Installed Building Products, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Unless otherwise noted, financial amounts below are in millions of dollars. The company installs insulation and complementary building products for residential and commercial construction customers; 89% of Q1 revenue came from residential construction.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $129.948 | $105.946 | +22.7% |
| Gross profit / margin | $34.126 / 26.3% | $26.405 / 24.9% | Margin +1.4 percentage points |
| Operating income / margin | $2.988 / 2.3% | $0.877 / 0.8% | Improved |
| Net income from continuing operations | $1.242 | $0.401 | +$0.841 |
| Net income (loss) attributable to common stockholders | $1.242 | $(19.524) | Prior period included $19.897 of preferred-stock accretion |
| Basic and diluted EPS | $0.04 | $(0.76) | Prior period affected by preferred-stock accretion |
| Operating cash flow | $5.985 | $5.030 | +$0.955 |
| Capital expenditures | $5.666 | $0.749 | Higher fleet and equipment investment |
Cash was $6.346 at March 31, down from $10.761 at year-end 2014. Current assets were $117.767 and current liabilities $78.777, a current ratio of approximately 1.50. Long-term debt was $61.076, with $2.514 current maturities; capital lease obligations totaled $24.996. Management stated cash, operating cash flow and available borrowing capacity should fund operations and obligations for at least the next 12 months.
Investing activities used $35.532, including $30.019 net cash paid for acquisitions. Financing activities provided $25.132, primarily from $30.050 of net revolving-credit borrowings, partly offset by a $6.100 share repurchase. Operating cash flow less capital expenditures was approximately $0.319.
Material changes and business developments
- Revenue increased $24.002: approximately $9.217 came from acquisitions, $7.159 primarily from organic growth in completed-job volume, and $7.626 from assorted factors including mix, pricing and insulation volumes.
- Gross margin improved mainly from operating efficiencies at higher sales levels. Selling and administrative expenses rose 25.4% and 21.1%, respectively, reflecting growth, acquisitions, higher insurance costs and public-company expenses.
- On March 12, the company acquired BDI Insulation for stated consideration of $36.166, including $30.680 cash and $5.486 in seller obligations. BDI contributed $2.121 revenue and $0.288 net income after acquisition. Purchase accounting remained subject to finalization.
- On March 13, the company repurchased 315,000 shares from Installed Building Systems, Inc., a related party associated with the CEO, for $6.100 total, or $19.23 per share before minor transaction costs; the stated share price was a 7.5% discount to the reported market price.
- Subsequent to quarter-end, the company acquired CQ Insulation for approximately $5.868, subject to working-capital adjustment and a potential earnout. It also amended its credit agreement on April 28, providing a $100 million revolving line, a $50 million term loan, a $50 million delayed-draw term loan and a $25 million uncommitted accordion. The amended facility matures in 2020 and includes leverage and fixed-charge coverage covenants.
Outlook, risks and contingencies
The filing provides no specific earnings or revenue guidance. Management cited the housing recovery, operating efficiencies and acquisitions as growth opportunities, while noting results depend on housing demand and affordability. Risks include economic weakness, higher interest rates or tighter mortgage lending, seasonality and severe weather, competition, product shortages and cost changes, acquisition integration, labor availability and costs, insurance and legal claims, regulatory compliance, and information-technology and internal-control risks. Management cautioned that interim results are not necessarily indicative of future quarters.
At March 31, contractual obligations included $104.377 of purchase obligations, $40.094 of long-term debt obligations and $27.796 of capital-lease obligations. The company had $9.815 of letters of credit, approximately $1.366 of performance bonds and $3.841 of permit and license bonds outstanding. Management did not expect pending litigation to have a material adverse effect, but noted outcomes are uncertain. The company reported compliance with credit-agreement financial covenants at quarter-end.
Important facts for investors to verify
- How much of revenue and future earnings growth is organic versus acquisition-driven, and whether BDI and CQ meet expected performance and integration goals.
- Available borrowing capacity and covenant headroom under the post-quarter-end amended credit agreement, including its pricing and required repayments.
- Whether improved gross margin persists as labor, insurance and other administrative costs rise.
- The final BDI purchase-price allocation, working-capital adjustment and uncertain tax and insurance liabilities; and CQ’s potential earnout.
- Cash conversion, vehicle and equipment investment needs, and the scale and terms of purchase commitments.
- The implications of the related-party share repurchase and the company’s disclosed housing-cycle, claims, supplier and acquisition risks.