Installed Building Products, Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing is an annual report, not a standalone fourth-quarter filing; unaudited Q4 figures are also summarized below. Amounts are in U.S. dollars.
Business context
IBP installs insulation and complementary building products for residential and commercial construction, operating at more than 100 locations across the continental U.S. Insulation represented 78% of 2015 revenue. The business is highly exposed to residential construction, and results are typically seasonal, with lower activity in winter and stronger sales in the second half.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $662.7 million | $518.0 million |
| Gross profit / margin | $188.3 million / 28.4% | $140.1 million / 27.0% |
| Operating income / margin | $45.0 million / 6.8% | $25.6 million / 4.9% |
| Net income | $26.5 million | $13.9 million |
| Net income per diluted share | $0.85 | $(0.20) |
| Cash from operating activities | $34.5 million | $19.6 million |
| Cash / working capital at year-end | $6.8 million / $52.8 million | $10.8 million / $42.7 million |
| Total funded debt at year-end | $144.2 million | $53.7 million |
FY 2015 cash used in investing activities was $111.4 million, including $84.3 million for acquisitions and $27.3 million for property and equipment. Cash provided by financing activities was $72.9 million. At year-end, no borrowings were outstanding on the prior revolving facility; $12.3 million of letters of credit were outstanding and reported unused borrowing capacity was $87.7 million.
Q4 2015 revenue was $191.5 million, gross profit was $54.5 million, net income was $9.3 million and diluted EPS was $0.30. Q4 2014 figures were $145.3 million, $39.2 million, $5.1 million and $0.16, respectively.
Changes versus prior period
- Revenue increased 27.9% year over year. Acquisitions contributed approximately $84.1 million; organic job-volume growth contributed approximately $29.6 million, with the remaining increase attributed to a mix of customer and product mix, pricing and insulation volumes.
- Gross margin rose 1.4 percentage points, primarily reflecting improved labor efficiency and favorable customer/product mix, pricing and insulation volumes. Cost of sales declined to 71.6% of revenue from 73.0%.
- Operating margin increased 1.9 percentage points as revenue growth and operating leverage outpaced expense growth.
- Operating cash flow rose to $34.5 million, though receivables growth reduced cash by $17.5 million. Days sales outstanding increased to 56.8 from 50.9.
- Funded debt increased substantially, principally to support acquisitions and growth. Goodwill rose to $90.5 million from $53.4 million, and net intangibles to $67.2 million from $17.7 million, largely due to acquisitions.
Outlook, risks and unusual items
- Management said it intended to pursue organic growth, acquisitions, market-share gains and operating leverage in 2016, and believed it was positioned to improve profitability. It cautioned that positive trends might not continue. The filing cites a Blue Chip consensus forecast for U.S. housing starts of about 1.3 million in 2016 and 1.4 million in 2017; this is an external forecast, not company-issued numerical guidance.
- On February 29, 2016, after year-end, IBP entered a five-year credit agreement with up to $325 million of commitments: a $100 million revolver, a $100 million term loan borrowed at closing and up to $125 million of delayed-draw term loans. The facility includes leverage and fixed-charge coverage covenants.
- Principal risks include housing-market cyclicality, seasonality and severe weather; competitive pressure and limited ability to pass through cost increases; supplier concentration (the three largest suppliers represented about 45% of material purchases); labor availability and costs; acquisition integration and acquired-business claims; and product, workmanship, environmental and legal liabilities.
- Acquisition activity was substantial: cash paid for businesses was $84.3 million, and 2015 acquisitions generated $84.1 million of reported revenue contribution. A $1.1 million bargain-purchase gain partially offset other expense; no goodwill impairment was recorded.
- The company repurchased 315,000 shares for $6.1 million in 2015 and paid no dividends. Management reported effective disclosure controls and internal control over financial reporting; the independent auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- How much of reported growth and margin improvement is sustainable organically versus acquisition-driven, and how acquired businesses perform after integration.
- Whether receivables collection and working-capital trends improve, given the increase in days sales outstanding and significant cash investment in acquisitions and equipment.
- Debt levels, borrowing costs and covenant headroom under the new $325 million credit agreement, including any delayed-draw borrowing or acquisition funding.
- Exposure to supplier concentration, labor-cost inflation and the ability to pass material and fuel cost increases on to customers.
- Potential outcomes and reserve adequacy for construction, workmanship, insurance, environmental, employment and tax contingencies; the filing does not state a clear quantified maximum exposure for these matters.