IBP(IBP) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements and detailed notes on accounting policies, segments, debt, and leases Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (March 31, 2022 vs. December 31, 2021) | (in thousands) | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | ASSETS | | | | Cash and cash equivalents | $217,434 | $333,485 | | Investments | $49,980 | — | | Accounts receivable, net | $345,586 | $312,767 | | Inventories | $160,023 | $143,039 | | Total current assets | $842,228 | $859,316 | | Property and equipment, net | $107,817 | $105,933 | | Goodwill | $325,347 | $322,517 | | Total assets | $1,652,749 | $1,653,202 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Current maturities of long-term debt | $30,668 | $30,839 | | Accounts payable | $150,643 | $132,705 | | Total current liabilities | $327,528 | $307,569 | | Long-term debt | $829,638 | $832,193 | | Total liabilities | $1,262,518 | $1,236,362 | | Total stockholders' equity | $390,231 | $416,840 | | Total liabilities and stockholders' equity | $1,652,749 | $1,653,202 | Condensed Consolidated Statements of Operations and Comprehensive Income Condensed Consolidated Statements of Operations and Comprehensive Income (Three months ended March 31, 2022 vs. 2021) | (in thousands, except per share) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net revenue | $587,492 | $437,066 | | Cost of sales | $415,089 | $311,639 | | Gross profit | $172,403 | $125,427 | | Operating income | $56,970 | $31,096 | | Income before income taxes | $46,225 | $23,441 | | Net income | $33,822 | $17,291 | | Comprehensive income | $51,933 | $27,448 | | Basic Earnings Per Share | $1.15 | $0.59 | | Diluted Earnings Per Share | $1.14 | $0.58 | | Cash dividends declared per share | $1.22 | $0.30 | Condensed Consolidated Statements of Stockholders' Equity Changes in Stockholders' Equity (Three months ended March 31, 2022 vs. 2021) | (in thousands) | March 31, 2022 | March 31, 2021 | | :----------------------------------- | :------------- | :------------- | | Total Stockholders' Equity (Jan 1) | $416,840 | $319,182 | | Net income | $33,822 | $17,291 | | Dividends Declared | $(35,890) | $(8,907) | | Common stock repurchase | $(49,865) | — | | Other comprehensive income, net of tax | $18,111 | $10,157 | | Total Stockholders' Equity (Mar 31) | $390,231 | $340,538 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Three months ended March 31, 2022 vs. 2021) | (in thousands) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $48,225 | $37,618 | | Net cash used in investing activities | $(68,718) | $(52,392) | | Net cash used in financing activities | $(95,558) | $(9,403) | | Net change in cash and cash equivalents | $(116,051) | $(24,177) | | Cash and cash equivalents at end of period | $217,434 | $207,343 | Note 1 - Organization - Installed Building Products (IBP) primarily installs insulation, waterproofing, fire-stopping, fireproofing, garage doors, rain gutters, window blinds, shower doors, closet shelving, and mirrors, and other products for residential and commercial builders across the continental United States, operating in over 210 locations[21] - In Q1 2022, the company realigned its operating segments into Installation (reportable segment), Manufacturing, and Distribution. The Installation segment focuses on service-based installation in residential new construction, repair and remodel, and commercial markets[22][23] - COVID-19 has caused disruptions in the building products supply chain, leading to higher producer prices and inflation, though the direct impact on business in Q1 2022 was not significant. Future impacts remain uncertain[24] Note 2 - Significant Accounting Policies - The financial statements are condensed and include normal recurring adjustments, omitting some disclosures found in the annual 10-K. Interim results are not indicative of future quarters[26][27] - No significant changes to accounting policies occurred in Q1 2022, except for the reclassification of prior year disclosures due to segment realignment (Note 1 and Note 10)[28][29] Recently Issued Accounting Pronouncements Not Yet Adopted | Standard | Description | Effective Date | Effect on the financial statements or other significant matters | | :------- | :---------- | :------------- | :---------------------------------------------------------- | | ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers | Amends Topic 805 to require an acquirer to account for revenue contracts in a business combination in accordance with Topic 606 as if the acquirer had originated the contracts. | Annual periods beginning after December 15, 2022, including interim