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 COVID-19 pandemic and its impact on macroeconomic and local economic conditions. 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 in connection with a restriction of commercial activity.
We continue to implement procedures and processes as required or recommended by governmental and medical authorities 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. However, 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
24 Table of Contents
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 2021 VERSUS SECOND QUARTER 2020
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, 2021 2020 Net sales$ 834,255 $ 646,099 Cost of sales 591,075 468,045 Cost of sales ratio 70.9 % 72.4 % Gross profit 243,180 178,054 Gross profit margin 29.1 % 27.6 % Selling, general, and administrative expense 114,894 97,600 Selling, general, and administrative expense to sales ratio 13.8 % 15.1 % Operating profit 128,286 80,454 Operating profit margin 15.4 % 12.5 % Other expense, net (6,039) (8,188) Income tax expense (31,867) (16,770) Net income$ 90,380 $ 55,496 Net margin 10.8 % 8.6 % Sales and Operations
Net sales increased 29.1 percent for the three months ended
Gross profit margins were 29.1 percent and 27.6 percent for the three months
ended
Selling, general, and administrative expense, as a percent of sales, was 13.8
and 15.1 percent for the three months ended
Operating margins were 15.4 percent and 12.5 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, 2021 2020 Percent Change Net sales by business segment: Installation$ 605,625 $ 466,569 29.8 % Distribution 273,364 216,336 26.4 % Intercompany eliminations (44,734) (36,806) Net sales$ 834,255 $ 646,099 29.1 % Operating profit by business segment: Installation$ 99,066 $ 69,643 42.2 % Distribution 42,856 24,155 77.4 % Intercompany eliminations (6,932) (5,961) Operating profit before general corporate expense 134,990 87,837 53.7 % General corporate expense, net (6,704) (7,383) Operating profit$ 128,286 $ 80,454 59.5 % Operating profit margins: Installation 16.4 % 14.9 % Distribution 15.7 % 11.2 % Operating profit margin before general corporate expense 16.2 % 13.6 % Operating profit margin 15.4 % 12.5 % Installation Sales
Sales in our Installation segment increased
The increase was due to a 14.4 percent impact from our acquisitions, a 10.4 percent increase in sales volume and a 5.0 percent increase from higher selling prices.
Operating margins
Operating margins in our Installation segment were 16.4 percent and 14.9 percent
for the three months ended
Distribution Sales
Sales in our Distribution segment increased 57.0 million, or 26.4 percent, for
the three months ended
This increase was due to a 14.3 percent increase in sales volume, a 10.3 percent increase due to higher selling prices and a 1.8 percent impact from our acquisition.
Operating margins
Operating margins in our Distribution segment were 15.7 percent and 11.2 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 2021 VERSUS FIRST SIX MONTHS 2020
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, 2021 2020 Net sales$ 1,577,053 $ 1,299,327 Cost of sales 1,136,114 949,316 Cost of sales ratio 72.0 % 73.1 % Gross profit 440,939 350,011 Gross profit margin 28.0 % 26.9 % Selling, general, and administrative expense 216,767 199,568 Selling, general, and administrative expense to sales ratio 13.7 % 15.4 % Operating profit 224,172 150,443 Operating profit margin 14.2 % 11.6 % Other expense, net (26,425) (16,690) Income tax expense (47,525) (27,485) Net income$ 150,222 $ 106,268 Net margin 9.5 % 8.2 % Sales and Operations
Net sales increased 21.4 percent for the six months ended
Gross profit margins were 28.0 percent and 26.9 percent for the six months ended
Selling, general, and administrative expense, as a percent of sales, was 13.7
and 15.4 percent for the six months ended
The decrease in selling, general, and administrative expense as a percent of sales was primarily the result of higher sales, lower share-based compensation expense and legal fees, and overall cost reduction initiatives.
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Operating margins were 14.2 percent and 11.6 percent for the three 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, 2021 2020 Percent Change Net sales by business segment: Installation$ 1,138,378 $ 942,442 20.8 % Distribution 524,965 430,558 21.9 % Intercompany eliminations (86,290) (73,673) Net sales$ 1,577,053 $ 1,299,327 21.4 % Operating profit by business segment (a): Installation$ 172,702 $ 129,994 32.9 % Distribution 78,241 48,825 60.2 % Intercompany eliminations (13,460) (11,795) Operating profit before general corporate expense 237,483 167,024 42.2 % General corporate expense, net (b) (13,311) (16,581) Operating profit$ 224,172 $ 150,443 49.0 % Operating profit margins: Installation 15.2 % 13.8 % Distribution 14.9 % 11.3 % Operating profit margin before general corporate expense 15.1 % 12.9 % Operating profit margin 14.2 % 11.6 % Installation Sales
Sales in our Installation segment increased
Operating margins
Operating margins in our Installation segment were 15.2 percent and 13.8 percent
for the six months ended
Distribution Sales
Sales in our Distribution segment increased
This increase was due to a 14.0 percent increase in sales volume, a 7.0 percent increase due to higher selling prices, and a 0.9 percent impact from our acquisition.
28 Table of Contents Operating margins
Operating margins in our Distribution segment were 14.9 percent and 11.3 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, 2021 2020
Changes in cash and cash equivalents:
Net cash provided by operating activities
(223,778) (40,700) Net cash used in financing activities (46,693) (63,432) (Decrease) increase for the period$ (68,268) $ 74,030
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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Our liquidity at
The following table summarizes our liquidity, in thousands:
As of June 30, December 31, 2021 2020 Cash and cash equivalents (a)$ 261,739 $ 330,007 Revolving Facility 450,000 450,000 Less: standby letters of credit (71,211) (60,382) Availability under Revolving Facility 378,789 389,618 Total liquidity$ 640,528 $ 719,625
(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
The demand for housing is outpacing supply, however labor and material shortages
are limiting the speed at which new homes can be built to meet this increased
demand. All trades in our industry continue to experience constrained capacity,
specifically in fiberglass and spray foam, resulting in manufacturers increasing
costs on products. We expect both
Similarly, the commercial business is poised to see continued improvement throughout 2021 as delayed projects get back on track, however management will continue to evaluate every aspect of our business, including monitoring ongoing developments related to the COVID-19 pandemic, which may trigger restrictions on operating activities, an economic downturn, or other adverse impact to our business.
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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