0001193125-20-211696.txt : 20200806 0001193125-20-211696.hdr.sgml : 20200806 20200806140730 ACCESSION NUMBER: 0001193125-20-211696 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 98 CONFORMED PERIOD OF REPORT: 20200630 FILED AS OF DATE: 20200806 DATE AS OF CHANGE: 20200806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Installed Building Products, Inc. CENTRAL INDEX KEY: 0001580905 STANDARD INDUSTRIAL CLASSIFICATION: GEN BUILDING CONTRACTORS - RESIDENTIAL BUILDINGS [1520] IRS NUMBER: 453707650 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36307 FILM NUMBER: 201080951 BUSINESS ADDRESS: STREET 1: 495 SOUTH HIGH STREET, SUITE 50 CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 614-221-3399 MAIL ADDRESS: STREET 1: 495 SOUTH HIGH STREET, SUITE 50 CITY: COLUMBUS STATE: OH ZIP: 43215 10-Q 1 d62475d10q.htm 10-Q 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From
                    
To
                    
Commission File Number: 001-36307
 
 
Installed Building Products, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
45-3707650
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
495 South High Street, Suite 50
Columbus, Ohio
 
43215
(Address of principal executive offices)
 
(Zip Code)
(614)
221-3399
(Registrant’s telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common stock
 
IBP
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  
On July 
29
, 2020, the registrant
had
29,799,188
shares of common stock, par value $0.01 per share, outstanding.
 
 
 

TABLE OF CONTENTS
 
     1  
Item 1.
       1  
Item 2.
       26  
Item 3.
       38  
Item 4.
       3
9
 
     39  
Item 1.
       39  
Item 1A.
       39  
Item 2.
       41  
Item 3.
       4
2
 
Item 4.
       4
2
 
Item 5.
       4
2
 
Item 6.
       42  
     4
4
 
 
i

PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements
INSTALLED BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
 
     June 30,
2020
     December 31,
2019
 
ASSETS
     
Current assets      
Cash and cash equivalents
   $ 252,488      $ 177,889  
Investments
     16,688        37,961  
Accounts receivable (less allowance for credit losses of $9,617 and $6,878 at June 30, 2020 and December 31, 2019, respectively)
     247,627        244,519  
Inventories
     69,149        74,606  
Other current assets
     33,996        46,974  
  
 
 
    
 
 
 
Total current assets
     619,948        581,949  
Property and equipment, net      103,422        106,410  
Operating lease
right-of-use
assets
     47,448        45,691  
Goodwill      200,264        195,652  
Intangibles, net      147,117        153,562  
Other
non-current
assets
     12,851        16,215  
  
 
 
    
 
 
 
Total assets
   $  1,131,050      $  1,099,479  
  
 
 
    
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
     
Current liabilities      
Current maturities of long-term debt
   $ 24,230      $ 24,164  
Current maturities of operating lease obligations
     16,209        15,459  
Current maturities of finance lease obligations
     2,333        2,747  
Accounts payable
     81,386        98,871  
Accrued compensation
     36,520        33,636  
Other current liabilities
     53,371        39,272  
  
 
 
    
 
 
 
Total current liabilities
     214,049        214,149  
Long-term debt      544,976        545,031  
Operating lease obligations      30,721        29,785  
Finance lease obligations      3,051        3,597  
Deferred income taxes      5,022        9,175  
Other long-term liabilities      60,495        47,711  
  
 
 
    
 
 
 
Total liabilities
     858,314        849,448  
Commitments and contingencies (Note 15)      
Stockholders’ equity      
Preferred Stock; $0.01 par value: 5,000,000 authorized and 0 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
     —          —    
Common stock; $0.01 par value: 100,000,000 authorized, 33,124,237 and 32,871,504 issued and 29,799,188 and 30,016,340 shares outstanding at June 30, 2020 and December 31, 2019, respectively
     331        329  
Additional paid in capital
     195,288        190,230  
Retained earnings
     213,506        173,371  
Treasury stock; at cost: 3,325,049 and 2,855,164 shares at June 30, 2020 and December 31, 2019, respectively
     (123,488      (106,756
Accumulated other comprehensive loss
     (12,901      (7,143
  
 
 
    
 
 
 
Total stockholders’ equity
     272,736        250,031  
  
 
 
    
 
 
 
Total liabilities and stockholders’ equity
   $ 1,131,050      $ 1,099,479  
  
 
 
    
 
 
 
 
1
See accompanying notes to consolidated financial statements

INSTALLED BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands, except share and per share amounts)
 
     Three months ended June 30,     Six months ended June 30,  
     2020     2019     2020     2019  
Net revenue
   $ 393,939     $ 371,814     $ 791,270     $ 713,949  
Cost of sales
     266,800       264,557       547,871       517,254  
  
