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Table of Contents
 
 
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 September 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 October 28, 2020, the registrant had
 
29,800,535
 
shares of common stock, par value $0.01 per share, outstanding.
 
 
 

Table of Contents
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i

Table of Contents
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)
 
     September 30,     December 31,  
     2020     2019  
ASSETS
    
Current assets
    
Cash and cash equivalents
   $ 267,471     $ 177,889  
Investments
     1,220       37,961  
Accounts receivable (less allowance for credit losses of $9,366 and $6,878 at September 30, 2020 and December 31, 2019, respectively)
     258,940       244,519  
Inventories
     70,218       74,606  
Other current assets
     37,607       46,974  
  
 
 
   
 
 
 
Total current assets
     635,456       581,949  
Property and equipment, net
     104,900       106,410  
Operating lease
right-of-use
assets
     50,873       45,691  
Goodwill
     206,782       195,652  
Intangibles, net
     155,398       153,562  
Other
non-current
assets
     12,036       16,215  
  
 
 
   
 
 
 
Total assets
   $ 1,165,445     $ 1,099,479  
  
 
 
   
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
    
Current liabilities
    
Current maturities of long-term debt
   $ 24,156     $ 24,164  
Current maturities of operating lease obligations
     17,875       15,459  
Current maturities of finance lease obligations
     2,268       2,747  
Accounts payable
     86,898       98,871  
Accrued compensation
     43,310       33,636  
Other current liabilities
     47,734       39,272  
  
 
 
   
 
 
 
Total current liabilities
     222,241       214,149  
Long-term debt
     544,276       545,031  
Operating lease obligations
     32,431       29,785  
Finance lease obligations
     2,747       3,597  
Deferred income taxes
     3,704       9,175  
Other long-term liabilities
     55,859       47,711  
  
 
 
   
 
 
 
Total liabilities
     861,258       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 September 30, 2020 and December 31, 2019, respectively
     —         —    
Common stock; $0.01 par value: 100,000,000 authorized, 33,127,310 and 32,871,504 issued and 29,800,535 and 30,016,340 shares outstanding at September 30, 2020 and December 31, 2019, respectively
     331       329  
Additional paid in capital
     197,486       190,230  
Retained earnings
     241,583       173,371  
Treasury stock; at cost: 3,326,775 and 2,855,164 shares at September 30, 2020 and December 31, 2019, respectively
     (123,488     (106,756
Accumulated other comprehensive loss
     (11,725     (7,143
  
 
 
   
 
 
 
Total stockholders’ equity
     304,187       250,031  
  
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 1,165,445     $ 1,099,479  
  
 
 
   
 
 
 
 
1
See accompanying notes to consolidated financial statements

Table of Contents
INSTALLED BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
(in thousands, except share and per share amounts)
 
     Three months ended September 30,     Nine months ended September 30,  
     2020      2019     2020     2019  
Net revenue
   $ 420,486      $ 396,449     $ 1,211,756     $ 1,110,398  
Cost of sales
     288,839        278,362       836,710       795,616  
  
 
 
    
 
 
   
 
 
   
 
 
 
Gross profit
     131,647        118,087       375,046       314,782  
Operating expenses
         
Selling
     20,843        19,398       60,209       54,431  
Administrative
     58,240        55,098       177,495       156,022  
Amortization
     6,974        6,156       20,378       18,065  
  
 
 
    
 
 
   
 
 
   
 
 
 
Operating income
     45,590        37,435       116,964       86,264  
Other expense
         
Interest expense, net
     7,564        8,458       22,679       19,783  
Other
     176        155       305       381  
  
 
 
    
 
 
   
 
 
   
 
 
 
Income before income taxes
     37,850        28,822       93,980       66,100  
Income tax provision
     9,773        7,610       24,578       17,135  
  
 
 
    
 
 
   
 
 
   
 
 
 
Net income
   $ 28,077      $ 21,212     $ 69,402     $ 48,965  
  
 
 
    
 
 
   
 
 
   
 
 
 