periods therein. Early adoption is permitted. | We are currently assessing the impact of adoption on our consolidated financial statements. | Note 3 - Revenue Recognition - Revenue for the Installation segment is recognized over time using a cost-to-cost input method, reflecting the transfer of goods and services to customers. Contract modifications are generally accounted for as part of the existing contract[31][32][33] - Revenue for Distribution and Manufacturing segments (Other category) is recognized at a point in time when products are transferred and customer control is obtained[35] Net Revenues Disaggregated by End Market (Three months ended March 31, 2022 vs. 2021) | (in thousands) | 2022 | % | 2021 | % | | :-------------------------- | :----- | :-- | :----- | :-- | | Installation: | | | | | | Residential new construction | $442,404 | 75% | $327,244 | 75% | | Repair and remodel | $32,641 | 6% | $28,289 | 6% | | Commercial | $86,586 | 15% | $76,645 | 18% | | Net revenue, Installation | $561,631 | 96% | $432,178 | 99% | | Other | $25,861 | 4% | $4,888 | 1% | | Net revenue, as reported | $587,492 | 100% | $437,066 | 100% | Net Revenues Disaggregated by Product (Three months ended March 31, 2022 vs. 2021) | (in thousands) | 2022 | % | 2021 | % | | :-------------------------- | :----- | :-- | :----- | :-- | | Installation: | | | | | | Insulation | $364,943 | 63% | $278,568 | 63% | | Waterproofing | $29,022 | 5% | $29,949 | 7% | | Shower doors, shelving and mirrors | $36,340 | 6% | $31,433 | 7% | | Garage doors | $35,979 | 6% | $24,439 | 6% | | Rain gutters | $23,546 | 4% | $19,003 | 4% | | Fireproofing/firestopping | $15,922 | 3% | $12,435 | 3% | | Window blinds | $13,058 | 2% | $11,534 | 3% | | Other building products | $42,821 | 7% | $24,817 | 6% | | Net revenue, Installation | $561,631 | 96% | $432,178 | 99% | | Other | $25,861 | 4% | $4,888 | 1% | | Net revenue, as reported | $587,492 | 100% | $437,066 | 100% | - As of March 31, 2022, remaining performance obligations totaled $177.7 million, expected to be recognized over the next 18 months[40] Note 4 - Credit Losses - The allowance for credit losses is determined using historical losses, current economic conditions, and future market forecasts, alongside ongoing evaluations of customer creditworthiness[42] Changes in Allowance for Credit Losses (Three months ended March 31, 2022) | (in thousands) | Amount | | :-------------------------- | :----- | | Balance as of January 1, 2022 | $8,717 | | Current period provision | $653 | | Recoveries collected and additions | $89 | | Amounts written off | $(869) | | Balance as of March 31, 2022 | $8,590 | Note 5 - Investments and Cash and Cash Equivalents - Cash and cash equivalents include highly liquid instruments with maturities of three months or less, totaling $217.4 million as of March 31, 2022, down from $333.5 million at December 31, 2021[13][43] - Investments, classified as held-to-maturity, consist of highly liquid instruments like commercial paper, totaling $50.0 million as of March 31, 2022, all maturing within one year. No such investments were held at December 31, 2021[13][45] Note 6 - Goodwill and Intangibles - The company realigned its reporting units in Q1 2022 to align with segment changes, now having Installation, Manufacturing, and Distribution as reporting units, all containing goodwill[47] Change in Carrying Amount of Goodwill (Three months ended March 31, 2022) | (in thousands) | Installation | Other | Consolidated | | :----------------------------------- | :----------- | :---- | :----------- | | Goodwill (gross) - January 1, 2022 | $331,782 | $60,739 | $392,521 | | Business combinations | $2,830 | — | $2,830 | | Goodwill (gross) - March 31, 2022 | $334,612 | $60,739 | $395,351 | | Accumulated impairment losses | $(70,004) | — | $(70,004) | | Goodwill (net) - March 31, 2022 | $264,608 | $60,739 | $325,347 | Intangibles, Net (March 31, 2022 vs. December 31, 2021) | (in thousands) | March 31, 2022 Net Book Value | December 31, 2021 Net Book Value | | :-------------------------- | :---------------------------- | :----------------------------- | | Customer relationships | $173,868 | $178,264 | | Covenants not-to-compete | $10,734 | $11,246 | | Trademarks and tradenames | $69,894 | $70,384 | | Backlog | $3,464 | $4,527 | | Total amortized intangibles | $257,960 | $264,421 | - The gross carrying amount of intangibles increased by approximately $4.6 million in Q1 2022 due to business combinations. Estimated aggregate annual amortization expense for the remainder of 2022 is $31.3 million[51] Note 7 - Long-Term Debt Long-Term Debt (March 31, 2022 vs. December 31, 2021) | (in