QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
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(Address of principal executive offices) |
(Zip Code) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer | ☐ | Smaller reporting company | ||||
Emerging growth company |
TABLE OF CONTENTS |
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1 | ||||||
Item 1. |
1 | |||||
Item 2. |
26 | |||||
Item 3. |
38 | |||||
Item 4. |
3 9 |
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39 | ||||||
Item 1. |
39 | |||||
Item 1A. |
39 | |||||
Item 2. |
41 | |||||
Item 3. |
4 2 |
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Item 4. |
4 2 |
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Item 5. |
4 2 |
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Item 6. |
42 | |||||
4 4 |
Item 1. |
Financial Statements |
June 30, 2020 |
December 31, 2019 |
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ASSETS |
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Current assets | ||||||||
Cash and cash equivalents |
$ | $ | ||||||
Investments |
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Accounts receivable (less allowance for credit losses of $ |
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Inventories |
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Other current assets |
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Total current assets |
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Property and equipment, net | ||||||||
Operating lease right-of-use |
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Goodwill | ||||||||
Intangibles, net | ||||||||
Other non-current assets |
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Total assets |
$ | |
$ | |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities | ||||||||
Current maturities of long-term debt |
$ | $ | ||||||
Current maturities of operating lease obligations |
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Current maturities of finance lease obligations |
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Accounts payable |
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Accrued compensation |
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Other current liabilities |
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Total current liabilities |
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Long-term debt | ||||||||
Operating lease obligations | ||||||||
Finance lease obligations | ||||||||
Deferred income taxes | ||||||||
Other long-term liabilities | ||||||||
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Total liabilities |
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Commitments and contingencies (Note 15) | ||||||||
Stockholders’ equity | ||||||||
Preferred Stock; $ |
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Common stock; $ |
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Additional paid in capital |
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Retained earnings |
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Treasury stock; at cost: |
( |
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Accumulated other comprehensive loss |
( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ | $ | ||||||
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Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net revenue |
$ | $ | $ | $ | ||||||||||||
Cost of sales |
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Gross profit |
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Operating expenses |
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Selling |
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Administrative |
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Amortization |
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Operating income |
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Other expense |
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Interest expense, net |
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Other |
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Income before income taxes |
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Income tax provision |
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Net income |
$ | $ | $ | $ | ||||||||||||
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Other comprehensive loss, net of tax: |
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Unrealized loss on cash flow hedge, net of tax benefit of $ |
( |
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Comprehensive income |
$ | $ | $ | $ | ||||||||||||
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Basic net income per share |
$ | $ | $ | $ | ||||||||||||
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Diluted net income per share |
$ | $ | $ | $ | ||||||||||||
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Weighted average shares outstanding: |
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Basic |
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Diluted |
Common Stock |
Additional Paid In Capital |
Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Stockholders’ Equity |
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Shares |
Amount |
Shares |
Amount |
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BALANCE - April 1, 2019 |
$ | |
$ | |
$ | |
( |
) | $ | ( |
) | $ | ( |
) | $ | |
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Net income |
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Issuance of common stock awards to employees |