Other comprehensive income (loss), net of tax:
         
Unrealized gain (loss) on cash flow hedge, net of tax (provision) benefit of ($408) and $575 for the three months ended September 30, 2020 and 2019, respectively, and $1,582 and $2,676 for the nine months ended September 30, 2020 and 2019, respectively
     1,176        (1,726     (4,582     (8,021
  
 
 
    
 
 
   
 
 
   
 
 
 
Comprehensive income
   $ 29,253      $ 19,486     $ 64,820     $ 40,944  
  
 
 
    
 
 
   
 
 
   
 
 
 
Basic net income per share
   $ 0.95      $ 0.71     $ 2.35     $ 1.65  
  
 
 
    
 
 
   
 
 
   
 
 
 
Diluted net income per share
   $ 0.95      $ 0.71     $ 2.33     $ 1.64  
  
 
 
    
 
 
   
 
 
   
 
 
 
Weighted average shares outstanding:
         
Basic
     29,478,816        29,785,548       29,549,460       29,741,555  
Diluted
     29,698,028        29,877,056       29,737,716       29,839,873  
 
2
See accompanying notes to consolidated financial statements

Table of Contents
INSTALLED BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 AND SEPTEMBER 30, 2020
(in thousands, except share amounts)
 
           
Additional
                       
Accumulated Other
       
    
Common Stock
    
Paid In
    
Retained
    
Treasury Stock
   
Comprehensive
   
Stockholders’
 
    
Shares
    
Amount
    
Capital
    
Earnings
    
Shares
   
Amount
   
Loss
   
Equity
 
BALANCE - July 1, 2019
     32,871,504      $ 329      $ 186,182      $ 132,965        (2,854,496   $ (106,748   $ (6,726   $ 206,002  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Net income
              21,212              21,212  
Surrender of common stock awards
                 (259     (8       (8
Share-based compensation expense
           1,933                 1,933  
Share-based compensation issued to directors
           101                 101  
Other comprehensive loss, net of tax
                     (1,726     (1,726
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
BALANCE - September 30, 2019
     32,871,504      $ 329      $ 188,216      $ 154,177        (2,854,755   $ (106,756   $ (8,452   $ 227,514  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
           
Additional
                       
Accumulated Other
       
    
Common Stock
    
Paid In
    
Retained
    
Treasury Stock
   
Comprehensive
   
Stockholders’
 
    
Shares
    
Amount
    
Capital
    
Earnings
    
Shares
   
Amount
   
Loss
   
Equity
 
BALANCE - July 1, 2020
     33,124,237      $ 331      $ 195,288      $ 213,506        (3,325,049   $ (123,488   $ (12,901   $ 272,736  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Net income
              28,077              28,077  
Issuance of common stock awards to employees
     3,073                       —    
Surrender of common stock awards
                 (1,726         —    
Share-based compensation expense
           2,094                 2,094  
Share-based compensation issued to directors
           104                 104  
Other comprehensive income, net of tax
                     1,176       1,176  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
BALANCE - September 30, 2020
     33,127,310      $ 331      $ 197,486      $ 241,583        (3,326,775   $ (123,488   $ (11,725   $ 304,187  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
 
3
See accompanying notes to consolidated financial statements

Table of Contents
INSTALLED BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND SEPTEMBER 30, 2020
(in thousands, except share amounts)
 
                                                                 
           
Additional
                     
Accumulated Other
       
    
Common Stock
    
Paid In
   
Retained
   
Treasury Stock
   
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
             48,965             48,965  
Issuance of common stock awards to employees
     139,862        2        (2             —    
Surrender of common stock awards
               (46,394     (2,331       (2,331
Share-based compensation expense
           6,144               6,144  
Share-based compensation issued to directors
     7,670           259               259  
Other comprehensive loss, net of tax
                   (8,021     (8,021
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
BALANCE - September 30, 2019
     32,871,504      $ 329      $ 188,216     $ 154,177       (2,854,755   $ (106,756   $ (8,452   $ 227,514  
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
           
