Installed Building Products, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise stated. IBP installs insulation and complementary building products across residential and commercial markets, primarily through more than 210 U.S. locations. Installation is its sole reportable segment; Distribution and Manufacturing are included in “Other.”
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net revenue | $587.5 million | $437.1 million | +34.4% |
| Gross profit / gross margin | $172.4 million / 29.3% | $125.4 million / 28.7% | Profit +37.5%; margin +0.6 percentage points |
| Operating income | $57.0 million | $31.1 million | +83.2% |
| Net income | $33.8 million | $17.3 million | +95.6% |
| Diluted EPS | $1.14 | $0.58 | +96.6% |
| Net cash from operating activities | $48.2 million | $37.6 million | +28.2% |
Selling and administrative expenses rose 20.8% and 21.6%, respectively, but each declined as a share of revenue. Net interest expense increased 40.0% to $10.6 million, primarily reflecting higher debt levels. The effective tax rate was 26.8%, versus 26.2%.
Growth drivers and material changes
- Management attributed revenue growth to acquisitions, higher selling prices and product mix, and organic growth. Same-branch sales grew 22.5%; Installation volume increased 9.7% and price/mix increased 14.6%.
- Residential new-construction revenue increased 35.2%; commercial revenue increased 13.0%. Same-branch commercial growth was more modest at 5.9%, with project delays and pandemic-related inefficiencies continuing to affect the market.
- Gross margin improved despite inflation, supply constraints and higher fuel costs. Management estimated that buying materials through distributors and retailers at premium prices added about $1.4 million to material expense, reducing margin by roughly 20 basis points.
- IBP acquired Pisgah Insulation and Fireplaces of NC for approximately $9.9 million in March. On April 11, after quarter-end, it acquired Central Aluminum Supply businesses for approximately $57.3 million.
- In Q1, IBP repurchased approximately 511,000 shares for $49.9 million and declared dividends of $1.22 per share. The repurchase authorization was extended through March 1, 2023, with $150.1 million remaining at quarter-end.
Cash, debt and liquidity
- At March 31, cash and cash equivalents were $217.4 million and short-term investments were $50.0 million. Working capital, including cash and investments, was $514.7 million, down from $551.7 million at year-end.
- Cash from operations was $48.2 million. Investing activities used $68.7 million, including $50.0 million for investments; financing activities used $95.6 million, including dividends, share repurchases and debt payments. Cash declined $116.1 million during the quarter.
- Reported long-term debt was $860.3 million before current maturities; $30.7 million was current. Debt included $300 million of 5.75% Senior Notes due 2028 and a variable-rate term loan. The company had no ABL revolver borrowings.
- The amended ABL facility has a $250 million commitment, extendable to $300 million, and matures in February 2027. Remaining availability, including the effect of letters of credit, was $205.7 million. Management reported total liquidity of $473.1 million, including cash, investments and facility availability.
- Interest-rate swaps hedge $400 million of variable-rate term-loan exposure; approximately $98.8 million of variable-rate debt remained exposed to rate changes. IBP said a one-percentage-point rate move would change annual interest expense by about $1.0 million. The company was in compliance with applicable debt covenants.
Outlook, risks and unusual items
- IBP did not provide specific quantitative earnings or revenue guidance in the filing. Management expected supply-chain disruption and material-price inflation to continue through 2022, while saying permitted housing units not yet started support construction demand. It also noted rising mortgage rates could restrain housing demand.
- Management expected to spend cash on acquisitions representing at least $100 million of acquired net revenue annually. It believed operating cash flow, cash on hand and available borrowing capacity would meet needs for at least the next 12 months; future financing availability and terms are not assured.
- Key risks include inability to pass material-cost increases to customers, labor availability and costs, higher interest rates, housing-market changes, commercial project delays, and continuing COVID-19 effects on supply chains and construction activity. The filing reported no material change to the risk factors in the 2021 Form 10-K.
- Other comprehensive income included an $18.1 million after-tax gain on cash-flow hedges; this is not net income. The filing reported no goodwill or long-lived-asset impairment in the quarter and no pending litigation expected by management to materially affect financial position, results or cash flows.
- Management stated disclosure controls were effective and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether pricing increases continue to offset higher material and labor costs without weakening demand or margins.
- How rising mortgage rates, housing starts and commercial project delays affect same-branch volumes and revenue.
- Cash conversion and working-capital trends, especially receivables and inventories, alongside continued dividends, repurchases and acquisition spending.
- Post-quarter acquisition terms, integration results and purchase-price allocations for the Central Aluminum Supply businesses.
- Debt, interest-rate exposure and covenant headroom as variable rates and financing needs evolve.
- The filing’s dividend note lists payment dates that appear inconsistent with the 2022 reporting period; verify the actual payment dates and dividend amounts against company disclosures.