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
     127,139       107,257       243,399       196,695  
Operating expenses
            
Selling
     19,011       17,903       39,366       35,033  
Administrative
     59,060       52,493       119,255       100,924  
Amortization
     6,724       6,021       13,404       11,909  
  
 
 
   
 
 
   
 
 
   
 
 
 
Operating income
     42,344       30,840       71,374       48,829  
Other expense
            
Interest expense, net
     7,757       5,649       15,115       11,325  
Other
     129       101       129       226  
  
 
 
   
 
 
   
 
 
   
 
 
 
Income before income taxes
     34,458       25,090       56,130       37,278  
Income tax provision
     9,121       6,171       14,805       9,525  
  
 
 
   
 
 
   
 
 
   
 
 
 
Net income
   $ 25,337     $ 18,919     $ 41,325     $ 27,753  
  
 
 
   
 
 
   
 
 
   
 
 
 
Other comprehensive loss, net of tax:
            
Unrealized loss on cash flow hedge, net of tax benefit of $51 and $1,180 for the three months ended June 30, 2020 and 2019, respectively, and $1,990 and $2,101 for the six months ended June 30, 2020 and 2019, respectively
     (150     (3,546     (5,758     (6,295
  
 
 
   
 
 
   
 
 
   
 
 
 
Comprehensive income
   $ 25,187     $ 15,373     $ 35,567     $ 21,458  
  
 
 
   
 
 
   
 
 
   
 
 
 
Basic net income per share
   $ 0.86     $ 0.64     $ 1.40     $ 0.93  
  
 
 
   
 
 
   
 
 
   
 
 
 
Diluted net income per share
   $ 0.86     $ 0.63     $ 1.39     $ 0.93  
  
 
 
   
 
 
   
 
 
   
 
 
 
Weighted average shares outstanding:
            
Basic
     29,447,121       29,758,071       29,584,782       29,719,194  
Diluted
     29,584,167       29,834,748       29,757,560       29,820,917  
 
2
See accompanying notes to consolidated financial statements

INSTALLED BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND JUNE 30, 2020
(in thousands, except share amounts)
 
   
Common Stock
   
Additional

Paid In

Capital
   
Retained

Earnings
   
Treasury Stock
   
Accumulated Other

Comprehensive

Loss
   
Stockholders’

Equity
 
   
Shares
   
Amount
   
Shares
   
Amount
 
BALANCE - April 1, 2019
    32,780,967     $  328     $  183,836     $  114,046       (2,809,004   $  (104,429   $  (3,180   $  190,601  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income
          18,919             18,919  
Issuance of common stock awards to employees
    82,867       1       (1             —    
Surrender of common stock awards
            (45,492     (2,319       (2,319
Share-based compensation expense
        2,263               2,263  
Share-based compensation issued to directors
    7,670         84               84  
Other comprehensive loss, net of tax
                (3,546     (3,546
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
BALANCE - June 30, 2019     32,871,504     $ 329     $ 186,182     $ 132,965       (2,854,496   $ (106,748   $ (6,726   $ 206,002  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
    
Common Stock
    
Additional

Paid In

Capital
   
Retained

Earnings
    
Treasury Stock
   
Accumulated Other

Comprehensive

Loss
   
Stockholders’

Equity
 
    
Shares
    
Amount
    
Shares
   
Amount
 
BALANCE -
A
pril
1, 2020
    32,961,777     $ 330     $ 192,564     $ 188,169       (3,299,465   $ (122,515   $  (12,751   $ 245,797  
Net income
 
 
 
 
 
25,337
 
 
 
 
 
 
25,337
 
Issuance of common stock awards to employees
    156,405       1       (1             —    
Surrender of common stock awards
            (25,584     (973       (973
Share-based compensation expense
        2,633               2,633  
Share-based compensation issued to directors
    6,055         92               92  
Other comprehensive loss, net of tax
                (150     (150
BALANCE - June 30, 2020
    33,124,237     $ 331     $ 195,288     $ 213,506       (3,325,049   $ (123,488   $ (12,901   $ 272,736  
 
3
See accompanying notes to consolidated financial statements

INSTALLED BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND JUNE 30, 2020
(in thousands, except share amounts)
 
    
Common Stock
    
Additional
Paid In
   
Retained
    
Treasury Stock
   
Accumulated Other
Comprehensive
   
Stockholders’
 
    
Shares
    
Amount
    
Capital
   
Earnings
    
Shares
   
Amount
   
Loss
   
Equity
 
BALANCE - January 1, 2019
     32,723,972       
$
 327     
$
 181,815    
$
 105,212       (2,808,361  
$
 (104,425
 
