Installed Building Products, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. IBP installs insulation and complementary building products across residential, repair-and-remodel, and commercial markets, primarily through its Installation segment and a network of more than 240 locations.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenue | $659.3 million | $587.5 million | +12.2% |
| Gross profit | $210.4 million | $172.4 million | +22.1% |
| Gross margin | 31.9% | 29.3% | +2.6 percentage points |
| Operating income | $76.9 million | $57.0 million | +34.9% |
| Net income | $49.3 million | $33.8 million | +45.7% |
| Diluted EPS | $1.74 | $1.14 | +52.6% |
| Operating cash flow | $73.8 million | $48.2 million | +$25.6 million |
Management attributed higher revenue and gross profit mainly to pricing and product mix, recent acquisitions, and organic growth. Installation price/mix rose 16.5%, while same-branch job volume declined 9.3%. Lower material costs and improved leverage on labor and other costs helped lift gross margin. Selling and administrative expenses increased 29.4% and 13.1%, respectively.
Cash used in investing was $47.6 million, including $38.0 million for acquisitions and $14.9 million for property and equipment. Cash used in financing was $37.2 million, including $34.5 million of dividends paid. Cash and equivalents ended the quarter at $218.7 million, down $10.9 million from year-end.
Debt, liquidity and capital allocation
Total debt was approximately $861.4 million, including $830.2 million of long-term debt and $31.2 million of current maturities; this excludes lease obligations. The debt included $300 million of 5.75% Senior Notes due 2028, a Term Loan, and vehicle and equipment notes. IBP had no ABL Revolver borrowings and reported $244.2 million of remaining ABL availability, net of letters of credit. Total liquidity was $462.9 million. The company was in compliance with applicable debt covenants.
Of $493.8 million of gross Term Loan borrowings, $400 million was hedged with interest-rate swaps; $93.8 million remained exposed to variable rates. A hypothetical one-percentage-point rate increase would raise annual interest expense by approximately $0.9 million. Q1 dividends declared were $1.23 per share, comprising a $0.90 variable annual dividend and a $0.33 regular quarterly dividend. A new share repurchase authorization permits up to $200 million through March 1, 2024; no program repurchases occurred in Q1.
Changes, outlook and risks
- Growth moderated from Q1 2022: consolidated sales growth was 12.2% versus 34.4%, and consolidated same-branch growth was 7.1% versus 22.5%.
- Installation revenue rose 10.9%. Multifamily and commercial sales grew 38.1% and 27.0%, respectively; single-family sales grew 1.6%, while single-family same-branch sales declined 2.6%.
- Two acquisitions were completed in Q1, including Anchor Insulation, for a combined purchase price of $39.1 million. Acquisition contributions supported growth; acquisitions also added goodwill and intangible assets.
- Management expected first-half 2023 volumes to be stronger than second-half volumes, citing project backlog, and anticipated that housing-market headwinds would affect 2023. It noted rising mortgage rates and potential declines in housing starts and permits, partly offset by multifamily backlog, housing shortages, and repair-and-remodel demand. The filing provides no specific full-year revenue or earnings guidance.
- Management said inflation and some supply-chain disruption could persist through 2023, although inflation had moderated and supply conditions showed signs of easing. Its ability to pass future material-cost increases through to customers may be more difficult if housing demand weakens. Tight construction labor availability could also raise hiring, training, benefits, and workers’ compensation costs.
- A variable-price supply agreement requires purchases of 12.0 million pounds in 2023, 14.4 million in 2024, and 17.3 million in 2025. Pending claims and litigation were not expected by management to have a material adverse effect. No asset impairments were recorded in the quarter.
- After quarter-end, IBP transitioned its Term Loan and related swaps from LIBOR to Term SOFR, effective April 28, 2023. The board also declared a $0.33-per-share quarterly dividend payable June 30, 2023. The CEO’s employment agreement was amended to extend the term to April 15, 2026, with automatic five-year renewals unless notice is given.
Important facts for investors to verify
- Whether pricing and mix can continue to offset lower installation volumes, material inflation, and slower housing demand.
- Whether margin gains and operating cash flow are sustainable, particularly as working-capital timing and acquisition spending vary.
- Acquisition performance, integration, and the effect of acquired goodwill and amortization on future results.
- Debt exposure, interest-rate hedging, covenant headroom, and the availability of the ABL facility.
- The cost and flexibility of the variable-price supply commitment, and the sustainability of dividends and the new repurchase authorization.