Installed Building Products, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. IBP installs insulation and complementary building products for residential and commercial construction across more than 190 locations.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $437.1 million | $397.3 million | +10.0% |
| Gross profit / margin | $125.4 million / 28.7% | $116.3 million / 29.3% | Profit +7.9%; margin -0.6 percentage points |
| Operating income | $31.1 million | $29.0 million | +7.1% |
| Net income | $17.3 million | $16.0 million | +8.1% |
| Diluted earnings per share | $0.58 | $0.53 | +$0.05 |
| Operating cash flow | $37.6 million | $35.9 million | +$1.7 million |
Gross margin contracted as material costs rose. Interest expense was $7.6 million, versus $7.4 million. The effective tax rate was 26.2% in both periods. Cash and cash equivalents were $207.3 million at March 31, down from $231.5 million at year-end; cash declined by $24.2 million during the quarter. Investing cash outflow was $52.4 million, including $41.9 million for acquisitions, while financing cash outflow was $9.4 million.
Total debt was $568.9 million, including $295.9 million of net Senior Notes and $198.7 million of net term-loan debt. The company reported $161.2 million of remaining ABL Revolver availability, including the effect of outstanding letters of credit, and $368.6 million of total liquidity under its stated calculation. It had no revolver borrowings and reported compliance with debt covenants. The company stated that cash, operating cash flow and borrowing availability should fund operations and obligations for at least the next 12 months.
Changes versus the prior period
- Revenue growth reflected acquisitions, 9.6% growth in residential end-market revenue and higher sales of complementary products. Residential new construction revenue rose 9.6%; repair and remodel rose 39.6%; commercial revenue rose 2.3%.
- Same-branch sales growth was 2.2%, compared with 12.1% in Q1 2020. Commercial same-branch sales declined 14.5%, while residential same-branch sales grew 3.7%.
- Same-branch volume growth, excluding large commercial, was 10.1%, partly offset by negative price/mix of 6.1%.
- Operating expenses increased in dollars, including amortization expense, but selling and administrative expense declined as a share of revenue. Amortization rose 25.7%, primarily due to acquired intangible assets.
- IBP acquired Intermountain West Insulation on March 1 for total consideration of $48.1 million, including $42.1 million cash and $6.0 million seller obligations. It reported $3.6 million of post-acquisition revenue and $0.45 million of net income. Cash paid for acquisitions was $41.9 million, versus $8.5 million in Q1 2020.
- IBP declared and paid a first quarterly dividend of $0.30 per share, totaling $8.9 million declared. It did not repurchase shares during the quarter; $100 million remained under its repurchase authorization.
Outlook, commentary and risks
- Management said February 2021 winter storms temporarily reduced Q1 revenue by an estimated $3.0–$3.5 million and gross profit by $1.0–$1.5 million. Material shortages were also estimated to have reduced gross profit by about $2.0 million and constrained installations. Supply-chain conditions improved in April and early May, but management expected tight supply for many products through the remainder of 2021.
- Management cited higher fiberglass insulation pricing and expected further supplier price increases; results may be pressured if increases cannot be passed through to customers. Hiring, training and retaining installers amid tight construction labor availability may also raise costs.
- Management said COVID-19 had not significantly affected overall Q1 operations, but commercial projects faced delays and inefficiencies. It expected commercial trends to improve later in 2021 and cited positive housing-market forecasts, while stating that the full effects of the pandemic on 2021 results remained uncertain. No specific full-year earnings or revenue guidance was provided.
- Interest-rate exposure remained: approximately $200 million of variable-rate debt was exposed at quarter-end before the forward swap’s July 30, 2021 start. A one-percentage-point rate increase was estimated to raise annual interest expense by about $2.0 million. The $200 million forward swap has a fixed rate of 0.51% and matures in 2030. LIBOR transition terms may affect future borrowing costs.
- Other items to monitor include a $5.2 million insurance-collateral payment expected in Q2, a $14.9 million 2021 insulation-material purchase obligation (of which $3.2 million had been satisfied by quarter-end), and ongoing contractual, employment and other litigation. Management did not expect pending matters to materially affect consolidated results or financial position.
- After quarter-end, IBP acquired Alert Insulation for about $6.6 million and Alpine Construction Services for about $8.3 million. It also announced a $0.30-per-share dividend payable June 30, 2021.
Important facts for investors to verify
- Whether material availability and pricing improve as expected, and whether selling-price actions offset cost inflation without weakening demand.
- Whether commercial same-branch sales recover and residential growth persists as pandemic conditions and construction activity evolve.
- Acquisition integration, purchase-price allocations, acquired-company performance and the effect of acquisition-related costs and amortization.
- Debt, variable-rate exposure, covenant headroom, liquidity availability and the timing and cost of the expected insurance collateral payment.
- Cash conversion and working-capital trends, including inventory and contract underbillings, and the sustainability of dividends and any future repurchases.