( |
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Surrender of common stock awards |
( |
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) | ( |
) | ||||||||||||||||||||||||||
Share-based compensation expense |
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Share-based compensation issued to directors |
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Other comprehensive loss, net of tax |
( |
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BALANCE - June 30, 2019 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||
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Common Stock |
Additional Paid In Capital |
Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Stockholders’ Equity |
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Shares |
Amount |
Shares |
Amount |
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BALANCE - A 1, 2020pril |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||
Net income |
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Issuance of common stock awards to employees |
( |
) | — | |||||||||||||||||||||||||||||
Surrender of common stock awards |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
Share-based compensation expense |
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Share-based compensation issued to directors |
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Other comprehensive loss, net of tax |
( |
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BALANCE - June 30, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ |
Common Stock |
Additional Paid In |
Retained |
Treasury Stock |
Accumulated Other Comprehensive |
Stockholders’ |
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Shares |
Amount |
Capital |
Earnings |
Shares |
Amount |
Loss |
Equity |
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BALANCE - January 1, 2019 |
$ |
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$ |
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$ |
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( |
) | $ |
( |
) | |
$ |
( |
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$ |
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Net income | |
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Issuance of common stock awards to employees |
( |
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— | ||||||||||||||||||||||||||||
Surrender of common stock awards |
( |
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) | |
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( |
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Share-based compensation expense |
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Share-based compensation issued to directors |
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Other comprehensive loss, net of tax |
( |
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( |
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BALANCE - June 30, 2019 |
$ | $ | $ | ( |
) | $ |
( |
) | |
$ |
) | |
$ |
Common Stock |
Additional Paid In |
Retained |
Treasury Stock |
Accumulated Other Comprehensive |
Stockholders’ |
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Shares |
Amount |
Capital |
Earnings |
Shares |
Amount |
Loss |
Equity |
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BALANCE - January 1, 2020 | $ | $ | $ | ( |
) | ( |
) | |
$ |
( |
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$ | |||||||||||||||||||
Net income | |
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Cumulative effect of accounting changes, net of tax |
( |
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( |
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Issuance of common stock awards to employees |
( |
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— | |||||||||||||||||||||||||||
Surrender of common stock awards |
( |
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) | |
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( |
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Share-based compensation expense |
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Share-based compensation issued to directors |
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Common stock repurchase |
( |
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( |
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Other comprehensive loss, net of tax |
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( |
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( |
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BALANCE - June 30, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | |
$ |
( |
) | |
$ |
Six months ended June 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities |
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Net income |
$ | $ | ||||||
Adjustments to reconcile net income to net cash provided by operating activities |
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Depreciation and amortization of property and equipment |
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Amortization of operating lease right-of-use |
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Amortization of intangibles |
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Amortization of deferred financing costs and debt discount |
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Provision for credit losses |
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Gain on sale of property and equipment |
( |
