Installed Building Products, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also reports unaudited fourth-quarter results. IBP installs insulation and complementary building products through more than 100 locations across the continental United States. Insulation generated 76% of 2014 revenue; residential construction accounted for 89%.
Financial results
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Revenue | $518.0 million | $431.9 million |
| Gross profit / margin | $140.1 million / 27.0% | $109.7 million / 25.4% |
| Operating income / margin | $25.6 million / 4.9% | $13.1 million / 3.0% |
| Continuing-operations net income | $14.0 million | $6.6 million |
| Net income | $13.9 million | $6.0 million |
| Net income (loss) attributable to common stockholders | $(6.0) million | $(0.2) million |
| Basic and diluted EPS attributable to common stockholders | $(0.20) | $(0.01) |
| Cash from operating activities | $19.6 million | $4.2 million |
| Cash / working capital at year-end | $10.8 million / $42.7 million | $4.1 million / $31.1 million |
| Funded debt at year-end | $53.7 million | $50.1 million |
Fourth-quarter revenue was $145.3 million versus $119.3 million in Q4 2013; gross profit was $39.2 million versus $31.2 million. Quarterly net income was $5.1 million versus $2.4 million, and EPS attributable to common stockholders was $0.16 versus $0.03.
Revenue increased 19.9% year over year. Management attributed approximately $52.1 million of the increase primarily to organic job-volume growth and $15.4 million to acquisitions; the balance reflected several factors, none individually predominant. Gross margin improved on higher-volume operating efficiencies, customer and product mix, and lower fuel costs. Operating cash flow rose substantially, though receivables and inventory also grew with sales.
Liquidity, debt, and capital allocation
- At December 31, 2014, IBP had $24.7 million outstanding on its term loan, no revolver borrowings, and $9.8 million of letters of credit. It reported $65.2 million of unused borrowing capacity.
- The July 2014 credit agreement provides a $75 million revolver and $25 million term loan, matures July 2019, and includes leverage and fixed-charge coverage covenants. IBP reported compliance at year-end.
- Investing cash outflow was $16.1 million, including $12.4 million for acquisitions and $6.2 million for property and equipment. Management said operating cash, cash on hand, and available borrowing capacity should support operations and obligations for at least 12 months.
- The February IPO generated $87.6 million in net proceeds; proceeds were used in part to redeem $75.7 million of preferred stock. A June secondary offering generated $14.4 million for the company from the underwriters’ option shares; proceeds from shares sold by existing stockholders went to those sellers.
- IBP repurchased 300,000 shares from a related party for $5.3 million. It did not pay dividends and said it did not expect to do so for the foreseeable future.
Material changes, outlook, and risks
- IBP completed three acquisitions in 2014 and two in 2013. Acquisitions contributed $15.4 million to 2014 revenue; management continues to pursue geographic expansion and tuck-in acquisitions.
- The full-year common-stockholder loss reflects $19.9 million of preferred-stock accretion before the preferred shares were redeemed in February 2014, despite $13.9 million of consolidated net income.
- Management cited housing affordability, an aging housing stock, population growth, and household formation as potential long-term market supports. It referenced an external forecast of approximately 1.2 million housing starts in 2015 and 1.3 million in 2016, and a forecast of 19% commercial-construction square-footage growth in 2015. These are not company-issued financial guidance.
- Key risks include dependence on residential construction and economic conditions; seasonality and severe weather; difficulty passing on material-cost increases; labor availability and costs; acquisition integration; and customer or supplier concentration. The three largest suppliers represented approximately 47% of material purchases.
- IBP settled two wage-and-hour lawsuits for $1.4 million, recorded as expense in 2013; $1.2 million was paid in 2014, with no related 2014 expense. Other ordinary-course claims remain, which management did not expect to have a material adverse effect.
- Management reported that internal controls were effective at year-end and that a material weakness and related deficiencies identified in prior audits had been remediated. The independent auditor did not audit or opine on internal-control effectiveness.
- After year-end, IBP acquired BDI Insulation for approximately $36 million, subject to a working-capital adjustment. The filing did not provide completed purchase-accounting details.
Important facts for investors to verify
- Whether housing starts, construction activity, and organic completed-job volumes sustain the growth reflected in 2014 results.
- How gross margins respond to labor and materials inflation, fuel costs, and competitive limits on price increases.
- Whether working-capital needs, acquisition spending, and vehicle investment remain supportable within available liquidity and credit covenants.
- The integration and returns of recent acquisitions, including BDI Insulation, and the company’s ongoing acquisition pace.
- Supplier concentration, outstanding purchase commitments, self-insurance reserves, and the status of tax and other contingencies.
- Related-party transactions and ownership concentration, including the share repurchase and the CEO’s significant voting interest.