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
PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
PART II – OTHER INFORMATION		39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	42
SIGNATURES		44

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 - April 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 in 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 and 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 months ended June 30,
(in thousands)	Classification	2020