Additional
                     
Accumulated Other
       
    
Common Stock
    
Paid In
   
Retained
   
Treasury Stock
   
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
             69,402             69,402  
Cumulative effect of accounting changes, net of tax
             (1,190           (1,190
Issuance of common stock awards to employees
     249,435        2        (2             —    
Surrender of common stock awards
               (29,069     (973       (973
Share-based compensation expense
           7,029               7,029  
Share-based compensation issued to directors
     6,371           229               229  
Common stock repurchase
               (442,542     (15,759       (15,759
Other comprehensive loss, net of tax
                   (4,582     (4,582
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
BALANCE - September 30, 2020
     33,127,310      $ 331      $ 197,486     $ 241,583       (3,326,775   $ (123,488   $ (11,725   $ 304,187  
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
4
See accompanying notes to consolidated financial statements

Table of Contents
INSTALLED BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
     Nine months ended September 30,  
     2020     2019  
Cash flows from operating activities
    
Net income
   $ 69,402     $ 48,965  
Adjustments to reconcile net income to net cash provided by operating activities
    
Depreciation and amortization of property and equipment
     30,850       28,575  
Amortization of operating lease
right-of-use
assets
     13,281       11,597  
Amortization of intangibles
     20,378       18,065  
Amortization of deferred financing costs and debt discount
     1,000       845  
Provision for credit losses
     3,839       3,173  
Write-off
of debt issuance costs
     —         2,774  
Gain on sale of property and equipment
     (592     (69
Noncash stock compensation
     8,050       6,442  
Deferred income taxes
     (3,405     —    
Amortization of terminated interest rate swap
     508       —    
Changes in assets and liabilities, excluding effects of acquisitions
    
Accounts receivable
     (9,624     (29,144
Inventories
     5,983       (852
Other assets
     9,027       (4,845
Accounts payable
     (14,746     2,535  
Income taxes receivable/payable
     14,192       13,487  
Other liabilities
     (4,259     4,969  
  
 
 
   
 
 
 
Net cash provided by operating activities
     143,884       106,517  
  
 
 
   
 
 
 
Cash flows from investing activities
    
Purchases of investments
     (776     (17,352
Maturities of short term investments
     37,473       22,560  
Purchases of property and equipment
     (25,515     (37,267
Acquisitions of businesses
     (38,825     (24,740
Proceeds from sale of property and equipment
     828       563  
Other
     (2,662     (1,795
  
 
 
   
 
 
 
Net cash used in investing activities
     (29,477     (58,031
  
 
 
   
 
 
 
Cash flows from financing activities
    
Proceeds from senior notes
     —         300,000  
Payments on term loan
     —         (195,750
Proceeds from vehicle and equipment notes payable
     17,759       23,767  
Debt issuance costs
     (157     (5,191
Principal payments on long-term debt
     (19,801     (15,278
Principal payments on finance lease obligations
     (1,998     (3,398
Acquisition-related obligations
     (3,896     (5,797
Repurchase of common stock
     (15,759     —    
Surrender of common stock awards by employees
     (973     (2,331
  
 
 
   
 
 
 
Net cash (used in) provided by financing activities
     (24,825     96,022  
  
 
 
   
 
 
 
Net change in cash and cash equivalents
     89,582       144,508  
Cash and cash equivalents at beginning of period
     177,889       90,442  
  
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $ 267,471     $ 234,950  
  
 
 
   
 
 
 
Supplemental disclosures of cash flow information
    
Net cash paid during the period for:
    
Interest
   $ 24,130     $ 17,746  
Income taxes, net of refunds
     13,798       3,790  
Supplemental disclosure of noncash activities
    
Right-of-use
assets obtained in exchange for operating lease obligations
     18,340       11,593  
Termination of operating lease obligations and
right-of-use
assets
     —         (2,814
Property and equipment obtained in exchange for finance lease obligations
     853       2,175  
Seller obligations in connection with acquisition of businesses
     6,965       4,322  
Unpaid purchases of property and equipment included in accounts payable
     1,229       1,527  
 
5
See accompanying notes to consolidated financial statements

Table of Contents
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 nine months 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. We do not believe the various orders and restrictions or COVID-19 itself significantly impacted our business in the first nine months 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 nine months ended September 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 nine months ended September 30, 2020.
 
