Installed Building Products, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. The company installs insulation and complementary building products for residential new construction, repair and remodeling, and commercial construction across more than 180 U.S. locations.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $393.9 million | $371.8 million | $791.3 million | $713.9 million |
| Gross profit | $127.1 million | $107.3 million | $243.4 million | $196.7 million |
| Gross margin | 32.3% | 28.8% | 30.8% | 27.6% |
| Operating income | $42.3 million | $30.8 million | $71.4 million | $48.8 million |
| Net income | $25.3 million | $18.9 million | $41.3 million | $27.8 million |
| Diluted EPS | $0.86 | $0.63 | $1.39 | $0.93 |
| Cash provided by operations | Not stated for quarter | $105.5 million | $52.4 million |
- Q2 revenue rose 6.0%; gross profit rose 18.5%. For the first half, revenue rose 10.8% and gross profit rose 23.7%.
- Management attributed growth primarily to acquisitions, higher selling prices, and favorable product mix. Gross margin improvement also reflected lower fuel costs and improved labor utilization, partly offset by jobsite restrictions and lower comparable-job volume.
- Q2 same-branch sales growth was 2.3%, including volume decline of 2.1% and price/mix growth of 4.8%. Single-family sales growth was down 0.2%; residential sales grew 5.6% and large commercial sales grew 7.5%.
- First-half operating cash flow increased year over year, supported by higher earnings and timing benefits from payroll tax deferrals and estimated income tax payment extensions. Capital expenditures were $16.3 million and acquisition cash payments were $12.6 million.
Balance sheet, debt, and liquidity
- At June 30, cash and cash equivalents were $252.5 million and short-term investments were $16.7 million, for $269.2 million combined. Cash increased from $177.9 million at December 31, 2019.
- Total debt carrying value was $569.2 million, including $295.5 million of 5.75% senior notes due 2028 and $198.5 million on the term loan. The term loan matures in 2025. The company also reported $52.3 million of lease liabilities.
- No ABL revolver borrowings were outstanding. Availability was $161.3 million after letters of credit; reported total liquidity was $430.5 million before specified collateral limitations. The company said it was in compliance with debt covenants.
- Current assets were $619.9 million and current liabilities $214.0 million. Management said cash, investments, operating cash flow, and borrowing capacity should fund operations and obligations for at least the next 12 months.
Outlook, risks, and unusual items
- COVID-19-related disruptions were estimated to reduce revenue by $10.0–$12.0 million in Q2 and $12.0–$14.5 million in the first half. Temporary restrictions affected branches in seven states and the Bay Area; those areas represented 10% of 2019 revenue. Approximately 600 employees were furloughed or laid off, and substantially all had been rehired by filing.
- Management expected COVID-19 and the lag from lower housing starts to weigh on the second half of 2020, with revenue, net income, and operating cash flow below normal levels. It cited housing-construction backlog and a recovery in housing demand as partial offsets. The filing does not provide a clear quantified full-year forecast.
- Key uncertainties include further shutdowns, housing demand and construction activity, customer collectability, labor availability, material pricing, and potential commercial-project weakness. Management reported no material supply interruptions to date and no material impairment of goodwill or other long-lived assets.
- On August 4, 2020, after quarter-end, the company paid $17.8 million to terminate existing interest-rate swaps and entered a new $200 million forward swap beginning July 30, 2021, fixed at 0.51% and maturing in 2030. The loss is to be amortized to interest expense over the original swap settlement periods. This transaction increased near-term variable-rate exposure, as described in the filing.
- The company repurchased approximately 443,000 shares for $15.8 million in the first half, then temporarily suspended its repurchase program in response to COVID-19. It also completed three acquisitions for a total purchase price of $16.7 million, including seller obligations.
- Other items to monitor include a $22.6 million 2020 insulation-material purchase obligation, of which $5.5 million had been satisfied by June 30, and the increased credit-loss allowance, which reached $9.6 million from $6.9 million at year-end.
Most important facts for investors to verify
- Whether second-half COVID-19 effects and the expected housing-starts lag materially reduce sales, earnings, and operating cash flow.
- Whether gross-margin gains from price, product mix, and lower fuel costs persist while labor and material costs change.
- How cash generation, debt service, and available ABL capacity develop, including the effects of collateral limitations and the swap termination payment.
- Whether the higher credit-loss allowance adequately reflects customer payment risk and whether acquisition integration and returns meet expectations.
- Whether management’s outlook changes as construction activity, commercial demand, and government restrictions evolve.