Installed Building Products, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. IBP installs insulation and complementary building products across more than 100 U.S. locations; residential markets generated 88% of revenue and commercial markets 12%. Amounts below are in U.S. dollars.
Financial performance
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $211.9 million, up 32.7% from $159.7 million | $403.6 million, up 39.3% from $289.6 million |
| Gross profit / margin | $62.2 million / 29.4%; prior year $46.3 million / 29.0% | $116.8 million / 28.9%; prior year $80.4 million / 27.8% |
| Operating income | $16.6 million, versus $11.4 million | $27.2 million, versus $14.4 million |
| Net income attributable to common stockholders | $10.0 million, versus $6.5 million; diluted EPS $0.32 versus $0.21 | $15.8 million, versus $7.7 million; diluted EPS $0.50 versus $0.25 |
| Interest expense | $1.5 million, versus $1.0 million | $3.1 million, versus $1.7 million |
| Operating cash flow | $36.2 million for the half, versus $15.4 million |
For Q2, revenue growth included $25.2 million from acquisitions and $16.8 million predominantly from organic job-volume growth; other factors contributed $10.2 million. For the half-year, the corresponding amounts were $53.0 million, $34.7 million and $26.3 million. Management attributed improved gross margins primarily to pricing, customer and product mix, fuel utilization and cost leverage. Administrative expense and amortization rose with acquisitions and growth.
Cash, debt and liquidity
- At June 30, cash was $13.7 million, compared with $6.8 million at year-end 2015. Current assets were $173.1 million and current liabilities $114.5 million.
- Net cash used in investing was $43.0 million, including $29.9 million for acquisitions and $13.4 million for property and equipment. Financing provided $13.8 million.
- Long-term debt totaled $145.7 million, including $13.1 million current maturities, versus $123.2 million at December 31, 2015. Capital lease obligations were an additional $17.8 million.
- A new five-year secured credit facility established in February provides up to $325 million, including a $100 million revolver, a $100 million term loan and up to $125 million of delayed-draw term loans. At quarter-end the revolver had no borrowings and approximately $12.3 million of letters of credit outstanding. Term-loan balances bore interest at one-month LIBOR plus margin of 2.25%.
- The facility includes a minimum fixed-charge coverage ratio of 1.10:1 and maximum leverage limits that tighten over time, from 3.50:1 through December 2016 to 2.50:1 from June 2018 onward. Management said cash, operating cash flow and borrowing capacity should fund operations, debt service, capital expenditures and working capital for at least 12 months.
Changes, outlook and risks
- IBP completed four acquisitions in the first half, with $29.9 million of cash consideration and $2.4 million of seller obligations. Acquired businesses contributed revenue but results varied; some 2016 acquisitions reported losses after purchase. A July 25 acquisition of FireClass for approximately $2.3 million occurred after quarter-end.
- No numerical earnings or revenue guidance was provided. Management cited continued growth opportunities from housing recovery and acquisitions, while noting results depend on housing demand and affordability, interest rates, mortgage availability and broader economic conditions.
- Other exposures include acquisition integration and valuation adjustments, working-capital demands, debt covenants and variable-rate borrowing. The filing reports workers’ compensation and general-liability reserves, along with ordinary-course litigation; management did not expect pending matters to materially affect financial position, results or cash flows.
- IBP expected to lose emerging-growth-company status and become a large accelerated filer beginning with reports filed on or after January 1, 2017, increasing disclosure, governance and auditor-attestation compliance costs.
- Management reported effective disclosure controls as of June 30, 2016, with no material change in internal control over financial reporting. No material change in market-risk exposure was reported.
Important facts for investors to verify
- How much of reported growth and future earnings is attributable to acquired businesses versus sustainable organic volume, pricing and mix?
- Can gross-margin gains persist as labor, fuel, insurance and administrative costs change?
- Will acquisition spending and debt growth remain within the facility’s progressively tighter leverage covenants?
- How will working-capital needs, capital expenditures and insurance claims affect cash generation?
- What are the final purchase-price allocations and integration outcomes for recent acquisitions, including FireClass?
- What additional costs will follow the company’s transition to large-accelerated-filer reporting requirements?