6

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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
Accounting Standards Codification (“ASC”)
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

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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

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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 September 30,     Nine months ended September 30,  
     2020     2019     2020     2019  
Residential new construction
   $ 315,434        75   $ 297,003        75   $ 912,095        75   $ 840,806        76
Repair and remodel
     28,625        7     25,029        6     75,702        6     71,254        6
Commercial
     76,427        18     74,417        19     223,959        19     198,338        18
  
 
 
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
 
Net revenues
   $ 420,486        100   $ 396,449        100   $ 1,211,756        100   $ 1,110,398        100
  
 
 
      
 
 
      
 
 
      
 
 
    
 
     Three months ended September 30,     Nine months ended September 30,  
     2020     2019     2020     2019  
Insulation
   $ 268,292        64   $ 253,311        64   $ 779,045        64   $ 710,005        64
Waterproofing
     33,272        8     32,781        8     89,855        7     84,024        8
Shower doors, shelving and mirrors
     29,282        7     27,011        7     85,199        7     77,828        7
Garage doors
     24,001        6     22,336        6     68,655        6     65,790        6
Rain gutters
     17,295        4     13,366        3     41,942        4     37,561        3
Window blinds
     12,166        3     10,615        3     34,651        3     30,780        3
Other building products
     36,178        8     37,029        9     112,409        9     104,410        9
  
 
 
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
 
Net revenues
   $ 420,486        100   $ 396,449        100   $ 1,211,756        100   $ 1,110,398        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):
 
     September 30,      December 31,  
     2020      2019  
Contract assets
   $ 22,328      $ 22,138  
Contract liabilities
     (11,237      (8,888
Uncompleted contracts were as follows (in thousands):
 
     September 30,      December 31,  
     2020      2019  
Costs incurred on uncompleted contracts
   $ 136,522      $ 110,818  
Estimated earnings
     75,338        61,185  
  
 
 
    
 
 
 
Total
     211,860        172,003  
Less: Billings to date
     196,640        155,599  
  
 
 
    
 
 
 
Net under billings
   $ 15,220      $ 16,404  
  
 
 
    
 
 
 
 
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INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Net under billings were as follows (in thousands):
 
     September 30,      December 31,  
     2020      2019  
Costs and estimated earnings in excess of billings on uncompleted contracts (contract assets)
   $ 22,328      $ 22,138  
Billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities)
     (7,108      (5,734
  
 
 
    
 
 
 
Net under billings
   $ 15,220      $ 16,404  
  
 
 
    
 
 
 
The difference between contract assets and contract liabilities as of September 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 nine months ended September 30, 2020, we recognized $0.2 million and $7.7 million of revenue, respectively, 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 nine months ended September 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 September 30, 2020, the aggregate amount of the transaction price allocated to remaining uncompleted contracts was $71.3 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 (
ASC
 326): Measurement of Credit Losses on Financial Instruments” under the modified retrospective approach.
ASC
 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
ASC
 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.
 
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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.
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
     3,839  
Recoveries collected and other
     466  
Amounts written off
     (3,417
  
 
 
 
Balance as of September 30, 2020
   $ 9,366  
  
 
 
 
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 $170.3 million and $99.2 million as of September 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 September 30, 2020 and December 31, 2019, the amortized cost of these investments equaled the net carrying value, which was $1.2 million and $38.0 million, respectively. All
held-to-maturity
securities as of September 30, 2020 mature in one year or less. See Note 9, Fair Value Measurements, for additional information.
NOTE 6 - GOODWILL AND INTANGIBLES
We anticipate that the
COVID-19
pandemic could continue to have an impact on 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 September 30, 2020, we will continue to assess impairment indicators related to the impact of the
COVID-19
pandemic on our business.
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
     11,250                  11,250  
Other
     (120                (120
  
 
 
    
 
 
    
 
 
 
September 30, 2020
   $ 276,786      $ (70,004    $ 206,782  
  
 
 
    
 
 
    
 
 
 
Other changes included in the above table include minor adjustments for the
purchase price
allocation of certain acquisitions still under measurement. For additional information regarding changes to goodwill resulting from acquisitions, see Note 16, Business Combinations.
 
