# TopBuild Corp (BLD) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from TopBuild Corp's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1633931/000155837024001999/bld-20231231x10k.htm
Accession: 0001558370-24-001999
Filing date: 2024-02-28
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/BLD/
All MD&A years: /company/BLD/mda/
Previous year: /company/BLD/mda/fy2022/ (FY 2022)
Next year: /company/BLD/mda/fy2024/ (FY 2024)

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

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

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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, 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.

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Executive Summary

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

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

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Strategy

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

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[[GREPCENT_TABLE]]
[["","\u2022","Safety \u2013 We put the safety of our people first."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Integrity \u2013 We deliver results with integrity, respect, and accountability."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Focus \u2013 We are customer-focused, grounded in strong relationships."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Innovation \u2013 We are continuously improving and encourage idea sharing."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Unity \u2013 We are united as one team, valuing diversity."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Community \u2013 We make a difference in the communities we serve."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Empowerment \u2013 We are empowered to be our best, individually and as a team."]]
[[/GREPCENT_TABLE]]

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Our strategy is focused on growth and productivity including:

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[[GREPCENT_TABLE]]
[["","\u2022","Attracting and retaining top talent"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Leveraging technology to streamline processes;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Expanding our business in the residential and commercial/industrial end-markets;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Acquiring strategically aligned businesses;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Driving operational efficiencies throughout the business."]]
[[/GREPCENT_TABLE]]

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

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Material Trends in Our Business

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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.  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. 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. 

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Commercial and Industrial Construction

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

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Seasonality

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

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Results of Operations

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We report our financial results in conformity with GAAP.  

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

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b"],["\u200b","","2023","","2022"],["Net sales","\u200b","$","5,194,694","\u200b","$","5,008,744","\u200b"],["Cost of sales","\u200b","\u200b","3,590,874","\u200b","\u200b","3,522,025","\u200b"],["Cost of sales ratio","\u200b","\u200b","69.1","%","\u200b","70.3","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Gross profit","\u200b","\u200b","1,603,820","\u200b","\u200b","1,486,719","\u200b"],["Gross profit margin","\u200b","\u200b","30.9","%","\u200b","29.7","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Selling, general, and administrative expense","\u200b","\u200b","724,995","\u200b","\u200b","689,555","\u200b"],["Selling, general, and administrative expense to sales ratio","\u200b","\u200b","14.0","%","\u200b","13.8","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Operating profit","\u200b","\u200b","878,825","\u200b","\u200b","797,164","\u200b"],["Operating profit margin","\u200b","\u200b","16.9","%","\u200b","15.9","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Other expense, net","\u200b","\u200b","(53,342)","\u200b","\u200b","(55,029)","\u200b"],["Income tax expense","\u200b","\u200b","(211,229)","\u200b","\u200b","(186,146)","\u200b"],["Net income","\u200b","$","614,254","\u200b","$","555,989","\u200b"],["Net margin","\u200b","\u200b","11.8","%","\u200b","11.1","%"]]
[[/GREPCENT_TABLE]]

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Comparison of the Years Ended December 31, 2023 and December 31, 2022

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Sales and Operations

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Net sales for 2023 increased 3.7 percent, or $186.0 million, to $5.2 billion.  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.

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Our gross profit margins were 30.9 percent and 29.7 percent for 2023 and 2022, respectively.  Gross profit margin improved primarily due to productivity initiatives, higher selling prices, partially offset by higher material costs.

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Selling, general, and administrative expenses as a percentage of sales were 14.0 percent and 13.8 percent for 2023 and 2022, respectively.  Selling, general, and administrative expenses as a percent of sales were higher driven by increased acquisition related costs.

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Operating margins were 16.9 percent and 15.9 percent for 2023 and 2022, respectively.  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.

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Other Expense, Net

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Other expense, net, decreased $1.7 million to $53.3 million in 2023 from $55.0 million 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.

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Income Tax Expense

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Our effective tax rate increased from 25.1 percent in 2022 to 25.6 percent in 2023.  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.

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2023 and 2022 Business Segment Results

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

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Year Ended December 31,","\u200b","\u200b","\u200b","\u200b"],["","2023","","2022","","\u200b","Percent Change","\u200b"],["Net sales by business segment:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Installation","$","3,188,232","\u200b","$","2,969,978","\u200b","\u200b","7.3","%"],["Specialty Distribution","\u200b","2,268,339","\u200b","\u200b","2,278,261","\u200b","\u200b","(0.4)","%"],["Intercompany eliminations","\u200b","(261,877)","\u200b","\u200b","(239,495)","\u200b","\u200b","\u200b","\u200b"],["Net sales","$","5,194,694","\u200b","$","5,008,744","\u200b","\u200b","3.7","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Operating profit by business segment (a):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Installation","$","644,392","\u200b","$","548,795","\u200b","\u200b","17.4","%"],["Specialty Distribution","\u200b","330,938","\u200b","\u200b","326,226","\u200b","\u200b","1.4","%"],["Intercompany eliminations","\u200b","(44,438)","\u200b","\u200b","(39,839)","\u200b","\u200b","\u200b","\u200b"],["Operating profit before general corporate expense","\u200b","930,892","\u200b","\u200b","835,182","\u200b","\u200b","11.5","%"],["General corporate expense, net (b)","\u200b","(52,067)","\u200b","\u200b","(38,018)","\u200b","\u200b","\u200b","\u200b"],["Operating profit","$","878,825","\u200b","$","797,164","\u200b","\u200b","10.2","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Operating profit margins:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Installation","\u200b","20.2","%","\u200b","18.5","%","\u200b","\u200b","\u200b"],["Specialty Distribution","\u200b","14.6","%","\u200b","14.3","%","\u200b","\u200b","\u200b"],["Operating profit margin before general corporate expense","\u200b","17.9","%","\u200b","16.7","%","\u200b","\u200b","\u200b"],["Operating profit margin","\u200b","16.9","%","\u200b","15.9","%","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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)."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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."]]
[[/GREPCENT_TABLE]]

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2023 and 2022 Business Segment Results Discussion

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Changes in operating profit margins in the following business segment results discussion exclude general corporate expense, net in 2023 and 2022, as applicable.

