INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

implemented accounting policies described below, there have been no changes to our significant accounting policies during the three ~~or nine~~ months ended ~~September 30, 2019, except for the manner in which we account for leases as described in Note 7, Leases.~~

March 31, 2020.

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Recently Adopted Accounting Pronouncements


Standard		~~Adoption~~
~~ASU~~ ~~2016-02,~~ ~~Leases~~ ~~(Topic 842)~~Effective Date		This Accounting Standards Update (“ASU”) requires substantially all leases, with the exception of leases with a term of one year or less, to be recorded on the balance sheet as a lease liability measured as the present value of the future lease payments with a corresponding ~~right-of-use~~ asset. This ASU also requires disclosures designed to give financial statement users information on the amount, timing and uncertainty of cash flows. See Note 7, Leases, for further information regarding our lease accounting policies.

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

Adoption

~~We are currently evaluating the impact of certain ASU’s on our Condensed Consolidated Financial Statements or Notes to Consolidated Financial Statements, which are described below:~~


~~Standard~~ASU 2016-13, Financial Instruments—Credit Losses (Topic 326)	~~Description~~ January 1, 2020	~~Effective Date~~	~~Effect on the financial statements~~ or other significant matters
~~ASU~~ ~~2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326)~~	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.	~~Annual periods beginning after December 15, 2019, including interim periods therein. Early adoption is permitted.~~	Upon adoption of this pronouncement, we expect the accounts receivable balance and the contract assets balance included in other current assets on our Condensed Consolidated Balance Sheets to be affected, with an offsetting amount recorded to retained earnings in the period of adoption. We are currently assessing the quantitative impact the adoption will have on our financial statements. See Note 4, Credit Losses, for further information.

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~


ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment	~~To address~~ January 1, 2020	This ASU addresses concerns over the cost and complexity of the two-step goodwill impairment test ~~this pronouncement removes~~by removing the second step of the goodwill impairment test. Going forward, ~~an entity~~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.	~~Annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted.~~	~~We anticipate the adoption of this ASU will not have a material impact on our consolidated financial statements or disclosures.~~

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 Topic 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 the practical expedient to continue to assert probability of hedged interest under our interest rate swap agreements, regardless of any expected future modification in terms related to reference rate reform.

Table of Contents

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, ~~2019,~~2020, including interim periods therein. Early adoption is permitted.	We are currently ~~evaluating the provisions of this ASU and~~assessing the impact ~~it will have~~of adoption on our ~~disclosures.~~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. ~~We recognize revenue using the~~

~~percentage-of-completion~~

~~method of accounting, utilizing a~~

~~cost-to-cost~~

~~input approach as we believe this represents the best measure of when control of goods and services are transferred to the customer.~~ 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

8cost-to-cost

~~Table~~input method as we believe this represents the best measure of ~~Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

when goods and services are transferred to the customer. When ~~the~~

~~percentage-of-completion~~

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 (the~~

~~cost-to-cost~~

~~approach).~~costs. Under the

cost-to-cost

~~approach,~~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.

~~Sales~~

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.

Table of Contents

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,								Three months ended March 31,
	2019				2018				2019				2018				2020				2019
Residential new construction	$	297,003	75	%	$	268,254	77	%	$	840,806	76	%	$	755,800	77	%	$	298,340	75	%	$	261,310	77	%
Repair and remodel		25,029	6	%		23,107	7	%		71,254	6	%		65,453	7	%		24,043	6	%		21,521	6	%
Commercial		74,417	19	%		57,638	16	%		198,338	18	%		162,058	16	%		74,948	19	%		59,304	17	%

Net revenues	$	396,449	100	%	$	348,999	100	%	$	1,110,398	100	%	$	983,311	100	%	$	397,331	100	%	$	342,135	100	%

Three months ended September 30,

Nine months ended September 30,

2019

2018

2019

2018

Insulation
$

253,311

64
% $
225,503

65
% $
710,005

64
% $

646,270

66
%
Waterproofing

32,781

8
%
25,980

7
%
84,024

8
%
73,477

7
%
Shower doors, shelving and mirrors

27,011

7
%
23,190

7
%
77,828

7
%
66,222

7
%
Garage doors

22,336

6
%
21,781

6
%
65,790

6
%
56,574

6
%
Rain gutters

13,366

3
%
12,163

4
%
37,561

3
%
31,429

3
%
Window blinds

10,615

3
%
7,811

2
%
30,780

3
%
21,196

2
%
Other building products

37,029

9
%
32,571

9
%
104,410

9
%
88,143

9
%

Net revenues
$

396,449

100
% $

348,999

100
% $

1,110,398

100
% $
983,311

100
%


	Three months ended March 31,
	2020				2019
Insulation	$	259,701	65	%	$	221,223	65	%
Waterproofing		28,505	7	%		22,385	7	%
Shower doors, shelving and mirrors		27,015	7	%		23,917	7	%
Garage doors		22,987	6	%		21,672	6	%
Rain gutters		11,576	3	%		11,199	3	%
Window blinds		10,931	3	%		9,384	3	%
Other building products		36,616	9	%		32,355	9	%

Net revenues	$	397,331	100	%	$	342,135	100	%

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

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 isare 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,
	2019			2018			March 31, 2020			December 31, 2019
Contract assets	$	22,278		$	15,092		$	22,954		$	22,138
Contract liabilities		(8,729	)		(7,468	)		(9,107	)		(8,888	)

Uncompleted contracts were as follows (in thousands):


	September 30,		December 31,
	2019		2018		March 31, 2020		December 31, 2019
Costs incurred on uncompleted contracts	$	120,905	$	114,826	$	118,460	$	110,818
Estimated earnings		64,436		58,952		64,714		61,185

Total		185,341		173,778		183,174		172,003
Less: Billings to date		168,587		163,112		166,092		155,599

Net under billings	$	16,754	$	10,666	$	17,082	$	16,404

Table of Contents

INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net under billings were as follows (in thousands):

September 30,

December 31,

2019

2018

Costs and estimated earnings in excess of billings on uncompleted contracts (contract assets)
$
22,278
$
15,092

Billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities)

(5,524
)
(4,426
)

Net under billings
$
16,754
$
10,666


	March 31, 2020			December 31, 2019
Costs and estimated earnings in excess of billings on uncompleted contracts (contract assets)	$	22,954		$	22,138
Billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities)		(5,872	)		(5,734	)

Net under billings	$	17,082		$	16,404

The difference between contract assets and contract liabilities as of ~~September 30, 2019~~March 31, 2020 compared to December 31, ~~2018~~2019 is primarily the result of timing ~~~~differences between our performance of obligations under contracts and customer payments. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we

recognized ~~$7.1~~$6.9 million

of revenue that was included in the contract liability balance at December 31, ~~2018.~~2019. We ~~did~~

~~t recognize any such revenue during the three months ended September 30, 2019. During the three and nine months ended September 30, 2019 or 2018, we~~ did 0t recognize any impairment losses on our receivables and contract ~~assets.~~assets during the three months ended March 31, 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, 2019,~~March 31, 2020, the aggregate amount of the transaction price allocated to remaining uncompleted contracts was ~~$83.5~~$91.3 million. We expect to satisfy remaining performance obligations and recognize revenue on substantially all of these uncompleted contracts over the next 18 months.

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

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 (Topic 326): Measurement of Credit Losses on Financial Instruments” under the modified retrospective approach. Topic 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 Topic 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.

We anticipate that the COVID-19 outbreak will have a negative impact on our customers and the homebuilding industry in general and may affect the collectability of our existing trade receivables. As a result, we increased our allowance for credit losses as of March 31, 2020 to reflect this increased risk.

Table of Contents

INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Changes in our allowance for credit losses are as follows (in thousands):


Balance as of January 1, 2020	$	6,878
Cumulative effect of change in accounting principle		1,600
Current period provision		1,298
Recoveries collected and other		204
Amounts written off		(951	)

Balance as of March 31, 2020	$	9,029

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 ~~$107.5~~$104.6 million and ~~$69.8~~$99.2 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

All other investments are classified as

held-to-maturity

and consist of highly liquid instruments, primarily including corporate bonds and commercial paper. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the amortized cost of these investments equaled the net carrying value, which was ~~$5.0~~$26.5 million and ~~$10.1~~$38.0 million, respectively. All

held-to-maturity

securities as of ~~September 30, 2019~~March 31, 2020 mature in one year or less. See Note 8,9, Fair Value Measurements, for additional information.

NOTE 56 - GOODWILL AND INTANGIBLES

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		3,192			—			3,192	��
Other		(180	)		—			(180	)

March 31, 2020	$	268,668		$	(70,004	)	$	198,664

Goodwill
(Gross)

Accumulated
Impairment
Losses

Goodwill
(Net)

January 1, 2019
$

243,053
$
(70,004
) $

173,049

Business Combinations

11,332

—

11,332

Other

193

—

193

September 30, 2019
$

254,578
$
(70,004
) $

184,574

Other changes included in the above table ~~represent~~include minor adjustments for the allocation of certain acquisitions still under ~~measurement and four immaterial~~measurement. For additional information regarding changes to goodwill resulting from acquisitions, ~~completed during the nine months ended September 30, 2019.~~ see Note 16, Business Combinations.

We test goodwill for impairment annually during the fourth quarter of our fiscal year or earlier if there is an impairment indicator. ~~NaN~~We anticipate that the COVID-19 outbreak could have an impact on our customers and the homebuilding industry in general, as it 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 ~~was recognized during either~~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 March 31, 2020, we will continue to assess impairment indicators related to the impact of the ~~nine month periods ended September 30, 2019 or 2018.~~COVID-19 outbreak on our business. 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.

Table of Contents

INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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, 2019						As of December 31, 2018
	Gross				Net		Gross				Net		As of March 31,						As of December 31,
	Carrying		Accumulated		Book		Carrying		Accumulated		Book		2020						2019
	Amount		Amortization		Value		Amount		Amortization		Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Amortized intangibles:
Customer relationships	$	157,242	$	64,884	$	92,358	$	148,635	$	52,514	$	96,121	$	171,945	$	74,061	$	97,884	$	169,334	$	69,388	$	99,946
Covenants not-to-compete		16,035		9,857		6,178		14,682		7,572		7,110		17,189		11,391		5,798		16,959		10,617		6,342
Trademarks and trade names		67,048		21,489		45,559		64,432		18,256		46,176
Trademarks and tradenames														70,891		23,752		47,139		69,718		22,609		47,109
Backlog		14,080		13,854		226		14,060		13,677		383		14,610		14,005		605		14,080		13,915		165

	$	254,405	$	110,084	$	144,321	$	241,809	$	92,019	$	149,790	$	274,635	$	123,209	$	151,426	$	270,091	$	116,529	$	153,562

The gross carrying amount of intangibles increased approximately ~~$12.6~~$4.5 million during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 primarily due to business combinations. ~~See~~For more information, see Note ~~15,~~16, Business ~~Combinations, for more information.~~Combinations. Remaining estimated aggregate annual amortization expense is as follows (amounts, in thousands, are for the fiscal year ended):

Remainder of 2019
$
6,147

2020

23,867

2021

22,525

2022

21,604

2023

18,693

Thereafter

51,485


Remainder of 2020	$	19,737
2021		25,086
2022		23,930
2023		21,019
2024		17,504
Thereafter		44,150

NOTE 67 - LONG-TERM DEBT

Long-term debt consisted of the following (in thousands):


	As of September 30,			As of December 31,			As of March 31,			As of December 31,
	2019			2018			2020			2019
Senior Notes due 2028, net of unamortized debt issuance costs of $4,989 and $0, respectively	$	295,011		$	—
Term loan, net of unamortized debt issuance costs of $2,164 and $4,834, respectively		197,836			390,916
Vehicle and equipment notes, maturing through September 2024; payable in various monthly installments, including interest rates ranging from 2.5% to 4.8%		69,430			60,391
Senior Notes due 2028, net of unamortized debt issuance costs of $4,678 and $4,823, respectively							$	295,322		$	295,177
Term loan, net of unamortized debt issuance costs of $1,592 and $1,662, respectively								198,408			198,338
Vehicle and equipment notes, maturing through March 2025; payable in various monthly installments, including interest rates ranging from 2.5% to 4.8%								73,097			72,714
Various notes payable, maturing through March 2025; payable in various monthly installments, including interest rates ranging from 4% to 6%		2,967			3,517			2,966			2,966

		565,244			454,824			569,793			569,195
Less: current maturities		(22,734	)		(22,642	)		(24,241	)		(24,164	)

Long-term debt, less current maturities	$	542,510		$	432,182		$	545,552		$	545,031

Table of Contents

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 March 31, 2020 are as follows (in thousands):


Remainder of 2020	$	18,719
2021		20,516
2022		16,714
2023		11,432
2024		5,645
Thereafter		503,037

5.75% Senior Notes due 2028

In September 2019, we issued $300.0 million in aggregate principal amount of 5.75%

~~enior~~

senior unsecured notes

~~(the~~ (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

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

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 ~~Senior Notes offering and the~~ entry into a new revolving credit facility described ~~below~~

below.

The indenture covering the Senior Notes ~~contain~~

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

~~As of September 30,~~In December 2019, we ~~had $197.8 million, net of unamortized debt issuance costs, due on~~amended and restated our $400 million, ~~seven-year~~seven ~~term~~-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 is(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 March 31, 2020, we had $198.4 million, net of unamortized debt issuance costs, due ~~April 2025~~ ~~and~~on our Term Loan. The amended Term Loan also has a margin of ~~(A) 2.50% in the case of Eurodollar rate loans and (B) 1.50%~~1.25% in the case of base rate loans.

In September 2019, we ~~also~~ entered into a ne

new asset-based lending credit agreement ~~(the~~(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~~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. AsIn 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 ~~September 30, 2019, there were 0 borrowings outstanding~~America, N.A., as ABL Agent for the lenders under the ABL ~~Revolver.~~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 March 31, 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.

Table of Contents

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%~~

1.25

% or ~~1.50%~~

1.50

% in the case of Eurodollar rate loans (based on a measure of availability under the ABL Credit Agreement) and (B) ~~0.25%~~

0.25

% or ~~0.50%~~

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.

~~In connection~~

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

~~eptember 2019~~ 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 March 31, 2020, approximately $78.3 million of the various loan agreements was available for purchases of equipment.

~~transactions, we wrote off $2.8~~

Total gross assets relating to our Master Loan and Equipment Agreements were $133.8 million ~~in previously capitalized loan costs during the three months ended September 30, 2019. This amount~~and $130.2 million as of March 31, 2020 and December 31, 2019, respectively. The net book value of assets under these agreements was $68.4 million and $68.2 million as of March 31, 2020 and December 31, 2019, respectively. Depreciation of assets held under these agreements is included ~~in interest expense, net~~within cost of sales on the Condensed Consolidated Statements of Operations and Comprehensive Income. We also had $9.0 million of capitalized deferred financing costs and debt issuance costs, net of accumulated amortization, as of September 30, 2019, which includes $6.2 million in new costs associated with the above transactions incurred during the three months ended September 30, 2019. The deferred financing costs are included in other

~~non-current~~

assets while the debt issuance costs are included in long-term debt on the Condensed Consolidated Balance Sheets. These costs are amortized over the term of the related debt on a straight-line basis which approximates the effective interest method.