thousands) | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Senior Notes due 2028, net | $296,516 | $296,367 | | Term loan, net | $492,255 | $493,265 | | Vehicle and equipment notes | $67,363 | $69,228 | | Various notes payable | $4,172 | $4,172 | | Total gross long-term debt | $860,306 | $863,032 | | Less: current maturities | $(30,668) | $(30,839) | | Long-term debt, less current maturities | $829,638 | $832,193 | - In February 2022, the ABL Credit Agreement was amended, increasing the commitment to $250.0 million (from $200.0 million) and extending the maturity to February 17, 2027. Remaining availability under the ABL Revolver was $205.7 million as of March 31, 2022[55] - The ABL Credit Agreement and Term Loan Agreement contain restrictive covenants, including limits on additional debt, dividends, stock repurchases, and liens[58] Note 8 - Leases - The company leases warehouses, office spaces, vehicles, and equipment. Total lease assets were $74.3 million and total lease liabilities were $73.7 million as of March 31, 2022[59][61] Lease-Related Assets and Liabilities (March 31, 2022 vs. December 31, 2021) | (in thousands) | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets | $69,033 | $69,871 | | Property and equipment, net (Finance) | $5,218 | $5,266 | | Total lease assets | $74,251 | $75,137 | | Current maturities of operating lease obligations | $23,505 | $23,224 | | Current maturities of finance lease obligations | $1,801 | $1,747 | | Operating lease obligations (Non-Current) | $45,091 | $46,075 | | Finance lease obligations (Non-Current) | $3,254 | $3,297 | | Total lease liabilities | $73,651 | $74,343 | Lease Costs (Three months ended March 31, 2022 vs. 2021) | (in thousands) | 2022 | 2021 | | :-------------------------- | :----- | :----- | | Operating lease cost | $7,759 | $6,350 | | Amortization of leased assets (Finance) | $716 | $792 | | Interest on finance lease obligations | $61 | $55 | | Total lease costs | $8,536 | $7,197 | Note 9 - Fair Value Measurements - Accounts receivable, accounts payable, accrued liabilities, Term Loan, and ABL Revolver approximate fair value due to short-term maturities or variable rates. All debt classifications are Level 2 fair value measurements[68] - Contingent consideration liabilities are measured at fair value by discounting estimated future payments based on various forecast scenarios (Level 3 input)[69] Fair Values of Financial Assets and Liabilities (March 31, 2022 vs. December 31, 2021) | (in thousands) | March 31, 2022 Total | March 31, 2022 Level 1 | March 31, 2022 Level 2 | March 31, 2022 Level 3 | December 31, 2021 Total | December 31, 2021 Level 1 | December 31, 2021 Level 2 | December 31, 2021 Level 3 | | :----------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Financial assets: | | | | | | | | | | Cash equivalents | $201,112 | $201,112 | — | — | $258,055 | $258,055 | — | — | | Derivative financial instruments | $36,644 | — | $36,644 | — | $14,830 | — | $14,830 | — | | Total financial assets | $237,756 | $201,112 | $36,644 | — | $272,885 | $258,055 | $14,830 | — | | Financial liabilities: | | | | | | | | | | Contingent consideration | $6,160 | — | — | $6,160 | $11,170 | — | — | $11,170 | | Derivative financial instruments | — | — | — | — | $1,937 | — | $1,937 | — | | Total financial liabilities | $6,160 | — | — | $6,160 | $13,107 | — | $1,937 | $11,170 | Note 10 - Information on Segments - In Q1 2022, the company realigned its segment structure into three operating segments: Installation (reportable segment), Distribution, and Manufacturing. The Installation segment accounts for the majority of net revenue and gross profit[75][76] - The 'Other' category includes Distribution (recently acquired, selling insulation and accessories) and Manufacturing (cellulose insulation, asphalt, industrial fibers)[77] - Key performance metrics are revenue and adjusted gross profit (revenue less cost of sales, excluding depreciation and amortization). Total assets and related depreciation/amortization are not reported by segment[78] Segment Information (Three months ended March 31, 2022 vs. 2021) | (in thousands) | Installation 2022 | Other 2022 | Eliminations 2022 | Consolidated 2022 | Installation 2021 | Other 2021 | Eliminations 2021 | Consolidated 2021 | | :----------------------------------- | :---------------- | :--------- | :---------------- | :---------------- | :---------------- | :--------- | :---------------- | :---------------- | | Revenue | $561,631 | $26,650 | $(789) | $587,492 | $432,178 | $5,253 | $(365) | $437,066 | | Cost of sales (exclusive of D&A) | $385,692 | $19,373 | $(609) | $404,456 | $297,832 | $4,067 | $(283) | $301,616 | | Adjusted gross profit | $175,939 | $7,277 | $(180) | $183,036 | $134,346 | $1,186 | $(82) | $135,450 | | Depreciation and amortization | | | | $10,633 | | | | $10,023 | | Gross profit, as reported | | | | $172,403 | | | | $125,427 | Note 11 - Derivatives and Hedging Activities - The company uses interest rate swaps as cash flow hedges to stabilize interest expense and manage exposure to interest rate movements, not for trading or speculation[82] - As of March 31, 2022, there were three interest rate swaps hedging $400.0 million of the variable cash flows on the Term Loan, with fixed rates ranging from 0.51% to 1.37% and maturities up to April 2030[83] - An estimated $0.6 million will be reclassified as an increase to interest expense, net, over the next twelve months from accumulated other comprehensive income (loss) related to derivatives[86] - The company applied hedge accounting expedients related to LIBOR reform (ASU 2020-04 and 2021-01) to preserve derivative presentation, assuming future LIBOR-indexed cash flows match corresponding derivatives[88] Note 12 - Stockholders' Equity - As of March 31, 2022, accumulated other comprehensive income (loss) was $17.9 million, primarily due to an unrealized gain on current interest rate swaps ($27.2 million, net of taxes) offset by an unrealized loss on terminated swaps ($(9.3) million, net of taxes)[89] - During Q1 2022, the company repurchased approximately 511 thousand shares of common stock for $49.9 million (average price $97.57 per share). The stock repurchase program was extended through March 1, 2023, with an increased authorization of up to $200.0 million, leaving $150.1 million remaining[90][198] Cash Dividends Declared and Paid (Three months ended March 31, 2022 vs. 2021) | Declaration Date | Record Date | Payment Date | Dividend Per Share | Amount Declared (2022) | Amount Paid (2022) | Amount Declared (2021) | Amount Paid (2021) | | :--------------- | :---------- | :----------- | :----------------- | :--------------------- | :----------------- | :--------------------- | :----------------- | | 2/24/2022 | 3/15/2022 | 3/31/2021 | $0.90 | $26,585 | $26,242 | | | | 2/24/2022 | 3/15/2022 | 3/31/2021 | $0.315 | $9,305 | $9,184 | | | | 2/23/2021 | 3/15/2021 | 3/31/2021 | $0.30 | | | $8,907 | $8,786 | Note 13 - Employee Benefits - Healthcare benefit expense (net of employee contributions) was $8.9 million in Q1 2022, up from $7.2 million in Q1 2021. Workers' compensation expense was $5.7 million in Q1 2022, up from $4.2 million in Q1 2021[92][94] Workers' Compensation Reserves (March 31, 2022 vs. December 31, 2021) | (in thousands) | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Included in other current liabilities | $7,166 | $8,048 | | Included in other long-term liabilities | $15,509 | $13,397 | | Total Workers' Compensation Reserves | $22,675 | $21,445 | - 401(k) plan expenses were $0.8 million in Q1 2022, up from $0.7 million in Q1 2021. The company also participates in multiemployer pension plans for union-represented employees[95][96] Share-Based Compensation Expense (Three months ended March 31, 2022 vs. 2021) | (in thousands) | 2022 | 2021 | | :-------------------------- | :----- | :----- | | Common Stock Awards | $1,531 | $1,120 | | Non-Employee Common Stock Awards | $124 | $102 | | Performance-Based Stock Awards | $1,315 | $1,148 | | Liability Performance-Based Stock Awards | $206 | $705 | | Performance-Based Restricted Stock Units | $242 | $121 | | Total Share-Based Compensation Expense | $3,418 | $3,196 | - Total unrecognized share-based compensation expense related to unvested awards was $15.1 million as of March 31, 2022, with a weighted-average remaining vesting period of 1.5 to 2.1 years[104] Note 14 - Income Taxes Income Tax Provision and Effective Tax Rate (Three months ended March 31, 2022 vs. 2021) | (in thousands) | 2022 | 2021 | | :-------------------------- | :----- | :----- | | Income tax provision | $12,403 | $6,150 | | Effective tax rate | 26.8% | 26.2% | - The effective tax rates for both periods were unfavorably impacted by certain non-deductible expenses[106] Note 15 - Related Party Transactions - The company engages in sales of installation services to, and purchases of services/materials and rent payments from, related parties[107] Related Party Transactions (Three months ended March 31, 2022 vs. 2021) | (in thousands) | 2022 | 2021 | | :-------------------------- | :----- | :----- | | Sales | $560 | $278 | | Purchases | $407 | $392 | | Rent | $314 | $306 | - Related party accounts receivable balance was approximately $1.0 million as of March 31, 2022[109] Note 16 - Commitments and Contingencies Accrued