$
(431
 
$
 182,498  
Net income              27,753           
 
  27,753  
Issuance of common stock awards to employees
     139,862        2        (2           
 
  —    
Surrender of common stock awards
               (46,135     (2,323
 
    
 
  (2,323
Share-based compensation expense
           4,211             
 
  4,211  
Share-based compensation issued to directors
     7,670           158             
 
  158  
Other comprehensive loss, net of tax
                 (6,295 )  
 
  (6,295
BALANCE - June 30, 2019
     32,871,504      $ 329      $ 186,182     $ 132,965       (2,854,496  
$
 (106,748
 
$
 
(6,726
 
$ 206,002  
 
    
Common Stock
    
Additional
Paid In
   
Retained
   
Treasury Stock
   
Accumulated Other
Comprehensive
   
Stockholders’
 
    
Shares
    
Amount
    
Capital
   
Earnings
   
Shares
   
Amount
   
Loss
   
Equity
 
BALANCE - January 1, 2020      32,871,504      $ 329      $ 190,230     $ 173,371       (2,855,164  
 
$
 (106,756
 
$
 (7,143
 
$ 250,031  
Net income              41,325      
 
    
 
  41,325  
Cumulative effect of accounting changes, net of tax
             (1,190    
 
    
 
  (1,190
Issuance of common stock awards to employees
     246,362        2        (2      
 
    
 
  —    
Surrender of common stock awards
               (27,343     (973
 
    
 
  (973
Share-based compensation expense
           4,935        
 
    
 
  4,935  
Share-based compensation issued to directors
     6,371           125        
 
    
 
  125  
Common stock repurchase
               (442,542     (15,759
 
    
 
  (15,759
Other comprehensive loss, net of tax
              
 
  (5,758 )  
 
  (5,758
BALANCE - June 30, 2020
 
 
 
 
 
 
 
 
 
 
     33,124,237      $ 331      $ 195,288     $ 213,506       (3,325,049   $ (123,488
 
$
 (12,901
 
$ 272,736  
 
4
See accompanying notes to consolidated financial statements

INSTALLED BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
     Six months ended June 30,  
     2020     2019  
Cash flows from operating activities
    
Net income
   $ 41,325     $ 27,753  
Adjustments to reconcile net income to net cash provided by operating activities
    
Depreciation and amortization of property and equipment
     20,623       18,614  
Amortization of operating lease
right-of-use
assets
     8,545       7,607  
Amortization of intangibles
     13,404       11,909  
Amortization of deferred financing costs and debt discount
     670       564  
Provision for credit losses
     2,668       1,605  
Gain on sale of property and equipment
     (144     (156
Noncash stock compensation
     5,415       4,345  
Deferred income taxes
     (1,679     —    
Changes in assets and liabilities, excluding effects of acquisitions
    
Accounts receivable
     (3,158     (17,876
Inventories
     6,072       (1,650
Other assets
     9,351       (1,495
Accounts payable
     (18,504     (1,253
Income taxes receivable/payable
     16,015       6,347  
Other liabilities
     4,922       (3,914
  
 
 
   
 
 
 
Net cash provided by operating activities
     105,525       52,400  
  
 
 
   
 
 
 
Cash flows from investing activities
    
Purchases of investments
     (776     (17,352
Maturities of short term investments
     22,050       17,560  
Purchases of property and equipment
     (16,345     (17,778
Acquisitions of businesses
     (12,625     (21,290
Proceeds from sale of property and equipment
     314       452  
Other
     (1,340     (876
  
 
 
   
 
 
 
Net cash used in investing activities
     (8,722     (39,284
  
 
 
   
 
 
 
Cash flows from financing activities
    
Payments on term loan
     —         (2,000
Proceeds from vehicle and equipment notes payable
     12,768       13,783  
Debt issuance costs
     (157     —    
Principal payments on long-term debt
     (13,205     (9,751
Principal payments on finance lease obligations
     (1,392     (2,481
Acquisition-related obligations
     (3,486     (5,039
Repurchase of common stock
     (15,759      
Surrender of common stock awards by employees
     (973     (2,323
  
 
 
   
 
 
 
Net cash used in financing activities
     (22,204     (7,811
  
 
 
   
 
 
 
Net change in cash and cash equivalents
     74,599       5,305  
Cash and cash equivalents at beginning of period
     177,889       90,442  
  
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $  252,488     $ 95,747  
  
 
 
   
 
 
 
Supplemental disclosures of cash flow information
            
Net cash paid during the period for:
    
Interest
   $ 13,006     $ 11,793  
Income taxes, net of refunds
     476       3,595  
Supplemental disclosure of noncash activities
    