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

NOTE 78 - LEASES

On January 1, 2019, we adopted ASC 842, “Leases” which, among other changes, requires us to record liabilities classified as operating leases on our Condensed Consolidated Balance Sheets along with a corresponding

~~right-of-use~~

asset. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 840. We elected the package of practical expedients available for expired or existing contracts, which allowed us to carryforward our historical assessments of whether contracts are or contain leases, lease classification tests and treatment of initial direct costs. We also elected to not separate lease components from

~~non-lease~~

~~components for all fixed payments, and we exclude variable lease payments in the measurement of~~

~~right-of-use~~

~~assets and lease obligations.~~

Upon adoption of ASC 842, we recorded a $44.9 million increase in other assets, a $1.4 million decrease to other current assets, a $1.0 million decrease to other current liabilities and a $44.5 million increase to operating lease obligations. These adjustments are the result of assigning a

~~right-of-use~~

asset and related lease liability to our operating leases. We did not record any cumulative effect adjustments to opening retained earnings, and adoption of the lease standard had no impact to cash from or used in operating, financing, or investing activities on our consolidated cash flow statements.

We determine if an arrangement is a lease at inception. Most of our operating leases do not provide an implicit rate so we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. 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; ~~certain manufacturing facilities to produce insulation materials;~~ and certain vehicles and equipment to facilitate our operations, including, but not limited to, trucks, forklifts and office equipment. ~~Leases with an initial term of 12 months or less are not recorded on the balance sheet as we recognize lease expense for these leases on a straight-line basis over the lease term.~~

Most lease agreements include one or more renewal options, all of which are at our sole discretion. Generally, future renewal options that have not been executed as of the balance sheet date are excluded from

~~right-of-use~~

assets and related lease liabilities. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Some of our vehicle lease agreements include provisions for residual value guarantees and any expected payment is included in our lease liability.

Table of Contents

INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~Lease Position as of September 30, 2019~~

The table below presents the lease-related assets and liabilities recorded on the Condensed Consolidated Balance Sheet:

(in thousands)

Classification

As of September 30,
2019

Assets

Non-Current

Operating

Operating lease
right-of-use
assets
$
42,553

Finance

Property and equipment, net

7,691

Total lease assets
$
50,244

Liabilities

Current

Operating

Current maturities of operating lease obligations
$
15,032

Financing

Current maturities of finance lease obligations

3,133

Non-Current

Operating

Operating lease obligations

27,129

Financing

Finance lease obligations

3,682

Total lease liabilities
$
48,976


(in thousands)	Classification	As of March 31, 2020		As of December 31, 2019
Assets
Non-Current
Operating	Operating lease right-of-use assets	$	47,134	$	45,691
Finance	Property and equipment, net		6,602		7,148

Total lease assets		$	53,736	$	52,839

Liabilities
Current
Operating	Current maturities of operating lease obligations	$	15,889	$	15,459
Financing	Current maturities of finance lease obligations		2,438		2,747
Non-Current
Operating	Operating lease obligations		30,741		29,785
Financing	Finance lease obligations		3,412		3,597

Total lease liabilities		$	52,480	$	51,588


Weighted-average remaining lease ~~term~~term:
Operating leases	~~3.8~~4.5 years
Finance leases	~~2.6~~2.7 years
Weighted-average discount rate ~~(1)~~
Operating leases	~~4.85~~4.50	%
Finance leases	~~4.75~~4.95	%

~~(1)~~

~~Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.~~

Lease Costs

The table below presents certain information related to the lease costs for finance and operating ~~leases during 2019:~~leases:


			Three months ended March 31,
(in thousands)	Classification		2020		2019
Operating lease cost (1)		Administrative	$	5,572	$	4,987
Finance lease cost
Amortization of leased assets (2)		Cost of sales		965		1,478
Interest on finance lease obligations		Interest expense, net		73		94

Total lease costs			$	6,610	$	6,559

(in thousands)

Classification

Three months ended
September 30, 2019

Nine months ended
September 30, 2019

Operating lease cost

(1)

Administrative
$
5,225
$
15,266

Finance lease cost

Amortization of leased assets
(2)

Cost of sales

1,144

3,955

Interest on finance lease obligations

Interest expense, net

84

268

Total lease costs
$
6,453
$
19,489

(1)	Includes variable lease costs of $0.6 million and $0.5 million, respectively, and short-term lease costs of $0.2 million for each of the three months ended March 31, 2020 and 2019 .

~~(1)~~

~~Includes variable lease costs of $0.5 million and $1.5 million, respectively, and short-term lease costs of $0.2 million and $0.6 million, respectively.~~

(2)	Includes variable lease costs of $0.2 million and ~~$0.7~~$0.3 million, ~~respectively.~~respectively

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Other Information

The table below presents supplemental cash flow information related to leases ~~during 2019~~ (in thousands):


						Three months ended March 31,
		Three months ended September 30, 2019		Nine months ended September 30, 2019		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases		$	4,488	$	13,009	$	4,746	$	4,233
Operating cash flows for finance leases			84		268		73		94
Financing cash flows for finance leases			917		3,398		738		1,366

Table of Contents

INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years for the finance lease obligations and operating lease obligations recorded on the Condensed Consolidated Balance Sheet as of ~~September 30, 2019~~March 31, 2020 (in thousands):


	Finance Leases			Operating Leases							Finance Leases			Operating Leases
				Related Party		Other		Total Operating						Related Party		Other		Total Operating
Remainder of 2019	$	1,233		$	260	$	4,213	$	4,473
2020		2,854			1,055		14,490		15,545
Remainder of 2020											$	2,229		$	819	$	12,733	$	13,552
2021		1,845			910		9,947		10,857			2,048			946		13,089		14,035
2022		911			836		5,708		6,544			1,113			869		7,968		8,837
2023		532			415		3,386		3,801			748			415		4,561		4,976
2024												334			425		2,815		3,240
Thereafter		131			823		4,304		5,127			11			398		6,617		7,015

Total minimum lease payments		7,506		$	4,299	$	42,048		46,347			6,483		$	3,872	$	47,783		51,655
Less: Amounts representing executory costs		(195	)						—			(144	)						—
Less: Amounts representing interest		(496	)						(4,186	)		(489	)						(5,025	)

Present value of future minimum lease payments		6,815							42,161			5,850							46,630
Less: Current obligation under leases		(3,133	)						(15,032	)		(2,438	)						(15,889	)

Long-term lease obligations	$	3,682						$	27,129		$	3,412						$	30,741

~~Disclosures Related to Periods Prior to Adoption of ASC 842 under ASU 2016-02~~

Lease amounts presented as of December 31, 2018 and for the nine months ended September 30, 2018 are in accordance with accounting guidance in effect prior to adoption of ASC 842, “Leases,” on January 1, 2019. Total assets relating to capital leases were approximately $58.7 million and a total of approximately $32.0 million were fully depreciated as of December 31, 2018. The net book value of assets under capital leases was approximately $9.5 million as of December 31, 2018. Amortization of assets held under capital leases is included within cost of sales on the Consolidated Statements of Operations and Comprehensive Income.

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Future minimum lease payments under noncancellable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 2018 were as follows (in thousands):

Capital Leases

Operating Leases

Related Party

Other

Total Operating

2019
$
5,207
$
1,159
$

14,418
$
15,577

2020

2,253

1,184

11,293

12,477

2021

1,339

1,058

7,014

8,072

2022

452

972

4,335

5,307

2023

93

51

2,613

2,664

Thereafter

—

—

4,695

4,695

9,344
$
4,424
$

44,368
$
48,792

Less: Amounts representing executory costs

(255
)
Less: Amounts representing interest

(459
)

Total obligation under capital leases

8,630

Less: Current portion of capital leases

(4,806
)

Long term capital lease obligation
$
3,824

NOTE 89 - FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. During the periods presented, there were no transfers between fair value hierarchical levels.

Assets Measured at Fair Value on a Nonrecurring Basis

Certain assets, specifically other intangible and long-lived assets, are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition. Assets measured at fair value on a nonrecurring basis as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are categorized based on the lowest level of significant input to the valuation. The assets are measured at fair value when our impairment assessment indicates a carrying value for each of the assets in excess of the asset’s estimated fair value. Undiscounted cash flows, a Level 3 input, are utilized in determining estimated fair values. During each of the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ we did not record any impairments on these assets required to be measured at fair value on a nonrecurring basis.

Estimated Fair Value of Financial Instruments

Accounts receivable, accounts payable and accrued liabilities as of ~~September 30, 2019~~March 31 2020 and December 31, ~~2018~~2019 approximate fair value due to the short-term maturities of these financial instruments. The carrying amounts of certain long-term debt, including the Term Loan and ABL Revolver as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, approximate fair value due to the variable rate nature of the agreements. The carrying amounts of our operating lease

right-of-use

assets and the obligations associated with our operating and finance leases as well as our vehicle and equipment notes approximate fair value as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. All debt classifications represent Level 2 fair value measurements.

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Derivative financial instruments are measured at fair value based on observable market information and appropriate valuation methods. Contingent consideration liabilities arise from future earnout payments to the sellers associated with certain acquisitions and are based on predetermined calculations of certain future results. These future payments are estimated by considering various factors, including business risk and projections. The contingent consideration liabilities are measured at fair value by discounting estimated future payments to their net present value using the appropriate weighted average cost of capital (WACC). The fair values of financial assets and

Table of Contents

INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

liabilities that are recorded at fair value in the Condensed Consolidated Balance Sheets and not described above were as follows (in thousands):


	As of September 30, 2019								As of December 31, 2018								As of March 31, 2020								As of December 31, 2019
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Financial assets:
Cash equivalents	$	107,535	$	107,535	$	—	$	—	$	69,807	$	69,807	$	—	$	—	$	104,594	$	104,594	$	—	$	—	$	99,242	$	99,242	$	—	$	—
Derivative financial instruments		—		—		—		—		1,765		—		1,765		—

Total financial assets	$	107,535	$	107,535	$	—	$	—	$	71,572	$	69,807	$	1,765	$	—

Financial liabilities:
Derivative financial instruments	$	11,207	$	—	$	11,207	$	—	$	2,275	$	—	$	2,275	$	—	$	16,993	$	—	$	16,993	$	—	$	9,446	$	—	$	9,446	$	—
Contingent consideration		3,724		—		—		3,724		5,098		—		—		5,098		2,642		—		—		2,642		3,854		—		—		3,854

Total financial liabilities	$	14,931	$	—	$	11,207	$	3,724	$	7,373	$	—	$	2,275	$	5,098	$	19,635	$	—	$	16,993	$	2,642	$	13,300	$	—	$	9,446	$	3,854

See Note 4,5, Investments, for more information on cash equivalents included in the table above. Also see Note 9,10, Derivatives and Hedging Activities, for more information on derivative financial instruments.

The change in fair value of the contingent consideration (a Level 3 input) was as follows (in thousands):


Contingent consideration liability - January 1, 2019	$	5,098
Contingent consideration liability - January 1, 2020				$	3,854
Preliminary purchase price		2,275			1,000
Fair value adjustments		(410	)		(200	)
Accretion in value		434			121
Amounts paid to sellers		(371	)		(2,133	)
Amounts cancelled		(3,302	)

Contingent consideration liability - September 30, 2019	$	3,724
Contingent consideration liability - March 31, 2020				$	2,642

The accretion in value of contingent consideration liabilities is included within administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income.

The carrying values and associated fair values of financial assets and liabilities that are not recorded at fair value in the Condensed Consolidated Balance Sheets and not described above include our Senior Notes and investments. To estimate fair values of these items, we utilized third-party quotes which are derived all or in part from model prices, external sources or market ~~prices, or the third-party’s internal records.~~prices. Both represent a Level 2 fair value measurement and are as follows (in thousands):

As of September 30, 2019

As of December 31, 2018

Carrying Value

Fair Value

Carrying Value

Fair Value

Investments
$
4,980
$
4,983
$
10,060
$

10,053

Senior Notes

(1)

300,000

309,000

—

—


	As of March 31, 2020				As of December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Investments	$	26,487	$	26,431	$	37,961	$	37,958
Senior Notes (1)		300,000		286,866		300,000		321,114

(1)	Excludes the impact of unamortized debt issuance costs.

~~Table of Contents~~See Note 5, Investments, for more information on investments included in the table above. Also see Note 7, Debt, for more information on our Senior Notes.

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

NOTE 910 - DERIVATIVES AND HEDGING ACTIVITIES

Cash Flow Hedges of Interest Rate Risk

Our purpose for using interest rate derivatives is to add stability to interest expense and to manage our exposure to interest rate movements. During the ~~first nine~~three months ~~of 2019,~~ended March 31, 2020, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. To accomplish these objectives, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as

cash flow

Table of Contents

INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

hedges

involve the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of ~~September 30, 2019,~~March 31, 2020, we had 2 interest rate swaps, each with an associated floor, with a total beginning notional of $200.0 million, 1 that amortizes quarterly to $95.3 million at a maturity date of May 31, 2022 and 1 that amortizes quarterly to $93.3 million at a maturity date of April 15, ~~2025.~~2025. We also had a forward interest rate swap with an associated floor beginning May 31, 2022 with a beginning notional of $100.0 million that amortizes quarterly to $97.0 million at a maturity date of April 15, 2025.

~~hese~~ These three swaps serve to hedge

substantially all

of the variable cash flows on our Term Loan until maturity. The assets and liabilities associated with these derivative instruments are included in other current ~~assets, other~~

~~non-current~~

~~assets, other current~~ liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets at their fair value amounts as described in Note 8,

Fair Value Measurements.

The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in other comprehensive income, net of tax on the Condensed Consolidated Statements of Operations and Comprehensive Income and in accumulated other comprehensive income on the Condensed Consolidated Balance Sheets and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. We had 0 such changes during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 or ~~2018.~~2019.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense, net as interest payments are made on our variable-rate debt. Over the next twelve months, we estimate that an additional ~~$1.5~~$3.2 million will be reclassified as an increase to interest expense, net.

Additionally, we do not use derivatives for trading or speculative purposes and we currently do not have any derivatives that are not designated as hedges. As of ~~September 30, 2019, the Company has~~March 31, 2020, we have not posted any collateral related to these agreements.

LIBOR is used as a reference rate for our interest rate swap agreements we use to hedge our interest rate exposure. During the three months ended March 31, 2020, we adopted ASU

2020-04,

Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). The purpose of this guidance is to provide relief for impacted areas as it relates to impending reference rate reform. We elected the practical expedient to continue to assert probability of hedged interest, regardless of any expected future modification in terms related to reference rate reform.

NOTE 1011 - STOCKHOLDERS’ EQUITY

As of ~~September 30,~~ March

2020

and December

2019

, we had ~~$8.5~~losses of $

12.8

million and $

7.1

million, respectively, in accumulated other comprehensive ~~loss~~income on our Condensed Consolidated Balance ~~Sheet,~~Sheets, which represents the effective portion of the unrealized loss on our derivative instruments. For additional information, see Note 9,

, Derivatives and Hedging Activities.

During the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2020, we repurchased approximately ~~380 thousand and 793~~443 thousand shares of our ~~outstanding~~ common stock ~~respectively. The~~with an aggregate ~~purchase~~ price of ~~our 2018 stock repurchases was $18.2 million and $42.8~~approximately $15.8 million, or ~~$47.75 and $53.96~~$35.59 average price per ~~share, for the three and nine months ended September 30, 2018, respectively.~~share. We did not repurchase any shares during the three ~~or nine~~ months ended ~~September 30,~~March 31, 2019. The stock repurchase plan is in effect through ~~February 28, 2020,~~March 1, 2021 unless extended by our board of directors. The effect of these treasury shares reducing the number of common shares outstanding is reflected in our earnings per share calculation.