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Noncash stock compensation |
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Deferred income taxes |
( |
) | — | |||||
Changes in assets and liabilities, excluding effects of acquisitions |
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Accounts receivable |
( |
) | ( |
) | ||||
Inventories |
( |
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Other assets |
( |
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Accounts payable |
( |
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Income taxes receivable/payable |
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Other liabilities |
( |
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Net cash provided by operating activities |
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Cash flows from investing activities |
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Purchases of investments |
( |
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Maturities of short term investments |
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Purchases of property and equipment |
( |
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Acquisitions of businesses |
( |
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Proceeds from sale of property and equipment |
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Other |
( |
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Net cash used in investing activities |
( |
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Cash flows from financing activities |
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Payments on term loan |
— | ( |
) | |||||
Proceeds from vehicle and equipment notes payable |
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Debt issuance costs |
( |
) | — | |||||
Principal payments on long-term debt |
( |
) | ( |
) | ||||
Principal payments on finance lease obligations |
( |
) | ( |
) | ||||
Acquisition-related obligations |
( |
) | ( |
) | ||||
Repurchase of common stock |
( |
) | — | |||||
Surrender of common stock awards by employees |
( |
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) | ||||
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Net cash used in financing activities |
( |
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Net change in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
$ | |
$ | |||||
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Supplemental disclosures of cash flow information |
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Net cash paid during the period for: |
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Interest |
$ | $ | ||||||
Income taxes, net of refunds |
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Supplemental disclosure of noncash activities |
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Right-of-use |
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Property and equipment obtained in exchange for finance lease obligations |
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Seller obligations in connection with acquisition of businesses |
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Unpaid purchases of property and equipment included in accounts payable |
Standard |
Effective Date |
Adoption | ||
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) |
January 1, 2020 | This pronouncement and subsequently-issued amendments change the accounting for credit losses on available-for-sale | ||
ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment |
January 1, 2020 | This ASU addresses concerns over the cost and complexity of the two-step goodwill impairment test by removing the second step of the goodwill impairment test. Going forward, we will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. | ||
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement |
January 1, 2020 | This pronouncement amends Topic 820 to eliminate, add and modify certain disclosure requirements for fair value measurements. The adoption of this standard did not impact our financial statements or have a material effect on our disclosures. | ||
ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848) |
Effective upon issuance | This pronouncement contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The provisions of ASC 848 must be applied at a Topic, Subtopic or Industry Subtopic for all transactions other than derivatives, which may be applied at a hedging relationship level. The relief granted in ASC 848 is applicable only to legacy contracts if the amendments made to the agreements are solely for reference rate reform activities. We elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. |
Standard |
Description |
Effective Date |
Effect on the financial statements or other significant matters | |||
ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes |
This pronouncement simplifies the accounting for income taxes by removing certain exceptions to the general principles of Topic 740 and improves the consistent application of GAAP by clarifying and amending existing guidance. | Annual periods beginning after December 15, 2020, including interim periods therein. Early adoption is permitted. | We are currently assessing the impact of adoption on our consolidated financial statements. |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||
Residential new construction |
$ | % | $ | % | $ | |
% | $ | % | |||||||||||||||||||||||
Repair and remodel |
% | % | % | % | ||||||||||||||||||||||||||||
Commercial |
