OVERVIEW
We operate in two segments: Installation (
Our Distribution segment sells and distributes insulation and other building
products, including gutters, fireplaces, closet shelving, and roofing materials
through our
We believe that having both
For additional details pertaining to our operating results by segment, see Note
7 - Segment Information to our unaudited condensed consolidated financial
statements contained in Part I, Item 1 of this Quarterly Report, which is
incorporated herein by reference. For additional details regarding our strategy,
material trends in our business and seasonality, please refer to Part II, Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report for the year ended
COVID-19 BUSINESS UPDATE
We continue to monitor the COIVD-19 pandemic and its impact on macroeconomic and
local economic conditions. During the second quarter, segments of
Prior to this reopening, four states had deemed residential and commercial construction nonessential, negatively impacting sales. Accordingly, we took steps to reduce expenses in response to and in anticipation of the lower sales levels. While we are currently able to operate in all of our locations, there is no guarantee that the services we provide will continue to be allowed or that other events making the provision of our services challenging or impossible, will not occur. For example, if there are surges in levels of COVID-19 infections in certain states, those states may respond by, among other things, deeming residential and commercial construction as nonessential.
24 Table of Contents
We continue to implement procedures and processes to ensure the safety of our employees, including increasing our cleaning and sanitizing practices at all locations and for all company vehicles, mandating social distancing on job sites and within our branch operations and limiting all but essential travel.
Additionally, we are not able to predict whether our customers will continue to operate at their current or typical volumes, and such decreases in their operations would have a negative impact on our business. We are also unable to predict how long the COVID-19 pandemic will last and the impact of the pandemic on demand for our products and services. For additional discussion of the potential impact of the COVID-19 pandemic on our business, see the sections entitled "Outlook" and "Risk Factors" included in this Quarterly Report.
The following discussion and analysis contains forward-looking statements and should be read in conjunction with the unaudited condensed consolidated financial statements, the notes thereto, and the section entitled "Forward-Looking Statements" included in this Quarterly Report.
SECOND QUARTER 2020 VERSUS SECOND QUARTER 2019
The following table sets forth our net sales, gross profit, operating profit, and margins, as reported in our condensed consolidated statements of operations, in thousands: Three Months Ended June 30, 2020 2019 Net sales$ 646,099 $ 660,112 Cost of sales 468,045 485,190 Cost of sales ratio 72.4 % 73.5 % Gross profit 178,054 174,922 Gross profit margin 27.6 % 26.5 % Selling, general, and administrative expense 97,600 98,883 Selling, general, and administrative expense to sales ratio 15.1 % 15.0 % Operating profit 80,454 76,039 Operating profit margin 12.5 % 11.5 % Other expense, net (8,188) (9,105) Income tax expense (16,770) (14,883) Net income$ 55,496 $ 52,051 Net margin 8.6 % 7.9 % Sales and Operations
Net sales decreased 2.1 percent for the three months ended
Gross profit margins were 27.6 percent and 26.5 percent for the three months
ended
Selling, general, and administrative expense, as a percent of sales, was 15.1
percent and 15.0 percent for the three months ended
Operating margins were 12.5 percent and 11.5 percent for the three months ended
25 Table of Contents Business Segment Results
The following table sets forth our net sales and operating profit margins by business segment, in thousands:
Three Months Ended June 30, 2020 2019 Percent Change Net sales by business segment: Installation$ 466,569 $ 483,028 (3.4) % Distribution 216,336 213,487 1.3 % Intercompany eliminations (36,806) (36,403) Net sales$ 646,099 $ 660,112 (2.1) % Operating profit by business segment: Installation$ 69,643 $ 68,423 1.8 % Distribution 24,155 21,151 14.2 % Intercompany eliminations (5,961) (6,405) Operating profit before general corporate expense 87,837 83,169 5.6 % General corporate expense, net (7,383) (7,130) Operating profit$ 80,454 $ 76,039 5.8 % Operating profit margins: Installation 14.9 % 14.2 % Distribution 11.2 % 9.9 % Operating profit margin before general corporate expense 13.6 % 12.6 % Operating profit margin 12.5 % 11.5 % Installation Sales
Sales in the Installation segment decreased
Sales decreased 5.5 percent due to volume and increased 1.4 percent due to acquisitions and 0.7 percent due to increased selling prices.
Operating margins
Operating margins in the Installation segment were 14.9 percent and 14.2 percent
for the three months ended
Distribution Sales
Sales in the Distribution segment increased
Sales increased 1.7 percent due to volume and declined 0.4 percent due to pricing decreases.