~~Table~~ As of ~~Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~March 31, 2020, we have $44.9 million remaining on our current stock repurchase program. In response to COVID-19, we have temporarily suspended our share repurchase program.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

NOTE 1112 - EMPLOYEE BENEFITS

Healthcare

We participate in multiple healthcare plans, of which our primary plan is partially self-funded with an insurance company payment benefits in excess of stop loss limits per individual. Our healthcare benefit expense (net of employee contributions) ~~for all plans~~ was approximately ~~$5.6~~$7.0 million and ~~$4.5~~$4.8 million for the three months ended ~~September 30,~~March 31,

Table of Contents

INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2020 and 2019, ~~and 2018,~~ respectively, ~~and $15.7 million and $13.3 million~~ for ~~the nine months ended September 30, 2019 and 2018, respectively.~~all plans. An accrual for estimated healthcare claims incurred but not reported (“IBNR”) is included within accrued compensation on the Condensed Consolidated Balance Sheets and was $2.9 million and ~~$2.3~~$2.6 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Workers’ Compensation

Workers’ compensation expense totaled ~~$4.0~~$4.4 million and ~~$4.4~~$4.2 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $11.8 million and $9.7 million for the nine months ended September 30 2019 and 2018,~~ respectively.

Workers’ compensation ~~kno~~

nknown claims and IBNR reserves included on the Condensed Consolidated Balance Sheets were as follows (in thousands):


	March 31, 2020		December 31, 2019
Included in other current liabilities	$	6,063	$	6,777
Included in other long-term liabilities		12,165		10,874

	$	18,228	$	17,651

September 30,
2019

December 31,
2018

Included in other current liabilities
$
5,768
$
5,795

Included in other long-term liabilities

11,813

9,447

$
17,581
$
15,242

We also had an insurance receivable for claims that exceeded the stop loss limit for fully insured policies included on the Condensed Consolidated Balance Sheets. This receivable offsets an equal liability included within the reserve amounts noted above and was as follows (in thousands):

September 30,
2019

December 31,
2018

Included in other
non-current
assets
$
1,819
$
1,888


	March 31, 2020		December 31, 2019
Included in other non-current assets	$	1,955	$	2,098

Retirement Plans

We participate in multiple 401(k) plans, whereby we provide a matching contribution of wages deferred by employees and can also make discretionary contributions to each plan. Certain plans allow for discretionary employer contributions only. These plans cover substantially all our eligible employees. We recognized 401(k) plan expenses of ~~$0.5~~$0.6 million ~~and $0.3 million~~ during each of the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and we recognized $1.5 million and $1.2 million for the nine months ended September 30, 2019 and 2018,~~ respectively. These expenses are included in administrative expenses on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income.

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Share-Based Compensation

Common Stock Awards

We periodically grant shares of our common stock to

non-employee

members of our board of directors and our employees. During the ~~nine~~three months ended ~~September 30, 2019 and 2018,~~March 31, 2020, we granted ~~approximately 8 thousand and 5 thousand shares of our common stock, respectively, under our Omnibus Incentive Plan to~~

~~non-employee~~

members of our board of directors. The stock issued will vest over a one year service term. Accordingly, we recorded $0.1 million and $0.3 million of compensation expense during the three and nine months ended September 30, 2019 and $25 thousand and $0.1 million during the three and nine months ended September 30, 2018.

~~In addition, we granted approximately 0.1 million~~316 shares of our common stock under our 2014 Omnibus Incentive Plan to ~~employees~~a

non-employee

member of our board of directors. The stock will vest on the date of our 202

annual meeting. Accordingly, we recorded $33 thousand in compensation expense during the ~~nine~~three months ended ~~September 30, 2019 and 2018. The~~March 31, 2020. We did not grant any such shares ~~granted~~ during the ~~nine~~three months ended ~~September 30,~~March 31, 2019, however, we recorded $0.1 million in compensation expense during the three months ended March 31, 2019 related to prior grants to

non-employee

members of our board of directors. During the three months ended March 31, 2020 and ~~2018 vest in 3 equal installments (rounded~~2019, we granted approximately 7 and 11 thousand shares of our common stock, respectively, to ~~the nearest whole share) annually on April 20 through 2022.~~

~~Share-based~~employees and recorded $1.0 million and $1.1 million, respectively, of compensation expense associated with

~~non-performance~~non-performance-based

~~based~~ awards issued to employees was $1.0 million and $3.3 million for the three and nine months ended September 30, 2019, respectively, and $1.0 million and $2.9 million for the three and nine months ended September 30, 2018, respectively.employees.

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$5.9~~$4.3 million of unrecognized compensation expense related to these nonvested common stock awards issued to ~~the~~

non-employee

members of our board of directors and our employees. This expense is subject to future adjustments for forfeitures and is expected to be recognized on a straight-line basis over the remaining weighted-average period of ~~1.9~~1.8 years. Shares forfeited are returned as treasury shares and available for future issuances. See the table below for changes in shares and related weighted average

grant

ate

fair ~~market~~ value

per share.

Table of Contents

INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Employees – Performance-Based Stock Awards

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we issued under our 2014 Omnibus Incentive Plan approximately ~~46 thousand~~0.1 million shares of our common stock to certain officers, which vest in 2 equal installments on each of April 20, ~~2020~~2021 and April 20, ~~2021.~~2022. In addition, during the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we established, and our Board of Directors approved, performance-based targets in connection with common stock awards to be issued to certain officers in ~~2020~~2021 contingent upon achievement of these targets. Share-based compensation expense associated with these performance-based awards and prior performance-based grants was ~~$0.8~~$1.0 million and ~~$2.3~~$0.7 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively, and $0.6 million and $1.6 million for the three and nine months ended September 30, 2018,~~ respectively.

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$4.2~~$6.9 million of unrecognized compensation expense related to nonvested performance-based common stock awards. This expense is subject to future adjustments for forfeitures and is expected to be recognized over the remaining weighted-average period of ~~1.8~~2.1 years using the graded-vesting method. See the table below for changes in shares and related weighted average

grant date

fair ~~market~~ value per share.

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Employees – Performance-Based Restricted Stock Units

During ~~2018,~~2019, we established, and our board of directors approved, performance-based restricted stock units in connection with common stock awards which were issued to certain employees during the nine months ended September 30, 2019 based upon achievement of a performance target. In addition, during the nine months ended September 30, 2019, we established, and our board of directors approved, performed-based restricted stock units in connection with common stock awards to be issued to certain employees in 2020 based upon achievement of a performance target. These units will be accounted for as equity-based awards that will be settled with a fixed number of common shares. We recorded $0.2 million and ~~$0.5~~$0.1 million in compensation expense associated with these performance-based units during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively, and $0.3 million and $1.5 million for the three and nine months ended September 30, 2018,~~ respectively.

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$0.4 million~~$33 thousand of unrecognized compensation expense related to nonvested performance-based common stock units. This expense is subject to future adjustments for forfeitures and is expected to be recognized on a straight-line basis over the remaining weighted-average period of ~~0.6~~0.1 years. See the table below for changes in shares and related weighted average

grant

ate

fair ~~market~~ value per share.

Share-Based Compensation Summary

During the nine months ended September 30, 2019 and 2018, our employees surrendered approximately 45 thousand and 41 thousand shares of our common stock, respectively, to satisfy tax withholding obligations arising in connection with the vesting of common stock awards issued under our 2014 Omnibus Incentive Plan. We recognized excess tax benefits of $0.3 million and $0.5 million for the nine months ended September 30, 2019 and 2018, respectively, within the income tax provision in the Condensed Consolidated Statements of Operations and Comprehensive Income.

Amounts and changes for each category of equity-based award ~~for employees~~ were as follows:

Common Stock Awards

Performance-Based Stock
Awards

Performance-Based
Restricted
Stock Units

Awards

Weighted
Average
Grant

Dat
e

Fair
Value

Per
Share

Awards

Weighted
Average
Grant

Dat
e

Fair
Value

Per
Share

Units

Weighted
Average
Grant

Dat
e

Fair
Value

Per
Share

Nonvested awards/units at December 31, 2018

173,189
$
47.40

115,698
$
52.25

13,248
$
56.05

Granted

88,529

50.94

82,692

45.65

13,933

51.62

Vested

(106,347
)
42.27

(31,404
)
41.00

(12,808
)
56.05

Forfeited/Cancelled

(1,767
)
52.25

(6,697
)
65.60

(840
)
53.94

Nonvested awards/units at September 30, 2019

153,604
$
52.93

160,289
$
50.49

13,533
$
51.62


	Common Stock Awards					Performance-Based Stock Awards				Performance-Based Restricted Stock Units
	Awards			Weighted Average Grant Date Fair Value Per Share		Awards		Weighted Average Grant Date Fair Value Per Share		Units			Weighted Average Grant Date Fair Value Per Share
Nonvested awards/units at December 31, 2019		152,882		$	52.93		160,289	$	50.49		13,186		$	51.62
Granted		7,420			75.88		57,450		77.28		—			—
Vested		(568	)		52.63		—		—		—			—
Forfeited/Cancelled		(1,759	)		52.25		—		—		(92	)		51.62

Nonvested awards/units at March 31, 2020		157,975		$	54.02		217,739	$	57.53		13,094		$	51.62

Table of Contents

INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

We recorded the following stock compensation expense by income statement category (in thousands):


	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2019		2018		2019		2018		2020		2019
Cost of sales	$	97	$	94	$	280	$	749	$	96	$	78
Selling		48		30		149		402		49		44
Administrative		1,954		1,769		6,012		4,938		2,536		1,816

	$	2,099	$	1,893	$	6,441	$	6,089	$	2,681	$	1,938

Administrative stock compensation expense includes all stock compensation earned by our administrative personnel, while cost of sales and selling stock compensation represents all stock compensation earned by our installation and sales employees, respectively.

~~Table~~ The difference between the sum of ~~Contents~~the expenses described above and the amount in the table is comprised primarily of expenses associated with immaterial liability-based awards.

~~INSTALLED BUILDING PRODUCTS, INC.~~As of March 31, 2020, approximately 2.1 million of the 3.0 million shares of common stock authorized for issuance were available for issuance under the 2014 Omnibus Incentive Plan.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

NOTE 1213 - INCOME TAXES

Our provision for income taxes as a percentage of pretax earnings is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items.

During the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, our effective tax rate was ~~26.4% and 25.9%, respectively.~~26.2%. The rate ~~for the nine months ended September~~

~~0, 2019~~ was ~~favorably impacted by excess tax benefits from share-based compensation arrangements. The rates for both periods were~~ unfavorably impacted by separate tax filing entities in a loss position for which a full valuation allowance is required, resulting in no tax benefit for recognized losses.

NOTE 1314 - RELATED PARTY TRANSACTIONS

We sell installation services to other companies related to us through common or affiliated ownership and/or board of directors and/or management relationships. We also purchase services and materials and pay rent to companies with common or affiliated ownership.

We lease our headquarters and certain other facilities from related parties. See Note 7,8, Leases, for future minimum lease payments to be paid to these related parties.

The amount of sales to related parties as well as the purchases from and rent expense paid to related parties were as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2019		2018		2019		2018		2020		2019
Sales	$	3,736	$	3,259	$	9,658	$	9,361	$	3,282	$	2,661
Purchases		469		372		1,327		1,207		607		388
Rent		256		257		773		829		272		260

~~As of September 30, 2019 and December 31, 2018, we~~We had a related party ~~balances~~balance of approximately ~~$1.8~~$1.6 million and ~~$2.3~~$1.7 million ~~respectively,~~ included in accounts receivable on our Condensed Consolidated Balance ~~Sheets.~~Sheets as of March 31, 2020 and December 31, 2019, respectively. These balances primarily represent trade accounts receivable arising during the normal course of business with various related parties. M/I Homes, Inc., a customer whose Chairman, President and Chief Executive Officer iswas a member of our board of directors until his resignation from our board effective March 18, 2020, accounted for ~~$1.4~~$1.2 million and ~~$1.2~~$1.3 million of these balances as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Table of Contents

INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1415 - COMMITMENTS AND CONTINGENCIES

Accrued General Liability and Auto Insurance

Accrued general liability and auto insurance reserves included on the Condensed Consolidated Balance Sheets were as follows (in thousands):


	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Included in other current liabilities	$	2,514	$	1,848	$	3,404	$	3,538
Included in other long-term liabilities		12,511		6,608		16,912		18,184

	$	15,025	$	8,456	$	20,316	$	21,722

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

We also had insurance receivables and an indemnification ~~asset~~assets included on the Condensed Consolidated Balance Sheets that, in aggregate, offset an equal ~~liability~~liabilities included within the reserve amounts noted above. The amounts were as follows (in thousands):

September 30,
2019

December 31,
2018

Insurance receivable and indemnification asset for claims under a
fully insured policy
$
2,484
$
2,484

Insurance receivable for claims that exceeded the stop loss limit

2,738

53

Total insurance receivables included in other
non-current
assets
$
5,222
$
2,537


	March 31, 2020		December 31, 2019
Insurance receivables and indemnification assets for claims under fully insured policies	$	6,910	$	7,491
Insurance receivables for claims that exceeded the stop loss limit		297		2,321

Total insurance receivables and indemnification assets included in other non-current assets	$	7,207	$	9,812

Leases

See Note 7,8, Leases, for further information regarding our lease commitments.

Other Commitments and Contingencies

From time to time, various claims and litigation are asserted or commenced against us principally arising from contractual matters and personnel and employment disputes. In determining loss contingencies, management considers the likelihood of loss as well as the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when it is considered probable that such a liability has been incurred and when the amount of loss can be reasonably estimated. As litigation is subject to inherent uncertainties, we cannot be certain that we will prevail in these matters. However, we do not believe that the ultimate outcome of any pending matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

During the year ended December 31, 2018, we entered into an agreement with one of our suppliers to purchase a portion of the insulation materials we utilize across our business. This agreement is effective January 1, 2019 through December 31, 2021 with a purchase obligation of ~~$16.4 million for 2019, $21.4~~$22.6 million for 2020 and $15.0 million for 2021. For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we have satisfied ~~$7.2~~$1.8 million of our purchase obligation under this agreement. Additionally, we entered into an agreement with a chemical supplier with a purchase obligation of $0.6 million in 2019. Actual purchases made under this agreement for the nine months ended September 30, 2019 was $0.4 million.

NOTE 1516 - BUSINESS COMBINATIONS

As part of our ongoing strategy to expand geographically and increase market share in certain markets, we completed 42 business combinations ~~and 4 insignificant~~

~~tuck-in~~

~~acquisitions merged into existing operations~~ during the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 1 business combination during the three months ended March 31, 2019 and ~~8 business combinations and 1~~one insignificant

tuck-in

acquisition merged into existing operations during the ~~nine~~three months ended ~~September 30, 2018, respectively,~~March 31, 2019, in which we acquired 100% of the ~~ownership~~voting equity interests in each.

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

The largest of these acquisitions were Royals Commercial Services, Inc. (“Royals”) in March 2020 and 1st State Insulation, LLC (“1st State Insulation”) in March 2019, Expert Insulation, Inc. and Expert Insulation of Brainerd, Inc. (collectively, “Expert Insulation”) in June 2019 and Custom Overhead Door, LLC dba Custom Door & Gate (collectively, “CDG”) in March 2018. Net Income, as noted below, includes amortization, taxes and interest allocations when appropriate.

~~Belo~~

2019. Below is a summary of each significant acquisition by year, including revenue and net (loss)/income ~~(loss)~~ since date of acquisition, shown for the year acquisition. Where noted, “Other” represents acquisitions that were individually immaterial in that year. Net (loss)/income, as noted below, includes amortization, taxes and interest allocations when

appropriate.