% | % | % | % | ||||||||||||||||||||||||||||
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Net revenues |
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
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Three months ended June 30, |
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Six months ended June 30, |
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2020 |
2019 |
2020 |
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2019 |
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Insulation |
$ | % | $ | |
% | $ |
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% |
$ | % | ||||||||||||||||||||||
Waterproofing |
% | |
% | % | % | |||||||||||||||||||||||||||
Shower doors, shelving and mirrors |
% | |
% | % | % | |||||||||||||||||||||||||||
Garage doors |
% | |
% | % | % | |||||||||||||||||||||||||||
Rain gutters |
% | |
% | % | % | |||||||||||||||||||||||||||
Window blinds |
% | |
% | % | % | |||||||||||||||||||||||||||
Other building products |
% | |
% | % | % | |||||||||||||||||||||||||||
Net revenues |
$ | % | $ | |
% | $ |
% | $ | % |
June 30, 2020 |
December 31, 2019 |
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Contract assets |
$ | $ | |
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Contract liabilities |
( |
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) |
June 30, 2020 |
December 31, 2019 |
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Costs incurred on uncompleted contracts |
$ | $ | |
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Estimated earnings |
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Total |
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Less: Billings to date |
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Net under billings |
$ | $ | ||||||
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June 30, 2020 |
December 31, 2019 |
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Costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) |
$ | $ | |
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Billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities) |
( |
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Net under billings |
$ | $ | ||||||
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Balance as of January 1, 2020 |
$ | |||
Cumulative effect of change in accounting principle |
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Current period provision |
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Recoveries collected and other |
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Amounts written off |
( |
) | ||
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Balance as of June 30, 2020 |
$ | |||
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Goodwill (Gross) |
Accumulated Impairment Losses |
Goodwill (Net) |
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January 1, 2020 |
$ | $ | ( |
) | $ | |||||||
Business Combinations |
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Other |
( |
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June 30, 2020 |
$ | $ | ( |
) | $ | |||||||
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As of June 30, |
As of December 31, |
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2020 |
2019 |
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Gross Carrying Amount |
Accumulated Amortization |
Net Book Value |
Gross Carrying Amount |
Accumulated Amortization |
Net Book Value |
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Amortized intangibles: |
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Customer relationships |
$ |
$ |
$ |
$ |
$ |
$ |
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Covenants not-to-compete |
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Trademarks and tradenames |
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Backlog |
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$ |
$ |
$ |
$ |
$ |
$ |
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Remainder of 2020 |
$ | |||
2021 |
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2022 |
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2023 |
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2024 |
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Thereafter |
As of June 30, | As of December 31, | |||||||
2020 | 2019 | |||||||
Senior Notes due 2028, net of unamortized debt issuance costs of $ |
$ | $ | ||||||
Term loan, net of unamortized debt issuance costs of $ |
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Vehicle and equipment notes, maturing through |
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Various notes payable, maturing through |
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Less: current maturities |
( |
) | ( |
) | ||||
Long-term debt, less current maturities |
$ | $ | ||||||
Remainder of 2020 |
$ | |||
2021 |
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2022 |
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2023 |
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2024 |
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Thereafter |
(in thousands) |
Classification |
As of June 30, 2020 | As of December 31, 2019 | |||||
Assets |
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Non-Current |
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Operating |
Operating lease right-of-use |
$ |
$ |
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Finance |
Property and equipment, net |
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Total lease assets |
