Installed Building Products, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. IBP installs insulation and complementary building products across more than 210 locations; installation represented 94% of Q2 revenue. The filing is unaudited.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Change |
|---|---|---|---|
| Net revenue | $676.7 million | $488.1 million | +38.7% |
| Gross profit / margin | $216.7 million / 32.0% | $151.9 million / 31.1% | +42.7%; +0.9 percentage points |
| Operating income | $92.0 million | $53.6 million | +71.7% |
| Net income | $59.9 million | $37.2 million | +61.0% |
| Diluted EPS | $2.07 | $1.26 | +64.3% |
For the first six months, revenue increased 36.7% to $1.264 billion, net income rose to $93.7 million from $54.5 million, and diluted EPS was $3.21 versus $1.84. Gross margin was 30.8%, compared with 30.0%.
Q2 same-branch sales increased 27.3%; Installation same-branch sales rose 27.4%, reflecting 7.0% volume growth and 24.9% price/mix growth. Residential new construction remained the largest end market. Other-category revenue, which includes distribution and manufacturing, increased to $40.3 million from $5.6 million, primarily reflecting acquisitions.
Cash flow, balance sheet and capital allocation
- Six-month operating cash flow was $99.5 million, up from $83.4 million. Investing used $197.9 million, including $72.5 million of acquisition cash payments, $24.5 million of capital expenditures and net investment purchases. Financing used $165.1 million, including $99.7 million of share repurchases and $44.9 million of dividends paid.
- At June 30, cash and cash equivalents were $69.9 million and short-term investments were $94.9 million. Total debt was $859.3 million, including $30.6 million current maturities; long-term debt was $828.6 million. Cash and investments less total debt imply approximately $694.5 million of net debt.
- Reported liquidity was $370.5 million, comprising cash, investments and ABL availability; remaining revolver availability, after letters of credit, was $205.7 million. The $250 million ABL commitment was extended to February 2027. No revolver borrowings were outstanding, and IBP reported compliance with debt covenants.
- Working capital, including cash and investments, was $453.8 million, down from $551.7 million at year-end. Receivables and inventories increased $71.9 million and $49.3 million, respectively, primarily due to higher sales, inflation and acquisitions.
- IBP repurchased approximately 1.1 million shares for $99.7 million in the first half. The Q2 declared dividend was $0.315 per share; the six-month reported dividend of $1.53 per share includes a $0.90 special dividend.
Changes, outlook and risks
- Management attributed growth to acquisitions, higher selling prices and product mix, and increased same-branch job volume. Gross profit grew faster than revenue as pricing supported leverage on labor and other costs; higher materials and fuel costs partly offset improvement.
- Three acquisitions completed in the first half had total purchase prices of approximately $98.1 million, including $72.8 million paid in cash and $25.3 million in seller obligations. Central Aluminum expanded distribution operations. A further acquisition was completed August 1 for approximately $2.2 million.
- Management said residential demand and the construction backlog remained supportive and it had not observed material signs of a demand slowdown. It also expected supply disruptions and material inflation to persist through 2022 and said it would work to pass cost increases on to customers. The filing provides no specific earnings or revenue guidance.
- Key risks include higher mortgage rates and inflation potentially reducing housing demand, material shortages and elevated sourcing costs, tight construction labor availability, and commercial project delays. Q2 same-branch commercial sales grew 4.7%, while multi-family completions fell 5.9% year over year.
- IBP said it expected operating cash flows, cash on hand and available borrowing capacity to meet needs for at least 12 months. It identified no goodwill or long-lived asset impairment indicators at June 30. Management did not believe pending litigation would materially affect results, financial position or cash flows.
- Subsequent events: on July 8, IBP amended interest-rate swaps and received $25.5 million; on August 4, it announced a new $200 million repurchase authorization through August 10, 2023, replacing the prior program, and declared a $0.315 quarterly dividend payable September 30.
Investor verification priorities
- How much future growth is supported by organic volume versus pricing, product mix and acquired businesses, particularly as interest rates rise?
- Whether pricing can continue to offset material, fuel and labor inflation without weakening demand or margins.
- Whether working-capital growth converts into cash, and how acquisition spending, dividends and repurchases affect liquidity and net debt.
- Debt exposure: $400 million of variable-rate term debt was hedged at June 30; approximately $97.5 million remained exposed. The filing estimates a one-percentage-point rate increase would raise annual interest expense by about $1.0 million.