Table of ~~acquisition~~Contents

INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the three months ended March 31, 2020 (in thousands):

Total
Purchase
Price

Three months ended
September 30, 2019

Nine months ended
September 30, 2019

2019 Acquisitions

Date

Acquisition
Type

Cash Paid

Seller
Obligations

Revenue

Net Income

Revenue

Net Income

1st State Insulation

3/18/2019

Asset
$
5,125
$
1,355
$
6,480
$
3,156
$
174
$
6,586
$
374

Expert Insulation

6/24/2019

Asset

16,165

1,993

18,158

3,147

193

3,339

160

Other

Various

Asset

3,450

974

4,424

7,262

591

7,262

591

Total
$

24,740
$

4,322
$

29,062
$

13,565
$
958
$

17,187
$

1,125


											Three months ended March 31, 2020
2020 Acquisitions	Date		Acquisition Type		Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Loss
Royals		2/29/2020		Asset	$	7,590	$	2,500	$	10,090	$	784	$	(87	)
Other		1/13/2020		Asset		911		70		981		226		(21	)

					$	8,501	$	2,570	$	11,071	$	1,010	$	(108	)

Total
Purchase
Price

Three months ended
September 30, 2018

Nine months ended
September 30, 2018

2018 Acquisitions

Date

Acquisition
Type

Cash Paid

Seller
Obligations

Revenue

Net Income

Revenue

Net Income

CDG

3/19/2018

Asset
$
9,440
$
1,973
$
11,413
$
3,848
$
164
$
7,572
$
229

Other

Various

Shares/Asset

25,242

3,447

28,689

7,003

42

12,782

423

Total
$

34,682
$

5,420
$

40,102
$

10,851
$
206
$

20,354
$

652

For the three months ended March 31, 2019 (in thousands):


											Three months ended March 31, 2019
2019 Acquisitions	Date		Acquisition Type		Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income
1st State Insulation		3/18/2019		Asset	$	5,125	$	1,355	$	6,480	$	488	$	23

Acquisition-related costs recorded within administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income amounted to ~~$0.3~~$0.7 million and ~~$1.3~~$0.6 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively, and $0.7 million and $1.9 million for the three and nine months ended September 30, 2018,~~ respectively. The goodwill recognized in conjunction with these business combinations represents the excess cost of the acquired entity over the net amount assigned to assets acquired and liabilities assumed. We expect to deduct approximately ~~$9.6~~$3.0 million of goodwill for tax purposes as a result of ~~2019~~2020 acquisitions.

Purchase Price Allocations

The estimated fair values of the assets acquired and liabilities assumed for the acquisitions, as well as total purchase prices and cash paid, approximated the following (in thousands):

As of September 30, 2019

As of September 30, 2018

1st State

Expert

Other

Total

CDG

Other

Total

Estimated fair values:

Accounts receivable
$
—
$
1,796
$
254
$
2,050
$
1,731
$
3,229
$
4,960

Inventories

291

723

338

1,352

514

1,027

1,541

Other current assets

—

—

3

3

28

879

907

Property and equipment

989

235

667

1,891

933

1,893

2,826

Intangibles

3,382

6,740

2,242

12,364

3,711

16,681

20,392

Goodwill

1,857

8,545

930

11,332

4,898

7,007

11,905

Other
non-current
assets

—

161

13

174

36

19

55

Accounts payable and other current liabilities

(39
)
(42
)
(23
)
(104
)
(438
)
(2,046
)
(2,484
)

Fair value of assets acquired and purchase price

6,480

18,158

4,424

29,062

11,413

28,689

40,102

Less seller obligations

1,355

1,993

974

4,322

1,973

3,447

5,420

Cash paid
$

5,125
$

16,165
$

3,450
$

24,740
$
9,440
$

25,242
$

34,682


	As of March 31, 2020									As of March 31, 2019
	Royals			Other			Total			1st State
Estimated fair values:
Accounts receivable	$	2,848		$	—		$	2,848		$	—
Inventories		305			70			375			291
Other current assets		430			11			441			—
Property and equipment		627			119			746			989
Intangibles		3,930			582			4,512			3,382
Goodwill		2,986			206			3,192			1,857
Other non-current assets		58			8			66			—
Accounts payable and other current liabilities		(1,059	)		(15	)		(1,074	)		(39	)
Deferred income tax liabilities		(35	)		—			(35	)		—

Fair value of assets acquired and purchase price		10,090			981			11,071			6,480
Less seller obligations		2,500			70			2,570			1,355

Cash paid	$	7,590		$	911		$	8,501		$	5,125

Contingent consideration is included as “seller obligations” in the above table or within “fair value of assets acquired” if subsequently paid during the period presented. These contingent payments consist primarily of earnouts based on performance that are recorded at fair value at the time of acquisition, and/or

non-complete

agreements and amounts based on working capital calculations. When these payments are expected to be made over one year from the acquisition date, the contingent consideration is discounted to net present value using our weighted average cost of capital (WACC), when appropriate.

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Further adjustments to the allocation for each acquisition still under its measurement period are expected as third-party ~~and~~or internal valuations are finalized, certain tax aspects of the transaction are completed, contingent

Table of Contents

INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

consideration

is settled and customary post-closing reviews are concluded during the measurement period attributable to each individual business combination. As a result, insignificant adjustments to the fair value of assets acquired, and in some cases total purchase price, have been made to certain business combinations since the date of acquisition and future adjustments may be made through the end of each measurement period. Goodwill and intangibles per the above table domay not agree to the total gross increases of these assets as shown in Note 5, Goodwill and Intangibles, during each of the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ due to minor adjustments to goodwill for the allocation of certain acquisitions still under measurement as well as other immaterial intangible assets added during the ordinary course of business. In addition, goodwill and intangibles increased during ~~each of~~ the ~~nine~~three months ended ~~September 30,~~March 31, 2019 ~~and 2018~~ due to a small

tuck-in

~~acquisitions~~acquisition merged into existing operations that dodoes not appear in the above table as discussed above.

Estimates of acquired intangible assets related to the acquisitions are as follows (in thousands):


	For the nine months ended September 30,								For the three months ended March 31,
	2019				2018				2020				2019
Acquired intangibles assets	Estimated Fair Value		Weighted Average Estimated Useful Life (yrs.)		Estimated Fair Value		Weighted Average Estimated Useful Life (yrs.)		Estimated Fair Value		Weighted Average Estimated Useful Life (yrs.)		Estimated Fair Value		Weighted Average Estimated Useful Life (yrs.)
Customer relationships	$	8,566		8	$	14,480		8	$	2,611		8	$	2,100		8
Trademarks and trade names		2,615		15		3,920		14		1,145		15		999		15
Non-competition agreements		1,183		5		1,530		5		227		5		283		5
Backlog						460		2		529		2		—		—

Pro Forma Information

The unaudited pro forma information for the combined results of the Company has been prepared as if the 2020 acquisitions had taken place on January 1, 2019 and the 2019 acquisitions had taken place on January 1, ~~2018 and the 2018 acquisitions had taken place on January 1, 2017.~~2018. The unaudited pro forma information is not necessarily indicative of the results that we would have achieved had the transactions actually taken place on January 1, ~~2018~~2019 and ~~2017,~~2018, respectively, and the unaudited pro forma information does not purport to be indicative of future financial operating results (in thousands, except per share data):

Unaudited pro forma for the three
months ended September 30,

Unaudited pro forma for the nine
months ended September 30,

2019

2018

2019

2018

Net revenue
$
397,839
$
367,600
$

1,123,820
$

1,046,717

Net income

21,240

16,856

49,154

41,997

Basic net income per share

0.71

0.54

1.65

1.34

Diluted net income per share

0.71

0.54

1.65

1.33


	Unaudited pro forma for the three months ended March 31,
	2020		2019
Net revenue	$	399,120	$	359,209
Net income		16,125		9,578
Basic and diluted net income per share		0.54		0.32

Unaudited pro forma net income reflects additional intangible asset amortization expense of ~~$29 thousand~~$0.1 million and ~~$0.6~~$1.0 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively, and $1.1 million and $3.8 million for the three and nine months ended September 30, 2018,~~ respectively, as well as additional income tax expense of ~~$10~~$49 thousand and ~~$66 thousand for the three and nine months ended September 30, 2019, respectively, and $0.5 million and $1.2~~$0.3 million for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2020 and 2019, respectively, that would have been recorded had the 2020 acquisitions taken place on January 1, 2019 and the 2019 acquisitions taken place on January 1, ~~2018 and the 2018 acquisitions taken place on January 1, 2017.~~

~~Table of Contents~~

~~INSTALLED BUILDING PRODUCTS, INC.~~2018.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

NOTE 1617 - INCOME PER COMMON SHARE

Basic net income per common share is calculated by dividing net income by the weighted average shares outstanding during the period, without consideration for common stock equivalents.

Diluted net income per common share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury stock method.

Table of Contents

INSTALLED BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Potential common stock is included in the diluted income per common share calculation when dilutive. The dilutive effect of outstanding restricted stock awards after application of the treasury stock method was 92209 thousand and 98127 thousand shares for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively,~~respectively. Approximately 5 thousand shares and 849 thousand ~~and 138 thousand~~ shares of potential common stock was not included in the calculation of diluted net income per common share for the three ~~and nine~~ months ended ~~September 30, 2018, respectively.~~March 31, 2020 and 2019, respectively, because the effect would have been anti-dilutive.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and related notes in “Item 1. Financial Statements” of this Form

10-Q,

as well as our ~~2018~~2019 Form

10-K.

OVERVIEW

We are one of the nation’s largest insulation installers for the residential new construction market and are also a diversified installer of complementary building products, including waterproofing, fire-stopping and fireproofing, garage doors, rain gutters, window blinds, shower doors, closet shelving, mirrors and other products throughout the United States. We offer our portfolio of services for new and existing single-family and multi-family residential and commercial building projects in all 48 continental states and the District of Columbia from our national network of over ~~175~~180 branch locations. Substantially all of our net revenue comes from service-based installation of these products in the residential new construction, repair and remodel and commercial construction end markets. We believe our business is well positioned to continue to profitably grow over the long-term due to our strong balance sheet, liquidity and our continuing acquisition strategy. See

“COVID-19

Impacts” within the Key Factors Affecting Our Operating Results section below for a discussion of short-term impacts to our business.

A large portion of our net revenue comes from the U.S. residential new construction market, which depends upon a number of economic factors, including demographic trends, interest rates, consumer confidence, employment rates, housing inventory levels, foreclosure rates, the health of the economy and availability of mortgage financing. The strategic acquisitions of multiple companies over the last several years contributed meaningfully to our ~~consistent~~16.1% increase in net revenue during ~~that time.~~the three months ended March 31, 2020 compared to 2019.

~~2019 Third~~

2020 First Quarter Highlights

Net revenue increased ~~13.6%~~16.1% to ~~$396.4~~$397.3 million while gross profit increased ~~21.3%~~30.0% to ~~$118.1~~$116.3 million during the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~2018. This~~2019. We also generated approximately $35.9 million of cash from operating activities, and at March 31, 2020 we had $213.7 million of cash and cash equivalents and investments. We have not drawn on our existing $200 million revolving line of credit. The increase in net revenue and gross profit was primarily driven by selling price increases, ~~the continued recovery of the housing markets,~~ the contribution of our recent acquisitions and growth across our end markets and products. We experienced strong sales growth year-over-year ~~of approximately 11%~~as reflected in ~~our combined residential new construction~~the sales and ~~repair and remodel end markets and approximately 29% in our commercial~~

~~end-market.~~

During the three months ended September 30, 2019, we modified our debt structure in order to take advantage of the current attractive bond market. We issued $300.0 million aggregate principal amount at maturity of senior unsecured notes (the “Senior Notes”) with interest 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, a portion of which we used to partially repay our outstanding obligations (including accrued and unpaid interest) under our term loan credit agreement (the “Term Loan Agreement”) and pay fees and expenses related to the Senior Notes offering and entry into the ABL Credit Agreement as definedrelative performance metrics detailed below. As of September 30, 2019, we had $197.8 million, net of unamortized debt issuance costs, due on our $400 million, seven-year term loan facility (the “Term Loan”) under our Term Loan Agreement. We intend to use the remaining net proceeds for general corporate purposes. In addition, during the three months ended September 30, 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 our previous revolving credit facility of up to $150.0 million. As of September 30, 2019, we had no amounts outstanding on the ABL Revolver. See Liquidity and Capital Resources section below for further information about our debt.

Table of Contents

The following table shows key measures of performance we utilize to evaluate our results:


	Three months ended March 31,
	2020			2019
Period-over-period Growth
Sales Growth		16.1	%		13.4	%
Same Branch Sales Growth (1)		12.1	%		7.4	%

Single-Family Sales Growth (2)		11.0	%		14.4	%
Single-Family Same Branch Sales Growth (1)(2)		5.9	%		6.5	%

Residential Sales Growth (3)		14.2	%		13.8	%
Residential Same Branch Sales Growth (1)(3)		9.7	%		7.0	%

Same Branch Sales Growth
Volume Growth (1)(4)		-0.2	%		3.4	%
Price/Mix Growth (1)(5)		12.1	%		4.1	%
Large Commercial Sales Growth (1)		14.1	%		6.6	%

U.S. Housing Market (6)
Total Completions Growth		-2.2	%		5.7	%
Single-Family Completions Growth (2)		2.4	%		4.2	%

(1)	Same-branch basis represents period-over-period growth for branch locations owned greater than 12 months as of each financial statement date.

(2)	Calculated based on period-over-period growth in the single-family subset of the residential new construction end market.

(3)	Calculated based on period-over-period growth in the residential new construction end market.

(4)	Excludes the large commercial end market; calculated as period-over-period change in the number of completed same-branch residential new construction and repair and remodel jobs.

(5)

Excludes the large commercial end market; defined as change in the mix of products sold and related pricing changes and calculated as the change in period-over-period average selling price per same-branch residential new construction and repair and remodel jobs multiplied by total current year jobs. The mix of end customer and product would have an impact on the year-over-year price per job.

(6)	U.S. Census Bureau data, as revised.

We feel the revenue growth measures are important indicators of how our business is performing, however, we may rely on different metrics in the future. We also utilize gross profit percentage as shown in the following section to monitor our most significant variable costs and to evaluate labor efficiency and success at passing increasing costs of materials to customers.

Table of Contents

We were successful at realizing selling price increases during the last two quarters to offset previous material cost increases. While we continue to proactively work with customers and suppliers to mitigate these cost impacts, we will likely continue to experience inflation on our materials in 2020.

We believe there are several trends that should drive long-term growth in the housing market, even if there are temporary periods of slower or declining growth. These long-term trends include an aging housing stock, population growth, household formation growth and the fact that housing starts are currently below long-term historic averages. We expect that our net revenue, gross profit and operating income will benefit from this growth.

