IBP(IBP) - 2020 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements detail the company's financial position and performance Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Assets | $1,087,064 | $1,099,479 | | Cash and cash equivalents | $187,187 | $177,889 | | Goodwill | $198,664 | $195,652 | | Total Liabilities | $841,267 | $849,448 | | Long-term debt | $545,552 | $545,031 | | Total Stockholders' Equity | $245,797 | $250,031 | Condensed Consolidated Statement of Operations Highlights (Unaudited) | Metric | Three months ended March 31, 2020 (in thousands) | Three months ended March 31, 2019 (in thousands) | | :--- | :--- | :--- | | Net revenue | $397,331 | $342,135 | | Gross profit | $116,260 | $89,438 | | Operating income | $29,030 | $17,989 | | Net income | $15,988 | $8,834 | | Diluted net income per share | $0.53 | $0.30 | Condensed Consolidated Statement of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Three months ended March 31, 2020 (in thousands) | Three months ended March 31, 2019 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $35,912 | $15,889 | | Net cash used in investing activities | $(8,099) | $(13,959) | | Net cash used in financing activities | $(18,514) | $(4,226) | | Net change in cash and cash equivalents | $9,299 | $(2,296) | Note 1 - Organization The company installs building products across the U.S. and noted no material Q1 2020 COVID-19 impact - The company operates in over 180 locations, installing insulation and other products for residential and commercial builders, and functions as a single operating and reportable segment[20][21] - Management stated that COVID-19 did not materially impact the business in Q1 2020, but acknowledged significant uncertainty regarding future impacts[22] Note 3 - Revenue Recognition Revenue is primarily recognized over time, with residential new construction being the largest market segment Revenue by End Market (Three months ended March 31) | End Market | 2020 Revenue (in thousands) | 2020 % of Total | 2019 Revenue (in thousands) | 2019 % of Total | | :--- | :--- | :--- | :--- | :--- | | Residential new construction | $298,340 | 75% | $261,310 | 77% | | Repair and remodel | $24,043 | 6% | $21,521 | 6% | | Commercial | $74,948 | 19% | $59,304 | 17% | | Total Net Revenues | $397,331 | 100% | $342,135 | 100% | Revenue by Product (Three months ended March 31) | Product | 2020 Revenue (in thousands) | 2020 % of Total | 2019 Revenue (in thousands) | 2019 % of Total | | :--- | :--- | :--- | :--- | :--- | | Insulation | $259,701 | 65% | $221,223 | 65% | | Waterproofing | $28,505 | 7% | $22,385 | 7% | | Shower doors, shelving and mirrors | $27,015 | 7% | $23,917 | 7% | | Other building products | $82,110 | 21% | $74,810 | 21% | | Total Net Revenues | $397,331 | 100% | $342,135 | 100% | - As of March 31, 2020, the company had $91.3 million in remaining performance obligations from uncompleted contracts, expected to be recognized over the next 18 months[41] Note 7 - Long-Term Debt Total long-term debt stood at $569.8 million, composed mainly of Senior Notes and a term loan Long-Term Debt Composition (as of March 31, 2020) | Debt Instrument | Net Amount (in thousands) | | :--- | :--- | | Senior Notes due 2028 | $295,322 | | Term loan | $198,408 | | Vehicle and equipment notes | $73,097 | | Various notes payable | $2,966 | | Total | $569,793 | - The company has a $200.0 million asset-based lending (ABL) revolver with $161.3 million of remaining availability as of March 31, 2020[64] Note 11 - Stockholders' Equity The company repurchased $15.8 million of its common stock and subsequently suspended its repurchase program - In Q1 2020, the company repurchased approximately 443,000 shares of common stock for an aggregate price of $15.8 million[99] - The company has temporarily suspended its share repurchase program in response to COVID-19, with $44.9 million remaining authorized for repurchases[99] Note 16 - Business Combinations Two business combinations were completed in Q1 2020 for a total purchase price of $11.1 million - During Q1 2020, the company completed two business combinations, paying $8.5 million in cash for a total purchase price of $11.1 million[126][130] - The largest acquisition in Q1 2020 was Royals Commercial Services, Inc for a total purchase price of $10.1 million[127][130] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2020 revenue grew 16.1% driven by acquisitions and organic growth, with strong liquidity maintained 2020 First Quarter Highlights Q1 2020 featured a 16.1% increase in net revenue and a 30.0% rise in gross profit year-over-year Key Performance Metrics (Q1 2020 vs Q1 2019) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Sales Growth | 16.1% | 13.4% | | Same