General Liability and Auto Insurance Reserves (March 31, 2022 vs. December 31, 2021) | (in thousands) | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Included in other current liabilities | $5,762 | $5,889 | | Included in other long-term liabilities | $17,317 | $16,050 | | Total Reserves | $23,079 | $21,939 | - The company is involved in various claims and litigation, but management does not believe the ultimate outcome will have a material adverse effect on its financial position, results of operations, or cash flows[112] Note 17 - Business Combinations - The company completed one business combination in Q1 2022 (Pisgah Insulation and Fireplaces of NC, LLC) and one in Q1 2021 (I.W. International Insulation, Inc., dba Intermountain West Insulation) as part of its strategy to expand geographically, increase market share, and diversify products[113][114] Summary of Significant Acquisitions (Three months ended March 31, 2022 and 2021) | Acquisition | Date | Acquisition Type | Cash Paid (thousands) | Seller Obligations (thousands) | Total Purchase Price (thousands) | Revenue (thousands) | Net Income (thousands) | | :---------- | :--- | :--------------- | :-------------------- | :----------------------------- | :----------------------------- | :------------------ | :------------------- | | Pisgah (2022) | 03/01/2022 | Share | $8,050 | $1,878 | $9,928 | $915 | $97 | | IWI (2021) | 03/01/2021 | Share | $42,098 | $5,959 | $48,057 | $3,608 | $450 | - Acquisition-related costs were $0.7 million in Q1 2022 and $1.2 million in Q1 2021, recorded in administrative expenses. Approximately $2.8 million of goodwill from 2022 acquisitions is expected to be tax deductible[115] Estimated Acquired Intangible Assets (Three months ended March 31, 2022 and 2021) | Acquired intangibles assets | 2022 Estimated Fair Value (thousands) | 2022 Weighted Average Estimated Useful Life (yrs.) | 2021 Estimated Fair Value (thousands) | 2021 Weighted Average Estimated Useful Life (yrs.) | | :-------------------------- | :------------------------------------ | :----------------------------------------------- | :------------------------------------ | :----------------------------------------------- | | Customer relationships | $3,125 | 12 | $18,200 | 12 | | Trademarks and tradenames | $1,136 | 15 | $4,400 | 15 | | Non-competition agreements | $374 | 5 | $2,600 | 5 | Unaudited Pro Forma Information (Three months ended March 31, 2022 vs. 2021) | (in thousands, except per share) | 2022 | 2021 | | :----------------------------------- | :----- | :----- | | Net revenue | $589,356 | $484,248 | | Net income | $34,009 | $21,621 | | Basic net income per share | $1.16 | $0.74 | | Diluted net income per share | $1.15 | $0.73 | Note 18 - Income Per Common Share - Basic EPS is calculated by dividing net income by weighted average shares outstanding. Diluted EPS adjusts for the dilutive effect of common stock equivalents using the treasury stock method[121][122] - The dilutive effect of outstanding restricted stock awards was approximately 278 thousand shares for Q1 2022 and 327 thousand shares for Q1 2021[122] Note 19 - Subsequent Events - On April 11, 2022, the company acquired Central Aluminum Supply Corporation and Central Aluminum Supply of North Jersey, LLC for approximately $57.3 million. The initial accounting for this acquisition was incomplete at the time of filing[124] - On May 5, 2022, the board declared a quarterly dividend of 31.5 cents per share, payable on June 30, 2022[125] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes Q1 2022 financial performance, operating factors, liquidity, and capital resources, noting revenue growth and inflation challenges Overview - Installed Building Products is a leading insulation installer and diversified installer of complementary building products across the U.S., with 96% of net revenue from service-based installation in residential new construction, repair/remodel, and commercial markets[127] - Net revenue increased 34.4% to $587.5 million in Q1 2022, driven by recent acquisitions, a 14.6% increase in price/mix, and 9.7% increase in sales volume on a same branch basis[128][129] - Gross profit increased 37.5% to $172.4 million, growing faster than revenue due to higher selling prices and leverage on labor costs, partially offset by increased material and fuel costs from supply chain constraints[129] - The company maintained strong liquidity with $217.4 million in cash and cash equivalents and $50.0 million in short-term investments, despite $49.9 million in stock repurchases and $35.4 million in dividend payments[129] Key Measures of Performance (Three months ended March 31, 2022 