations.
If we do not effectively and timely comply with such regulations and industry standards, our results of operations could be negatively affected, and we could become subject to substantial penalties or other legal liability. ​ 18 ​ Table of Contents We are subject to environmental regulation and potential exposure to environmental liabilities. ​ We are subject to various federal, state, provincial, and local environmental laws and regulations.
We also compete with broad line building products distributors, big box retailers, and insulation manufacturers. In addition to price, we believe that competition in our industry is based largely on existing customer relationships, customer service and the quality and timeliness of installation services and distribution product deliveries in each local market.
We also compete with broad line building products distributors, big box retailers, insulation manufacturers, and mechanical insulation fabricators. In addition to price, we believe that competition in our industry is based largely on existing customer relationships, customer service, and the quality and timeliness of installation services and distribution product deliveries in each local market.
However, if our installation and distribution services and our leadership in building sciences do not adequately or quickly adapt to changing preferences and building standards, we may lose market share to competitors, which would adversely affect our business, results of operation, financial condition, and cash flows.
However, if our installation and distribution services and our expertise in building sciences do not adequately or quickly adapt to changing preferences and building standards, we may lose market share to competitors, which would adversely affect our business, results of operation, financial condition, and cash flows.
Subsequent changes to our tax liabilities as a result of these audits may subject us to interest and penalties. ​ Risks Relating to Our Common Stock ​ The price of our common stock may fluctuate substantially, and the value of your investment may decline. ​ The market price of our common stock could fluctuate significantly due to a number of factors, many of which are beyond our control, including: ​ ● fluctuations in our quarterly or annual earnings results, or those of other companies in our industry; ​ ● failures of our operating results to meet our published guidance, the estimates of securities analysts or the expectations of our stockholders, or changes by securities analysts in their estimates of our future earnings; ​ ● announcements by us or our customers, suppliers, or competitors; ​ ● changes in laws or regulations which adversely affect our industry or us; ​ 22 ​ Table of Contents ● changes in accounting standards, policies, guidance, interpretations, or principles; ​ ● general economic, industry, and stock market conditions; ​ ● future sales of our common stock by our stockholders; ​ ● future issuances of our common stock by us; and ​ ● other factors described in these “Risk Factors” and elsewhere in this Annual Report. ​ Provisions in our certificate of incorporation and bylaws, and certain provisions of Delaware law, could delay or prevent a change in control. ​ The existence of some provisions of our certificate of incorporation and bylaws and Delaware law could discourage, delay, or prevent a change in control that a stockholder may consider favorable.
Subsequent changes to our tax liabilities as a result of these audits may subject us to interest and penalties. ​ Risks Relating to Our Common Stock ​ The price of our common stock may fluctuate substantially, and the value of your investment may decline. ​ The market price of our common stock could fluctuate significantly due to a number of factors, many of which are beyond our control, including: ​ • fluctuations in our quarterly or annual earnings results, or those of other companies in our industry; • failures of our operating results to meet our published guidance, the estimates of securities analysts or the expectations of our shareholders, or changes by securities analysts in their estimates of our future earnings; • announcements by us or our customers, suppliers, or competitors; • changes in laws or regulations which adversely affect our industry or us; • changes in accounting standards, policies, guidance, interpretations, or principles; • general economic, industry, and stock market conditions; • future sales of our common stock by our shareholders; • future issuances of our common stock by us; and • other factors described in these “Risk Factors” and elsewhere in this Annual Report. ​ 23 ​ Table of Contents Provisions in our certificate of incorporation and bylaws, and certain provisions of Delaware law, could delay or prevent a change in control. ​ The existence of some provisions of our certificate of incorporation and bylaws and Delaware law could discourage, delay, or prevent a change in control that a shareholder may consider favorable.
While we are generally indemnified by our manufacturers and suppliers for claims relating to the quality of their products, our business could be negatively impacted by product quality or performance issues, including exposure to legal claims and regulatory proceedings and damage to our reputation. 12 ​ Table of Contents ​ We may not be able to identify new products or new product lines and integrate them into our specialty distribution network, which may impact our ability to compete.
While we are generally indemnified by our manufacturers and suppliers for claims relating to the quality of their products, our business could be negatively impacted by product quality or performance issues, including exposure to legal claims and regulatory proceedings and damage to our reputation. ​ We may not be able to identify new products or new product lines and integrate them into our specialty distribution network, which may impact our ability to compete.
Any interruption in the production or delivery of these products could delay or reduce availability of these products and increase our costs. 14 ​ Table of Contents ​ Our business relies significantly on the expertise of our employees and we generally do not have intellectual property that is protected by patents. ​ Our business is significantly dependent upon our expertise in installation and distribution logistics, including significant expertise in the application of building science through our Environments for Living® program.
Any interruption in the production or delivery of these products could delay or reduce availability of these products and increase our costs. ​ Our business relies significantly on the expertise of our employees and we generally do not have intellectual property that is protected by patents. ​ Our business is significantly dependent upon our expertise in installation and distribution logistics, including significant expertise in the application of building science through our Environments for Living® program.
These matters may include contract disputes, automobile liability and other personal injury claims, warranty disputes, environmental claims or proceedings, other tort claims, employment and tax claims, claims relating to the quality of products sourced from our suppliers, and other proceedings and litigation, including class actions.
These matters may include contract disputes, automobile liability and other personal injury claims, warranty disputes, construction defect, environmental claims or proceedings, other tort claims, employment and tax claims, claims relating to the quality of products sourced from our suppliers, and other proceedings and litigation, including class actions.
If we fail to attract qualified labor on favorable terms, we may not be able to meet the demand of our customers, which could adversely impact our business, financial condition, and results of operations. 13 ​ Table of Contents ​ Changes in employment and immigration laws and regulations may adversely affect our business. ​ Various federal and state labor laws and regulations govern the relationship with our employees and impact operating costs.
If we fail to attract qualified labor on favorable terms, we may not be able to meet the demand of our customers, which could adversely impact our business, financial condition, and results of operations. ​ Changes in employment and immigration laws and regulations may adversely affect our business. ​ Various federal and state labor laws and regulations govern the relationship with our employees and impact operating costs.
If we experience problems with our information technology systems, we could experience, among other things, delays in receiving customer orders, placing orders with suppliers, and scheduling production, installation services, deliveries, or shipments. ​ A substantial disruption in our information technology systems could have an adverse impact on revenue, harm our reputation, and cause us to incur legal liability and costs, which could be significant, to address and remediate such events and related security concerns. ​ In addition, we could be adversely affected if any of our significant customers or suppliers experienced any similar events that disrupted their respective business operations or damaged their reputations. ​ In the event of a cybersecurity incident, we could experience operational interruptions, incur substantial additional costs, become subject to legal or regulatory proceedings or suffer damage to our reputation. ​ In addition to the disruptions that may occur from interruptions in our information technology systems, cybersecurity threats and sophisticated and targeted cyberattacks pose a risk to our information technology systems.