Right-of-use
assets obtained in exchange for operating lease obligations
     10,229       8,677  
Property and equipment obtained in exchange for finance lease obligations
     600       1,830  
Seller obligations in connection with acquisition of businesses
     4,037       3,162  
Unpaid purchases of property and equipment included in accounts payable
     1,981       2,334  
 
5
See accompanying notes to consolidated financial statements

INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - ORGANIZATION
Installed Building Products (“IBP”), a Delaware corporation formed on October 28, 2011, and its wholly-owned subsidiaries (collectively referred to as the “Company,” and “we,” “us” and “our”) primarily install 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 located in the continental United States. The Company operates in over 180 locations and its corporate office is located in Columbus, Ohio.
We have one operating segment and a single reportable segment. Substantially all of our sales are derived from the service-based installation of various products in the residential new construction, repair and remodel and commercial construction end markets from our national network of branch locations.
Each of our branches has the capacity to serve all of our end markets. See Note 3, Revenue Recognition, for information on our revenues by product and end market.
The
COVID-19
pandemic has caused significant
volatility
, uncertainty and economic disruption. Many public health organizations and international, federal, state and local governments implemented measures to combat the spread of
COVID-19
during portions of the first and second quarters of 2020 with some of these restrictions still in place as of the date of filing of this Quarterly Report on Form
10-Q.
Some of these measures include restrictions on movement such as quarantines,
“stay-at-home”
orders and social distancing ordinances and restricting or prohibiting outright some or all forms of commercial and business activity. While we estimate net revenue was reduced from these disruptions in the six months ended June 30, 2020 compared to the same period in 2019, we do not believe the various orders and restrictions or
COVID-19
itself significantly impacted our business in the first or second quarters of 2020. However, the extent to which
COVID-19
will impact our future operations, customers, suppliers, employees and financial results is uncertain. The future impact of
COVID-19
on our financial results depends on numerous factors including government actions and the resulting impact on construction activity, the effect on our customers’ demand for our services, and the ability of our customers to pay for our services.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include all of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
The information furnished i
n
 the Condensed Consolidated Financial Statements includes normal recurring
adjustments
and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations and statements of financial position for the interim periods presented. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) have been omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to prevent the information presented from being misleading when read in conjunction with our audited consolidated financial statements and the notes thereto included in Part II, Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form
10-K
for the fiscal year ended December 31, 2019 (the “2019 Form
10-K”),
as filed with the SEC on February 27, 2020. The December 31, 2019 Condensed Consolidated Balance Sheet data herein was derived from the audited consolidated financial statements but does not include all disclosures required by U.S. GAAP.
Our interim operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected in future operating quarters.
Note 2 to the audited consolidated financial statements in our 2019 Form
10-K
describes the significant accounting policies and estimates used in preparation of the audited consolidated financial statements. Other than the recently implemented accounting policies described below, there have been no changes to our significant accounting policies during the three or six months ended June 30, 2020.
 
6

INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Recently Adopted Accounting Pronouncements
 
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
debt securities and purchased financial assets with credit deterioration. In addition, these amendments require the measurement of all expected credit losses for financial assets, including trade accounts receivable, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. See Note 4, Credit Losses, for further information.
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.
 
7

INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Recently Issued Accounting Pronouncements Not Yet Adopted
We are currently evaluating the impact of certain ASU’s on our Condensed Consolidated Financial Statements or Notes to Condensed Consolidated Financial Statements, which are described below:
 
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.
NOTE 3 - REVENUE RECOGNITION
Our revenues are derived primarily through contracts with customers whereby we install insulation and other complementary building products and are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. An insignificant portion of our sales, primarily retail sales, is accounted for on a
point-in-time
basis when the sale occurs, adjusted accordingly for any return provisions. We do offer assurance-type warranties on certain of our installed products and services that do not represent a separate performance obligation and, as such, do not impact the timing or extent of revenue recognition.
For contracts that are not complete at the reporting date, we recognize revenue over time utilizing a
cost-to-cost
input method as we believe this represents the best measure of when goods and services are transferred to the customer. When this method is used, we estimate the costs to complete individual contracts and record as revenue that portion of the total contract price that is considered complete based on the relationship of costs incurred to date to total anticipated costs. Under the
cost-to-cost
method, the use of estimated costs to complete each contract is a significant variable in the process of determining recognized revenue, requires judgment and can change throughout the duration of a contract due to contract modifications and other factors impacting job completion. The costs of earned revenue include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools and repairs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.
Our long-term contracts can be subject to modification to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative
catch-up
basis.
Payment terms typically do not exceed 30 days for short-term contracts and typically do not exceed 60 days for long-term contracts with customers. All contracts are billed either contractually or as work is performed. Billing on our long-term contracts occurs primarily on a monthly basis throughout the contract period whereby we submit invoices for customer payment based on actual or estimated costs incurred during the billing period. On certain of our long-term contracts the customer may withhold payment on an invoice equal to a percentage of the invoice amount, which will be subsequently paid after satisfactory completion of each installation project. This amount is referred to as retainage and is common practice in the construction industry, as it allows for customers to ensure the quality of the service performed prior to full payment. Retainage receivables are classified as current or long-term assets based on the expected time to project completion.
 