vs. 2021) | Metric | 2022 | 2021 | | :----------------------------------- | :----- | :----- | | Consolidated Sales Growth | 34.4% | 10.0% | | Consolidated Same Branch Sales Growth | 22.5% | 2.2% | | Installation Sales Growth | 30.0% | 9.8% | | Installation Same Branch Sales Growth | 22.2% | 2.0% | | Single-Family Sales Growth | 37.4% | 9.4% | | Single-Family Same Branch Sales Growth | 29.4% | 4.7% | | Multi-Family Sales Growth | 24.6% | 18.8% | | Multi-Family Same Branch Sales Growth | 23.1% | 6.6% | | Residential Sales Growth | 35.2% | 10.9% | | Residential Same Branch Sales Growth | 28.3% | 5.0% | | Commercial Sales Growth | 13.0% | 2.8% | | Commercial Same Branch Sales Growth | 5.9% | (14.0)% | | Other Sales Growth | 407.3% | 37.3% | | Other Same Branch Sales Growth | 50.8% | 37.3% | | Installation Volume Growth (excl. heavy commercial) | 9.7% | 10.2% | | Installation Price/Mix Growth (excl. heavy commercial) | 14.6% | (6.2)% | | Heavy Commercial Same Branch Sales Growth | 0.5% | (13.1)% | | U.S. Housing Market Total Completions Growth | (5.5)% | 9.2% | | U.S. Housing Market Single-Family Completions Growth | (0.7)% | 11.2% | | U.S. Housing Market Multi-Family Completions Growth | (17.3)% | 4.8% | Net Revenue, Cost of Sales and Gross Profit Net Revenue, Cost of Sales and Gross Profit (Three months ended March 31, 2022 vs. 2021) | (in thousands) | 2022 | Change | 2021 | | :-------------------------- | :----- | :----- | :----- | | Net revenue | $587,492 | 34.4% | $437,066 | | Cost of sales | $415,089 | 33.2% | $311,639 | | Gross profit | $172,403 | 37.5% | $125,427 | | Gross profit percentage | 29.3% | | 28.7% | - Gross profit percentage improved due to strong sales growth and price/mix gains, despite ongoing supply chain issues and higher material costs. Premium material purchases increased expenses by $1.4 million, reducing gross profit by 20 basis points[139] Operating Expenses Operating Expenses (Three months ended March 31, 2022 vs. 2021) | (in thousands) | 2022 | Change | 2021 | | :-------------------------- | :----- | :----- | :----- | | Selling | $25,192 | 20.8% | $20,858 | | Percentage of total net revenue | 4.3% | | 4.8% | | Administrative | $79,144 | 21.6% | $65,077 | | Percentage of total net revenue | 13.5% | | 14.9% | | Amortization | $11,097 | 32.2% | $8,396 | | Percentage of total net revenue | 1.9% | | 1.9% | - Selling expenses increased due to higher wages and commissions supporting increased revenue, but decreased as a percentage of sales due to leverage from price increases[141] - Administrative expenses rose due to increased wages, benefits, liability insurance, and facility costs for acquisitions and organic growth, but decreased as a percentage of sales due to leverage from increased sales[142] - Amortization expense increased due to finite-lived intangible assets from acquisitions[143] Other Expense, Net Other Expense, Net (Three months ended March 31, 2022 vs. 2021) | (in thousands) | 2022 | Change | 2021 | | :-------------------------- | :----- | :----- | :----- | | Interest expense, net | $10,600 | 40.0% | $7,574 | | Other expense | $145 | 79.0% | $81 | | Total other expense, net | $10,745 | | $7,655 | - The increase in net interest expense was primarily due to higher debt levels[144] Income Tax Provision Income Tax Provision and Effective Tax Rate (Three months ended March 31, 2022 vs. 2021) | (in thousands) | 2022 | 2021 | | :-------------------------- | :----- | :----- | | Income tax provision | $12,403 | $6,150 | | Effective tax rate | 26.8% | 26.2% | - The effective tax rates for both periods were unfavorably impacted by certain non-deductible expenses[145] Other Comprehensive Income, Net of Tax Other Comprehensive Income, Net of Tax (Three months ended March 31, 2022 vs. 2021) | (in thousands) | 2022 | 2021 | | :----------------------------------- | :----- | :----- | | Net change on cash flow hedges, net of taxes | $18,111 | $10,157 | - An unrealized gain of $17.5 million (net of tax) was recorded on cash flow hedges in Q1 2022 due to market expectations for higher interest rates. $0.8 million of unrealized loss on terminated hedges was amortized to interest expense[146] Key Factors Affecting Our Operating Results Inflation and Interest Rates - Strong residential housing demand has led to inflationary pressure on materials. The Federal Reserve's interest rate hikes in March 2022 and planned future increases could curtail housing demand[147] Cost and Availability of Materials - Supply chain disruptions, raw material shortages, labor shortages, and shipping constraints have forced the company to purchase materials at higher prices from distributors, reducing gross