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
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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.
FIRST QUARTER 2021 VERSUS FIRST 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 March 31, 2021 2020 Net sales$ 742,798 $ 653,228 Cost of sales 545,039 481,272 Cost of sales ratio 73.4 % 73.7 % Gross profit 197,759 171,956 Gross profit margin 26.6 % 26.3 % Selling, general, and administrative expense 101,872 101,967 Selling, general, and administrative expense to sales ratio 13.7 % 15.6 % Operating profit 95,887 69,989 Operating profit margin 12.9 % 10.7 % Other expense, net (20,388) (8,503) Income tax expense (15,657) (10,715) Net income $ 59,842 $ 50,771 Net margin 8.1 % 7.8 % Sales and Operations
Net sales increased 13.7 percent for the three months ended
Gross profit margins were 26.6 percent and 26.3 percent for the three months
ended
Selling, general, and administrative expense, as a percent of sales, was 13.7
and 15.6 percent for the three months ended
Operating margins were 12.9 percent and 10.7 percent for the three months ended
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The following table sets forth our net sales and operating profit margins by business segment, in thousands:
Three Months Ended March 31, 2021 2020 Percent Change Net sales by business segment: Installation$ 532,753 $ 475,873 12.0 % Distribution 251,601 214,223 17.4 % Intercompany eliminations (41,556) (36,868) Net sales$ 742,798 $ 653,228 13.7 % Operating profit by business segment: Installation$ 73,636 $ 60,351 22.0 % Distribution 35,385 24,669 43.4 % Intercompany eliminations (6,528) (5,833) Operating profit before general corporate expense 102,493 79,187 29.4 % General corporate expense, net (6,606) (9,198) Operating profit$ 95,887 $ 69,989 37.0 % Operating profit margins: Installation 13.8 % 12.7 % Distribution 14.1 % 11.5 % Operating profit margin before general corporate expense 13.8 % 12.1 % Operating profit margin 12.9 % 10.7 % Installation Sales
Sales in our Installation segment increased
The increase was due to a 5.8 percent impact from our acquisitions, a 5.1 percent increase in sales volume and a 1.1 percent increase from higher selling prices.
Operating margins
Operating margins in our Installation segment were 13.8 percent and 12.7 percent
for the three months ended
Distribution Sales
Sales in our Distribution segment increased
This increase was due to a 13.8 percent increase in sales volume and a 3.7 percent increase due to higher selling prices.
Operating margins
Operating margins in our Distribution segment were 14.1 percent and 11.5 percent
for the three months ended
25 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
Cash Flows and Liquidity
Significant sources (uses) of cash and cash equivalents are summarized for the periods indicated, in thousands:
Three Months EndedMarch 31, 2021 2020
Changes in cash and cash equivalents:
Net cash provided by operating activities
(73,320) (36,224) Net cash used in financing activities (26,490) (34,474) (Decrease) increase for the period$ (10,388) $ 2,232
Net cash flows provided by operating activities increased
Net cash used in investing activities was
Net cash used in financing activities was
We are closely managing our balance sheet, including maximizing our cash flow,
to maintain our strong foundation and provide stability as we continue to
navigate operations through the ongoing COVID-19 pandemic. We had solid
liquidity available to us at
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The following table summarizes our liquidity, in thousands:
As of March 31, December 31, 2021 2020 Cash and cash equivalents (a)$ 319,619 $ 330,007 Revolving Facility 450,000 450,000 Less: standby letters of credit (60,382) (60,382) Availability under Revolving Facility 389,618 389,618 Total liquidity$ 709,237 $ 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
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
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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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