8

INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
We disaggregate our revenue from contracts with customers by end market and product, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. The following tables present our revenues disaggregated by end market and product (in thousands):
 
 
     Three months ended June 30,     Six months ended June 30,  
     2020     2019     2020     2019  
Residential new construction
   $ 298,321        76   $ 282,494        76   $  596,661        75   $ 543,804
 
     76
Repair and remodel
     23,034        6     24,705        7     47,077        6     46,225        7
Commercial
     72,584        18     64,615        17     147,532        19     123,920        17
  
 
 
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
 
Net revenues
   $ 393,939        100   $ 371,814        100   $ 791,270        100   $ 713,949        100
  
 
 
      
 
 
      
 
 
      
 
 
    
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Insulation
   $ 251,052        64   $ 235,473
 
       63  
$
510,753  
 
 
 
  64 %
 
 
 
  $ 456,695
 
     64
Waterproofing
     28,078        7     28,858
 
       8   56,583      7     51,243        7
Shower doors, shelving and mirrors
     28,902        7     26,900
 
       7   55,917      7     50,817        7
Garage doors
     21,667        6     21,782
 
       6   44,654      6     43,454        6
Rain gutters
     13,071        3     12,996
 
       4   24,647      3     24,195        3
Window blinds
     11,554        3     10,781
 
       3   22,485      3     20,165        3
Other building products
     39,615        10     35,024
 
       9   76,231      10     67,380        10
Net revenues
   $ 393,939        100   $ 371,814
 
       100  
$
791,270      100   $ 713,949        100
Contract Assets and Liabilities
Our contract assets consist of unbilled amounts typically resulting from sales under contracts when the
cost-to-cost
method of revenue recognition is utilized and revenue recognized, based on costs incurred, exceeds the amount billed to the customer. Our contract assets are recorded in other current assets in our Condensed Consolidated Balance Sheets. Our contract liabilities consist of customer deposits and billings in excess of revenue recognized, based on costs incurred and are included in other current liabilities in our Condensed Consolidated Balance Sheets.
Contract assets and liabilities related to our uncompleted contracts and customer deposits were as follows (in thousands):
 
     June 30,
2020
     December 31,
2019
 
Contract assets
   $ 21,871      $  22,138  
Contract liabilities
     (10,062      (8,888
Uncompleted contracts were as follows (in thousands):
 
     June 30,
2020
     December 31,
2019
 
Costs incurred on uncompleted contracts
   $ 118,913      $  110,818  
Estimated earnings
     66,077        61,185  
  
 
 
    
 
 
 
Total
     184,990        172,003  
Less: Billings to date
     169,462        155,599  
  
 
 
    
 
 
 
Net under billings
   $ 15,528      $ 16,404  
  
 
 
    
 
 
 
 
9

INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Net under billings were as follows (in thousands):
 
     June 30,
2020
     December 31,
2019
 
Costs and estimated earnings in excess of billings on uncompleted contracts
(contract assets)
   $ 21,871      $  22,138  
Billings in excess of costs and estimated earnings on uncompleted contracts
(contract liabilities)
     (6,343      (5,734
  
 
 
    
 
 
 
Net under billings
   $ 15,528      $ 16,404  
  
 
 
    
 
 
 
The difference between contract assets and contract liabilities as of June 30, 2020 compared to December 31, 2019 is primarily the result of timing differences between our performance of obligations under contracts and customer payments. During the three and six months ended June 30, 2020, we recognized $0.6 million and $7.5 million of revenue that was included in the contract liability balance at December 31, 2019. We did not recognize any impairment losses on our receivables and contract assets during the three and six months ended June 30, 2020 or 2019.    
Remaining performance obligations represent the transaction price of contracts for which work has not been performed and excludes unexercised contract options and potential modifications. As of June 30, 2020, the aggregate amount of the transaction price allocated to remaining uncompleted contracts was $84.3 million. We expect to satisfy remaining performance obligations and recognize revenue on substantially all of these uncompleted contracts over the next 18 months.
Practical Expedients and Exemptions
We generally expense sales commissions and other incremental costs of obtaining a contract when incurred because the amortization period is usually one year or less. Sales commissions are recorded within selling expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income.
We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
NOTE 4 - CREDIT LOSSES
On January 1, 2020 we adopted ASU
2016-13,
“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” under the modified retrospective approach. Topic 326 replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, including trade receivables, retainage receivables and contract assets (unbilled receivables). Results for reporting periods beginning after January 1, 2020 are presented under Topic 326, while prior period amounts are not adjusted. The amendment requires entities to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were not considered under the previous accounting guidance.
Upon adoption of ASC 326, we recorded a cumulative effect adjustment to retained earnings of $1.2 million, net of $0.4 million of income taxes, on the opening consolidated balance sheet as of January 1, 2020. The adoption of the credit loss standard had no impact to cash from or used in operating, financing or investing activities on our consolidated cash flow statements.
Our expected loss allowance methodology for accounts receivable is developed using historical losses, current economic conditions and future market forecasts. We also perform ongoing evaluations of our existing and potential customer’s creditworthiness. Our expected loss allowance methodology for
held-to-maturity
investments is developed using historical losses, investment grade ratings and liquidity and maturity assessments. Based on our assessment using these factors, we did not record any allowance for credit losses related to our
held-to-maturity
investments.
 
