Installed Building Products, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. IBP installs insulation and complementary building products for residential new construction, repair and remodeling, and commercial markets across the continental United States. It operates as one reportable segment, with more than 190 locations.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net revenue | $488.1 million | $393.9 million | $925.2 million | $791.3 million |
| Gross profit | $151.9 million | $127.1 million | $277.3 million | $243.4 million |
| Operating income | $53.6 million | $42.3 million | $84.7 million | $71.4 million |
| Net income | $37.2 million | $25.3 million | $54.5 million | $41.3 million |
| Diluted EPS | $1.26 | $0.86 | $1.84 | $1.39 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $83.4 million | $105.5 million |
- Q2 revenue rose 23.9% and net income rose 46.9% year over year. Six-month revenue increased 16.9% and net income increased 31.9%.
- Q2 gross margin was 31.1%, versus 32.3%; operating margin was approximately 11.0%, versus 10.8%; net margin was approximately 7.6%, versus 6.4%.
- For the first half, gross margin was 30.0%, versus 30.8%; operating margin was approximately 9.2%, versus 9.0%; net margin was approximately 5.9%, versus 5.2%.
- Six-month operating cash flow declined despite higher earnings, primarily because inventory spending increased to support growth. Investing cash outflow was $86.9 million, including $67.7 million for acquisitions and $20.3 million for property and equipment. Financing cash outflow was $24.2 million, including $17.6 million of dividends.
- Cash and cash equivalents were $203.9 million at June 30, down from $231.5 million at year-end 2020. Total debt was approximately $567.9 million, including $300 million face value of 5.75% Senior Notes due 2028, a Term Loan due 2025, and vehicle and equipment financing. The company reported $156.0 million of remaining ABL availability after letters of credit and total liquidity of $359.9 million.
Changes and operating drivers
- Growth reflected recent acquisitions, higher selling prices, and increased sales volume. Same-branch sales grew 13.1% in Q2; single-family sales grew 27.7% overall and 18.9% on a same-branch basis.
- Residential new construction generated 77% of Q2 revenue. Commercial revenue grew 15.0%, but commercial same-branch sales fell 5.3%, with project delays and inefficiencies continuing to affect the market.
- Gross profit increased more slowly than revenue. Management cited higher material and fuel costs, supply constraints, and reduced efficiency in large commercial work. Purchasing materials through distributors and retailers at a premium was estimated to reduce gross profit by $3.0 million in Q2 and $5.0 million in the first half.
- IBP completed five acquisitions in the first half for total purchase consideration of $80.8 million, including $12.95 million of seller obligations. Acquisition revenue recognized after closing was $20.8 million for the first half; acquisition-related amortization and expenses also increased.
Outlook, risks and other notable items
- No specific numerical earnings or revenue guidance was provided. Management said housing-market forecasts were generally positive for 2021, but cautioned that supply constraints and material price increases could negatively affect second-half revenue and earnings. It expected tight supply conditions to continue for the foreseeable future and planned to work with customers to pass through cost increases.
- COVID-19 impacts remain uncertain. Risks include renewed restrictions, weaker housing demand, customer payment risk, supply-chain disruption, labor availability and delays or reduced demand in commercial construction. Management reported limited direct operating disruption to date but warned that future effects could be material.
- Management believed cash, operating cash flow and borrowing availability would cover operations and debt service for at least 12 months. IBP had no ABL borrowings and was in compliance with applicable debt covenants at June 30, 2021.
- Approximately $200 million of variable-rate debt was exposed to interest-rate movements before a forward swap was due to begin July 30, 2021. A one-percentage-point rate change was estimated to affect annual interest expense by approximately $2.0 million. The swap has a $200 million notional amount and a fixed rate of 0.51%; LIBOR transition to an alternative benchmark remains a risk.
- IBP declared and paid dividends of $0.30 per share in each quarter of the first half, and announced a further $0.30-per-share dividend payable September 30, 2021. The board extended its share repurchase program through March 1, 2022; $100 million remained available, though no program repurchases were made in the first half.
- The company recorded a $3.0 million windfall tax benefit related to equity vesting in the first half. It reported no impairment charges and stated that pending litigation was not expected to have a material adverse effect. Supplier purchase commitments include $14.9 million for 2021 under an insulation agreement, of which $6.7 million had been satisfied by June 30.
Investor verification points
- Track whether material availability and costs improve, and whether selling-price increases offset inflation without weakening demand or margins.
- Monitor commercial same-branch sales and project timing separately from acquisition-driven growth.
- Assess working-capital needs, especially inventory growth, cash conversion and operating cash flow relative to earnings.
- Review acquisition integration, purchase-price adjustments, earnout liabilities, and the returns achieved on the five first-half acquisitions.
- Check liquidity, debt repayment and covenant headroom, as well as the effect of the LIBOR transition and the July 2021 interest-rate swap commencement.
- Evaluate whether dividends and potential share repurchases remain supported by cash generation and contractual restrictions.