If we experience problems with our information technology systems, we could experience, among other things, delays in receiving customer orders, placing orders with suppliers, and scheduling production, installation services, deliveries, or shipments. ​ A substantial disruption in our information technology systems could have an adverse impact on revenue, harm our reputation, and cause us to incur legal liability and costs, which could be significant, to address and remediate such events and related security and operational issues. ​ In addition, we could be adversely affected if any of our significant customers or suppliers experience any similar events that disrupt their respective business operations or damage their reputations. ​ In the event of a cybersecurity incident, we could experience operational interruptions, incur substantial additional costs, become subject to legal or regulatory proceedings or suffer damage to our reputation. ​ In addition to the disruptions that may occur from interruptions in our information technology systems, cybersecurity threats and sophisticated and targeted cyberattacks pose a risk to our information technology systems.
If the value of our goodwill, other intangible assets, or long-lived assets is further impaired, our earnings and stockholders’ equity would be adversely affected and may impact our ability to raise capital in the future. ​ 20 ​ Table of Contents We may have future capital needs and may not be able to obtain additional financing on acceptable terms. ​ Our future capital requirements will depend on many factors, including industry and market conditions, our ability to successfully complete future business combinations and the expansion of our existing operations.
If the value of our goodwill, other intangible assets, or long-lived assets is further impaired, our earnings and shareholders’ equity would be adversely affected and may impact our ability to raise capital in the future. ​ 21 ​ Table of Contents We may have future capital needs and may not be able to obtain additional financing on acceptable terms. ​ Our future capital requirements will depend on many factors, including industry and market conditions, our ability to successfully complete future business combinations and the expansion of our existing operations.
The loss of a large supplier, or a substantial decrease in the availability of products or components from our suppliers, could disrupt our business and adversely affect our operating results. ​ Our profit margins could decrease due to changes in the costs of the products we install and/or distribute. ​ The principal building products that we install and distribute have been subject to price changes in the past, some of which have been significant.
The loss of a large supplier, or a substantial decrease in the availability of products or components from our suppliers for any reason, could disrupt our business and adversely affect our operating results. ​ Our profit margins could decrease due to changes in the costs of the products we install and/or distribute. ​ The principal building products that we install and distribute have been subject to price changes in the past, some of which have been significant.
These breaches or intrusions could lead to business interruptions, exposure of proprietary or confidential information, data corruption, damage to our reputation, exposure to legal and regulatory proceedings, and other costs. Such events could have a material adverse impact on our financial condition, results of operations and cash flows.
These breaches or intrusions could lead to business interruptions, exposure of proprietary or confidential information, data corruption, damage to our reputation, exposure to legal and regulatory proceedings, and other costs. Such events could have an adverse impact on our financial condition, results of operations and cash flows.
In addition to complying with current requirements, even more stringent requirements are under review by the Securities and Exchange Commission and other governmental authorities which could be imposed in the future. Compliance with these regulations and industry standards is costly and may require us to invest additional resources into our compliance infrastructure, thereby increasing our cost structure.
In addition to complying with current requirements, even more stringent requirements could be imposed in the future by the Securities and Exchange Commission and other governmental authorities. Compliance with these regulations and industry standards is costly and may require us to invest additional resources into our compliance infrastructure, thereby increasing our cost structure.
Long-Term Debt. ​ Adverse credit ratings could increase our costs of borrowing money and limit our access to capital markets and commercial credit. ​ Moody’s Investor Service and Standard & Poor’s routinely evaluate our credit ratings related to our Senior Notes.
Long-Term Debt. ​ 22 ​ Table of Contents Adverse credit ratings could increase our costs of borrowing money and limit our access to capital markets and commercial credit. ​ Moody’s Investor Service and Standard & Poor’s routinely evaluate our credit ratings related to our Senior Notes.
Further, our growth prospects could be harmed if consumer preferences and building standards evolve more slowly than we anticipate towards energy efficient service offerings, which are more profitable than minimum code service offerings. ​ Risks Relating to the Industry in Which We Operate ​ Our business relies on residential new construction, commercial construction and industrial manufacturing activity, and to a lesser extent on residential repair/remodel, all of which are cyclical. ​ Demand for our services is cyclical and highly sensitive to general macroeconomic and local economic conditions over which we have no control.
Further, our growth prospects could be harmed if consumer preferences and building standards do not evolve towards more energy efficient service offerings, which tend to increase demand for our service offerings. ​ Risks Relating to the Industry in Which We Operate ​ Our business relies on residential new construction, commercial construction and industrial manufacturing activity, and to a lesser extent on residential repair/remodel, all of which are cyclical. ​ Demand for our services is cyclical and highly sensitive to general macroeconomic and local economic conditions over which we have no control.
These factors could have a material adverse effect on our business, financial condition, and results of operations. ​ Union organizing activity and work stoppages could delay or reduce availability of products that we install and increase our costs. ​ Approximately 800 of our employees are currently covered by collective bargaining or other similar labor agreements that expire on various dates through 2026.
These factors could have a material adverse effect on our business, financial condition, and results of operations. 15 ​ Table of Contents ​ Union organizing activity and work stoppages could delay or reduce the availability of products that we install and increase our costs. ​ Approximately 730 of our employees are currently covered by collective bargaining or other similar labor agreements that expire on various dates through 2027.
Volatility in the exchange rates between the foreign currencies and the U.S. dollar could materially harm our business, financial condition, or operating results. ​ 19 ​ Table of Contents Risks Relating to Information Technology and Cybersecurity ​ We rely on information technology systems, and in the event of a disruption or security incident, we could experience problems with customer service, inventory, collections, and cost control and incur substantial costs to address related issues. ​ Our operations are dependent upon our information technology systems, including systems run by third-party vendors which we do not control, to manage customer orders on a timely basis, to coordinate our installation and specialty distribution activities across locations, and to manage invoicing.
Volatility in the exchange rates between the foreign currencies and the U.S. dollar could materially harm our business, financial condition, or operating results. ​ 20 ​ Table of Contents Risks Relating to Information Technology and Cybersecurity ​ We rely on information technology systems, and in the event of a disruption or security incident, we could experience problems operating our business and incur substantial costs to address resulting issues. ​ Our operations are dependent upon our information technology systems, including systems run by third-party vendors which we do not control, to operate our business including, but not limited to managing customer orders on a timely basis, to coordinating our installation and specialty distribution activities across locations, and managing invoicing.