Net revenue, cost of sales and gross profit

The components of gross profit were as follows (in thousands):


	Three months ended September 30,									Nine months ended September 30,									Three months ended March 31,
	2019			Change			2018			2019			Change			2018			2020			Change			2019
Net revenues	$	396,449			13.6	%	$	348,999		$	1,110,398			12.9	%	$	983,311
Net revenue																			$	397,331			16.1	%	$	342,135
Cost of sales		278,362			10.6	%		251,665			795,616			12.0	%		710,358			281,071			11.2	%		252,697

Gross profit	$	118,087			21.3	%	$	97,334		$	314,782			15.3	%	$	272,953		$	116,260			30.0	%	$	89,438

Gross profit percentage		29.8	%					27.9	%		28.3	%					27.8	%		29.3	%					26.1	%

Net ~~revenues~~revenue increased during the three ~~and nine~~ months ~~ending September 30, 2019~~ended March 31, 2020 compared to ~~2018,~~2019 due primarily ~~driven by~~to acquisitions, organic growth from our existing branches and increased selling prices. ~~For the three and nine months ended September 30, 2019, on a same branch basis,~~We estimate net revenue improved 9.3% and 8.2%, respectively, with approximately 5.4% and 5.1% of this increase attributable to price gains and more favorable customer and product mix with the remainder attributable to growth in the number of completed jobs. We also saw organic growth in our commercial construction end market of 29.1% and 22.4% during the ~~three and nine months ended September 30, 2019, respectively, over 2018.~~first quarter of 2020 was reduced by a range of $2.0 million to $2.5 million due to the

COVID-19

health crisis. As a percentage of net revenue, gross profit ~~improved from 27.9% to 29.8%~~increased during the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~2018~~2019 attributable primarily to achieving higher selling prices on relatively stable material costs, as evidenced by our 12.1% improvement in pricing and customer and product mix calculated based on all our combined markets excluding the large commercial end market. Labor utilization improved, in part, as a result of lower installer turnover due to ~~selling price increases.~~investments in our financial wellness plan, our longevity stock compensation plan for installers and assistance from our Installed Building Products Foundation. However, restrictions limiting the number of laborers on a jobsite and our internal standards for social distancing practices impacted the number of completed jobs and operational efficiencies across our end markets during the first quarter of 2020. As of March 31, 2020, approximately 90% of our branches are located in markets where construction was deemed an “essential” business, leaving a portion of our branches in markets where work is severely limited. See

“COVID-19

Impacts” within the Key Factors Affecting Our Operating Results section below for further information.

Operating expenses

Operating expenses were as follows (in thousands):


	Three months ended September 30,									Nine months ended September 30,									Three months ended March 31,
	2019			Change			2018			2019			Change			2018			2020			Change			2019
Selling	$	19,398			11.3	%	$	17,434		$	54,431			10.4	%	$	49,300		$	20,355			18.8	%	$	17,130
Percentage of total net revenue		4.9	%					5.0	%		4.9	%					5.0	%		5.1	%					5.0	%
Administrative	$	55,098			14.0	%	$	48,337		$	156,022			13.5	%	$	137,511		$	60,195			24.3	%	$	48,431
Percentage of total net revenue		13.9	%					13.9	%		14.1	%					14.0	%		15.1	%					14.2	%
Amortization	$	6,156			17.8	%	$	5,228		$	18,065			-8.2	%	$	19,678		$	6,680			13.5	%	$	5,888
Percentage of total net revenue		1.6	%					1.5	%		1.6	%					2.0	%		1.7	%					1.7	%

Selling

The dollar increases in selling expenses for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 were primarily driven by an increase in selling wages and commissions to support our increased net revenue of ~~13.6%~~16.1%. Selling expense as a percentage of sales slightly ~~decreased~~increased for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 compared to ~~2018~~2019 primarily due to ~~the leverage on expenses gained through increased net revenue.~~timing of credit losses and collections as well as additional loss reserves recorded as a result of adoption of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). See Note 4, Credit Losses, for more information.

~~Table of Contents~~

Administrative

The dollar increases in administrative expenses for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 were primarily due to an increase in wages, benefits and facility costs attributable to both acquisitions and organic growth. Administrative expense ~~remained flat~~increased as a percentage of sales for the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~2018~~2019 primarily due to increases to variable employee expenses as ~~expenses remained proportional to the increase in net revenue.~~a result of improved company performance and higher health insurance expenses.

Table of Contents

Other expense, net

Other expense, net was as follows (in thousands):


	Three months ended September 30,							Nine months ended September 30,							Three months ended March 31,
	2019		Change			2018		2019		Change			2018		2020		Change			2019
Interest expense, net	$	8,458		60.1	%	$	5,282	$	19,783		31.8	%	$	15,013	$	7,358		29.6	%	$	5,676
Other		155		17.4	%		132		381		-8.6	%		417		—		-100.0	%		125

Total other expense	$	8,613		59.1	%	$	5,414	$	20,164		30.7	%	$	15,430
Total other expense, net															$	7,358		26.8	%	$	5,801

The increase in interest expense, net during the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 compared to ~~2018~~2019 was primarily due to ~~a $2.8 million write off of previously capitalized loan costs~~increased debt levels associated with ~~debt~~financing transactions ~~completed during September~~that occurred in the second half of 2019.

Income tax provision

Income tax provision and effective tax rates were as follows (in thousands):


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Income tax provision	$	7,610		$	5,358		$	17,135		$	12,762		$	5,684		$	3,354
Effective tax rate		26.4	%		25.6	%		25.9	%		25.0	%		26.2	%		27.5	%

During the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, our effective tax rate was ~~26.4% and 25.9%, respectively. The rate for the nine months ended September 30, 2019 was favorably impacted by excess tax benefits from share-based compensation arrangements.~~26.2%. The rates for both periods were unfavorably impacted by separate tax filing entities in a loss position for which a full valuation allowance is required, resulting in no tax benefit for recognized losses.

Other comprehensive ~~(loss) income,~~loss, net of tax

Other comprehensive ~~(loss) income,~~loss, net of tax was as follows (in thousands):

Three months ended September 30,

Nine months ended September 30,

2019

2018

2019

2018

Unrealized (loss) gain on cash flow hedge, net of taxes
$
  (1,726
) $
  818
$
  (8,021
) $
  2,453


	Three months ended March 31,
	2020			2019
Unrealized loss on cash flow hedge, net of taxes	$	(5,608	)	$	(2,749	)

During the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, our cash flow hedge position decreased primarily due to ~~unexpected~~interest rate declines ~~in interest rates.~~partially driven by market responses to the COVID-19 pandemic.

~~Table of Contents~~

KEY FACTORS AFFECTING OUR OPERATING RESULTS

Cost of Materials

We purchase the materials that we install primarily direct from manufacturers. The industry supply of materials we install ~~was disrupted due to a catastrophic failure at a manufacturer’s facility during~~has experienced disruptions in the ~~fourth quarter~~past but has stabilized since the beginning of ~~2017, resulting in insulation material allocation for certain insulation products and, as a result, contributed to increased market pricing throughout 2018.~~2019. Increased market pricing, regardless of the catalyst, has and could continue to impact our results of operations in ~~2019,~~2020, to the extent that price increases cannot be passed on to our customers. We began to see improvement in our selling prices in the second quarter of 2019, and this continued into ~~the third quarter~~2020 as evidenced by our ~~21.3%~~3.2% improvement in gross profit as a percentage of sales during the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 20, 2018.~~March 31, 2019. We will continue to work with our customers to adjust selling prices to offset higher costs as they occur. See “COVID-19 Impacts” below for a discussion of the ~~aforementioned higher costs.~~short-term impacts of the current economic climate on the availability of the materials we install.

~~Labor Costs and Charitable Activities~~28

Table of Contents

Cost of Labor

Our business is labor ~~intensive. While~~intensive and the ~~availability~~majority of ~~labor in~~our employees work as installers on local construction sites. We offer a comprehensive benefits package, which many ~~markets continued~~of our local competitors are not able to ~~tighten~~provide, which will increase costs as ~~the demand for employees, particularly installers, increases,~~ we hire additional personnel. Our workers’ compensation costs also continue to increase as we employ additional personnel.

We experienced ~~improved~~strong employee retention, turnover and labor efficiency rates in the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. We believe this is partially a result of various programs meant to benefit our employees, including our financial wellness plan, ~~and~~ longevity stock compensation plan for ~~employees.~~employees and assistance from the Installed Building Products Foundation meant to benefit our employees, their families and their communities. While improved retention drives lower costs to recruit and train new employees, ~~and improves~~resulting in greater installer productivity, these improvements are somewhat offset by the additional costs of these incentives. See “COVID-19 Impacts” below for a discussion of the short-term impacts of the current economic climate on our workforce.

COVID-19

Impacts

In December 2019, a novel strain of coronavirus (COVID-19) surfaced in Wuhan, China. Since then, the virus has spread globally, including to the United States. In response, the World Health Organization declared the outbreak a pandemic and the U.S. Secretary of Health and Human Services has declared a public health emergency. The COVID-19 pandemic has caused significant volatility, uncertainty and economic disruption. Public health organizations and international, federal, state and local governments have implemented measures to combat the spread of COVID-19, including 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 ~~expect to continue to spend~~cannot predict if federal, state and local governments will implement additional restrictions, when restrictions currently in place will expire or whether restrictions currently in place will become more ~~to hire, train~~restrictive.

We do not believe the various orders and ~~retain installers to support~~restrictions or COVID-19 itself materially impacted our ~~growing~~ business in the first quarter of 2020. The U.S. housing market was robust in the latter months of 2019 ~~as tight labor availability continues within~~and experienced a strong start in 2020. At the end of March 2020, there were approximately seven months of single family housing units under construction ~~industry. During~~in the ~~nine months~~United States, based on Census Bureau data. We believe this sizable industry backlog will provide us short-term relief from the volatility in industry housing starts. For example, our net revenue for the month ended ~~September~~April 30, ~~2019, we also launched~~2020 increased approximately 2% over the ~~Installed Building Products Foundation meant to benefit IBP employees, their families and their communities. We set a goal to donate more than $1.0 million to~~

~~not-for-profit~~

~~entities and individuals~~same period in 2019 ~~through~~even though growth was limited by the ~~Foundation’s programs~~closure of approximately 10% of our branches during the month (based on net revenue). Additionally, the numerous state orders for residents to shelter in place in response to COVID-19 had limited impact on IBP in the first quarter of 2020 because construction has been deemed “essential” in most of these states. The most notable exception to the “essential” classification for construction as of the filing date of this Quarterly Report on Form 10-Q is the state of New York, which accounted for less than 2% of our net revenue for the year ended December 31, 2019. Most of the work completed by our branches in this state has been halted since the latter half of March 2020. During portions of March, April and asMay of 2020 through the date of this filing, we also saw a temporary but significant reduction in activity in our branches located in six other states and the Bay Area of California, which collectively accounted for an additional 8% of our net revenue during the year ended December 31, 2019. The reduced activity in these areas was also attributable to construction being temporarily deemed non-essential during portions of March and April 2020, but those restrictions have been lifted as of the filing date of this 10-Q. Given the considerable uncertainty created by the COVID-19 pandemic and its potential effects, it is not possible to estimate the adverse impact to our second quarter or full year 2020 sales or other financial results at this time.

Table of Contents

While we expect the COVID-19 outbreak and related events will have a negative effect on us, the full extent and scope of the impact on our business and industry, as well as national, regional and global markets and economies, depends on numerous evolving factors that we may not be able to accurately predict, including the duration and scope of the pandemic, additional government actions taken in response to the pandemic, the impact on construction activity and demand for homes (based on employment levels, consumer spending and consumer confidence). We expect branch closures, as well as broader impacts to the housing industry due to an anticipated reduction in housing starts, to negatively impact our business. While industry information has indicated that new home orders at some of the nation’s larger builders has slowed dramatically, home sales are still occurring. Industry experts currently anticipate housing starts will decline approximately 30% for the full year 2020, with the most dramatic decline in starts occurring during the second quarter and sequential improvement in each subsequent quarter. Based on the normal lag between starts and completions within the home building industry, we currently estimate that the market decline will have a more pronounced impact on our business in the third and fourth quarters of 2020. Specifically, we anticipate revenue, net income and cash from operations to fall below normal levels during these periods. In the commercial sector, our backlog remains strong and we have not yet seen a meaningful decrease in operations. In the future, certain large-scale infrastructure programs may be at risk in markets where construction has not been deemed “essential,” the need for such structures decline, project funding declines, or as consumer behaviors change. For example, reduced demand for office buildings and/or educational facilities, decreased airport traffic, or decreased usage of sports arenas or similar large commercial structures could impact our commercial end market.

Our management is focused on mitigating the impact of COVID-19 on our business and the risk to our employees and customers. We have taken a number of precautionary measures intended to mitigate these risks, including implementing detailed cleaning and disinfecting processes at our facilities, adhering to social distancing protocols, limiting the number of workers on our jobsites, suspending non-essential air travel and encouraging employees to work remotely when possible. As is common practice in our industry, installers are required to wear protective equipment in the process of completing their work and this practice has been extended to employees at our facilities and within general office spaces. We are prepared to take additional actions if necessary as suggested or required by various health agencies.

We continue to evaluate the nature and extent of the COVID-19 outbreak’s impact on our financial condition, results of operations and cash flows. Specific impacts of branch closures to date, as well as potential future impacts include, but are not limited to, the following:

Other than branches that serve states where construction has not been deemed “essential,” we have experienced limited business disruptions to date and therefore have not needed to implement significant continuity measures and have not incurred related expenditures to do so. Assuming a significant number of additional states or markets in which we operate do not reverse their current positions about construction being an “essential” business, we do not anticipate having to implement any additional measures in the future.

To date, we have not experienced a disruption in the supply of the various insulation products we install. All insulation manufacturers from which we purchase operate facilities in the continental U.S. and continue to timely ship material. We are monitoring suppliers of our other products and have had no issues to date acquiring the inventory we need to operate our business. We currently do not anticipate any significant issues with securing these other products in the future.

We have laid off or furloughed 563 employees in areas where construction has not been deemed “essential.” We expect to ~~meet~~rehire a significant portion of those employees once restrictions are lifted and operations return to normal levels. To date, we have rehired nearly 280 employees in various markets after restrictions there were eased.

Our corporate office is fully operational, even though many employees are working remotely. As such, we have made no modifications to internal controls over financial reporting and have confidence controls are operating as designed. We have enhanced our efforts to mitigate cyber threats and phishing, given the number of employees working remotely. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact of their design and operating effectiveness.

Table of Contents

While we did not experience an impact to our earnings, financial position and cash flows during the first quarter of 2020, we expect some impact in the remainder of 2020. There is much uncertainty surrounding these estimates and the magnitude of these impacts is therefore ambiguous at this time. We estimate limited impact to our Condensed Consolidated Balance Sheets other than a potential reduction in working capital due to the possibility of reduced net revenue and net income, although this will be mitigated somewhat by actions taken by management to limit spending during 2020. Trade accounts receivable may also be reduced somewhat by lower net revenue and a higher allowance for credit losses due to enhanced risk of uncollectibility from some customers. We anticipate revenue and net income will be negatively impacted in the remainder of 2020. While our cash from operations may decline over recent performance due to a decrease in expected net income driven by lower net revenue, we do not anticipate any issues meeting debt obligations or ~~exceed~~paying vendors timely given our strong liquidity and large cash reserves. See discussion of impacts to our liquidity within the Liquidity and Capital Resources section below.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES Act) was signed into law. The CARES Act provides numerous tax provision and other stimulus measures. We expect to benefit from the temporary suspension of certain payment requirements for the employer portion of Social Security taxes. We estimate that this ~~goal.~~will defer approximately $15 million to $20 million of payments, depending on the number of employees, that would have been paid during 2020, such that under the CARES Act, 50% of the amount will now be paid on December 31, 2021 and the remaining 50% will be paid on December 31, 2022. It is important to note that this does not impact the timing of the expense, only the timing of the payment. We also expect to benefit from the creation of certain refundable employee retention credits and the technical correction for qualified leasehold improvements, which provides for tax bonus depreciation. If we generate a net operating loss (“NOL”) in 2020, we would also expect to benefit from the five-year NOL carryback provisions. To the extent that states in which we operate provide for similar stimulus measures, we will evaluate potential benefits at the state-level as well.