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Installation

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Sales

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Sales increased $218.3 million, or 7.3 percent, in 2023 compared to 2022.  Sales increased 3.6 percent due to higher selling prices and 3.6 percent from our acquisitions.  

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Operating Results

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Operating margins in the Installation segment were 20.2 percent and 18.5 percent for 2023 and 2022, respectively.  The increase in operating margin was driven by productivity initiatives and higher selling prices, partially offset by higher material costs.

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Specialty Distribution

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Sales

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Sales were essentially flat in 2023 compared to 2022, a decrease of $9.9 million, or 0.4 percent.  Sales decreased 1.6 percent from lower sales volume, partially offset by a 1.1 percent increase from higher selling prices.

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Operating Results

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Operating margins in the Specialty Distribution segment were 14.6 percent and 14.3 percent for 2023 and 2022, respectively.  The increase in operating margin was driven by productivity initiatives and higher selling prices, partially offset by higher material costs.

Commitments and Contingencies

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We are subject to certain claims, charges, litigation, and other proceedings in the ordinary course of our business. We believe we have adequate defenses in these matters, and we do not believe that the ultimate outcome of these matters will have a material adverse effect on us.  For additional information see Item 8. Financial Statements and Supplementary Data – Note 11. Other Commitments and Contingencies.

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Liquidity and Capital Resources

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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. 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. Long-Term Debt.  

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The following table summarizes our total liquidity, in thousands:

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","As of December 31,"],["\u200b","","2023","","2022"],["Cash and cash equivalents (a)","\u200b","$","848,565","\u200b","$","240,069"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Revolving facility","\u200b","\u200b","500,000","\u200b","\u200b","500,000"],["Less: standby letters of credit","\u200b","\u200b","(63,770)","\u200b","\u200b","(67,689)"],["Availability under Revolving facility","\u200b","\u200b","436,230","\u200b","\u200b","432,311"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total liquidity","\u200b","$","1,284,795","\u200b","$","672,380"]]
[[/GREPCENT_TABLE]]

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

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

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Cash Flows

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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:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,"],["\u200b","","2023","","2022"],["Changes in cash and cash equivalents:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net cash provided by operating activities","\u200b","$","849,409","\u200b","$","495,801"],["Net cash used in investing activities","\u200b","","(198,170)","\u200b","","(93,907)"],["Net cash used in financing activities","\u200b","\u200b","(43,836)","\u200b","\u200b","(300,073)"],["Impact of exchange rate changes on cash","\u200b","\u200b","1,093","\u200b","\u200b","(1,531)"],["Net increase in cash and cash equivalents","\u200b","$","608,496","\u200b","$","100,290"]]
[[/GREPCENT_TABLE]]

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Net cash flows provided by operating activities increased $353.6 million for the year ended December 31, 2023, as compared to December 31, 2022.  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.  In addition, we generated cash from improvements in management of working capital, particularly receivables and inventory.

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

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Net cash used in financing activities was $43.8 million for the year ended December 31, 2023. During the year ended December 31, 2023, we used $40.1 million for debt repayments and $3.4 million net activity related to exercise of share-based incentive awards and stock options. 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.  Additionally, we borrowed and repaid $70.0 million on our Revolving Facility, all within the second quarter of 2022.

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Critical Accounting Policies and Estimates

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We prepare our Consolidated Financial Statements in conformity with GAAP.  The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts and disclosure of assets and liabilities, and any related contingencies, at the date of the financial statements, as well as the reported amounts of sales and expenses during the reporting period.  Actual results could differ from those estimates. 

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

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We consider the following policies to be most critical in understanding the judgments that are involved in preparing our Consolidated Financial Statements. 

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Revenue Recognition and Receivables

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

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

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At time of sale, we record estimated reductions to revenue for customer programs and incentive offerings, including special pricing and other volume-based incentives based on historical experience, which is continuously adjusted. The duration of our contracts with customers is relatively short, generally less than a 90-day period, and therefore there is not a significant financing component when considering the determination of the transaction price which gets allocated to the individual performance obligations, generally based on standalone selling prices. Additionally, we consider shipping costs charged to a customer as a fulfillment cost rather than a promised service and expense as incurred. Sales taxes, when incurred, are recorded as a liability and excluded from revenue on a net basis.

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

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

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Business Combinations

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

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Goodwill and Other Intangible Assets

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

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We perform our annual impairment testing of goodwill in the fourth quarter of each year, or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. When assessing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. If we conclude otherwise, then no further action is taken. We also have the option to bypass the qualitative assessment and only perform a quantitative assessment. For the years ended December 31, 2023 and 2022, we performed a qualitative and quantitative assessment, respectively.

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

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When necessary, an impairment loss is recognized to the extent that a reporting unit’s recorded goodwill exceeds its fair value. In the fourth quarters of 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.

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We did not recognize any impairment charges for goodwill for the years ended December 31, 2023, 2022, and 2021. 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.

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

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Income Taxes

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

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

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

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Recently Issued Accounting Pronouncements

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

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