These laws include: ​ ● employee classification as exempt or non-exempt for overtime and other purposes; ​ ● workers’ compensation rates; ​ ● immigration status; ​ ● mandatory health benefits; ​ ● tax reporting; and ​ ● other wage and benefit requirements. ​ We have a significant exposure to changes in laws governing our relationships with our employees, including wage and hour laws and regulations, fair labor standards, minimum wage requirements, overtime pay, unemployment tax rates, workers’ compensation rates, citizenship requirements, payroll taxes, and the enforcement of non-competition agreements, as well as vaccination and testing mandates which may be imposed in connection with the occurrence of pandemic or health concerns, which changes would have a direct impact on our operating costs.
We have significant exposure to changes in laws governing our relationships with our employees, including wage and hour laws and regulations, fair labor standards, minimum wage requirements, overtime pay, unemployment tax rates, workers’ compensation rates, citizenship requirements, payroll taxes, and the enforcement of non-competition agreements, as well as vaccination and testing mandates which may be imposed in connection with the occurrence of pandemic or health concerns, which changes would have a direct impact on our operating costs.
This forum selection provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable or cost effective for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers, and employees. ​
This forum selection provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable or cost effective for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers, and employees. ​ Item 1B. UNRESOLVED STAFF COMMENT S ​ None. ​
We carry cybersecurity insurance to help mitigate the financial exposure and related notification procedures in the event of intentional intrusion.
We carry cybersecurity insurance to help mitigate financial exposure in the event of intentional intrusion.
Historically, the installation of insulation lags housing starts by several months. In addition, to the extent that hurricanes, severe storms, earthquakes, droughts, floods, fires, other natural disasters, or similar events occur in the geographic areas in which we operate, our business may be adversely affected.
Sales during the winter weather months are seasonally slower due to the lower construction activity. Historically, the installation of insulation lags housing starts by several months. In addition, to the extent that hurricanes, severe storms, earthquakes, droughts, floods, fires, other natural disasters, or similar events occur in the geographic areas in which we operate, our business may be adversely affected.
In addition, our branches and distribution facilities may require significant oversight and coordination from headquarters to support their growth. 16 ​ Table of Contents Inconsistent implementation of corporate strategy and policies at the local or regional level could materially and adversely affect our business, financial condition, results of operations, and cash flows. ​ Claims and litigation could be costly. ​ We are, from time to time, involved in various claims, litigation matters, and regulatory proceedings that arise in the ordinary course of our business and which could have a material adverse effect on us.
Inconsistent implementation of corporate strategy and policies at the local or regional level could materially and adversely affect our business, financial condition, results of operations, and cash flows. ​ 17 ​ Table of Contents Claims and litigation could be costly. ​ We are, from time to time, involved in various claims, litigation matters, and regulatory proceedings that arise in the ordinary course of our business and which could have a material adverse effect on us.
We may be unable to make accretive acquisitions or realize expected benefits of any acquisitions for any of the following reasons: ● failure to identify attractive targets in the marketplace; ​ ● increased competition for attractive targets; ​ ● incorrect assumptions regarding the future results of acquired operations or assets, expected cost reductions, or other synergies expected to be realized as a result of acquiring operations or assets; ​ ● failure to obtain acceptable financing; or ​ ● restrictions in our debt agreements. ​ Our ability to successfully implement our business plan and achieve targeted financial results is dependent on our ability to successfully integrate acquired businesses.
We may be unable to make accretive acquisitions or realize expected benefits of any acquisitions for any number of reasons including, but not limited to: ​ • failure to identify attractive targets in the marketplace; • increased competition for attractive targets; • incorrect assumptions regarding the future results of acquired operations or assets, expected cost reductions, or other synergies expected to be realized as a result of acquiring operations or assets; • failure to obtain acceptable financing or required clearance or approvals; or • restrictions in our debt agreements. ​ Acquisition integrations involve risks that could negatively affect our operating results, cash flows, and liquidity. ​ Our ability to successfully implement our business plan and achieve targeted financial results is dependent on our ability to successfully integrate acquired businesses.
We also may be adversely affected by any natural or man-made disruptions to our facilities. ​ We normally experience stronger sales during the third and fourth calendar quarters, corresponding with the peak season for residential new construction and residential repair/remodel activity. Sales during the winter weather months are seasonally slower due to the lower construction activity.
We also may be adversely affected by any natural or man-made disruptions to our facilities. ​ We normally experience stronger sales in our Installation segment and in building insulation sales in our Specialty Distribution segment during the third and fourth calendar quarters, corresponding with the peak season for residential new construction and residential repair/remodel activity.
In addition, competitors may develop competing technologies and expertise that renders our expertise obsolete or less valuable. ​ Risks Relating to Mergers and Acquisitions ​ We may not be successful in identifying and making acquisitions.
In addition, competitors may develop competing technologies and expertise that renders our expertise obsolete or less valuable. ​ Risks Relating to Mergers and Acquisitions ​ We may not be successful in identifying and making acquisitions. ​ We have made, and in the future may continue to make, strategic acquisitions as part of our growth strategy.
To the extent that economic activity, business conditions, and the industries in which we operate deteriorate as a result of such disruptions, we would expect to experience an adverse impact on demand for our services and the products we distribute, our ability to provide services, or our results of operations or financial condition. ​ Risks Relating to Human Capital ​ The long-term performance of our businesses relies on our ability to attract, develop, and retain talented personnel, including sales representatives, branch managers, installers, and truck drivers, while controlling our labor costs. ​ We are highly dependent on the skills and experience of our senior management team and other skilled and experienced personnel.
Any of these factors could have a material adverse effect on our business, results of operations, and financial condition. ​ Risks Relating to Human Capital ​ The long-term performance of our businesses relies on our ability to attract, develop, and retain talented personnel, including sales representatives, branch managers, installers, and truck drivers, while controlling our labor costs. ​ We are highly dependent on the skills and experience of our senior management team and other skilled and experienced personnel.
Our suppliers could invest in infrastructure to expand their own local sales force and sell more products directly to our Specialty Distribution customers, which also would negatively impact our business. ​ New product innovations or new product introductions could negatively impact our business. ​ New product innovations or new product introductions could negatively impact demand for the products we install and distribute. ​ Issues with product quality or performance could negatively impact our business. ​ Our business depends on high-quality products from manufacturers and other suppliers, and issues with the quality or performance of such products could negatively impact our business.