In addition, we are adhering to the Families First Coronavirus Response Act (FFCRA) which requires employers to provide their employees with paid sick leave and extended family and medical leave for specified reasons related to COVID-19. Qualifying reasons for leave related to COVID-19 include when an employee is quarantined, is experiencing COVID-19 systems and is seeking a medical diagnosis, is being advised by a healthcare provider to self-quarantine, is caring for an individual subject to a quarantine order or self-quarantine situation, is caring for a child whose school or place of care is closed, or is experiencing any other substantially-similar condition specified by the U.S. Department of Health and Human Services. These provisions are in effect until December 31, 2020.

LIQUIDITY AND CAPITAL RESOURCES

Our capital resources primarily consist of cash from operations and borrowings under our various debt agreements and capital equipment leases and loans. Our primary capital requirements are to fund working capital needs, operating expenses, acquisitions and capital expenditures and to meet required principal and interest payments. WeAs discussed above, our cash reserves may also be used to fund payroll and other short-term requirements if our business is affected significantly by

COVID-19.

From time to time, we may also use our resources to fund our optional stock repurchase ~~program.~~program in effect through March 1, 2021; however, we have temporarily suspended our share repurchase program in response to COVID-19. Our investments consist of highly liquid instruments primarily including corporate bonds and commercial paper. As of ~~September 30, 2019,~~March 31, 2020, we had no outstanding borrowings under our asset-based lending credit facility (as defined below).

We believe that our cash flows from operations, combined with our current cash levels, highly liquid investments and available borrowing capacity, will be adequate to support our ongoing operations and to fund our debt service requirements, capital expenditures and working capital for at least the next 12 months as evidenced by our net positive cash flows from operations for the three months ended March 31, 2020 and 2019.

While the general economic environment within the United States and most markets around the world have been significantly impacted by the spread of COVID-19, prompting governmental and health agencies to issue

Table of Contents

unprecedented orders to close businesses not deemed “essential,” we believe we have robust capital resources at our immediate disposal to meet our needs. We have cash reserves and short-term investments of $213.7 million as of March 31, 2020 as well as access to $161.3 million under our ABL Revolver, net of $38.7 million of outstanding letters of credit. This amount available to us is based on eligible collateral, which may be reduced over time. While our cash from operations may decline later in the year due to factors described above, we believe it will remain at a level to fund our operations and not require us to draw on our ABL Revolver. However, as necessary or desirable, we may adjust or amend the terms of our credit facilities. With the uncertainty surrounding COVID-19, our ability to engage in such transactions may be constrained by volatile credit market conditions.

In response to COVID-19, we have taken a number of proactive steps to preserve cash and maximize our financial flexibility in order to efficiently manage through the COVID-19 pandemic. These actions include:

temporarily suspending stock repurchases under our share repurchase program;

temporarily delaying acquisition closings until the economic environment has stabilized;

suspending pay increases for our executive officers; and

eliminating non-essential travel.

See Part II, Item 1A, Risk Factors, for more information on the potential impacts from the COVID-19 pandemic and resulting economic strain.

LIBOR is used as a reference rate for our Term Loan and our interest rate swap agreements we use to hedge our interest rate exposure. In 2017, the Financial Conduct Authority (“FCA”), the authority that regulates LIBOR, announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021, and it is unclear whether new methods of calculating LIBOR will be established. Our Term Loan Agreement, as hereinafter defined, was amended on November 30, 2017 to include a mechanism to establish an alternative Eurodollar rate if certain circumstances arise such that LIBOR may no longer be used. Additionally, our ABL Credit Agreement includes a provision related to the potential discontinuance of LIBOR to be replaced with one or more Secured Overnight Financing Rate (SOFR) values or another alternate benchmark rate. However, if LIBOR ceases to exist after 2021, the interest rates under the alternative rate could be higher than LIBOR. In addition, LIBOR is used as a reference rate for our interest rate swap agreements we use to hedge our interest rate exposure. During the three months ended March 31, 2020, we adopted ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). The purpose of this guidance is to provide relief for impacted areas as it relates to impending reference rate reform. We elected the practical expedient to continue to assert probability of hedged interest, regardless of any expected future modification in terms related to reference rate reform.

The following table summarizes our liquidity (in thousands):


	As of March 31, 2020			As of December 31, 2019
Cash and cash equivalents	$	187,187		$	177,889
Short-term investments		26,487			37,961
ABL Revolver		200,000			200,000
Less: outstanding letters of credit and cash collateral		(38,672	)		(38,672	)

Total liquidity (1)	$	375,002		$	377,178

Table of Contents

(1)

Total liquidity reflects full borrowing base capacity under our asset-based lending credit facility (as defined below) and may be limited by certain cash collateral limitations depending upon the status of our borrowing base availability. These potential deductions would lower our available cash and cash equivalents balance shown in the table above. As of March 31, 2020, total liquidity would be reduced by $25.1 million due to these cash collateral limitations. In addition, total liquidity is further reduced by $10.0 million within cash and cash equivalents above which was deposited into a trust to serve as additional collateral for our workers’ compensation and general liability policies. This amount can be converted to a letter of credit at our discretion and would reduce the availability on our asset-based lending credit facility (as defined below) included in the table above.

5.75% Senior Notes due 2028

In September 2019, we issued $300.0 million in aggregate principal amount of ~~Senior Notes.~~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 Agreement~~term loan credit agreement (as defined below) and to pay fees and expenses related to the ~~Senior Notes offering and~~ entry into ~~the ABL Credit Agreement.~~a new revolving credit facility described below.

~~Table of Contents~~

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, 2019,~~March 31, 2020, we had ~~$197.8~~$198.4 million, net of unamortized debt issuance costs, due on our ~~$400 million, seven-year~~ Term Loan. The amended Term Loan ~~is due April 2025 and~~also has a margin of ~~(A) 2.50% in the case of Eurodollar rate loans and (B) 1.50%~~1.25% in the case of base rate loans.

In September 2019, we ~~also~~ entered into ana new asset-based lending credit agreement (the “ABL Credit Agreement”). The ABL Credit Agreement ~~which~~ provides for an ~~ABL Revolver~~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. AsIn 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 ~~September 30, 2019, there were no borrowings outstanding~~America, N.A., as ABL Agent for the lenders under the ABL ~~Revolver.~~Credit Agreement, and Bank of America, N.A., as Term Loan Agent for the lenders under the Term Loan. Including outstanding letters of credit, our remaining availability under the ABL Revolver as of March 31, 2020 was $161.3 million.

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).

Table of Contents

The ABL Credit Agreement contains a financial covenant requiring the satisfaction of a minimum fixed charge coverage ratio of ~~1.0xin~~1.0x in the event that we do not meet a minimum measure of availability under the ABL Revolver.

In connection with the September 2019 transactions, we wrote off $2.8 million in previously capitalized loan costs during the three months ended September 30, 2019. This amount is included in interest expense, net on the Condensed Consolidated Statements of Operations and Comprehensive Income. We also had $9.0 million of capitalized deferred financing costs and debt issuance costs, net of accumulated amortization, as of September 30, 2019, which includes $6.2 million in new costs associated with the above transactions incurred during the three months ended September 30, 2019. The deferred financing costs are included in other

~~non-current~~

~~assets while the debt issuance costs are included in long-term debt on the Condensed Consolidated Balance Sheets. These costs are amortized over the term~~All of the ~~related debt on~~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 ~~straight-line basis which approximates~~first-priority security interest in such assets that constitute ABL Priority Collateral, as defined in the ~~effective~~ABL Credit Agreement, and a second-priority security interest ~~method.~~in such assets that constitute Term Loan Priority Collateral, as defined in the Term Loan Agreement.

At ~~September 30, 2019,~~March 31, 2020, we were in compliance with all applicable covenants under the Term Loan Agreement, ABL Credit Agreement and the Senior ~~Notes.~~Notes and we currently do not expect any covenant violations due to the impacts of COVID-19.

Derivative Instruments

As of ~~September 30, 2019,~~March 31, 2020, we had two interest rate swaps, each with an associated floor, with a total beginning notional of $200.0 million, one that amortizes quarterly to $95.3 million at a maturity date of May 31, 2022 and one that amortizes quarterly to $93.3 million at a maturity date of April 15, 2025. These two swaps combined serve to hedge ~~$196.5~~$195.5 million of the variable cash flows on our Term Loan as of ~~September 30, 2019.~~March 31, 2020. We also had a forward interest rate swap with an associated floor beginning May 31, 2022 with a beginning notional of $100.0 million that amortizes quarterly to $97.0 million at a maturity date of April 15, 2025. These three swaps serve to hedge substantially all of the variable cash flows on our Term Loan until maturity.

~~Table of Contents~~

Vehicle and Equipment Notes

We have financing loan agreements with various lenders to provide financing for the purpose of purchasing or leasing vehicles and equipment used in the normal course of business. 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.

Total ~~outstanding loan balances~~gross assets relating to our ~~master loan~~Master Loan and ~~equipment agreements~~Equipment Agreements were ~~$69.4~~$133.8 million and ~~$60.4~~$130.2 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The net book value of assets under these agreements was $68.4 million and $68.2 million as of March 31, 2020 and December 31, 2019, respectively. See Note 7, Long-term Debt, for more information regarding our Master Loan and Security Agreement, Master Equipment Lease Agreement and Master Loan Agreements.

Letters of Credit and Bonds

We may 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. In addition, we occasionally use letters of credit and cash to secure our performance under our general liability and workers’ compensation insurance programs. Permit and license bonds are typically issued for one year and are required by certain municipalities when

Table of Contents

we obtain licenses and permits to perform work in their jurisdictions. The following table summarizes our outstanding bonds, letters of credit and cash-collateral (in thousands):


	As of September 30, 2019		As of March 31, 2020
Performance bonds	$	52,264	$	56,218
Insurance letters of credit and cash-collateral (1)		44,498
Insurance letters of credit and cash collateral				49,712
Permit and license bonds		6,964		7,460

Total bonds and letters of credit	$	103,726	$	113,390

~~(1)~~

~~Subsequent to September 30, 2019, we increased our outstanding letters of credit by a net amount of $7.0 million in conjunction with renewals of certain insurance programs.~~

In January 2018, we posted $10.0 million into a trust to serve as additional collateral for our workers’ compensation and general liability policies. This ~~$10.0 million~~collateral can be converted to a letter of credit at our discretion and is therefore not considered to be restricted cash.

~~Summary~~

~~The following table summarizes our liquidity (in thousands):~~

As of September 30,
2019

As of December 31,
2018

Cash and cash equivalents
$
234,950
$
90,442

Short-term investments

4,980

10,060

ABL Revolver

200,000

150,000

Less: outstanding letters of credit and cash-collateral
(1)

(34,498
)
(28,887
)

Total liquidity
(2)
$
405,432
$
221,615

~~(1)~~

~~Subsequent to September 30, 2019, we increased our outstanding letters of credit by a net amount of $7.0 million in conjunction with renewals of certain insurance programs.~~

~~(2)~~

Total liquidity reflects full borrowing base capacity under our ABL Revolver and may be limited by certain cash collateral limitations depending upon the status of our borrowing base availability. These potential deductions would lower our available cash and cash equivalents balance shown in the table above. As of September 30, 2019, total liquidity would be reduced by $51.9 million due to these cash collateral limitations. In addition, total liquidity is further reduced by $10.0 million within cash and cash equivalents above which was deposited into a trust to serve as additional collateral for our workers’ compensation and general liability policies. This amount can be converted to a letter of credit at our discretion and would reduce the availability on our ABL Revolver included in the table above.

~~Table of Contents~~

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 for at least the next 12 months as evidenced by our net positive cash flows from operations for each of the nine months ended September 30, 2019 and 2018.

Historical cash flow information

Cash flows from operating activities

Net cash provided by operating activities was ~~$106.5~~$35.9 million and ~~$68.8~~$15.9 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. Generally, the primary driver of our cash flows from operating activities is operating income adjusted for certain noncash items, offset by cash payments for taxes and interest on our outstanding debt. Our cash flows from operations can be impacted by the timing of our cash collections on sales and collection of retainage amounts. ~~In addition,~~Historically, cash flows ~~are~~tend to be seasonally stronger in the third and fourth quarters as a result of increased construction activity. However, we expect cash from operating activities to fall below normal levels in these quarters during 2020 due to the impacts of COVID-19. See “COVID-19 Impacts” with the Key Factors Affecting our Operating Results section above for further information on short-term impacts to our cash from operations.

Cash flows from investing activities

Business Combinations

During the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ we made cash payments of ~~$24.7~~$8.5 million and ~~$34.7~~$5.1 million, respectively, on various business combinations. The amount of cash paid is dependent on various factors, including the size and determined value of the business being acquired. See Note 16, Business Combinations, for more information regarding our acquisitions in 2020 and 2019.

Capital Expenditures

Total cash paid for property and equipment was ~~$37.3~~$9.9 million and ~~$27.1~~$8.7 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, and was primarily related to purchases of vehicles and various equipment to support our growing operations. We expect to continue to support any increases in future net revenue through further capital expenditures. A majority of these capital expenditures were subsequently reimbursed via various vehicle and equipment notes payable, with related cash inflows shown in cash flows from financing activities.

Other

. During the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ we invested ~~$17.4~~$0.8 million and ~~$22.8~~$7.5 million, respectively, in short-term investments consisting primarily of corporate bonds and commercial paper and had ~~$22.6~~$12.3 million and ~~$37.5~~$7.5 million in short-term investments mature during the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

~~Table of Contents~~

Cash flows from financing activities

We utilize our credit facilities ~~primarily~~and Senior Notes to support our operations and continuing acquisitions as well as fund ~~acquisitions and~~ our discretionary stock repurchase program. To support those initiatives, we received $300.0 million in proceeds from issuance of our Senior Notes, paid off $195.8 million of our Term Loan balance and paid $5.2 million in debt issuance costs duringDuring the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, resulting in a net cash inflow of $99.0 million. We received $100.0 million in cash, reduced by $2.0 million in debt issuance costs, by amending our Term Loan during the nine months ended September 30, 2018. During the nine months ended September 30, 2019 and 2018, we also received proceeds of ~~$23.8~~$7.1 million and ~~$20.7~~$4.9 million, respectively, from our fixed asset loans which serve to offset a significant portion of the capital expenditures included in cash outflows from investing activities as described above.

Table of Contents

We made payments on these fixed asset loans and various other notes payable of ~~$15.3~~$6.7 million and ~~$10.3~~$3.9 million during the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. We also made ~~$3.4~~$0.7 million and ~~$4.3~~$1.4 million in principal payments on our finance leases and paid ~~$5.8~~$2.4 million and ~~$2.9~~$2.8 million of acquisition-related obligations during the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. Lastly, we ~~repurchased approximately 793~~paid $15.8 million to repurchase 443 thousand shares of our common stock ~~for $42.8 million~~ during the ~~nine~~three months ended ~~September 30, 2018 as part of~~March 31, 2020. In response to COVID-19, we have temporarily suspended our ~~stock~~share repurchase ~~plan.~~program and temporarily delayed closing acquisitions.

Contractual Obligations

During the nine months ended September 30, 2019, our long-term debt obligations changed due to the issuance of our Senior Notes, the lowered aggregate principal of our Term Loan, and additional vehicle-related borrowings. The updated future expected payments are shown in the table below. During the nine months ended September 30, 2019, we

We had no significant changes to our obligations during the ~~other obligations disclosed in our 2018 Form~~

~~10-K.~~three months ended March 31, 2020.