profit. These issues are expected to continue throughout 2022[148][149] - Material price increases, particularly for fiberglass insulation and other products, have been larger and more frequent than normal. The company aims to pass these costs to customers[149] Cost of Labor - The company expects increased spending on hiring, training, and retaining installers due to tight labor availability. While increased selling prices provided leverage on labor costs in Q1 2022, inflation and market competition could raise these costs[150] - Strong employee retention and labor efficiency rates were observed, partly due to employee benefit programs, though these incentives add to costs[151] COVID-19 Impacts - The COVID-19 pandemic continues to cause volatility and economic disruption, leading to supply constraints and material price increases expected to persist through 2022[152] - Commercial business has seen project start delays and inefficiencies due to social distancing. Future demand for certain large-scale commercial structures may be at risk[153] - The company benefited from the CARES Act, deferring $20.7 million in Social Security taxes in 2020, with the remaining 50% due on December 31, 2022[154] Liquidity and Capital Resources - As of March 31, 2022, total liquidity was $473.1 million, comprising $217.4 million in cash and cash equivalents, $50.0 million in short-term investments, and $205.7 million available under the ABL Revolver (after $44.3 million in outstanding letters of credit)[155] - Primary capital requirements include working capital, operating expenses, acquisitions, capital expenditures, debt obligations, and income tax payments, with optional stock repurchases and dividends[157] - The company expects to meet short-term liquidity needs through cash from operations, existing cash, and borrowings, believing current resources are adequate for at least the next 12 months[158][159] Summary of Liquidity (Three months ended March 31, 2022 vs. 2021) | (in thousands) | 2022 | 2021 | | :----------------------------------- | :----- | :----- | | Net cash provided by operating activities | $48,225 | $37,618 | | Net cash used in investing activities | $(68,718) | $(52,392) | | Net cash used in financing activities | $(95,558) | $(9,403) | - Working capital decreased from $551.7 million at December 31, 2021, to $514.7 million at March 31, 2022, due to increases in accounts receivable and inventories, partially offset by an increase in accounts payable[163] - Net cash provided by operating activities increased from 2021 to 2022 due to higher net income and non-cash adjustments, offset by working capital changes[166] - Net cash used in investing activities increased due to the purchase of short-term investments in Q1 2022[168] - Net cash used in financing activities increased significantly due to common stock repurchases ($49.9 million) and the payment of the first annual dividend ($35.4 million) in Q1 2022[170] Debt - The company has $300.0 million in 5.75% Senior Unsecured Notes due February 1, 2028, with interest payable semi-annually[171] - The $500 million Term Loan facility, due December 2028, amortizes in quarterly principal payments of $1.25 million and bears interest at base rate or Eurodollar rate plus a margin. As of March 31, 2022, $492.3 million was outstanding[173] - The ABL Credit Agreement was amended in February 2022, increasing the commitment to $250.0 million and extending maturity to February 2027. It bears interest at base rate or Term SOFR plus a margin[175] - All obligations under the Term Loan and ABL Revolver are guaranteed by existing and future restricted subsidiaries and secured by substantially all company assets[176] - The company was in compliance with all applicable covenants under the Term Loan Agreement, ABL Credit Agreement, and Senior Notes as of March 31, 2022[178] - Three interest rate swaps hedge $400.0 million of the Term Loan's variable cash flows, with fixed rates and maturities up to April 2030[179] Outstanding Bonds, Letters of Credit and Cash-Collateral (March 31, 2022) | (in thousands) | Amount | | :----------------------------------- | :----- | | Performance bonds | $76,020 | | Insurance letters of credit and cash collateral | $50,433 | | Permit and license bonds | $7,934 | | Total bonds and letters of credit | $134,387 | Critical Accounting Policies and Estimates - The preparation of financial statements requires estimates and assumptions that affect reported amounts. No significant changes to critical accounting policies and estimates occurred in Q1 2022 from those disclosed in the 2021 Form 10-K[186] Recent Accounting Pronouncements - Refer to Note 