In addition, our Specialty Distribution customers could expand their on-site fabrication and customization activities, negatively impacting demand for our value added fabrication services. ​ New product innovations or new product introductions could negatively impact our business. ​ New product innovations or new product introductions could negatively impact demand for the products we install and distribute. ​ 13 ​ Table of Contents ​ Issues with product quality or performance could negatively impact our business. ​ Our business depends on high-quality products from manufacturers and other suppliers, and issues with the quality or performance of such products could negatively impact our business.
Our operating structure can make it difficult for us to coordinate procedures across our operations.
Our operating structure can make it difficult for us to coordinate procedures across our operations. In addition, our branches and distribution facilities may require significant oversight and coordination from headquarters to support their growth.
Removed
In addition, acquisition integrations involve risks that could negatively affect our operating results, cash flows, and liquidity. ​ We have made, and in the future may continue to make, strategic acquisitions as part of our growth strategy.
Added
Our suppliers could invest in infrastructure to expand their own local sales force and sell more products directly to our Specialty Distribution customers, which also would negatively impact our business.
Added
To the extent that economic activity, business conditions, and the industries in which we operate deteriorate as a result of such disruptions, we would expect to experience an adverse impact on demand for our services and the products we distribute, our ability to provide services, or our results of operations or financial condition. ​ Our business may be adversely affected by economic, political and social conditions and events in North America or other regions where we may not operate. 14 ​ Table of Contents We operate primarily in North America, but also supply projects in other parts of the world and have suppliers and customers that have operations outside of North America.
Added
Our business is subject to risks arising from economic, political, and social conditions and events in any of these regions, such as recessions, inflation, deflation, currency fluctuations, trade disputes, wars, terrorist attacks, pandemics, natural disasters, and other crises.
Added
These conditions and events may affect the demand for our services and products, the availability and cost of materials and labor, the financial condition and creditworthiness of our customers and suppliers, the stability and regulation of financial markets, the ability to raise capital, the enforcement of contractual obligations, the protection of intellectual property rights, and the conduct of business operations.
Added
These laws include, but are not limited to, employee classification as exempt or non-exempt for overtime and other purposes; workers’ compensation rates; immigration status; mandatory health benefits; tax reporting; and other wage and benefit requirements.
Added
Similarly, contractors serving the construction industry and industrial customers exert pressure on our Specialty Distribution pricing.

Item 2. Properties

Properties — owned and leased real estate

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Other Commitments and Contingencies , which we incorporate herein by reference. ​ Item 4. MINE SAFETY DISCLOSURE S ​ Not applicable. ​ 24 ​ Table of Contents PART I I ​
Other Commitments and Contingencies , which we incorporate herein by reference. ​ Item 4. MINE SAFETY DISCLOSURE S ​ Not applicable. ​ 26 ​ Table of Contents PART I I ​
Item 2. PROPERTIE S ​ We operate approximately 230 Installation branch locations and approximately 180 Specialty Distribution centers in the United States and Canada, most of which are leased. Our 65,700 square foot Branch Support Center is leased and located at 475 North Williamson Boulevard in Daytona Beach, FL 32114.
Item 2. PROPERTIE S ​ We operate approximately 240 Installation branch locations and approximately 170 Specialty Distribution centers in the United States and Canada, most of which are leased. Our 65,700 square foot Branch Support Center is leased and located at 475 North Williamson Boulevard in Daytona Beach, FL 32114.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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No dividends were paid during the years ended December 31, 2022 and 2021. Our Credit Agreement, in certain circumstances, limits the amount of dividends we may distribute. We do not anticipate declaring cash dividends to holders of our common stock in the foreseeable future. ​ Issuer Purchases of Equity Securities .
No dividends were paid during the years ended December 31, 2023 and 2022. Our Credit Agreement, in certain circumstances, limits the amount of dividends we may distribute. We do not anticipate declaring cash dividends to holders of our common stock in the foreseeable future. ​ Issuer Purchases of Equity Securities .
The following graph and table compare the cumulative total return of our common stock for the five-year period beginning January 1, 2018, through December 31, 2022, with the total cumulative return of the Russell 2000 Index, the Standard & Poor’s 500 Index, and the Standard & Poor’s 1500 Building Products Index.
The following graph and table compare the cumulative total return of our common stock for the five-year period beginning January 1, 2019, through December 31, 2023, with the total cumulative return of the Russell 2000 Index, the Standard & Poor’s 500 Index, and the Standard & Poor’s 1500 Building Products Index.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDE R MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES ​ Market Information and Holders of our Common Stock . Our common stock is traded on the NYSE under the symbol “BLD”. As of February 16, 2023, there were approximately 1,590 holders of our issued and outstanding common stock. ​ Dividends.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES ​ Market Information and Holders of our Common Stock . Our common stock is traded on the NYSE under the symbol “BLD”. As of February 20, 2024, there were approximately 1,424 holders of our issued and outstanding common stock. ​ Dividends.
The graph and table assume an initial investment of $100 in our common stock and each of the three indices at the opening of business on January 1, 2018, and reinvestment of dividends. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12/31/2018 ​ ​ 12/31/2019 ​ ​ 12/31/2020 ​ ​ 12/31/2021 ​ ​ 12/31/2022 TopBuild Corp. ​ $ 59 ​ $ 136 ​ $ 243 ​ $ 364 ​ $ 207 Standard & Poor's 500 Index ​ $ 94 ​ $ 120 ​ $ 140 ​ $ 178 ​ $ 144 Russell 2000 Index ​ $ 88 ​ $ 108 ​ $ 129 ​ $ 146 ​ $ 115 Standard & Poor's 1500 Building Products Index ​ $ 78 ​ $ 111 ​ $ 142 ​ $ 209 ​ $ 160 ​
The graph and table assume an initial investment of $100 in our common stock and each of the three indices at the opening of business on January 1, 2019, and reinvestment of dividends. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12/31/2018 ​ ​ 12/31/2019 ​ ​ 12/31/2020 ​ ​ 12/31/2021 ​ ​ 12/31/2022 ​ ​ 12/31/2023 TopBuild Corp. ​ $ 100 ​ $ 229 ​ $ 409 ​ $ 613 ​ $ 348 ​ $ 832 Standard & Poor's 500 Index ​ $ 100 ​ $ 128 ​ $ 150 ​ $ 190 ​ $ 153 ​ $ 190 Russell 2000 Index ​ $ 100 ​ $ 123 ​ $ 146 ​ $ 166 ​ $ 131 ​ $ 150 Standard & Poor's 1500 Building Products Index ​ $ 100 ​ $ 142 ​ $ 182 ​ $ 268 ​ $ 205 ​ $ 296 ​ Item 6. [Reserved] 27 ​ Table of Contents
Removed
We have $154.4 million of shares remaining under for repurchase under our 2022 Share Repurchase Program.