$ |
$ |
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Liabilities |
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Current |
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Operating |
Current maturities of operating lease obligations |
$ |
$ |
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Financing |
Current maturities of finance lease obligations |
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Non-Current |
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Operating |
Operating lease obligations |
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Financing |
Finance lease obligations |
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Total lease liabilities |
$ |
$ |
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Weighted-average remaining lease term: |
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Operating leases |
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Finance leases |
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Weighted-average discount rate: |
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Operating leases |
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Finance leases |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
(in thousands) |
Classification | 2020 | 2019 | 2020 | 2019 | |||||||||||||
Operating lease cost (1) |
Administrative | $ |
$ | $ | $ | |||||||||||||
Finance lease cost |
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Amortization of leased assets (2) |
Cost of sales | |||||||||||||||||
Interest on finance lease obligations |
Interest expense, net | |||||||||||||||||
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Total lease costs |
$ |
$ | $ | $ | ||||||||||||||
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(1) |
Includes variable lease costs of $ |
(2) |
Includes variable lease costs of $ |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: |
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Operating cash flows for operating leases |
$ | $ | $ | $ | ||||||||||||
Operating cash flows for finance leases |
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Financing cash flows for finance leases |
Finance Leases | Operating Leases | |||||||||||||||
Related Party | Other | Total Operating | ||||||||||||||
Remainder of 2020 |
$ | $ | $ | $ | ||||||||||||
2021 |
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2022 |
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2023 |
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2024 |
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Thereafter |
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Total minimum lease payments |
$ | $ | ||||||||||||||
Less: Amounts representing executory costs |
( |
) | — | |||||||||||||
Less: Amounts representing interest |
( |
) | ( |
) | ||||||||||||
Present value of future minimum lease payments |
||||||||||||||||
Less: Current obligation under leases |
( |
) | ( |
) | ||||||||||||
Long-term lease obligations |
$ | $ | ||||||||||||||
As of June 30, 2020 | As of December 31, 2019 | |||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Financial assets: |
||||||||||||||||||||||||||||||||
Cash equivalents |
$ | $ | $ | — | $ | — | $ | $ | $ | — | $ | — | ||||||||||||||||||||
Financial liabilities: |
||||||||||||||||||||||||||||||||
Derivative financial instruments |
$ | $ | — | $ | $ | — | $ | $ | — | $ | $ | — | ||||||||||||||||||||
Contingent consideration |
— | — | — | — | ||||||||||||||||||||||||||||
Total financial liabilities |
$ | $ | — | $ | $ | $ | $ | — | $ | $ | ||||||||||||||||||||||
Contingent consideration liability - January 1, 2020 |
$ | |||
Preliminary purchase price |
||||
Fair value adjustments |
( |
) | ||
Accretion in value |
||||
Amounts paid to sellers |
( |
) | ||
Contingent consideration liability - |
$ | |||
As of June 30, 2020 | As of December 31, 2019 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
Investments |
$ | $ | $ | $ | ||||||||||||
Senior Notes (1) |
(1) |
Excludes the impact of unamortized debt issuance costs. |
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
Included in other current liabilities |
$ | $ | ||||||
Included in other long-term liabilities |
||||||||
|
|
|
|
|||||
$ | $ | |||||||
|
|
|
|
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
Included in other non-current assets |
$ | $ |
Common Stock Awards | Performance-Based Stock Awards |
Performance-Based Restricted Stock Units |
||||||||||||||||||||||
Awards | Weighted Average Grant Date Fair Value Per Share |
Awards | Weighted Average Grant Date Fair Value Per Share |
Units | Weighted Average Grant Date Fair Value Per Share |
|||||||||||||||||||
Nonvested awards/units at December 31, 2019 |
$ | $ | $ | |||||||||||||||||||||
Granted |
||||||||||||||||||||||||
Vested |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
Forfeited/Cancelled |
( |
) | ( |
) | ||||||||||||||||||||
Nonvested awards/units at June 30, 2020 |
$ | $ | $ | |||||||||||||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Cost of sales |
$ | $ | $ | $ | ||||||||||||
Selling |
||||||||||||||||
Administrative |
||||||||||||||||
$ |
$ |
$ |
$ |
|||||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Sales |
$ | $ | $ | $ | ||||||||||||
Purchases |
||||||||||||||||
Rent |
June 30, 2 020 |
December 31, 2019 |
|||||||
Included in other current liabilities |
$ | $ | ||||||
Included in other long-term liabilities |
||||||||
|
|
|
|
|||||
$ | $ | |||||||
|
|
|
|
June 30, 2020 |
December 31, 2019 |
|||||||
