OVERVIEW
We operate in two segments: Installation and Specialty Distribution. Our
Installation segment installs insulation and other building products nationwide
which, as of
Our Specialty Distribution segment sells and distributes insulation and other
building products, including gutters, fireplaces, closet shelving, and roofing
materials, which, as of
We believe that having both Installation and Specialty Distribution provides us
with a number of distinct competitive advantages. First, the combined buying
power of our two business segments, along with our scale, strengthens our ties
to the major manufacturers of insulation and other building material products.
This helps to ensure we are buying competitively and ensures the availability of
supply to our local branches and Specialty Distribution centers. The overall
effect is driving efficiencies through our supply chain. Second, being a leader
in both installation and specialty distribution allows us to reach a broader set
of builders and contractors more effectively, regardless of their size or
geographic location in the
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. 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
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.
24
Table of Contents
SECOND QUARTER 2022 VERSUS SECOND QUARTER 2021
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, 2022 2021 Net sales$ 1,274,285 $ 834,255 Cost of sales 890,188 591,075 Cost of sales ratio 69.9 % 70.9 % Gross profit 384,097 243,180 Gross profit margin 30.1 % 29.1 % Selling, general, and administrative expense 176,876 114,894 Selling, general, and administrative expense to sales ratio 13.9 % 13.8 % Operating profit 207,221 128,286 Operating profit margin 16.3 % 15.4 % Other expense, net (13,689) (6,039) Income tax expense (49,835) (31,867) Net income$ 143,697 $ 90,380 Net margin 11.3 % 10.8 % Sales and Operations
Net sales increased 52.7 percent for the three months ended
Gross profit margins were 30.1 percent and 29.1 percent for the three months
ended
Selling, general, and administrative expense, as a percent of sales, was 13.9
and 13.8 percent for the three months ended
Operating margins were 16.3 percent and 15.4 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, 2022 2021 Percent Change Net sales by business segment: Installation$ 748,968 $ 605,625 23.7 % Specialty Distribution 587,791 273,364 115.0 % Intercompany eliminations (62,474) (44,734) Net sales$ 1,274,285 $ 834,255 52.7 % Operating profit by business segment: Installation$ 139,919 $ 99,066 41.2 % Specialty Distribution 86,749 42,856 102.4 % Intercompany eliminations (10,435) (6,932) Operating profit before general corporate expense 216,233 134,990 60.2 % General corporate expense, net (9,012) (6,704) Operating profit$ 207,221 $ 128,286 61.5 % Operating profit margins: Installation 18.7 % 16.4 % Specialty Distribution 14.8 % 15.7 % Operating profit margin before general corporate expense 17.0 % 16.2 % Operating profit margin 16.3 % 15.4 % Installation Sales
Sales in our Installation segment increased
The increase was due to a 13.3 percent increase from higher selling prices, 8.3 percent increase in sales volume, and 2.0 percent impact from our acquisitions.
Operating margins
Operating margins in our Installation segment were 18.7 percent and 16.4 percent
for the three months ended
Specialty Distribution
Sales
Sales in our Specialty Distribution segment increased
Operating margins
Operating margins in our Specialty Distribution segment were 14.8 percent and
15.7 percent for the three months ended
The decrease in operating margins was partially driven by the amortization of intangible assets related to purchase accounting and material inflation partially offset by higher selling prices and operational efficiencies.
26 Table of Contents OTHER ITEMS Other expense, net
Other expense, net, was
Income tax expense
Income tax expense was
FIRST SIX MONTHS 2022 VERSUS FIRST SIX MONTHS 2021
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, 2022 2021 Net sales$ 2,443,203 $ 1,577,053 Cost of sales 1,727,905 1,136,114 Cost of sales ratio 70.7 % 72.0 % Gross profit 715,298 440,939 Gross profit margin 29.3 % 28.0 % Selling, general, and administrative expense 344,123 216,767 Selling, general, and administrative expense to sales ratio 14.1 % 13.7 % Operating profit 371,175 224,172 Operating profit margin 15.2 % 14.2 % Other expense, net (24,969) (26,425) Income tax expense (87,796) (47,525) Net income$ 258,410 $ 150,222 Net margin 10.6 % 9.5 % Sales and Operations
Net sales increased 54.9 percent for the six months ended
Gross profit margins were 29.3 percent and 28.0 percent for the six months ended
Selling, general, and administrative expense, as a percent of sales, was 14.1
and 13.7 percent for the six months ended
The increase in selling, general, and administrative expense as a percent of sales was driven primarily by costs associated with acquisitions, the amortization of intangible assets related to purchase accounting and increased insurance costs.