10

INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
To date, the
COVID-19
pandemic has not yet had a material impact on the collectability of our existing trade receivables. However, given the uncertainty of impacts to future collections as a result of the current health crisis, we increased our allowance for credit losses as of June 30, 2020 to reflect this increased risk.
Changes in our allowance for credit losses were as follows (in thousands):
 
Balance as of January 1, 2020
   $ 6,878  
Cumulative effect of change in accounting principle
     1,600  
Current period provision
     2,668  
Recoveries collected and other
     382  
Amounts written off
     (1,911
  
 
 
 
Balance as of June 30, 2020
   $ 9,617  
  
 
 
 
NOTE 5 - INVESTMENTS
Cash and cash equivalents includes investments in money market funds that are valued based on the net asset value of the funds. The investments in these funds were $112.2 million and $99.2 million as of June 30, 2020 and December 31, 2019, respectively.
All other investments are classified as
held-to-maturity
an
d
typically
consist
of highly liquid instruments, including corporate bonds and commercial paper. As of June 30, 2020 and December 31, 2019, the amortized cost of these investments equaled the net carrying value, which was $16.7 million and $38.0 million, respectively. All
held-to-maturity
securities as of June 30, 2020 mature in one year or less. See Note 9, Fair Value Measurements, for additional information.
NOTE 6 - GOODWILL AND INTANGIBLES
Goodwill
The change in carrying amount of goodwill was as follows (in thousands):
 
     Goodwill
(Gross)
     Accumulated
Impairment
Losses
     Goodwill
(Net)
 
January 1, 2020
   $ 265,656      $ (70,004    $ 195,652  
Business Combinations
     4,733                  4,733  
Other
     (121                (121
  
 
 
    
 
 
    
 
 
 
June 30, 2020
   $ 270,268      $ (70,004    $ 200,264  
  
 
 
    
 
 
    
 
 
 
Other changes included in the above table include minor adjustments for the allocation of certain acquisitions still under measurement. For additional information regarding changes to goodwill resulting from acquisitions, see Note 16, Business Combinations.    
We test goodwill for impairment annually during the fourth quarter of our fiscal year or earlier if there is an impairment indicator. We anticipate that the
COVID-19
pandemic could continue to have an impact on our customers and the homebuilding industry in general, as it could result in further business interruptions (government-mandated or otherwise) and could affect, among other factors, employment levels, consumer spending and consumer confidence, which could decrease demand for homes, adversely affecting our business. As such, we considered whether impairment indicators arose through the date of filing of this Quarterly Report on Form
10-Q
for our goodwill, long-lived assets and other intangible assets and concluded that no such factors exist. While we ultimately concluded that our goodwill, long-lived assets and other intangibles assets were not impaired as of June 30, 2020, we will continue to assess impairment indicators related to the impact of the
COVID-19
pandemic on our business. Accumulated impairment losses included within the above table were incurred over multiple periods, with the latest impairment charge being recorded during the year ended December 31, 2010.
 
11

INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Intangibles, net
The following table provides the gross carrying amount, accumulated amortization and net book value for each major class of intangibles (in thousands):
 
 
  
As of June 30,
 
  
As of December 31,
 
 
  
2020
 
  
2019
 
 
  
Gross
Carrying
Amount
 
  
Accumulated
Amortization
 
  
Net
Book
Value
 
  
Gross
Carrying
Amount
 
  
Accumulated
Amortization
 
  
Net
Book
Value
 
Amortized intangibles:
  
     
  
     
  
     
  
     
  
     
  
     
Customer relationships
  
$
173,115
 
  
$
78,784
 
  
$
94,331
 
  
$
169,334
 
  
$
69,388
 
  
$
99,946
 
Covenants
not-to-compete
  
 
17,389
 
  
 
12,088
 
  
 