Insurance receivables and indemnification assets for claims under fully insured policies |
$ | $ | ||||||
Insurance receivables for claims that exceeded the stop loss limit |
||||||||
|
|
|
|
|||||
Total insurance receivables and indemnification assets included in other non-current assets |
$ | $ | ||||||
|
|
|
|
2020 Acquisitions |
Date | Acquisition Type |
Cash Paid | Seller Obligations |
Total Purchase Price |
Three months ended June 30, 2020 |
Six months ended June 30, 2020 |
|||||||||||||||||||||||||||||
Revenue | Net Income (Loss) |
Revenue | Net Income (Loss) |
|||||||||||||||||||||||||||||||||
Royals |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Other |
Various | ( |
) | ( |
) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Acquisitions |
Date | Acquisition Type |
Cash Paid | Seller Obligations |
Total Purchase Price |
Three months ended June 30, 2019 |
Six months ended June 30, 2019 |
|||||||||||||||||||||||||||||
Revenue | Net Income (Loss) |
Revenue | Net Income (Loss) |
|||||||||||||||||||||||||||||||||
1st State Insulation |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Expert Insulation |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020 | As of June 30, 2019 | |||||||||||||||||||||||
Royals | Other | Total | 1st State | Expert | Total | |||||||||||||||||||
Estimated fair values: |
||||||||||||||||||||||||
Accounts receivable |
$ | $ | $ | $ | — | $ | $ | |||||||||||||||||
Inventories |
||||||||||||||||||||||||
Other current assets |
— | — | — | |||||||||||||||||||||
Property and equipment |
||||||||||||||||||||||||
Intangibles |
||||||||||||||||||||||||
Goodwill |
||||||||||||||||||||||||
Other non-current assets |
— | |||||||||||||||||||||||
Accounts payable and other current liabilities |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Deferred income tax liabilities |
( |
) | — | ( |
) | — | — | — | ||||||||||||||||
Other long-term liabilities |
— | ( |
) | ( |
) | — | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Fair value of assets acquired and purchase price |
||||||||||||||||||||||||
Less seller obligations |
||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash paid |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Acquired intangibles assets |
Estimated Fair Value |
Weighted Average Estimated Useful Life (yrs.) |
Estimated Fair Value |
Weighted Average Estimated Useful Life (yrs.) |
||||||||||||
Customer relationships |
$ | $ | ||||||||||||||
Trademarks and trade names |
||||||||||||||||
Non-competition agreements |
||||||||||||||||
Backlog |
— | — |
Unaudited pro forma for the three months ended June 30, |
Unaudited pro forma for the six ended June 30, |
|||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net revenue |
$ | $ | $ | $ | ||||||||||||
Net income |
||||||||||||||||
Basic net income per share |
||||||||||||||||
Diluted net income per share |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
Period-over-period Growth |
||||||||||||||||
Sales Growth |
6.0 | % | 11.8 | % | 10.8 | % | 12.6 | % | ||||||||
Same Branch Sales Growth (1) |
2.3 | % | 7.8 | % | 7.0 | % | 7.6 | % | ||||||||
Single-Family Sales Growth (2) |
-0.2 | % | 9.5 | % | 5.1 | % | 11.8 | % | ||||||||
Single-Family Same Branch Sales Growth (1)(2) |
-3.5 | % | 4.4 | % | 1.0 | % | 5.4 | % | ||||||||
Residential Sales Growth (3) |
5.6 | % | 9.5 | % | 9.7 | % | 11.5 | % | ||||||||
Residential Same Branch Sales Growth (1)(3) |
2.5 | % | 5.2 | % | 5.9 | % | 6.0 | % | ||||||||
Same Branch Sales Growth |
||||||||||||||||
Volume Growth (1)(4) |
-2.1 | % | 0.7 | % | -1.2 | % | 2.0 | % | ||||||||
Price/Mix Growth (1)(5) |
4.8 | % | 5.7 | % | 8.4 | % | 4.9 | % | ||||||||
Large Commercial Sales Growth (1) |
7.5 | % | 21.0 | % | 10.6 | % | 13.7 | % | ||||||||
U.S. Housing Market (6) |
||||||||||||||||
Total Completions Growth |
-2.9 | % | 0.5 | % | -1.7 | % | 3.2 | % | ||||||||
Single-Family Completions Growth (2) |
-2.5 | % | 6.3 | % | 0.7 | % | 5.5 | % |
(1) |
Same-branch basis represents period-over-period growth for branch locations owned greater than 12 months as of each financial statement date. |
(2) |
Calculated based on period-over-period growth in the single-family subset of the residential new construction end market. |
(3) |
Calculated based on period-over-period growth in the residential new construction end market. |
(4) |
Excludes the large commercial end market; calculated as period-over-period change in the number of completed same-branch residential new construction and repair and remodel jobs. |
(5) |
Excludes the large commercial end market; defined as change in the mix of products sold and related pricing changes and calculated as the change in period-over-period average selling price per same-branch residential new construction and repair and remodel jobs multiplied by total current year jobs. The mix of end customer and product would have an impact on the year-over-year price per job. |
(6) |
U.S. Census Bureau data, as revised. |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
2020 | Change | 2019 | 2020 | Change | 2019 | |||||||||||||||||||
Net revenue |
$ | 393,939 | 6.0 | % | $ | 371,814 | $ | 791,270 | 10.8 | % | $ | 713,949 | ||||||||||||
Cost of sales |
266,800 | 0.8 | % | 264,557 | 547,871 | 5.9 | % | 517,254 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Gross profit |
$ | 127,139 | 18.5 | % | $ | 107,257 | $ | 243,399 | 23.7 | % | $ | 196,695 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Gross profit percentage |