Added
On July 25, 2022, our Board authorized the 2022 Repurchase Program, pursuant to which the Company may purchase up to $200 million of our common stock. There were no share repurchases executed during the year ended December 31, 2023, leaving $154.4 million remaining under the 2022 Share Repurchase Program.
Removed
The following table provides information regarding the repurchase of our common stock for the three months ended December 31, 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 October 1, 2022 - October 31, 2022 ​ - ​ ​ - ​ - ​ $ 204,406 November 1, 2022 - November 30, 2022 ​ 331,306 ​ $ 150.92 ​ 331,306 ​ $ 154,406 December 1, 2022 - December 31, 2022 ​ - ​ ​ - ​ - ​ $ 154,406 Total ​ 331,306 ​ $ 150.92 ​ 331,306 ​ ​ ​ ​ Excluded from this disclosure are shares repurchased to settle statutory employee tax withholdings related to the vesting of stock awards. 25 ​ Table of Contents ​ Performance Graph and Table.
Added
Excluded from this disclosure are shares repurchased to settle statutory employee tax withholdings related to the vesting of stock awards. ​ Performance Graph and Table.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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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. ​ 33 ​ Table of Contents 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.
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. ​ 34 ​ Table of Contents 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.
As of December 31, 2022, 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.
As of December 31, 2023, 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.
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 was determined by management using the multi-period excess earnings method under the income approach.
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.
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, 2022 compared to the year ended December 31, 2021.
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, 2023, compared to the year ended December 31, 2022.
For a discussion of the year ended December 31, 2021 to the year ended December 31, 2020, 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, 2021, filed with the SEC on February 22, 2022, 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.
For a discussion of the year ended December 31, 2022, to the year ended December 31, 2021, 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, 2022, filed with the SEC on February 23, 2023, 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.
In the fourth quarters of 2022 and 2021, we performed an assessment on our goodwill and determined that the estimated fair value of each reporting unit substantially exceeded its carrying value at December 31, 2021, and therefore the goodwill was not impaired. ​ We did not recognize any impairment charges for goodwill for the years ended December 31, 2022, 2021, and 2020.
In the fourth quarters of 2023 and 2022, we performed an assessment on our goodwill and determined that the estimated fair value of each reporting unit substantially exceeded its carrying value, and therefore the goodwill was not impaired. ​ We did not recognize any impairment charges for goodwill for the years ended December 31, 2023, 2022, and 2021.
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; ● Expanding our business and market share in the residential and commercial/industrial end-markets; ● Acquiring strategically aligned businesses; ● Driving operational efficiencies throughout the business. ​ Our operating results depend heavily on residential new construction activity and, to a lesser extent, on commercial/industrial construction and industrial manufacturing activity, all of which are cyclical.
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; • Expanding our business in the residential and commercial/industrial end-markets; • 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.
While we believe that the estimates and assumptions underlying the valuation methodology are reasonable, changes to estimates and assumptions could result in different outcomes.
While we believe that the estimates and assumptions underlying the valuation methodologies are reasonable, changes to estimates and assumptions could result in different outcomes.
Actual results could differ from those estimates. ​ 31 ​ Table of Contents Our significant accounting policies are more fully described in Item 8. Financial Statements and Supplementary Data – Note 1. Summary of Significant Accounting Policies .
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 .
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.
Contingent consideration is recorded at fair value at the acquisition date. ​ 33 ​ Table of Contents 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.
Assumptions used in determining the fair value of the customer relationships intangible asset included forecasted revenue growth 32 ​ Table of Contents 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.
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.
(b) 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. ​ 2022 and 2021 Business Segment Results Discussion ​ Changes in operating profit margins in the following business segment results discussion exclude general corporate expense, net in 2022 and 2021, as applicable. ​ 29 ​ Table of Contents Installation ​ Sales ​ Sales increased $591.6 million, or 24.9 percent, in 2022 compared to 2021.
(b) 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. ​ 2023 and 2022 Business Segment Results Discussion ​ Changes in operating profit margins in the following business segment results discussion exclude general corporate expense, net in 2023 and 2022, as applicable. ​ 30 ​ Table of Contents Installation ​ Sales ​ Sales increased $218.3 million, or 7.3 percent, in 2023 compared to 2022.
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.
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.
Long-Term Debt. ​ The following table summarizes our total liquidity, in thousands: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ ​ December 31, ​ December 31, ​ 2022 2021 Cash and cash equivalents (a) ​ $ 240,069 ​ $ 139,779 ​ ​ ​ ​ ​ ​ ​ Revolving facility ​ ​ 500,000 ​ ​ 500,000 Less: standby letters of credit ​ ​ (67,689) ​ ​ (69,936) Availability under revolving facility ​ ​ 432,311 ​ ​ 430,064 ​ ​ ​ ​ ​ ​ ​ Total liquidity ​ $ 672,380 ​ $ 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. ​ 30 ​ Table of Contents 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.
Long-Term Debt. ​ The following table summarizes our total liquidity, in thousands: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2023 2022 Cash and cash equivalents (a) ​ $ 848,565 ​ $ 240,069 ​ ​ ​ ​ ​ ​ ​ Revolving facility ​ ​ 500,000 ​ ​ 500,000 Less: standby letters of credit ​ ​ (63,770) ​ ​ (67,689) Availability under Revolving facility ​ ​ 436,230 ​ ​ 432,311 ​ ​ ​ ​ ​ ​ ​ Total liquidity ​ $ 1,284,795 ​ $ 672,380 (a) Our cash and cash equivalents consist of AAA-rated money market funds as well as cash held in our demand deposit accounts. ​ 31 ​ Table of Contents 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.
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.
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 increase in operating margin was driven primarily by higher selling prices and productivity initiatives, partially offset by higher amortization of intangible assets related to purchase accounting. Commitments and Contingencies ​ We are subject to certain claims, charges, litigation, and other proceedings in the ordinary course of our business.
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.
Gross profit margin improved primarily due to higher selling prices, higher sales volume, and productivity initiatives partially offset by an increase in cost of material. ​ 28 ​ Table of Contents Selling, general, and administrative expenses as a percentage of sales were 13.8 percent and 14.3 percent for 2022 and 2021, respectively.
Gross profit margin improved primarily due to productivity initiatives, higher selling prices, partially offset by higher material costs. ​ Selling, general, and administrative expenses as a percentage of sales were 14.0 percent and 13.8 percent for 2023 and 2022, respectively.