27 Table of Contents
Operating margins were 15.2 percent and 14.2 percent for the six months ended
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, 2022 2021 Percent Change Net sales by business segment: Installation$ 1,425,661 $ 1,138,378 25.2 % Specialty Distribution 1,131,653 524,965 115.6 % Intercompany eliminations (114,111) (86,290) Net sales$ 2,443,203 $ 1,577,053 54.9 % Operating profit by business segment (a): Installation$ 252,598 $ 172,702 46.3 % Specialty Distribution 157,170 78,241 100.9 % Intercompany eliminations (19,144) (13,460) Operating profit before general corporate expense 390,624 237,483 64.5 % General corporate expense, net (b) (19,449) (13,311) Operating profit$ 371,175 $ 224,172 65.6 % Operating profit margins: Installation 17.7 % 15.2 % Specialty Distribution 13.9 % 14.9 % Operating profit margin before general corporate expense 16.0 % 15.1 % Operating profit margin 15.2 % 14.2 % Installation Sales
Sales in our Installation segment increased
Operating margins
Operating margins in our Installation segment were 17.7 percent and 15.2 percent
for the six months ended
Specialty Distribution
Sales
Sales in our Specialty Distribution segment increased
28 Table of Contents Operating margins
Operating margins in our Specialty Distribution segment were 13.9 percent and
14.9 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, 2022 2021
Changes in cash and cash equivalents:
Net cash provided by operating activities
(54,162) (223,778) Net cash used in financing activities (179,587) (46,693) Impact of exchange rate changes on cash 142 -
Net decrease in cash and cash equivalents
Net cash flows provided by operating activities increased
Net cash used in investing activities was
Net cash used in financing activities was
Additionally, we borrowed and repaid
29
Table of Contents
We have access to liquidity through our cash from operations and available
borrowing capacity under our Credit Agreement, which provides for borrowing
and/or standby letter of credit issuances of up to
The following table summarizes our liquidity, in thousands:
As of June 30, December 31, 2022 2021 Cash and cash equivalents (a)$ 123,869 $ 139,779 Revolving facility 500,000 500,000 Less: standby letters of credit (69,936) (69,936) Availability under revolving facility 430,064 430,064 Total liquidity$ 553,933 $ 569,843
(a) Our cash and cash equivalents consist of AAA-rated money market funds as well as cash held in our demand deposit accounts.
We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to support our ongoing operations and to fund our debt service requirements, capital expenditures and working capital needs for at least the next twelve months.
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
We believe a number of macroeconomic factors, including rising interest rates,
inflation and the overall health of the economy, are impacting consumer demand
for housing. We remain cautiously optimistic about the long-term
With the recent acquisition of DI, we have diversified our mix of business and increased our penetration in the commercial and industrial end markets. These end markets operate on a different cycle than residential housing. Although these end markets are dealing with higher material costs and are impacted by economic volatility, our bid activity and backlog remain strong.
OFF-BALANCE SHEET ARRANGEMENTS
We had no material off-balance sheet arrangements during the six months 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," "should," "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 events outside of our control affecting the economy or our industry including, but not limited to, the duration and impact of the COVID-19 pandemic or similar health emergencies, supply chain disruptions resulting from global events including conflicts, sanctions, or blockades, and economic events affecting affordability or the market at large including inflation and interest rates.
Our future performance may also be affected by conditions or events relating to
our business including, but not limited to, our ability to collect receivables
from our customers, our reliance on residential new construction, residential
repair/remodel, and commercial construction, our reliance on third-party
suppliers and manufacturers, our ability to attract, develop, and retain
talented personnel and our sales and labor force, our ability to maintain
consistent practices across our locations, and our ability to maintain our
competitive position. We discuss the material risks we face under the caption
entitled "Risk Factors" in our Annual Report for the year ended
© Edgar Online, source