11

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INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
We test goodwill for impairment annually during the fourth quarter of our fiscal year or earlier if there is an impairment indicator. 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.
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 September 30,
 
  
As of December 31,
 
 
  
2020
 
  
2019
 
 
  
Gross
 
  
 
 
  
Net
 
  
Gross
 
  
 
 
  
Net
 
 
  
Carrying
 
  
Accumulated
 
  
Book
 
  
Carrying
 
  
Accumulated
 
  
Book
 
 
  
Amount
 
  
Amortization
 
  
Value
 
  
Amount
 
  
Amortization
 
  
Value
 
Amortized intangibles:
  
     
  
     
  
     
  
     
  
     
  
     
Customer relationships
  
$
184,562
 
  
$
83,719
 
  
$
100,843
 
  
$
169,334
 
  
$
69,388
 
  
$
99,946
 
Covenants
not-to-compete
  
 
18,944
 
  
 
12,761
 
  
 
6,183
 
  
 
16,959
 
  
 
10,617
 
  
 
6,342
 
Trademarks and tradenames
  
 
73,543
 
  
 
26,042
 
  
 
47,501
 
  
 
69,718
 
  
 
22,609
 
  
 
47,109
 
Backlog
  
 
15,256
 
  
 
14,385
 
  
 
871
 
  
 
14,080
 
  
 
13,915
 
  
 
165
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
  
$
292,305
 
  
$
136,907
 
  
$
155,398
 
  
$
270,091
 
  
$
116,529
 
  
$
153,562
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
The gross carrying amount of intangibles increased approximately $22.2 million during the nine months ended September 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
   $ 7,069  
2021
     27,621  
2022
     26,037  
2023
     23,126  
2024
     19,611  
Thereafter
     51,934  
NOTE 7 - LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
 
     As of September 30,      As of December 31,  
     2020      2019  
Senior Notes due 2028, net of unamortized debt issuance costs of $4,380 and $4,823, respectively
   $ 295,620      $ 295,177  
Term loan, net of unamortized debt issuance costs of $1,426 and $1,662, respectively
     198,574        198,338  
Vehicle and equipment notes, maturing through September 2025; payable in various monthly installments, including interest rates ranging from 1.9% to 4.8%
     70,846        72,714  
Various notes payable, maturing through March 2025; payable in various monthly installments, including interest rates ranging from 2.0% to 6.0%
     3,392        2,966  
  
 
 
    
 
 
 
     568,432        569,195  
Less: current maturities
     (24,156      (24,164
  
 
 
    
 
 
 
Long-term debt, less current maturities
   $ 544,276      $ 545,031  
  
 
 
    
 
 
 
 
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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 September 30, 2020 are as follows (in thousands):
 
Remainder of 2020
   $ 6,757  
2021
     22,694  
2022
     18,962  
2023
     13,760  
2024
     7,839  
Thereafter
     504,226  
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 September 30, 2020, we had $198.6 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 September 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.
 
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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 September 30, 2020, approximately $67.7 million of the various loan agreements was available for purchases of equipment.
Total gross assets relating to our Master Loan and Equipment Agreements were $134.4 million and $130.2 million as of September 30, 2020 and December 31, 2019, respectively. The net book value of assets under these agreements was $66.2 million and $68.2 million as of September 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.
 
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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 September 30,
2020
 
 
As of December 31,
2019
 
Assets
 
 
 
     
 
     
Non-Current
 
 
 
     
 
     
Operating
 
Operating lease
right-of-use
assets
 
$
50,873
 
 
$
45,691
 
Finance
 
Property and equipment, net
 
 
5,598
 
 
 
7,148