Financial Statements and Supplementary Data of this Annual Report for related disclosures. ​ 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, ​ 2022 2021 Changes in cash and cash equivalents: ​ ​ ​ ​ ​ ​ Net cash provided by operating activities ​ $ 495,801 ​ $ 403,025 Net cash used in investing activities ​ (93,907) ​ (1,322,245) Net cash (used in) provided by financing activities ​ ​ (300,073) ​ 729,007 Impact of exchange rate changes on cash ​ ​ (1,531) ​ ​ (15) Net increase (decrease) in cash and cash equivalents ​ $ 100,290 ​ $ (190,228) ​ Net cash flows provided by operating activities increased $92.8 million for the year ended December 31, 2022, as compared to December 31, 2021.
Financial Statements and Supplementary Data of this Annual Report for related disclosures. ​ 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, ​ 2023 2022 Changes in cash and cash equivalents: ​ ​ ​ ​ ​ ​ Net cash provided by operating activities ​ $ 849,409 ​ $ 495,801 Net cash used in investing activities ​ (198,170) ​ (93,907) Net cash used in financing activities ​ ​ (43,836) ​ ​ (300,073) Impact of exchange rate changes on cash ​ ​ 1,093 ​ ​ (1,531) Net increase in cash and cash equivalents ​ $ 608,496 ​ $ 100,290 ​ Net cash flows provided by operating activities increased $353.6 million for the year ended December 31, 2023, as compared to December 31, 2022.
Sales increased 12.2 percent due to higher selling prices, 9.2 percent from higher sales volume and 3.4 percent from acquisitions. ​ Operating Results ​ Operating margins in the Installation segment were 18.5 percent and 16.1 percent for 2022 and 2021, respectively.
Sales increased 3.6 percent due to higher selling prices and 3.6 percent from our acquisitions. ​ Operating Results ​ Operating margins in the Installation segment were 20.2 percent and 18.5 percent for 2023 and 2022, respectively.
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 ​ 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.
Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. 32 ​ Table of Contents 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 ​ 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.
That increase was largely offset by the impact of higher levels of working capital, particularly receivables and inventory. ​ Net cash used in investing activities was $93.9 million for the year ended December 31, 2022, primarily comprised of $76.4 million for purchases of property and equipment (primarily vehicles, equipment and computer hardware and software), as well as $20.5 million for acquisitions.
Net cash used in investing activities was $93.9 million for the year ended December 31, 2022, primarily comprised of $76.4 million for purchases of property and equipment (primarily vehicles, equipment and computer hardware and software), as well as $20.5 million for acquisitions. ​ Net cash used in financing activities was $43.8 million for the year ended December 31, 2023.
The increase was driven by a 24.9 percent increase in sales from acquisitions, 13.4 percent impact from higher selling prices, and a 5.4 percent increase in sales volume. ​ Our gross profit margins were 29.7 percent and 27.9 percent for 2022 and 2021, respectively.
The increase was driven by a 2.4 percent impact from higher selling prices and a 2.1 percent increase in sales from acquisitions, partially offset by a reduction in sales volume. ​ 29 ​ Table of Contents Our gross profit margins were 30.9 percent and 29.7 percent for 2023 and 2022, respectively.
The lower 2022 rate is primarily related to a decrease in non-deductible items offset by a decrease in the benefit related to share-based compensation. ​ 2022 and 2021 Business Segment Results ​ The following table sets forth our net sales and operating profit information by business segment, in thousands: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2022 2021 ​ Percent Change ​ Net sales by business segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ Installation $ 2,969,978 ​ $ 2,378,401 ​ ​ 24.9 % Specialty Distribution ​ 2,278,261 ​ ​ 1,287,176 ​ ​ 77.0 % Intercompany eliminations ​ (239,495) ​ ​ (179,370) ​ ​ ​ ​ Net sales $ 5,008,744 ​ $ 3,486,207 ​ ​ 43.7 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating profit by business segment (a): ​ ​ ​ ​ ​ ​ ​ ​ ​ Installation $ 548,795 ​ $ 383,722 ​ ​ 43.0 % Specialty Distribution ​ 326,226 ​ ​ 169,368 ​ ​ 92.6 % Intercompany eliminations ​ (39,839) ​ ​ (29,653) ​ ​ ​ ​ Operating profit before general corporate expense ​ 835,182 ​ ​ 523,437 ​ ​ 59.6 % General corporate expense, net (b) ​ (38,018) ​ ​ (47,018) ​ ​ ​ ​ Operating profit $ 797,164 ​ $ 476,419 ​ ​ 67.3 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating profit margins: ​ ​ ​ ​ ​ ​ ​ ​ ​ Installation ​ 18.5 % ​ 16.1 % ​ ​ ​ Specialty Distribution ​ 14.3 % ​ 13.2 % ​ ​ ​ Operating profit margin before general corporate expense ​ 16.7 % ​ 15.0 % ​ ​ ​ Operating profit margin ​ 15.9 % ​ 13.7 % ​ ​ ​ (a) 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).
The higher 2023 rate was primarily related to an increase in non-deductible items, state tax adjustments, and a decrease in the benefit related to share-based compensation. ​ 2023 and 2022 Business Segment Results ​ The following table sets forth our net sales and operating profit information by business segment, in thousands: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2023 2022 ​ Percent Change ​ Net sales by business segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ Installation $ 3,188,232 ​ $ 2,969,978 ​ ​ 7.3 % Specialty Distribution ​ 2,268,339 ​ ​ 2,278,261 ​ ​ (0.4) % Intercompany eliminations ​ (261,877) ​ ​ (239,495) ​ ​ ​ ​ Net sales $ 5,194,694 ​ $ 5,008,744 ​ ​ 3.7 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating profit by business segment (a): ​ ​ ​ ​ ​ ​ ​ ​ ​ Installation $ 644,392 ​ $ 548,795 ​ ​ 17.4 % Specialty Distribution ​ 330,938 ​ ​ 326,226 ​ ​ 1.4 % Intercompany eliminations ​ (44,438) ​ ​ (39,839) ​ ​ ​ ​ Operating profit before general corporate expense ​ 930,892 ​ ​ 835,182 ​ ​ 11.5 % General corporate expense, net (b) ​ (52,067) ​ ​ (38,018) ​ ​ ​ ​ Operating profit $ 878,825 ​ $ 797,164 ​ ​ 10.2 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating profit margins: ​ ​ ​ ​ ​ ​ ​ ​ ​ Installation ​ 20.2 % ​ 18.5 % ​ ​ ​ Specialty Distribution ​ 14.6 % ​ 14.3 % ​ ​ ​ Operating profit margin before general corporate expense ​ 17.9 % ​ 16.7 % ​ ​ ​ Operating profit margin ​ 16.9 % ​ 15.9 % ​ ​ ​ (a) 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).
