Installed Building Products, Inc. (IBP) Earnings Call Transcript & Summary

Greetings. Welcome to the Installed Building Products Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Ryan Ricketts, Managing Director, Investor Relations. Thank you, Ryan. You may begin.

Good morning, and welcome to Installed Building Products second quarter 2026 earnings conference call. Earlier today, we issued a press release on our financial results for the 2026 second quarter, which can be found in the Investor Relations section of our website. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are based on management's current beliefs and expectations and are subject to factors that could cause actual results to differ materially from those described today. Please refer to our SEC filings for cautionary statements and risk factors. We undertake no duty or obligation to update any forward-looking statement as a result of new information or future events, except as required by federal securities laws. In addition, management refers to certain non-GAAP and adjusted financial measures on this call. You can find a reconciliation of such non-GAAP measures to the nearest GAAP equivalent in the company's earnings release and investor presentation, both of which are available in the Investor Relations section of our website. This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer; Michael Miller, our Chief Financial Officer; and we are also joined by Jason Niswonger, our Chief Administrative and Sustainability Officer; and Brad Wheeler, our Chief Operating Officer. Jeff, I will now turn the call over to you.

Thanks, Ryan, and good morning to everyone joining us today. As usual, I will start the call with some highlights and then turn the call over to Michael, who will discuss our financial results in more detail before we take your questions. Our team continued to execute well during the second quarter, working closely with our customers to navigate a challenging residential housing backdrop while maintaining the high level of service they expect from IBP. We delivered positive consolidated revenue growth, supported by the contribution from recent acquisitions and growth within our commercial installation, manufacturing and distribution businesses. These results demonstrate the value of our diversified operating platform and the multiple avenues available to support growth across varying market conditions. Throughout the quarter, the macroeconomic backdrop was impacted by geopolitical factors, which increased the level of uncertainty for U.S. consumers. The low consumer confidence, along with affordability concerns has made new home sales more challenging. Even with industry-specific headwinds expected to continue to affect our new residential installation segment in the near term, our overall business has been resilient. All the credit goes to the hard-working men and women across our more than 250 branches throughout the United States and those who support them from our office in Columbus, Ohio. To everyone at IBP, thank you for your hard work and dedication. Looking at our 2026 second quarter performance, consolidated sales increased 2% and same-branch sales declined less than 1%. Our commercial end market continued to show strength, delivering double-digit installation sales growth for the fifth consecutive quarter with heavy commercial sales growth exceeding 15% during the quarter. With respect to our new single-family end market, activity remains challenged as a result of affordability concerns and lower consumer confidence with some geographic markets feeling more upbeat than others. In our multifamily end market, our contract backlog continues to grow, which is encouraging. Our other segment revenue grew 50% net of eliminations, partially due to acquisitions. We continue to effectively manage both material and labor to meet the needs of our customers and remain flexible to adjust to varying demand across regions. During the 2026 second quarter and in July, we completed acquisitions representing approximately $30 million of annual sales from a diversified product set in residential, commercial and industrial end markets. Acquisitions during the quarter and in July included an installer of mechanical insulation with the majority of its sales derived from retrofit work between industrial and commercial applications throughout the upper Midwest region with annual sales of approximately $12 million, an installer of car doors, closet shelving, mirrors and other accessories across residential markets serving customers throughout Minnesota and surrounding states with annual sales of approximately $7 million and an installer of door, bath and fencing hardware, primarily in new residential markets throughout South Carolina and Georgia with annual sales of approximately $7 million. Although deal timing is hard to predict, our current outlook for acquisition opportunities in 2026 is strong, and we expect to acquire at least $100 million of annual revenue this year. In terms of broader housing construction activity, U.S. Census Bureau data for the 2026 second quarter showed single-family starts decreased 4% from the prior year, while multifamily starts were up 10% for the same period. I'm proud of our team's continued success and commitment to doing an excellent job for our customers. Once again, to everyone at IBP, thank you. I remain encouraged by the fundamentals of our industry, our competitive positioning and optimistic about the prospects ahead for IBP and the broader insulation and complementary building products installation business. With this overview, I'd like to turn the call over to Michael to provide more detail on our 2026 second quarter financial results.