32.3 | % | 28.8 | % | 30.8 | % | 27.6 | % |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
2020 | Change | 2019 | 2020 | Change | 2019 | |||||||||||||||||||
Selling |
$ | 19,011 | 6.2 | % | $ | 17,903 | $ | 39,366 | 12.4 | % | $ | 35,033 | ||||||||||||
Percentage of total net revenue |
4.8 | % | 4.8 | % | 5.0 | % | 4.9 | % | ||||||||||||||||
Administrative |
$ | 59,060 | 12.5 | % | $ | 52,493 | $ | 119,255 | 18.2 | % | $ | 100,924 | ||||||||||||
Percentage of total net revenue |
15.0 | % | 14.1 | % | 15.1 | % | 14.1 | % | ||||||||||||||||
Amortization |
$ | 6,724 | 11.7 | % | $ | 6,021 | $ | 13,404 | 12.6 | % | $ | 11,909 | ||||||||||||
Percentage of total net revenue |
1.7 | % | 1.6 | % | 1.7 | % | 1.7 | % |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
2020 | Change | 2019 | 2020 | Change | 2019 | |||||||||||||||||||
Interest expense, net |
$ | 7,757 | 37.3 | % | $ | 5,649 | $ | 15,115 | 33.5 | % | $ | 11,325 | ||||||||||||
Other |
129 | 27.7 | % | 101 | 129 | -42.9 | % | 226 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total other expense, net |
$ | 7,886 | 37.1 | % | $ | 5,750 | $ | 15,244 | 32.0 | % | $ | 11,551 | ||||||||||||
|
|
|
|
|
|
|
|
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Income tax provision |
$ | 9,121 | $ | 6,171 | $ | 14,805 | $ | 9,525 | ||||||||
Effective tax rate |
26.5 | % | 24.6 | % | 26.4 | % | 25.6 | % |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Unrealized loss on cash flow hedge, net of taxes |
$ | (150 | ) | $(3,546) | $ | (5,758 | ) | $ | (6,295 | ) |
• | Other than branches that serve states where construction was not deemed “essential” during portions of the first and second quarters of 2020, we have experienced limited business disruptions to date and therefore have not needed to implement significant continuity measures and have not incurred significant expenditures to do so. Assuming a significant number of additional states or markets in which we operate do not reverse their current positions about construction being an “essential” business, we do not anticipate having to implement any additional measures in the future. |
• | To date, we have not experienced a disruption in the supply of the various insulation products we install. All insulation manufacturers from which we purchase operate facilities in the continental U.S. and continue to timely ship material. We are monitoring suppliers of our other products and have had no issues to date acquiring the inventory we need to operate our business. We currently do not anticipate any significant issues with securing these other products in the future. |
• | During the first half of 2020, we laid off or furloughed approximately 600 employees in areas where construction was not deemed “essential.” We are pleased to report we have rehired substantially all of those employees. |
• | Our corporate office is fully operational, even though many employees are working remotely. As such, we have made no modifications to internal controls over financial reporting and have confidence controls are operating as designed. We have enhanced our efforts to mitigate cyber threats and phishing, given the number of employees working remotely. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact of their design and operating effectiveness. |
• | We continue to expect some impact to our earnings, financial position and cash flows in the remainder of 2020, however there is much uncertainty surrounding the estimated magnitude of these impacts. We estimate limited impact to our Condensed Consolidated Balance Sheets other than a potential reduction in working capital due to the possibility of reduced net revenue and net income, although this will be mitigated somewhat by actions taken by management to limit spending during 2020. Trade accounts receivable may also be reduced somewhat by lower net revenue and a higher allowance for credit losses |
due to enhanced risk of uncollectibility from some customers. We anticipate revenue and net income will be negatively impacted in the remainder of 2020. While our cash from operations may decline over recent performance due to a decrease in expected net income driven by lower net revenue, we do not anticipate any issues meeting debt obligations or paying vendors timely given our strong liquidity and large cash reserves. See discussion of impacts to our liquidity within the Liquidity and Capital Resources section below. |
• | temporarily suspending stock repurchases under our share repurchase program; |
• | delaying acquisition closings during portions of the first and second quarters until late June 2020 after our industry stabilized; |
• | temporarily suspending pay increases for our executive officers through the second quarter of 2020; and |
• | eliminating non-essential travel. |
As of June 30, 2020 | As of December 31, 2019 | |||||||
Cash and cash equivalents |
$ | 252,488 | $ | 177,889 | ||||
Short-term investments |
16,688 | 37,961 | ||||||
ABL Revolver |
200,000 | 200,000 | ||||||
Less: outstanding letters of credit |
(38,672 | ) | (38,672 | ) | ||||
|
|
|
|
|||||
Total liquidity (1) |
$ | 430,504 | $ | 377,178 | ||||
|
|
|
|
(1) |