The increase in operating margin was driven by higher selling prices, higher sales volume, and productivity initiatives, partially offset by an increase in cost of material. ​ Specialty Distribution ​ Sales ​ Sales increased $991.1 million, or 77.0 percent, in 2022 compared to 2021.
The increase in operating margin was driven by productivity initiatives and higher selling prices, partially offset by higher material costs. ​ Specialty Distribution ​ Sales ​ Sales were essentially flat in 2023 compared to 2022, a decrease of $9.9 million, or 0.4 percent.
Sales increased 61.8 percent from acquisitions, 15.8 percent due to higher selling prices partially offset by a slight decrease in volume of 0.6 percent. ​ Operating Results ​ Operating margins in the Specialty Distribution segment were 14.3 percent and 13.2 percent for 2022 and 2021, respectively.
Sales decreased 1.6 percent from lower sales volume, partially offset by a 1.1 percent increase from higher selling prices. ​ Operating Results ​ Operating margins in the Specialty Distribution segment were 14.6 percent and 14.3 percent for 2023 and 2022, respectively.
However, our bidding and order activity remains strong and we remain optimistic about the long-term fundamentals for these markets as well. ​ 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, ​ ​ 2022 2021 Net sales ​ $ 5,008,744 ​ $ 3,486,207 ​ Cost of sales ​ ​ 3,522,025 ​ ​ 2,511,818 ​ Cost of sales ratio ​ ​ 70.3 % ​ 72.1 % ​ ​ ​ ​ ​ ​ ​ ​ Gross profit ​ ​ 1,486,719 ​ ​ 974,389 ​ Gross profit margin ​ ​ 29.7 % ​ 27.9 % ​ ​ ​ ​ ​ ​ ​ ​ Selling, general, and administrative expense ​ ​ 689,555 ​ ​ 497,970 ​ Selling, general, and administrative expense to sales ratio ​ ​ 13.8 % ​ 14.3 % ​ ​ ​ ​ ​ ​ ​ ​ Operating profit ​ ​ 797,164 ​ ​ 476,419 ​ Operating profit margin ​ ​ 15.9 % ​ 13.7 % ​ ​ ​ ​ ​ ​ ​ ​ Other expense, net ​ ​ (55,029) ​ ​ (42,976) ​ Income tax expense ​ ​ (186,146) ​ ​ (109,427) ​ Net income ​ $ 555,989 ​ $ 324,016 ​ Net margin ​ ​ 11.1 % ​ 9.3 % ​ Comparison of the Years Ended December 31, 2022 and December 31, 2021 ​ Sales and Operations ​ Net sales for 2022 increased 43.7 percent, or $1.5 billion, to $5.0 billion.
In addition, maintenance and repair work on industrial sites will serve 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, ​ ​ 2023 2022 Net sales ​ $ 5,194,694 ​ $ 5,008,744 ​ Cost of sales ​ ​ 3,590,874 ​ ​ 3,522,025 ​ Cost of sales ratio ​ ​ 69.1 % ​ 70.3 % ​ ​ ​ ​ ​ ​ ​ ​ Gross profit ​ ​ 1,603,820 ​ ​ 1,486,719 ​ Gross profit margin ​ ​ 30.9 % ​ 29.7 % ​ ​ ​ ​ ​ ​ ​ ​ Selling, general, and administrative expense ​ ​ 724,995 ​ ​ 689,555 ​ Selling, general, and administrative expense to sales ratio ​ ​ 14.0 % ​ 13.8 % ​ ​ ​ ​ ​ ​ ​ ​ Operating profit ​ ​ 878,825 ​ ​ 797,164 ​ Operating profit margin ​ ​ 16.9 % ​ 15.9 % ​ ​ ​ ​ ​ ​ ​ ​ Other expense, net ​ ​ (53,342) ​ ​ (55,029) ​ Income tax expense ​ ​ (211,229) ​ ​ (186,146) ​ Net income ​ $ 614,254 ​ $ 555,989 ​ Net margin ​ ​ 11.8 % ​ 11.1 % ​ Comparison of the Years Ended December 31, 2023 and December 31, 2022 ​ Sales and Operations ​ Net sales for 2023 increased 3.7 percent, or $186.0 million, to $5.2 billion.
During the year ended December 31, 2022, w e used $250.0 million for the repurchase of common stock, $38.7 million for debt repayments, and $9.7 million net activity related to exercise of share-based incentive awards and stock options. Additionally, we borrowed and repaid $70 million on our Revolving Facility, all within the second quarter of 2022.
Net cash used in financing activities was $300.1 million for the year ended December 31, 2022, primarily comprised of $250.0 million for the repurchase of common stock, $38.7 million for debt repayments, and $9.7 million net activity related to exercise of share-based incentive awards and stock options.
Net income was up $231.9 million, or 71.6%, compared with the prior year period, driven by the impact of our acquisitions, higher sales prices and sale volumes.
Net income was up $58.3 million, or 10.5 percent, compared with the prior year period, driven by the impact of higher selling prices and our acquisitions, as well as productivity initiatives.
For the year ended December 31, 2022, we performed a quantitative assessment. ​ Fair value for our reporting units is determined using a discounted cash flow method which includes significant unobservable inputs (Level 3 inputs). We believe this methodology is comparable to what would be used by other market participants.
For the years ended December 31, 2023 and 2022, we performed a qualitative and quantitative assessment, respectively. ​ 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).
Decreased selling, general, and administrative expense as a percent of sales was primarily the result of higher sales, partially offset by higher amortization of intangible assets related to purchase accounting and acquisition integration costs. ​ Operating margins were 15.9 percent and 13.7 percent for 2022 and 2021, respectively.
Selling, general, and administrative expenses as a percent of sales were higher driven by increased acquisition related costs. ​ Operating margins were 16.9 percent and 15.9 percent for 2023 and 2022, respectively.
The increase is primarily related to increased average debt outstanding in 2022 and higher interest rates on our Term Loan, partially offset by increased interest income . ​ Income Tax Expense ​ Our effective tax rate decreased from 25.2 percent in 2021 to 25.1 percent in 2022.
The decrease is primarily related to $20.6 million interest income earned on higher cash balances at an increased rate, which fully offset higher rate of interest expense incurred on our Term Loan borrowings . ​ Income Tax Expense ​ Our effective tax rate increased from 25.1 percent in 2022 to 25.6 percent in 2023.