2, Significant Accounting Policies, for a description of recently issued and/or adopted accounting pronouncements[187] Forward-Looking Statements - This report contains forward-looking statements regarding the housing market, industry conditions, financial model, dividends, COVID-19 impact, demand, expansion, acquisitions, sales, profitability, material/labor costs, and supply chain. These statements involve risks and uncertainties and are not guarantees of future performance[188] - The company has no obligation to update forward-looking statements after the report date, except as required by federal securities laws[188] Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses market risks from interest rate fluctuations on variable rate debt, hedging strategies, and LIBOR transition impacts - The company is exposed to market risks from interest rate fluctuations on its variable rate debt. As of March 31, 2022, $98.8 million of variable rate debt was exposed to market risks, after hedging $400.0 million with interest rate swaps[189][190] - A hypothetical one percentage point increase (decrease) in interest rates on variable rate debt would increase (decrease) annual interest expense by approximately $1.0 million[190] - The company uses interest rate swaps to hedge variable cash flows on its Term Loan and does not use derivatives for trading or speculative purposes[191] - LIBOR is used as a reference rate for the Term Loan and interest rate swaps. The company has applied hedge accounting expedients for the transition from LIBOR to SOFR or another alternative benchmark rate, which could potentially result in higher interest rates[192] Item 4. Controls and Procedures Confirms effective disclosure controls and procedures, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[193] - No material changes in internal control over financial reporting occurred during Q1 2022, despite some employees working remotely due to COVID-19[194] PART II – OTHER INFORMATION Item 1. Legal Proceedings Refers to Note 16 for legal proceedings, with no expected material adverse effect on financial position - Information about existing legal proceedings is provided in Note 16, Commitments and Contingencies – Other Commitments and Contingencies[196] Item 1A. Risk Factors Reports no material changes to risk factors previously disclosed in the 2021 Form 10-K - No material changes to the risk factors disclosed in the 2021 Form 10-K have occurred as of the date of this report[197] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details stock repurchase activity for Q1 2022, including shares purchased, average price, and remaining authorization Stock Repurchase Activity (Three months ended March 31, 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs | | :-------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | :------------------------------------------------------------------------------------ | | January 1 - 31, 2022 | — | — | — | — | | February 1 - 28, 2022 | — | — | — | — | | March 1 - 31, 2022 | 510,943 | $97.57 | 510,943 | $150.1 million | | Total | 510,943 | $97.57 | 510,943 | $150.1 million | - The stock repurchase program was extended through March 1, 2023, with an increased authorization of up to $200.0 million. As of March 31, 2022, $150.1 million remained available under the program[198] Item 3. Defaults Upon Senior Securities Reports no material defaults in senior securities during the period - There have been no material defaults in senior securities[199] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[200] Item 5. Other Information No other information is reported under this item - No other information is reported under this item[201] Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including credit agreement amendments, subsidiary lists, and certifications List of Exhibits | Exhibit Number | Description | | :------------- | :---------- | | 10.1 | Amendment No. 3 to Credit Agreement, dated February 17, 2022 | | 21.1*† | List of Subsidiaries of Installed Building Products, Inc. | | 31.1* | CEO Certification pursuant to Exchange Act Rule 13a-14(a) | | 31.2* | CFO Certification pursuant to Exchange Act Rule 13a-14(a) | | 32.1* | CEO Certification pursuant to 18 U.S.C. Section 1350 | | 32.2* | CFO Certification pursuant to 18 U.S.C. Section 1350 | | 101** | Inline XBRL financial statements | | 104** | Cover Page Interactive Data File | SIGNATURES Contains signatures of authorized officers, certifying the report's filing - The report is signed by Jeffrey W. Edwards, President and Chief Executive Officer, and Michael T. Miller, Executive Vice President and Chief Financial Officer, on May 5, 2022[206]