Thanks, Jeff, and good morning, everyone. Consolidated net revenue for the second quarter was up 2% to $778 million compared to $760 million for the same period last year. Same-branch sales for the Installation segment were down 2% for the second quarter as a 6% decline in new residential same-branch sales was partially offset by a 10% increase in commercial same-branch sales. Although the components behind our price/mix and volume disclosures have several moving parts that are difficult to forecast and quantify, price/mix was up 1% during the second quarter. And when including heavy commercial, price/mix increased 3%. Volume during the 2026 second quarter decreased by 5%, primarily due to lower new single-family volume. With respect to profit margins in the second quarter, our business achieved adjusted gross margin of 33.3% compared to 34.2% in the prior year period. Our consolidated gross margin was influenced by the relative mix of revenue from our installation and other segments. As we have stated before, our installation business generates a higher gross margin than our other segment. During the quarter, the other segment revenue net of eliminations grew 50%, which contributed positively to consolidated gross profit, but also created a mix headwind to our consolidated gross margin percentage of 40 basis points. Second quarter 2026 Installation segment gross margin was 36.5% compared to 37.1% in the prior year. The decline in gross margin for the Installation segment was primarily due to increased fuel expense, which reduced gross margin by 50 basis points. Adjusted selling and administrative expenses increased 3% compared to the 2025 second quarter. As a percent of second quarter sales, adjusted selling and administrative expense was 18.9% compared to 18.8% in the prior year period. Administrative costs were impacted by higher medical insurance costs, which were a 30 basis point impact to EBITDA margin. Adjusted EBITDA for the 2026 second quarter was $131 million, reflecting an adjusted EBITDA margin of 16.9% and adjusted net income was $78 million or $2.91 per diluted share. Although we do not provide comprehensive financial guidance, based on recent acquisitions, we expect third quarter and full year 2026 amortization expense of approximately $10 million and $42 million, respectively. We would expect these estimates to change with any acquisitions we complete in future periods. Also, we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31, 2026. Our second quarter net interest expense was $11 million compared to $8 million for the 2025 second quarter. We would expect third quarter net interest expense of approximately $10 million. At June 30, 2026, we had a net debt to trailing 12-month adjusted EBITDA leverage ratio of 1.34x compared to 1.15x at June 30, 2025, which remains well below our stated target of 2x. At June 30, 2026, we had $374 million in working capital, excluding cash and cash equivalents. Capital expenditures and total incurred finance leases for the three months ended June 30, 2026, were approximately $18 million combined, which was approximately 2% of revenue. We ended the second quarter with $395 million in cash on the balance sheet, and we will continue to prioritize acquisitions with long-term strategic benefits and attractive returns on invested capital. We expect positive free cash flow will continue to support shareholder returns and stock buybacks based on prevailing market conditions. During the 2026 second quarter, we repurchased approximately 365,000 shares of common stock at a total cost of $76 million. At June 30, 2026, the company had approximately $398 million available under its stock repurchase program, which expires March 1, 2027. IBP's Board of Directors approved a third quarter dividend of $0.39 per share, which is payable on September 30, 2026, to stockholders of record on September 15, 2026. The third quarter dividend represents a more than 5% increase over the prior year period. We are committed to continuing to grow the company while returning excess capital to shareholders through our dividend policy and opportunistic share repurchases. With this overview, I will now turn the call back to Jeff for closing remarks.

Thanks, Michael. I'd like to conclude our prepared remarks by once again thanking IBP employees for their hard work and commitment to our company. Our success over the years is made possible because of you. Operator, let's open up the call for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Susan Maklari with Goldman Sachs.

My first question is around the activity that you're seeing on the ground. I think as we ended the first quarter, you had talked about the fact that the private builders had not come back the way that you had anticipated going into the spring. Can you talk about what you're seeing on the ground in the quarter and how things moved relative to the different kinds of customers that you have in the geographies?

Sure. This is Michael. Thanks for the question. We're continuing to see relative better performance with the private builders relative to the public builders -- of the public builders that have reported so far, their second quarter results, homebuilding revenue is down kind of mid-single digits on a combined basis. Our revenue with them was similarly down. The revenue profile that we had with the private builders, while down, was not down nearly as much as it was with the public. We continue to believe that will be the trend through the rest of the year. Although if you look at their guidance/consensus, they're seeing the public builders for the back half of the year, it would imply sequential improvement in the third quarter and the fourth quarter, so that the third quarter would be down roughly low single digits and actually the fourth quarter would be up low single digits. Now that's there. Guidance/consensus, as we've said a million times, we don't provide guidance. I will say, though, that historically, our sales to them have tracked very closely to their reported homebuilder revenue.

Okay. All right. That's helpful. And then moving to the gross margin, well done there. You were in line with our expectations. And I know you talked a little bit about some of the headwinds that you saw, especially on the install side. Can you just give us a bit more color on the moving parts that are coming through the gross margin and your ability to offset some of those headwinds that you're seeing, especially on the fuel side? And just anything that we should be thinking about in the forward quarters? Appreciating that you don't give guide, but just anything in terms of underlying mix or other factors?