5,301
 
  
 
16,959
 
  
 
10,617
 
  
 
6,342
 
Trademarks and tradenames
  
 
71,543
 
  
 
24,908
 
  
 
46,635
 
  
 
69,718
 
  
 
22,609
 
  
 
47,109
 
Backlog
  
 
15,004
 
  
 
14,154
 
  
 
850
 
  
 
14,080
 
  
 
13,915
 
  
 
165
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
  
$
277,051
 
  
$
129,934
 
  
$
147,117
 
  
$
270,091
 
  
$
116,529
 
  
$
153,562
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
The gross carrying amount of intangibles increased approximately $7.0 million during the six months ended June 30, 2020 primarily due to business combinations. For more information, see Note 16, Business Combinations. Remaining estimated aggregate annual amortization expense is as follows (amounts, in thousands, are for the fiscal year ended):
 
Remainder of 2020
   $ 13,268  
2021
     25,573  
2022
     24,162  
2023
     21,251  
2024
     17,736  
Thereafter
     45,127  
NOTE 7 - LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
 
     As of June 30,      As of December 31,  
     2020      2019  
Senior Notes due 2028, net of unamortized debt issuance costs of $4,529 and $4,823, respectively
   $ 295,471      $ 295,177  
Term loan, net of unamortized debt issuance costs of $1,509 and $1,662, respectively
     198,491        198,338  
Vehicle and equipment notes, maturing through June 2025; payable in various monthly installments, including interest rates ranging from 2.1% to 4.8%
     72,327        72,714  
Various notes payable, maturing through March 2025; payable in various monthly installments, including interest rates ranging from 5% to 6%
     2,917        2,966  
  
 
 
    
 
 
 
     569,206        569,195  
Less: current maturities
     (24,230      (24,164
  
 
 
    
 
 
 
Long-term debt, less current maturities
   $ 544,976      $ 545,031  
  
 
 
    
 
 
 
 
12

INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Remaining required repayments of debt principal, gross of unamortized debt issuance costs, as of June 30, 2020 are as follows (in thousands):
 
Remainder of 2020
   $ 12,916  
2021
     21,592  
2022
     17,829  
2023
     12,581  
2024
     6,826  
Thereafter
     503,500  
5.75% Senior Notes due 2028
In September 2019, we issued $300.0 million in aggregate principal amount of 5.75% senior unsecured notes (the “Senior Notes”). The Senior Notes will mature on February 1, 2028 and interest will be payable semi-annually in cash in arrears on February 1 and August 1, commencing on February 1, 2020. The net proceeds from the Senior Notes offering were $295.0 million after debt issuance costs. We used some of the net proceeds to repay a portion of our outstanding obligations (including accrued and unpaid interest) under our term loan credit agreement (as defined below) and to pay fees and expenses related to the entry into a new revolving credit facility described below.
The indenture covering the Senior Notes contains restrictive covenants that, among other things, limit the ability of the Company and certain of our subsidiaries (subject to certain exceptions) to: (i) incur additional debt and issue preferred stock; (ii) pay dividends on, redeem or repurchase stock; (iii) prepay subordinated debt; (iv) create liens; (v) make specified types of investments; (vi) apply net proceeds from certain asset sales; (vii) engage in transactions with affiliates; (viii) merge, consolidate or sell substantially all of our assets; and (ix) pay dividends and make other distributions from subsidiaries.
Credit Facilities
In December 2019, we amended and restated our $400 million, seven-year term loan facility due April 2025 (the “Term Loan”) under our credit agreement (the “Term Loan Agreement”), dated as of April 13, 2017 (as previously amended by the First Amendment thereto dated November 30, 2017 and by the Second Amendment thereto dated June 19, 2018). The amended Term Loan (i) effects a repricing of the interest rate applicable to the term loans thereunder from LIBOR plus 2.50% to LIBOR plus 2.25% and (ii) replaces Royal Bank of Canada with Bank of America, N.A. as the administrative agent and collateral agent thereunder. As of June 30, 2020, we had $198.5 million, net of unamortized debt issuance costs, due on our Term Loan. The amended Term Loan also has a margin of 1.25% in the case of base rate loans.
In September 2019, we entered into a new asset-based lending credit agreement (the “ABL Credit Agreement”). The ABL Credit Agreement provides for an asset-based lending credit facility (the “ABL Revolver”) of up to $200.0 million with a five-year maturity, which replaced the Company’s previous revolving credit facility. Borrowing availability under the ABL Revolver is based on a percentage of the value of certain assets securing the Company’s obligations and those of the subsidiary guarantors thereunder. In connection with the Amended and Restated Term Loan, we entered into a Second Amendment (the “Second Amendment”) to the ABL/Term Loan Intercreditor Agreement with Bank of America, N.A., as ABL Agent for the lenders under the ABL Credit Agreement, and Bank of America, N.A., as Term Loan Agent for the lenders under the Amended and Restated Term Loan. Including outstanding letters of credit, our remaining availability under the ABL Revolver as of June 30, 2020 was $161.3 million.
All of the obligations under the Term Loan and ABL Revolver are guaranteed by all of the Company’s existing restricted subsidiaries and will be guaranteed by the Company’s future restricted subsidiaries. Additionally, all obligations under the Term Loan and ABL Revolver, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and the guarantors, subject to certain exceptions and permitted liens, including a first-priority security interest in such assets that constitute ABL Priority Collateral, as defined in the ABL Credit Agreement, and a second-priority security interest in such assets that constitute Term Loan Priority Collateral, as defined in the Term Loan Agreement.
 
