Installed Building Products, Inc. — Q1 2016 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2016. IBP installs insulation and other building products through more than 100 locations in the continental United States. Revenue is primarily from residential and commercial construction, repair, and remodeling; residential markets represented 89% of Q1 revenue and commercial markets 11%.
Key financial metrics
Amounts below are in millions, except per-share data and percentages.
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Net revenue | $191.7 | $129.9 |
| Gross profit / margin | $54.6 / 28.5% | $34.1 / 26.3% |
| Operating income / margin | $10.6 / 5.5% | $3.0 / 2.3% |
| Net income | $5.8 | $1.2 |
| Diluted earnings per share | $0.19 | $0.04 |
| Operating cash flow | $19.8 | $6.0 |
| Investing cash flow | $(15.1) | $(35.5) |
| Financing cash flow | $0.2 | $25.1 |
At March 31, 2016, cash was $11.7 million, current assets $158.9 million, and current liabilities $104.8 million. Long-term debt was $118.2 million, with $10.9 million of current maturities; capital lease obligations totaled $19.2 million, including current maturities. The company reported total liabilities of $272.1 million. No separate EBITDA measure is provided in the filing.
Material changes versus the prior period
- Revenue increased 47.5% year over year. Management attributed $27.8 million of the increase to acquisitions, $17.9 million predominantly to organic job-volume growth, and $16.1 million to a mix of factors including customer and product mix, market pricing, and insulation volumes.
- Gross margin rose 2.2 percentage points, with management citing materials savings, improved fuel utilization, operating leverage, and favorable mix and pricing factors.
- Operating income rose to $10.6 million from $3.0 million. Administrative costs and amortization also increased, in part due to acquisitions and growth.
- Cash from operations increased to $19.8 million. Working-capital movements included higher accounts payable and other liabilities, while accounts receivable and inventory consumed cash.
- Investing outflows were lower than in Q1 2015, principally because acquisition cash spending was $8.8 million versus $30.0 million.
Outlook, management commentary, risks, and unusual items
- Management said cash from operations, existing cash, and available borrowing capacity should be adequate for operations and obligations for at least the next 12 months. No numerical earnings or revenue guidance was provided.
- IBP completed three acquisitions in Q1 for total purchase price of approximately $9.7 million, including seller obligations. On April 11, 2016, it acquired Alpine Insulation for approximately $22.5 million, subject to a working-capital adjustment; acquisition accounting was incomplete when the filing was issued.
- A February 2016 agreement replaced the prior credit agreement with a five-year senior secured facility of up to $325 million: a $100 million revolving line, a fully drawn $100 million term loan, and up to $125 million of delayed-draw term loans. At quarter-end, revolving borrowings and delayed-draw borrowings were zero; approximately $12.3 million of letters of credit were outstanding.
- The new credit agreement includes financial covenants beginning with Q2 2016, including minimum fixed-charge coverage of 1.10:1 and maximum leverage limits that tighten over time. The term loan bore interest at 1-month LIBOR plus margin of 2.19% at quarter-end.
- Demand depends significantly on residential construction and broader housing and economic conditions. Management identified weaker economic conditions, reduced housing demand or affordability, higher interest rates, and tighter mortgage lending as risks to future results.
- Supply contracts include quantity-based commitments that are not precisely quantifiable; the filing estimates $35.8 million of purchase obligations, all due during the remainder of 2016. The company also reports insurance reserves, leases, letters of credit, performance and permit bonds, and ordinary-course litigation. Management did not expect pending litigation to materially affect financial position, results, or cash flows.
- Management reported no material changes in risk factors or market-risk exposure from the prior annual filing. Disclosure controls were judged effective, and no material change in internal control over financial reporting was reported.
Investor facts to verify
- How much of reported revenue and earnings growth is sustainable organic growth versus acquisition contribution, pricing, mix, and housing-market conditions?
- What are current leverage and covenant headroom levels under the new credit agreement, and how will scheduled amortization and any acquisition-related borrowing affect them?
- What are the final purchase-price allocations, integration costs, and operating contribution from Q1 acquisitions and the Alpine acquisition?
- How will insurance and workers’ compensation reserves, purchase commitments, and other contractual obligations affect future cash requirements?
- Does operating cash flow remain strong after seasonal working-capital movements and continued fleet, capital expenditure, and acquisition spending?