Operating margins
Operating margins in the Distribution segment were 11.2 percent and 9.9 percent
for the three months ended
26 Table of Contents OTHER ITEMS Other expense, net
Other expense, net, which primarily consisted of interest expense, was
Income tax expense
Income tax expense was
FIRST SIX MONTHS 2020 VERSUS FIRST SIX MONTHS 2019
The following table sets forth our net sales, gross profit, operating profit, and margins, as reported in our condensed consolidated statements of operations, in thousands: Six Months Ended June 30, 2020 2019 Net sales$ 1,299,327 $ 1,279,442 Cost of sales 949,316 948,824 Cost of sales ratio 73.1 % 74.2 % Gross profit 350,011 330,618 Gross profit margin 26.9 % 25.8 % Selling, general, and administrative expense 199,568 197,960 Selling, general, and administrative expense to sales ratio 15.4 % 15.5 % Operating profit 150,443 132,658 Operating profit margin 11.6 % 10.4 % Other expense, net (16,690) (18,374) Income tax expense (27,485) (24,249) Net income$ 106,268 $ 90,035 Net margin 8.2 % 7.0 % Sales and Operations
Net sales increased 1.6 percent for the six months ended
Gross profit margins were 26.9 percent and 25.8 percent for the six months ended
Selling, general, and administrative expense, as a percent of sales, was 15.4
percent and 15.5 percent for the six months ended
Operating margins were 11.6 percent and 10.4 percent for the six months ended
27 Table of Contents Business Segment Results
The following table sets forth our net sales and operating profit margins by business segment, in thousands:
Six Months Ended June 30, 2020 2019 Percent Change Net sales by business segment: Installation$ 942,442 $ 932,410 1.1 % Distribution 430,558 417,951 3.0 % Intercompany eliminations (73,673) (70,919) Net sales$ 1,299,327 $ 1,279,442 1.6 % Operating profit by business segment: Installation$ 129,994 $ 119,722 8.6 % Distribution 48,825 41,748 17.0 % Intercompany eliminations (11,795) (12,078) Operating profit before general corporate expense 167,024 149,392 11.8 % General corporate expense, net (16,581) (16,734) Operating profit$ 150,443 $ 132,658 13.4 % Operating profit margins: Installation 13.8 % 12.8 % Distribution 11.3 % 10.0 % Operating profit margin before general corporate expense 12.9 % 11.7 % Operating profit margin 11.6 % 10.4 % Installation Sales
Sales in the Installation segment increased
Sales increased 1.4 percent due to increased selling prices and 1.2 percent due to acquisitions, but decreased 1.6 percent in volume driven by the negative impact of COVID-19 on business activity.
Operating margins
Operating margins in the Installation segment were 13.8 percent and 12.8 percent
for the six months ended
Distribution Sales
Sales in the Distribution segment increased
Sales increased 2.8 percent due to volume despite a negative impact from COVID-19 on business activity, and 0.3 percent due to increased selling prices.
28 Table of Contents Operating margins
Operating margins in the Distribution segment were 11.3 percent and 10.0 percent
for the six months ended
OTHER ITEMS Other expense, net
Other expense, net, which primarily consisted of interest expense, was
Income tax expense
Income tax expense was
Cash Flows and Liquidity
Significant sources (uses) of cash and cash equivalents are summarized for the periods indicated, in thousands:
Six Months EndedJune 30, 2020 2019
Changes in cash and cash equivalents:
Net cash provided by operating activities
(40,700) (19,999) Net cash used in financing activities (63,432) (35,427) Increase for the period$ 74,030 $ 40,838
Net cash flows provided by operating activities increased
Net cash used in investing activities was
Net cash used in financing activities was
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We are closely managing our balance sheet, including maximizing our cash flow,
to maintain our strong foundation and provide stabilization as we continue to
work through the impacts of the COVID-19 pandemic. We had solid liquidity
available to us at
The following table summarizes our liquidity, in thousands:
As of June 30, December 31, 2020 2019 Cash and cash equivalents (a)$ 258,837 $ 184,807 Revolving Facility 450,000 250,000 Less: standby letters of credit (60,382) (61,382) Availability under Revolving Facility 389,618 188,618 Total liquidity$ 648,455 $ 373,425
(a) Our cash and cash equivalents consist of AAA-rated money market funds as well as cash held in our demand deposit accounts.
We occasionally use performance bonds to ensure completion of our work on
certain larger customer contracts that can span multiple accounting periods.
Performance bonds generally do not have stated expiration dates; rather, we are
released from the bonds as the contractual performance is completed. We also
have bonds outstanding for license and insurance. Information regarding our
outstanding bonds as of
OUTLOOK
At the start of the second quarter,
Management continues to evaluate every aspect of our business and is monitoring ongoing developments with regards to if operating activities will be restricted again, as well as if there will be a downturn or other adverse impact to our business as a result of the pandemic's greater economic impact.
OFF-BALANCE SHEET ARRANGEMENTS
We had no material off-balance sheet arrangements during the quarter ended
CONTRACTUAL OBLIGATIONS
There have been no material changes to our contractual obligations from those
previously disclosed in our Annual Report for the year ended
30 Table of Contents CRITICAL ACCOUNTING POLICIES
We prepare our condensed consolidated financial statements in conformity with
GAAP. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities, at the date of
the financial statements, and the reported amounts of sales and expenses during
the reporting period. Actual results could differ from those estimates. Our
critical accounting policies have not changed from those previously reported in
our Annual Report for year ended
APPLICATION OF NEW ACCOUNTING STANDARDS
Information regarding application of new accounting standards is incorporated by reference from Note 2 - Accounting Policies to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report.
FORWARD-LOOKING STATEMENTS
Statements contained in this report that reflect our views about future periods, including our future plans and performance, constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements can be identified by words such as "will," "would,"
"anticipate," "expect," "believe," "designed," "plan," or "intend," the negative
of these terms, and similar references to future periods. These views involve
risks and uncertainties that are difficult to predict and, accordingly, our
actual results may differ materially from the results discussed in our
forward-looking statements. We caution you against unduly relying on any of
these forward-looking statements. Our future performance may be affected by the
duration and impact of the COVID-19 pandemic on
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