13

INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
The ABL Revolver bears interest at either the Eurodollar rate or the base rate (which approximated the prime rate), at the Company’s election, plus a margin of (A) 1.25% or 1.50% in the case of Eurodollar rate loans (based on a measure of availability under the ABL Credit Agreement) and (B) 0.25% or 0.50% in the case of base rate loans (based on a measure of availability under the ABL Credit Agreement).
The ABL Revolver also provides incremental revolving credit facility commitments of up to $50.0 million. The terms and conditions of any incremental revolving credit facility commitments must be no more favorable than the terms of the ABL Revolver. The ABL Revolver also allows for the issuance of letters of credit of up to $75.0 million in aggregate and borrowing of swingline loans of up to $20.0 million in aggregate.
The ABL Credit Agreement contains a financial covenant requiring the satisfaction of a minimum fixed charge coverage ratio of 1.0x in the event that we do not meet a minimum measure of availability under the ABL Revolver.
Vehicle and Equipment Notes
We are party to a Master Loan and Security Agreement (“Master Loan and Security Agreement”), a Master Equipment Lease Agreement (“Master Equipment Agreement”) and one or more Master Loan Agreements (“Master Loan Agreements” and together with the Master Loan and Security Agreement and Master Equipment Agreement the “Master Loan Equipment Agreements”) with various lenders to provide financing for the purpose of purchasing or leasing vehicles and equipment used in the normal course of business. Each financing arrangement under these agreements constitutes a separate note and obligation. Vehicles and equipment purchased or leased under each financing arrangement serve as collateral for the note applicable to such financing arrangement. Regular payments are due under each note for a period of typically 60 consecutive months after the incurrence of the obligation. The specific terms of each note are based on specific criteria, including the type of vehicle or equipment and the market interest rates at the time. No termination date applies to these agreements. As of June 30, 2020, approximately $72.7 million of the various loan agreements was available for purchases of equipment.
Total gross assets relating to our Master Loan and Equipment Agreements were $133.5 million and $130.2 million as of June 30, 2020 and December 31, 2019, respectively. The net book value of assets under these agreements was $66.7 million and $68.2 million as of June 30, 2020 and December 31, 2019, respectively. Depreciation of assets held under these agreements is included within cost of sales on the Condensed Consolidated Statements of Operations and Comprehensive Income.
NOTE 8 - LEASES
We lease various assets in the ordinary course of business as follows: warehouses to store our materials and perform staging activities for certain products we install; various office spaces for selling and administrative activities to support our business; and certain vehicles and equipment to facilitate our operations, including, but not limited to, trucks, forklifts and office equipment.
 
14

INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
The table below presents the lease-related assets and liabilities recorded on the Condensed Consolidated Balance Sheet:
 
(in thousands)
  
Classification
   As of June 30, 2020   As of December 31, 2019  
Assets
       
Non-Current
       
Operating
  
Operating lease
right-of-use
assets
   $ 47,448  
$
45,691  
Finance
  
Property and equipment, net
   6,060     7,148  
     
 
 
 
 
 
Total lease assets
      $ 53,508  
$
 
52,839  
Liabilities
       
Current
       
Operating
  
Current maturities of operating lease obligations
   $ 16,209  
$
 
15,459  
Financing
  
Current maturities of finance lease obligations
   2,333     2,747  
Non-Current
       
Operating
  
Operating lease obligations
   30,721     29,785  
Financing
  
Finance lease obligations
   3,051     3,597  
     
 
 
 
 
 
Total lease liabilities
      $ 52,314  
$
51,588  
     
 
 
 
 
 
Weighted-average remaining lease term:
    
Operating leases
      4.4 years  
Finance leases
      2.7 years  
Weighted-average discount rate:
    
Operating leases
      4.21%  
Finance leases
      4.99%  
Lease Costs
The table below presents certain information related to the lease costs for finance and operating leases:
 
         Three months ended June 30,      Six