Accordingly, provisions for tax-related matters, including interest and penalties, could be recorded in income tax expense in the period revised assessments are made. ​ 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.
Accordingly, provisions for tax-related matters, including interest and penalties, could be recorded in income tax expense in the period revised assessments are made.
The increase in operating margins related to higher selling prices, higher sales volume, and productivity initiatives, partially offset by an increase in cost of material, and higher amortization of intangible assets related to purchase accounting and acquisition integration costs. ​ Other Expense, Net ​ Other expense, net, which primarily consists of interest expense, increased $12.1 million to $55.0 million in 2022 compared with 2021.
The increase in operating margin was due to productivity initiatives and higher selling prices, partially offset by higher material costs and higher acquisition related costs. ​ Other Expense, Net ​ Other expense, net, decreased $1.7 million to $53.3 million in 2023 from $55.0 million in 2022.
Financial Statements and Supplementary Data – Note 6.
Financial Statements and Supplementary Data – Note 1. Summary of Significant Accounting Policies . ​
Net cash used in investing activities was $1,322.2 million for the year ended December 31, 2021, primarily comprised of $1,267.1 million for acquisitions and $55.5 million for purchases of property and equipment, primarily vehicles. ​ Net cash used in financing activities was $300.1 million for the year ended December 31, 2022.
In addition, we generated cash from improvements in management of working capital, particularly receivables and inventory. ​ 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).
We are also dependent on third-party suppliers and manufacturers providing us with an adequate supply of high-quality products. ​ 27 ​ Table of Contents Material Trends in Our Business ​ We recognize that there is uncertainty around the economy as the Federal Reserve seeks to slow inflation by raising interest rates.
We are also dependent on third-party suppliers and manufacturers providing us with an adequate supply of high-quality products. ​ 28 ​ Table of Contents Material Trends in Our Business ​ Residential New Construction Home builders continue to report improving demand resulting in single-family housing starts increasing in the fourth quarter compared to prior year.
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 a leading installer and specialty distributor of insulation for the residential and commercial/industrial end markets in the United States and Canada.
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.
Additionally, we used $35.6 million for the repurchase of common stock as well as $5.5 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.
Additionally, we borrowed and repaid $70.0 million on our Revolving Facility, all within the second quarter of 2022. ​ Critical Accounting Policies and Estimates ​ We prepare our Consolidated Financial Statements in conformity with GAAP.
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The insulation we install and distribute drives thermal efficiency, lowers energy usage, and reduces carbon emissions.
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Our team is focused on driving operational efficiencies and sharing best practices throughout our organization.
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We also distribute a range of other related building material products including gutters, garage doors, windows, and glass. We are committed to creating long-term value for all stakeholders – employees, customers, suppliers, and investors.
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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.
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Higher interest rates and overall inflation have led to many consumers being priced out of the housing market as evidenced by our homebuilders reporting higher cancellation rates, declining order volumes, and decreasing housing starts in the second half of 2022.
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Multifamily construction activity also remains strong but starts have slowed, in comparison to the prior year. While there is a strong backlog of multi-family units that need to be completed, we do expect multifamily activity to decline as we move through the next 12 months.
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The backlog of houses under construction supported our sales through the back half of 2022 and we anticipate that trend to continue into the second quarter of 2023 for single family homes and into the fourth quarter of 2023 for multi-family homes.
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Overall, despite uncertainty around the economy and the impact of higher interest rates, we remain optimistic about the long-term fundamentals of the U.S. housing market, supported by a limited supply of both new and existing homes, favorable demographic trends, and increasing household formations. ​ Commercial and Industrial Construction Our commercial backlog is strong, and our bidding activity is active, both of which continue to support our optimistic view of commercial/industrial sales at our Installation and Specialty Distribution segments.
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We remain optimistic about the long-term fundamentals of the U.S. housing market and believe that when mortgage rates eventually stabilize consumer demand will rebound. ​ The commercial/industrial end-markets are showing mixed signals, in part due to higher interest rates.
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There are many major projects being planned across several different industries fueling demand, in particular, for our Specialty Distribution products.
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Net cash provided by financing activities was $729.0 million for the year ended December 31, 2021. Cash increased by $1,218.8 million from proceeds received on Amendment No. 1 to Credit Agreement as well as the 4.125% Senior Notes issuance used to fund the acquisition of DI.
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In addition, we have availability to our $550.0 million Term Facility Two, the proceeds of which can be used to finance in part the acquisition of SPI, including the payment of related fees and expenses. For additional information regarding our outstanding debt and borrowing capacity see Item 8. Financial Statements and Supplementary Data – Note 6.
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These increases were partially offset by repayments of $433.1 million including $400.0 million to redeem our 5.625% Senior Notes and payments on our term loan and equipment notes as well as $15.0 million used for debt issuance costs related to Amendment No. 1 to Credit Agreement as well as the 4.125% Senior Notes issuance.
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Those uses were partially offset by $15.0 million of proceeds received from the sale of assets.
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Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions.
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During the year ended December 31, 2023, w e used $40.1 million for debt repayments and $3.4 million net activity related to exercise of share-based incentive awards and stock options.
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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.
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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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RIS K ​ Interest Rate Risk ​ We have a Term Loan outstanding with a principal balance of $566.3 million and a revolving facility with an aggregate borrowing capacity of $500.0 million.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RIS K ​ Interest Rate Risk ​ We have a Term Loan outstanding with a principal balance of $532.5 million and a revolving facility with an aggregate borrowing capacity of $500.0 million.
As of December 31, 2022, the applicable interest rate as of such date was 5.42%. Based on our outstanding borrowings as of December 31, 2022, a 100 basis point increase in the interest rate would result in a $5.6 million increase in our annualized interest expense.
Based on our outstanding borrowings as of December 31, 2023, a 100 basis point increase in the interest rate would result in a $5.2 million increase in our annualized interest expense. There was no outstanding balance under the revolving facility as of December 31, 2023. ​ ​ 35 ​ Table of Contents
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. ​ On December 9, 2022, the Company entered into Amendment No. 3 to Credit Agreement.
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.
Amendment No. 3 to Credit Agreement replaces LIBOR with SOFR as the reference interest rate benchmark. ​ 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 a result, we are exposed to market risks related to fluctuations in interest rates on this outstanding indebtedness. As of December 31, 2023, the applicable interest rate as of such date was 6.46%.
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There was no outstanding balance under the revolving facility as of December 31, 2022. ​ ​ 34 ​ Table of Contents

Other BLD 10-K year-over-year comparisons