Branch Sales Growth | 12.1% | 7.4% | | Single-Family Sales Growth | 11.0% | 14.4% | | Residential Sales Growth | 14.2% | 13.8% | | Same Branch Price/Mix Growth | 12.1% | 4.1% | - Net revenue increased 16.1% to $397.3 million, and gross profit increased 30.0% to $116.3 million in Q1 2020 compared to the prior year period[144] Results of Operations Gross profit margin improved to 29.3% due to higher selling prices, while operating expenses rose to support growth - Gross profit percentage increased to 29.3% in Q1 2020 from 26.1% in Q1 2019, primarily due to higher selling prices[150] - Administrative expenses increased to 15.1% of net revenue in Q1 2020, mainly due to increased variable employee expenses and higher health insurance costs[151][153] - Interest expense rose 29.6% to $7.4 million in Q1 2020, primarily due to increased debt levels from 2019 financing transactions[155] COVID-19 Impacts Management anticipates future negative impacts from COVID-19 despite minimal effect in Q1 2020 - Management believes a sizable industry backlog will provide short-term relief, noting that April 2020 net revenue increased approximately 2% year-over-year[163] - The company anticipates a market decline will have a more pronounced impact on business in the third and fourth quarters of 2020[165] - The company expects to benefit from the CARES Act by deferring an estimated $15 million to $20 million in employer Social Security tax payments[168] Liquidity and Capital Resources The company maintains a strong liquidity position and has taken proactive steps to preserve cash Total Liquidity Position | Component | As of March 31, 2020 (in thousands) | As of December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $187,187 | $177,889 | | Short-term investments | $26,487 | $37,961 | | ABL Revolver Availability | $161,328 | $161,328 | | Total Liquidity | $375,002 | $377,178 | - In response to COVID-19, the company has taken actions to preserve cash, including temporarily suspending stock repurchases and delaying acquisition closings[177] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation, which is substantially mitigated by swaps - As of March 31, 2020, the company had $198.4 million in variable-rate debt, but interest rate swaps hedged $195.5 million of this amount[205] - A hypothetical one percentage point change in interest rates on unhedged debt would change annual interest expense by approximately $45,000[205] Item 4. Controls and Procedures Disclosure controls and procedures were deemed effective, with no material changes to internal controls in Q1 2020 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[209] - No changes in internal control over financial reporting occurred during Q1 2020 that materially affected, or are reasonably likely to materially affect, internal controls[210] PART II – OTHER INFORMATION Item 1. Legal Proceedings Pending legal matters are not expected to have a material adverse effect on the company's financial position - The company states that it does not believe the outcome of any pending legal matters will have a material adverse effect on its financial position or results[124][212] Item 1A. Risk Factors A significant risk factor related to the COVID-19 outbreak has been added, detailing potential adverse effects - The COVID-19 outbreak is identified as a material risk, with potential adverse effects on business, financial condition, and operating results[214] - A key risk is that the company's operations, currently deemed "essential" in most markets, could have that classification changed, leading to operational halts[216] - The pandemic may reduce employment and consumer confidence, decreasing demand for homes and negatively impacting the homebuilding industry[217] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 442,542 shares for $15.8 million in March 2020 before suspending its program Stock Repurchase Activity (Q1 2020) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Cost (approx.) | | :--- | :--- | :--- | :--- | | Jan 2020 | — | $— | $— | | Feb 2020 | — | $— | $— | | Mar 2020 | 442,542 | $35.59 | $15.8 million | | Total Q1 | 442,542 | $35.59 | $15.8 million | - As of March 31, 2020, $44.9 million remained available for purchase under the company's stock repurchase program, which has been temporarily suspended[223] Item 3. Defaults Upon Senior Securities The company reported no material defaults upon senior securities during the period - There have been no material defaults in senior securities[224] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[225] Item 5. Other Information No other information was reported for this item - None[226] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and Inline XBRL data files