~~See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations within our 2018 Form~~

~~10-K~~

~~for additional information on these other contractual obligations.~~

Payments due by period

(in thousands)

Total

2019

2020

2021

2022

2023

Thereafter

Long-term debt obligations
(1)
$
  768,482
$
  9,821
$
  51,118
$
  45,329
$
  40,759
$
  34,864
$
  586,591

~~(1)~~

Long-term debt obligations include interest payments on our Senior Notes, Term Loan, our notes payable to sellers of acquisitions, and vehicles purchased under the Master Loan and Security Agreement, the Master Equipment Agreement and the Master Loan Agreements. Long-term debt obligations do not include commitment fees on the unused portion of the ABL Revolver since those fees are subject to change based on the factors described in the ABL Credit Agreement. Interest on seller obligations maturing through March 2025 is estimated using current market rates. For additional information, see Part II, Item 8 Financial Statements and Supplementary Data, Note 7, Long-Term Debt within our 2018 Form

~~10-K.~~

Critical Accounting Policies and Estimates

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we changed our accounting policy regarding ~~leases upon adoption~~allowances for credit losses and the testing of ~~ASC 842.~~goodwill impairment. See Note ~~7, Leases,~~2, Significant Accounting Policies, for more information. There have been no other changes to our critical accounting policies and estimates from those previously disclosed in our ~~2018~~2019 Form

10-K.

~~Table of Contents~~

Recently Adopted Accounting Pronouncements


Standard		Adoption
ASU ~~2016-02,~~2016-13, ~~Leases~~ Financial Instruments—Credit Losses (Topic ~~842)~~326)		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		This ASU ~~requires substantially all leases, with~~addresses concerns over the ~~exception~~cost and complexity of ~~leases with~~the two-step goodwill impairment test; this pronouncement removes the second step of the goodwill impairment test. Going forward, an entity will apply a ~~term~~ one-step quantitative test and record the amount of ~~one year or less, to be recorded on the balance sheet as a lease liability measured~~goodwill impairment as the ~~present~~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		This pronouncement amends Topic 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.

Table of Contents


ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)		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 the practical expedient to continue to assert probability of hedged interest under our interest rate swap agreements, regardless of any expected future ~~lease payments with a corresponding~~ ~~right-of-use~~ ~~asset. This ASU also requires disclosures designed~~modification in terms related to ~~give financial statement users information on the amount, timing and uncertainty of cash flows. See Note 7, Leases, for further information regarding our lease accounting policies.~~reference rate reform.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws, including with respect to the housing market and industry conditions, our financial and business model, the impact of COVID-19 on our business and the economy, our efforts to navigate the material pricing environment, our ability to increase selling prices, our material and labor costs, demand for our services and product offerings, expansion of our national footprint and diversification, our ability to capitalize on the new home and commercial construction recovery, our ability to grow and strengthen our market position, our ability to pursue and integrate value-enhancing acquisitions, our ability to improve sales and profitability, the impact of COVID-19 on our financial results and expectations for demand for our services and our earnings in ~~2019.~~2020. Forward-looking statements may generally be identified by the use of words such as “anticipate,” “believe,” “estimate,” “project,” “predict,” “possible,” “forecast,” “may,” “could,” “would,” “should,” “expect,” “intends,” “plan,” and “will” or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Any forward-looking statements that we make herein and in any future reports and statements are not guarantees of future performance, and actual results may differ materially from those expressed in or suggested by such forward-looking statements as a result of various factors, including, without limitation, the duration, effect and severity of the COVID-19 crisis; the adverse impact of the COVID-19 crisis on our business and financial results, the economy and the markets we serve; general economic and industry ~~conditions,~~conditions; the material price ~~environment,~~environment; the timing of increases in our selling prices and the factors discussed in the “Risk Factors” section of our ~~2018~~2019 Annual Report on Form

10-K

and this Quarterly Report on Form 10-Q, as the same may be updated from time to time in our subsequent filings with the SEC. Any forward-looking statement made by the Company in this report speaks only as of the date hereof. New risks and uncertainties arise from time to time and it is impossible for the Company to predict these events or how they may affect it. The Company has no obligation, and does not intend, to update any forward-looking statements after the date hereof, except as required by federal securities laws.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks related to fluctuations in interest rates on our outstanding variable rate debt. ~~Upon the issuance of our Senior Notes during the three months ended September 30, 2019, we used a portion of the proceeds to lower our Term Loan aggregate principal amount to $200.0 million.~~ As of ~~September 30, 2019,~~March 31, 2020, we had ~~$197.8~~$198.4 million outstanding on the Term Loan, net of unamortized debt issuance costs, no outstanding borrowings on the ABL Revolver and ~~$0.1 million~~no outstanding borrowings under ~~various~~ finance leases subject to variable interest rates. Our two interest rate swaps, each with an associated floor, combine to reduce exposure to market risks on our Term Loan by ~~$196.5~~$195.5 million as of ~~September 30, 2019.~~March 31, 2020. As a result, total variable rate debt of ~~$3.6~~$4.5 million was exposed to market risks as of ~~September 30, 2019.~~March 31, 2020. A hypothetical one percentage point increase (decrease) in interest rates on our variable rate debt would increase (decrease) our annual interest expense by approximately ~~$36~~$45 thousand. Our Senior Notes accrued interest at a fixed rate of 5.75%.

~~Table of Contents~~

For variable rate debt, interest rate changes generally do not affect the fair value of the debt instrument, but do impact future earnings and cash flows, assuming other factors are held constant. We have not entered into and currently do not hold derivatives for trading or speculative purposes.

Table of Contents

LIBOR is used as a reference rate for our Term Loan and our interest rate swap agreements we use to hedge our interest rate exposure. In 2017, the ~~Financial Conduct Authority (the authority that regulates LIBOR)~~FCA announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021, and it is unclear whether new methods of calculating LIBOR will be established. Our Term Loan Agreement was amended on November 30, 2017 to include a mechanism to establish an alternative Eurodollar rate if certain circumstances arise such that LIBOR may no longer be used. Additionally, our ABL Credit Agreement includes a provision related to the potential discontinuance of LIBOR to be replaced with one or more Secured Overnight Financing Rate (SOFR) values or another alternate benchmark rate. However, if LIBOR ceases to exist after 2021, the interest rates under the alternative rate could be higher than LIBOR. In addition, LIBOR is used as a reference rate for our interest rate swap agreements we use to hedge our interest rate exposure. During the three months ended March 31, 2020, we adopted ASU

2020-04,

~~phase-out~~

~~will have on the Company.~~assert probability of hedged interest, regardless of any expected future modification in terms related to reference rate reform.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as required by Exchange Act Rules

13a-15(e)

and

15d-15(e).

Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of ~~September 30, 2019.~~March 31, 2020.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended ~~September 30, 2019~~March 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that many of the employees at our corporate office are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

See Part I, Item 1. Financial Statements, Note ~~14,~~15, Commitments and Contingencies – Other Commitments and Contingencies, for information about existing legal proceedings.

Item 1A. Risk Factors

~~There~~Except as set forth below, as of the date of this report, there have been no material changes for the three months ended ~~September 30, 2019~~March 31, 2020 from the risk factors as disclosed in our ~~2018~~2019 Form

10-K.

The

COVID-19

outbreak could have a material adverse effect on our business, financial condition, operating results and cash flows.

According to the World Health Organization (“WHO”), in December 2019 China reported a cluster of cases of pneumonia in Wuhan, Hubei Province later identified as a novel strain of coronavirus (COVID-19). In response, the WHO declared the outbreak a pandemic and the U.S. Secretary of Health and Human Services has declared a public health emergency. The COVID-19 pandemic has caused significant volatility, uncertainty and economic disruption. Public health organizations and international, federal, state and local governments have implemented measures to combat the spread of COVID-19, including restrictions on movement such as quarantines, “stay-at-home” orders

3738

Table of Contents

and social distancing ordinances and restricting or prohibiting outright some or all forms of commercial and business activity. We cannot predict if federal, state and local governments will implement additional restrictions, when restrictions currently in place will expire or whether restrictions currently in place will become more restrictive.

Our business could be materially adversely affected by the COVID-19 outbreak and the global response. The Company and its customers’ businesses have generally been classified as “essential” businesses in most of the jurisdictions in which we operate, permitting us to continue operations in most of our markets. However, there can be no assurance that our operations will continue to be classified as “essential” in the future, or that we will not voluntarily limit or cease operations in one or more of our markets if we believe it is in our best interest. For example, our branches in the state of New York, which collectively represented less than 2% of our net revenue for the year ended December 31, 2019, have seen dramatic declines in operations due to construction not being deemed “essential” in those areas. Most of the work completed by our branches in this state has been halted since the latter half of March 2020. During portions of March, April and May of 2020 through the date of this filing, we also saw a temporary but significant reduction in activity in our branches located in six other states and the Bay Area of California, which collectively accounted for an additional 8% of our net revenue during the year ended December 31, 2019. The reduced activity in these areas was also attributable to construction being temporarily deemed non-essential during portions of March and April 2020, but those restrictions have been lifted as of the filing date of this 10-Q. To date, we have laid off or furloughed 563 employees in areas where construction has not been deemed “essential.” We have rehired nearly 280 of these employees and while we expect to rehire a significant portion of the remaining employees once restrictions are lifted and operations return to normal levels, there is no guarantee that operations will return to levels that will allow us to rehire all. Any employee layoffs or furloughs associated with branch closures or slowdowns are assumed to be temporary in nature but could result in long-term labor shortages in certain markets if we cannot rehire these employees once operations resume.

Further, the COVID-19 outbreak may have a material adverse impact on our customers and the homebuilding industry in general, as it has reduced employments levels and may adversely affect consumer spending or consumer confidence, which would decrease demand for homes. Based on the normal lag between starts and completions within the home building industry, we anticipate that a market decline could have an adverse impact on our business and financial results later this year. In the commercial sector, certain large-scale infrastructure programs may be at risk in markets where construction has not been deemed “essential,” the need for such structures decline, or as consumer behaviors change. For example, reduced demand for office buildings, decreased airport traffic or decreased usage of sports arenas could impact our commercial end market.

We are monitoring suppliers of our other products and have had no issues to date acquiring the inventory we need to operate our business. However, to the extent our suppliers are negatively impacted by the COVID-19 outbreak, there could be disruptions in our supply chain.

Our management is focused on mitigating the impact of COVID-19 on our business and the risk to our employees, which has partially diverted management’s attention away from normal business operations. Additionally, we have taken a number of precautionary measures intended to mitigate the impact of COVID-19 on our business and the risk to our employees, including implementing detailed cleaning and disinfecting processes at our facilities, adhering to social distancing protocols, limiting the number of workers on jobsites, suspending non-essential air travel and encouraging employees to work remotely when possible, which could adversely affect our business. Despite these measures, our key management personnel and/or a portion of our installer base could become temporarily or permanently incapacitated by COVID-19 or related complications. This could result in a material adverse impact on our business, financial condition, operating results and cash flows. While these and other measures we may take are believed to be temporary, they may continue until the outbreak is contained or indefinitely and could increase costs and amplify existing risks or introduce new risks that could adversely affect our business, including, but not limited to, internal controls and cybersecurity risks.

The continued spread of COVID-19 has adversely affected many industries as well as the economies and financial markets of many countries, including the United States, causing a significant deceleration of economic activity. This slowdown has reduced production, decreased the level of trade, and led to widespread corporate downsizing, causing a sharp increase in unemployment. In recent weeks, we have also seen significant disruption of and extreme volatility in the global capital markets, which could increase the cost of, or entirely restrict access to, capital. The impact of this outbreak on the U.S. and world economies is uncertain and, unless the outbreak is contained, these adverse impacts could worsen, impacting all segments of the global economy, and result in a significant recession or worse.

Table of Contents

Considerable uncertainty still surrounds COVID-19 and its potential effects, and the extent of and effectiveness of any responses taken on a local, national and global level. To date, no fully effective vaccines or treatments have been developed and effective vaccines or treatments may not be discovered soon enough to protect against a worsening of the outbreak or to prevent COVID-19 from becoming endemic. While we expect the COVID-19 outbreak and related events will have a negative effect on us, the full extent and scope of the impact on our business and industry, as well as national, regional and global markets and economies, depends on numerous evolving factors that we may not be able to accurately predict, including the duration and scope of the pandemic, additional government actions taken in response to the pandemic, the impact on construction activity and demand for homes (based on employment levels, consumer spending and consumer confidence). Accordingly, our ability to conduct our business in the manner previously or currently expected could be materially and negatively affected, any of which could have a material adverse impact on our business, financial condition, operating results and cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table shows the stock repurchase activity for the three months ended ~~September 30, 2019:~~March 31, 2020:

Total
Number of
Shares
Purchased
(1)

Average
Price Paid
Per Share

Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs

Approximate
Dollar Value of
Shares that May
Yet Be
Purchased under
the Plans or
Programs
(2)

July 1 - 31, 2019

124
$
59.22

—

—

August 1 - 31, 2019

—

—

—

—

September 1 - 30, 2019

—

—

—

—

124
$
  59.22

—
$
60.6 million


	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (1)
January 1 - 31, 2020		—	$	—		—		—
February 1 - 29, 2020		—		—		—		—
March 1 - 31, 2020		442,542		35.59		442,542	$	44.9 million

		442,542	$	35.59		442,542	$	44.9 million

(1)	Represents shares surrendered to the Company by employees to satisfy tax withholding obligations arising in connection with the vesting of 403 shares of restricted stock awarded under our 2014 Omnibus Incentive Plan.

~~(2)~~

On February ~~28,~~26, 2018, our board of directors authorized a $50 million stock repurchase program effective March 2, 2018 ~~through February 28, 2019, unless extended by the board of directors. On~~and on October 31, 2018, our board of directors approved an additional stock repurchase program, effective November 5,6, 2018, pursuant to which we may purchase up to an additional $100 million of our outstanding common stock. ~~The program will remain in effect until~~On February ~~28,~~20, 2020, ~~unless extended by the~~our board of ~~directors.~~directors approved extending the current stock repurchase program to March 1, 2021. During the three ~~or nine~~ months ended ~~September 30, 2019,~~March 31, 2020, we repurchased approximately 443 thousand shares of our common stock with an aggregate price of approximately $15.8 million, or $35.59 average price per share. We did not repurchase any shares ~~under~~during the three months ended March 31, 2019. In response to COVID-19, we have temporarily suspended our ~~stock~~share repurchase program.

Item 3. Defaults Upon Senior Securities

There have been no material defaults in senior securities.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

3840

Table of Contents

Item 6. Exhibits

(a)(3) Exhibits

The following exhibits are being filed as part of this Quarterly Report on Form

10-Q:

Exhibit
Number

Description

~~4.1~~

Indenture, dated September 26, 2019, among Installed Building Products, Inc., the guarantors named therein and U.S. Bank National Association, as Trustee (including the Form of Note). (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 27, 2019).

~~10.1~~

Purchase Agreement, dated as of September 16, 2019, by and among Installed Building Products, Inc., as issuer, the subsidiary guarantors party thereto, and BofA Securities, Inc. for itself and on behalf of several initial purchasers. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 17, 2019).

~~10.2~~

Credit Agreement, dated September 26, 2019, among Installed Building Products, Inc., the guarantors party thereto, the lenders party thereto and Bank of America, N.A., as issuing bank, swing bank and administrative agent, with KeyBank National Association, as a syndication agent and U.S. Bank National Association, as a syndication agent, and Bank of America, N.A., as lead arranger and bookrunner. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 27, 2019).

