Installed Building Products, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also provides unaudited fourth-quarter results. IBP installs insulation and complementary building products for residential, repair-and-remodel, and commercial construction customers across the continental United States.
Financial performance
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Revenue | $1,511.6 million | $1,336.4 million | +13.1% |
| Gross profit / margin | $434.8 million / 28.8% | $371.6 million / 27.8% | +17.0%; margin +1.0 percentage point |
| Operating income | $121.2 million | $93.2 million | +30.0% |
| Net income | $68.2 million | $54.7 million | +24.5% |
| Diluted EPS | $2.28 | $1.75 | +30.3% |
| Operating cash flow | $123.1 million | $96.6 million | +$26.4 million |
| Capital expenditures | $50.2 million | $35.2 million | +$15.0 million |
Operating cash flow less capital expenditures was approximately $72.9 million, compared with $61.4 million in 2018; this is a simple cash-flow measure, not a company-reported non-GAAP metric. Interest expense, net, rose 37.1% to $28.1 million, primarily reflecting higher debt levels. The effective tax rate was 26.4%, versus 24.2%.
Fourth quarter
For the three months ended December 31, 2019, revenue was $401.2 million, gross profit $120.0 million, and net income $19.2 million, compared with $353.1 million, $98.6 million, and $16.5 million, respectively, in Q4 2018. Diluted EPS was $0.64 versus $0.53.
Balance sheet, debt, and liquidity
At December 31, 2019, cash and cash equivalents were $177.9 million and short-term investments were $38.0 million. Total assets were $1.10 billion and stockholders’ equity was $250.0 million. Reported total debt, including finance leases and vehicle financing, was $575.5 million, compared with $463.5 million a year earlier. The balance sheet included $295.2 million of Senior Notes and $198.3 million of term-loan debt, net of issuance costs; there were no ABL Revolver borrowings.
IBP reported total liquidity of $377.2 million, including cash, investments, and ABL capacity. The filing notes that borrowing-base and cash-collateral limitations reduce practical availability. Remaining ABL Revolver availability, including outstanding letters of credit, was $161.3 million. Working capital, including cash, was $367.8 million, up from $229.9 million.
Material changes versus 2018
- Revenue growth reflected acquisitions, organic growth, higher selling prices, and recovering housing markets. Same-branch sales grew 8.6%, including 2.6% volume growth and 5.4% price/mix growth.
- Commercial revenue rose to $274.4 million, or 18% of revenue, from $220.0 million, or 16%. Residential new construction and repair-and-remodel together represented 82% of revenue, down from 84%.
- Gross margin recovered as selling prices increasingly offset prior insulation-material cost increases. Management also cited improved labor utilization and lower installer turnover.
- Operating expenses increased, including administrative costs, wages and benefits, liability insurance, and facilities costs. Higher depreciation reflected investment in vehicles and equipment.
- Operating cash flow improved, while investing cash outflow increased to $131.7 million, including $51.7 million for acquisitions and $50.2 million for capital expenditures.
- IBP issued $300 million of 5.75% Senior Notes due 2028, partially repaid its term loan, established a new $200 million ABL Revolver, and repriced its term-loan spread from LIBOR plus 2.50% to LIBOR plus 2.25%.
Outlook, risks, and notable items
- Management expects long-term housing-market drivers—including aging housing stock, population and household formation—to support growth, and said revenue, gross profit, and operating income should benefit. It did not provide specific 2020 financial guidance in the supplied filing text.
- Management expected continued materials-cost inflation in 2020 and anticipated higher spending to hire, train, and retain installers amid tight labor availability. Its ability to pass cost increases through to customers remains uncertain.
- Key risks include housing and commercial-construction cycles, seasonality and severe weather, competition, material supply and pricing, labor availability and costs, acquisition integration, and claims or legal proceedings. Backlog was estimated at $90.7 million, but contracts may be changed, suspended, or cancelled.
- Debt-related risks include covenant restrictions, variable-rate exposure, and potential LIBOR transition effects. Interest-rate swaps hedged substantially all variable cash flows on the term loan; the company reported covenant compliance at year-end.
- IBP adopted lease accounting standard ASC 842 in 2019, recording $45.7 million of operating lease right-of-use assets and $45.2 million of operating lease liabilities at year-end. Prior-year balance-sheet figures were not adjusted.
- No goodwill or intangible impairment was recorded in 2019. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting; its audit identified revenue estimation on certain uncompleted contracts as a critical audit matter.
- IBP completed six acquisitions in 2019. It repurchased no shares under its repurchase program in 2019; the board extended the program through March 1, 2021. The company paid no cash dividends.
Important facts for investors to verify
- How much of revenue and margin growth reflects sustainable same-branch volume versus pricing, acquisitions, and mix.
- Whether selling prices continue to keep pace with material inflation, and how labor availability, turnover, and compensation affect margins.
- Debt levels, cash generation, acquisition spending, actual borrowing capacity under the ABL facility, and compliance with debt covenants.
- Conversion and timing of the $90.7 million backlog, including contract estimates, cancellations, and retainage collections.
- Potential changes in insurance reserves, legal contingencies, and other claims; the filing does not quantify a material expected loss for pending litigation.