Total liquidity reflects full borrowing base capacity under our asset-based lending credit facility (as defined below) and may be limited by certain cash collateral limitations depending upon the status of our borrowing base availability. These potential deductions would lower our available cash and cash equivalents balance shown in the table above. As of June 30, 2020 and December 31, 2019, total liquidity would be reduced by $29.0 million and $31.9 million, respectively, due to these cash collateral limitations. In addition, total liquidity is further reduced by $10.0 million within cash and cash equivalents above which was deposited into a trust to serve as additional collateral for our workers’ compensation and general liability policies. This amount can be converted to a letter of credit at our discretion and would reduce the availability on our asset-based lending credit facility (as defined below) included in the table above. |
As of June 30, 2020 | ||||
Performance bonds |
$ | 33,414 | ||
Insurance letters of credit and cash collateral |
49,898 | |||
Permit and license bonds |
7,488 | |||
|
|
|||
Total bonds and letters of credit |
$ | 90,800 | ||
|
|
Standard |
Adoption | |
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) |
This pronouncement and subsequently-issued amendments change the accounting for credit losses on available-for-sale | |
ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment |
This ASU addresses concerns over the cost and complexity of the two-step goodwill impairment test; this pronouncement removes the second step of the goodwill impairment test. Going forward, an entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. | |
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement |
This pronouncement amends Topic 820 to eliminate, add and modify certain disclosure requirements for fair value measurements. The adoption of this standard did not impact our financial statements or have a material effect on our disclosures. | |
ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848) |
This pronouncement contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The provisions of ASC 848 must be applied at a Topic, Subtopic or Industry Subtopic for all transactions other than derivatives, which may be applied at a hedging relationship level. The relief granted in ASC 848 is applicable only to legacy contracts if the amendments made to the agreements are solely for reference rate reform activities. We elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. |
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
• | the risk that the other parties to the agreements would not perform; |
• | the risk that the duration or amount of the hedge may not match the duration or amount of the related liability; |
• | the risk that hedging transactions may be adjusted from time to time in accordance with accounting rules to reflect changes in fair values including downward adjustments which would affect our stockholders’ equity; and |
• | the risk that we may not be able to meet the terms and conditions of the hedging instruments, in which case we may be required to settle the instruments prior to maturity with cash payments that could significantly affect our liquidity. |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Total Number of Shares Purchased (1) |
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 (2) |
|||||||||||||
April 1 - 30, 2020 |
24,840 | $ | 38.60 | — | — | |||||||||||
May 1 - 31, 2020 |
— | — | — | — | ||||||||||||
June 1 - 30, 2020 |
206 | 68.78 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
25,046 | $ | 38.85 | — | $ | 44.9 million | |||||||||||
|
|
|
|
|
|
|
|
(1) |
Represents shares surrendered to the Company by employees to satisfy tax withholding obligations arising in connection with the vesting of 157,881 shares of restricted stock awarded under our 2014 Omnibus Incentive Plan. |
(2) |
On February 26, 2018, our board of directors authorized a $50 million stock repurchase program effective March 2, 2018 and on October 31, 2018, our board of directors approved an additional stock repurchase program, effective November 6, 2018, pursuant to which we may purchase up to an additional $100 million of our outstanding common stock. On February 20, 2020, our board of directors approved extending the current stock repurchase program to March 1, 2021. During the six months ended June 30, 2020, we repurchased approximately 443 thousand shares of our common stock with an aggregate price of approximately $15.8 million, or $35.59 average price per share. We did not repurchase any shares under our stock repurchase program during the six months ended June 30, 2019. In response to COVID-19, we have temporarily suspended our share repurchase program and accordingly we did not repurchase any shares during the three months ended June 30, 2020. |
Item 3. |
Defaults Upon Senior Securities |
Item 4. |
Mine Safety Disclosures |
Item 5. |
Other Information |
Item 6. |
Exhibits |
Exhibit Number |
Description | |
32.2* | CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS** | Inline XBRL Instance Document – the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document | |
101.SCH** | Inline XBRL Taxonomy Extension Schema Document | |
101. CAL** | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101. LAB** | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101. PRE** | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
101. DEF** | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
104** | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
* | Filed herewith. |
** | Submitted electronically with the report. |
INSTALLED BUILDING PRODUCTS, INC. | ||
By: | /s/ Jeffrey W. Edwards | |
Jeffrey W. Edwards | ||
President and Chief Executive Officer | ||
By: | /s/ Michael T. Miller | |
Michael T. Miller | ||
Executive Vice President and Chief Financial Officer |