~~10.3~~

Security Agreement, dated September 26, 2019, among Installed Building Products, Inc., the other grantors party thereto and Bank of America, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 27, 2019).

31.1*

CEO Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

CFO Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**

Inline XBRL Instance Document -– the instance document does not appear in the interactive ~~date~~data file because its XBRL tags are embedded within the Inline XBRL document

101.SCH**

Inline XBRL Taxonomy Extension Schema Document

101. CAL**

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101. LAB**

Inline XBRL Taxonomy Extension Label Linkbase Document

101. PRE**

Inline XBRL Taxonomy Extension Presentation Linkbase Document

101. DEF**

Inline XBRL Taxonomy Extension Definition Linkbase Document

104**

Cover Page Interactive Data File (formatted in Inline ~~XBRL)~~XBRL and contained in Exhibit 101)

*	Filed herewith.

**	Submitted electronically with the report.

3941

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: ~~November 1, 2019~~May 8, 2020


INSTALLED BUILDING PRODUCTS, INC.

By:		/s/ Jeffrey W. Edwards
		Jeffrey W. Edwards
		President and Chief Executive Officer

By:		/s/ Michael T. Miller
		Michael T. Miller
		Executive Vice President and Chief Financial Officer

4042


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)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	IBP	New York Stock Exchange


	September 30,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
ASSETS
Current assets
Cash and cash equivalents	$	234,950		$	90,442		$	187,187		$	177,889
Investments		4,980			10,060			26,487			37,961
Accounts receivable (less allowance for doubtful accounts of $6,712 and $5,085 at September 30, 2019 and December 31, 2018, respectively)		242,065			214,121
Accounts receivable (less allowance for credit losses of $9,029 and $6,878 at March 31, 2020 and December 31, 2019, respectively)								245,469			244,519
Inventories		63,547			61,162			73,569			74,606
Other current assets		32,955			35,760			37,024			46,974

Total current assets		578,497			411,545			569,736			581,949
Property and equipment, net		102,148			90,117			106,262			106,410
Operating lease right-of-use assets		42,553			—			47,134			45,691
Goodwill		184,574			173,049			198,664			195,652
Intangibles, net		144,321			149,790			151,426			153,562
Other non-current assets		11,589			10,157			13,842			16,215

Total assets	$	1,063,682		$	834,658		$	1,087,064		$	1,099,479

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current maturities of long-term debt	$	22,734		$	22,642		$	24,241		$	24,164
Current maturities of operating lease obligations		15,032			—			15,889			15,459
Current maturities of finance lease obligations		3,133			4,806			2,438			2,747
Accounts payable		100,181			96,949			90,708			98,871
Accrued compensation		32,793			27,923			32,264			33,636
Other current liabilities		41,576			29,366			36,025			39,272

Total current liabilitie s		215,449			181,686
Total current liabilities								201,565			214,149
Long-term debt		542,510			432,182			545,552			545,031
Operating lease obligations		27,129			—			30,741			29,785
Finance lease obligations		3,682			3,824			3,412			3,597
Deferred income taxes		3,833			6,695			6,759			9,175
Other long-term liabilities		43,565			27,773			53,238			47,711

Total liabilities		836,168			652,160			841,267			849,448
Commitments and contingencies
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, 2019 and December 31, 2018, respectively		—			—
Common stock; $0.01 par value: 100,000,000 authorized, 32,871,504 and 32,723,972 issued and 30,016,749 and 29,915,611 shares outstanding at September 30, 2019 and December 31, 2018, respectively		329			327
Preferred Stock; $0.01 par value: 5,000,000 authorized and 0 shares issued and outstanding at March 31 2020 and December 31, 2019, respectively								—			—
Common stock; $0.01 par value: 100,000,000 authorized, 32,961,777 and 32,871,504 issued and 29,662,312 and 30,016,340 shares outstanding at March 31, 2020 and December 31, 2019, respectively								330			329
Additional paid in capital		188,216			181,815			192,564			190,230
Retained earnings		154,177			105,212			188,169			173,371
Treasury stock; at cost: 2,854,755 and 2,808,361 shares at September 30, 2019 and December 31, 2018, respectively		(106,756	)		(104,425	)
Treasury stock; at cost: 3,299,465 and 2,855,164 shares at March 31, 2020 and December 31, 2019, respectively								(122,515	)		(106,756	)
Accumulated other comprehensive loss		(8,452	)		(431	)		(12,751	)		(7,143	)

Total stockholders’ equity		227,514			182,498			245,797			250,031

Total liabilities and stockholders’ equity	$	1,063,682		$	834,658		$	1,087,064		$	1,099,479


					Additional											Accumulated Other
	Common Stock				Paid In		Retained			Treasury Stock						Comprehensive			Stockholders’
	Shares		Amount		Capital		Earnings			Shares			Amount			Income			Equity
BALANCE - July 1, 2018		32,723,972	$	327	$	178,266	$	73,919			(1,117,623	)	$	(39,703	)	$	2,254		$	215,063

Net income								15,563												15,563
Cumulative effect of accounting changes, net of tax								(746	)											(746	)
Issuance of common stock awards to employees																				—
Surrender of common stock awards by employees											(681	)								—
Share-based compensation expense						1,765														1,765
Share-based compensation issued to directors						75														75
Common stock repurchase											(380,694	)		(18,187	)					(18,187	)
Other comprehensive income, net of tax																	818			818

BALANCE - September 30, 2018		32,723,972	$	327	$	180,106	$	88,736			(1,498,998	)	$	(57,890	)	$	3,072		$	214,351


					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
Issuance of common stock awards to employees																				—
Surrender of common stock awards by employees											(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


PART I – FINANCIAL INFORMATION			1

~~Item 1. Financial Statements~~			1

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~			28

~~Item 3. Quantitative and Qualitative Disclosures About Market Risk~~			36

~~Item 4. Controls and Procedures~~			3 7

~~PART II – OTHER INFORMATION~~Item 1. Financial Statements			37

~~Item 1. Legal Proceedings~~			37

~~Item 1A. Risk Factors~~			37

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~			3 8

~~Item 3. Defaults Upon Senior Securities~~			38

~~Item 4. Mine Safety Disclosures~~			38

~~Item 5. Other Information~~			38

~~Item 6. Exhibits~~			3 91

~~SIGNATURES~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25

Item 3. Quantitative and Qualitative Disclosures About Market Risk			37

Item 4. Controls and Procedures			38

PART II – OTHER INFORMATION			38

Item 1. Legal Proceedings			38

Item 1A. Risk Factors			38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			40

Item 3. Defaults Upon Senior Securities			40

Item 4. Mine Safety Disclosures			40

Item 5. Other Information			40

Item 6. Exhibits			41

SIGNATURES			42


	Three months ended September 30,					Nine months ended September 30,					Three months ended March 31,
	2019			2018		2019			2018		2020			2019
Net revenue	$	396,449		$	348,999	$	1,110,398		$	983,311	$	397,331		$	342,135
Cost of sales		278,362			251,665		795,616			710,358		281,071			252,697

Gross profit		118,087			97,334		314,782			272,953		116,260			89,438
Operating expenses
Selling		19,398			17,434		54,431			49,300		20,355			17,130
Administrative		55,098			48,337		156,022			137,511		60,195			48,431
Amortization		6,156			5,228		18,065			19,678		6,680			5,888

Operating income		37,435			26,335		86,264			66,464		29,030			17,989
Other expense
Interest expense, net		8,458			5,282		19,783			15,013		7,358			5,676
Other		155			132		381			417		—			125

Income before income taxes		28,822			20,921		66,100			51,034		21,672			12,188
Income tax provision		7,610			5,358		17,135			12,762		5,684			3,354

Net income	$	21,212		$	15,563	$	48,965		$	38,272	$	15,988		$	8,834

Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on cash flow hedge, net of tax benefit (provision) of $575 and ($278) for the three months ended September 30, 2019 and 2018, respectively, and $2,676 and ($822) for the nine months ended September 30, 2019 and 2018, respectively		(1,726	)		818		(8,021	)		2,453
Other comprehensive loss, net of tax:
Unrealized loss on cash flow hedge, net of tax benefit of $1,939 and $921 for the three months ended March 31, 2020 and 2019, respectively												(5,608	)		(2,749	)

Comprehensive income	$	19,486		$	16,381	$	40,944		$	40,725	$	10,380		$	6,085

Basic net income per share	$	0.71		$	0.50	$	1.65		$	1.22	$	0.54		$	0.30

Diluted net income per share	$	0.71		$	0.50	$	1.64		$	1.21	$	0.53		$	0.30

Weighted average shares outstanding:
Basic		29,785,548			31,229,086		29,741,555			31,373,871		29,722,444			29,679,884
Diluted		29,877,056			31,312,756		29,839,873			31,512,104		29,930,954			29,806,653


	Common Stock				Additional Paid In			Retained			Treasury Stock						Accumulated Other 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									8,834												8,834
Issuance of common stock awards to employees		56,995		1		(1	)														—
Surrender of common stock awards												(643	)		(4	)					(4	)
Share-based compensation expense						2,022															2,022
Other comprehensive loss, net of tax																		(2,749	)		(2,749	)

BALANCE - March 31, 2019		32,780,967	$	328	$	183,836		$	114,046			(2,809,004	)	$	(104,429	)	$	(3,180	)	$	190,601


	Common Stock				Additional Paid In			Retained			Treasury Stock						Accumulated Other 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									15,988												15,988
Cumulative effect of accounting changes, net of tax									(1,190	)											(1,190	)
Issuance of common stock awards to employees		89,957		1		(1	)														—
Surrender of common stock awards												(1,759	)		—						—
Share-based compensation expense						2,302															2,302
Share-based compensation issued to directors		316				33															33
Common stock repurchase												(442,542	)		(15,759	)					(15,759	)
Other comprehensive loss, net of tax																		(5,608	)		(5,608	)

BALANCE - March 31, 2020		32,961,777	$	330	$	192,564		$	188,169			(3,299,465	)	$	(122,515	)	$	(12,751	)	$	245,797


Remainder of 2019	$	6,147
2020		23,867
2021		22,525
2022		21,604
2023		18,693
Thereafter		51,485


	Capital Leases			Operating Leases
				Related Party		Other		Total Operating
2019	$	5,207		$	1,159	$	14,418	$	15,577
2020		2,253			1,184		11,293		12,477
2021		1,339			1,058		7,014		8,072
2022		452			972		4,335		5,307
2023		93			51		2,613		2,664
Thereafter		—			—		4,695		4,695

		9,344		$	4,424	$	44,368	$	48,792

Less: Amounts representing executory costs		(255	)
Less: Amounts representing interest		(459	)

Total obligation under capital leases		8,630
Less: Current portion of capital leases		(4,806	)

Long term capital lease obligation	$	3,824


	Common Stock Awards					Performance-Based Stock Awards					Performance-Based Restricted Stock Units
	Awards			Weighted Average Grant Dat e Fair Value Per Share		Awards			Weighted Average Grant Dat e Fair Value Per Share		Units			Weighted Average Grant Dat e Fair Value Per Share
Nonvested awards/units at December 31, 2018		173,189		$	47.40		115,698		$	52.25		13,248		$	56.05
Granted		88,529			50.94		82,692			45.65		13,933			51.62
Vested		(106,347	)		42.27		(31,404	)		41.00		(12,808	)		56.05
Forfeited/Cancelled		(1,767	)		52.25		(6,697	)		65.60		(840	)		53.94

Nonvested awards/units at September 30, 2019		153,604		$	52.93		160,289		$	50.49		13,533		$	51.62


	September 30, 2019		December 31, 2018
Insurance receivable and indemnification asset for claims under a fully insured policy	$	2,484	$	2,484
Insurance receivable for claims that exceeded the stop loss limit		2,738		53

Total insurance receivables included in other non-current assets	$	5,222	$	2,537


									Total Purchase Price		Three months ended September 30, 2019				Nine months ended September 30, 2019
2019 Acquisitions	Date		Acquisition Type		Cash Paid		Seller Obligations				Revenue		Net Income		Revenue		Net Income
2019 Acquisitions	Date		Acquisition Type		Cash Paid		Seller Obligations				Revenue		Net Income		Revenue		Net Income
1st State Insulation		3/18/2019		Asset	$	5,125	$	1,355	$	6,480	$	3,156	$	174	$	6,586	$	374
Expert Insulation		6/24/2019		Asset		16,165		1,993		18,158		3,147		193		3,339		160
Other		Various		Asset		3,450		974		4,424		7,262		591		7,262		591

Total					$	24,740	$	4,322	$	29,062	$	13,565	$	958	$	17,187	$	1,125


									Total Purchase Price		Three months ended September 30, 2018				Nine months ended September 30, 2018
2018 Acquisitions	Date		Acquisition Type		Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income		Revenue		Net Income
CDG		3/19/2018		Asset	$	9,440	$	1,973	$	11,413	$	3,848	$	164	$	7,572	$	229
Other		Various		Shares/Asset		25,242		3,447		28,689		7,003		42		12,782		423

Total					$	34,682	$	5,420	$	40,102	$	10,851	$	206	$	20,354	$	652


	As of September 30, 2019												As of September 30, 2018
	1st State			Expert			Other			Total			CDG			Other			Total
Estimated fair values:
Accounts receivable	$	—		$	1,796		$	254		$	2,050		$	1,731		$	3,229		$	4,960
Inventories		291			723			338			1,352			514			1,027			1,541
Other current assets		—			—			3			3			28			879			907
Property and equipment		989			235			667			1,891			933			1,893			2,826
Intangibles		3,382			6,740			2,242			12,364			3,711			16,681			20,392
Goodwill		1,857			8,545			930			11,332			4,898			7,007			11,905
Other non-current assets		—			161			13			174			36			19			55
Accounts payable and other current liabilities		(39	)		(42	)		(23	)		(104	)		(438	)		(2,046	)		(2,484	)

Fair value of assets acquired and purchase price		6,480			18,158			4,424			29,062			11,413			28,689			40,102
Less seller obligations		1,355			1,993			974			4,322			1,973			3,447			5,420

Cash paid	$	5,125		$	16,165		$	3,450		$	24,740		$	9,440		$	25,242		$	34,682


	Unaudited pro forma for the three months ended September 30,				Unaudited pro forma for the nine months ended September 30,
	2019		2018		2019		2018
Net revenue	$	397,839	$	367,600	$	1,123,820	$	1,046,717
Net income		21,240		16,856		49,154		41,997
Basic net income per share		0.71		0.54		1.65		1.34
Diluted net income per share		0.71		0.54		1.65		1.33


	As of September 30, 2019			As of December 31, 2018
Cash and cash equivalents	$	234,950		$	90,442
Short-term investments		4,980			10,060
ABL Revolver		200,000			150,000
Less: outstanding letters of credit and cash-collateral (1)		(34,498	)		(28,887	)

Total liquidity (2)	$	405,432		$	221,615


	Payments due by period
(in thousands)	Total		2019		2020		2021		2022		2023		Thereafter
Long-term debt obligations (1)	$	768,482	$	9,821	$	51,118	$	45,329	$	40,759	$	34,864	$	586,591


	Total Number of Shares Purchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (2)
July 1 - 31, 2019		124	$	59.22		—		—
August 1 - 31, 2019		—		—		—		—
September 1 - 30, 2019		—		—		—		—

		124	$	59.22		—	$	60.6 million

Large accelerated filer

Accelerated filer

Non-accelerated filer
~~filer~~

Smaller reporting company

Emerging growth company