Yes. Su, thanks for that question. And the gross margin really was consistent with what certainly with our 32% to 34% full year range that we have talked about. The team is doing a very good job offsetting not just in cost of goods sold, but also in G&A, some of the inflationary pressure that we're seeing sort of across the board. The one thing that has been at least initially up to this point because it was really a second quarter event is dealing with the increase in fuel, which was a 50 basis point headwind to the Installation segment. It's important to note that even though we had headwinds in the Installation segment on the residential side, primarily the single-family side, product margin in the Installation segment was actually up slightly in the quarter, which we felt very good about. I would say that there has been a little bit, but it's insignificant at this point, benefit from the selling price increases associated with the selling price or manufactured price increases from spray foam. We expect to see more positive impact from that in the second half of the year. It might be a little bumpy in the third quarter. But ultimately, the market is accepting that price increase. And as we discussed quite a lot in our last conference call, the customer base that is the natural user of spray foam is a custom, semi-custom foam. And there are our customers that are most willing to accept higher prices versus certainly on the entry-level side. The other thing that was pretty significant from a gross margin perspective, again, consistent with our expectations was the significant growth in our other segment, which just as a reminder, represents our distribution and manufacturing business. That business on a net basis grew about 50% in the quarter, which is fantastic, but it structurally has lower gross margins. So while the gross margins in that business actually improved to 24.7% from 23%, they are substantially lower than the Installation segment gross margins, which were basically flat at 37% year-over-year. So that higher percentage of sales or higher relative sales in the other segment was about -- was a 40 basis point headwind to gross margin. All of that being said, we continue to expect that the other segment this year will continue to grow at a much faster rate than the installation segment. So it will weigh on reported gross margin, but we think it is very relevant for investors to look at the difference in margin between installation and the other segment. And for those of you that read the release very closely, you'll see that we did provide more detail in the segmentation breakout, just to make it a little bit clearer the margin differential in the two segments.

Our next question is from Sam Reid with Wells Fargo.

I'm going to start with more of an industry question here. We heard from one of the big OEMs yesterday on the insulation side that they're bringing a plant back online in the fourth quarter. Just curious your thoughts on implications for capacity utilization. And that same OEM, I believe, is also hoping to push to some pricing in September. Just curious kind of the puts and takes on that pricing in the context of more capacity.

So were you referring to the [ Nehi ] plant, coming back up? Yes. I mean that's not a particularly large plant or very much volume or some of the things. So I think between -- I guess, speculation would be that between rebuilds and things that aren't online yet or not fully online yet or might come down, I don't think it's going to make much of a big kind of splash in any way, shape or form. But I would say that material is readily available, both [ lose end ], and I'm sure we'll spend some time talking about the market dynamic. I mean, clearly, the -- particularly on the single-family side and emphasize the entry level of the single-family side continues to be weak, and we don't see dramatic improvement in that such that you would see material tightness. And even there's another manufacturer that brought up the largest line in the country, and that's still not running at full capacity yet. So there's more supply coming online with that facility.

Absolutely. Thanks for that helpful context. Let's maybe switch gears and just move down the P&L to SG&A. Just looking at the leverage this quarter, I guess I should say the deleverage, it was significantly better than the first quarter. I know that there were a few things you called out last quarter, some facility and liability insurance headwinds. This quarter, it sounds like the deleverage was mostly just a function of medical expenses. Just curious kind of any sequential dynamics we should be mindful of on the SG&A line, perhaps any points of improvement quarter-over-quarter?

Yes. So if you strip out medical on a same-branch basis, G&A expenses were actually down like 2% in the quarter from last year, which really is a yeoman's job, quite frankly, given the inflationary pressure that we're seeing in other types of insurance within facility costs. The team is doing an excellent job of managing what they can manage, quite frankly. We will continue to pursue that through the course of the year. But there's some stuff like the medical, which was up 33% in the quarter from a 40% up last quarter. It's something that we're working on, but there's not a lot of easy fixes, quite frankly, on that. We've done all the easy fixes when it comes to planning, design and negotiating, aggressively trying to bring costs down. But it's just a factor of -- it's a factor that every company faces these days.

Our next question is from Stephen Kim with Evercore ISI.

It was a strong quarter from our perspective, particularly in other. And I was curious if you could talk a little bit about the drivers of strength in that segment. Any particular verticals to call out there? And then similarly, in commercial, I think you indicated there was a lot of strength there and even in, I would say, specifically in light commercial. If you could give us a sense for -- was there anything there that wouldn't sort of extend strength-wise into the back half of the year?

A couple of things. Yes, the other division did very well. The 50% is on an as-reported basis and not on a same-branch basis. So on a same-branch basis, the other segment grew like 28%, still a phenomenal result. And really, that's sort of across the board, both in distribution and in the manufacturing side. So our manufacturing there is cellulose insulation, as you know, and they're just doing a phenomenal job. And the demand drivers there are a little bit different than they are for, say, the residential installation business because it's a lot of R&R and it's also a lot of industrial fibers and road fibers. So they're seeing really, really solid demand there. And the team is continuing to execute extremely well. And even though the gross margins are considerably lower than the installation division, they are improving those margins. So we feel really good about what the team is doing there, on the commercial side, particularly the light commercial side, it has turned a little bit sooner than we expected. So we feel good about that. And we believe it will continue to be positive and not significantly positive, but positive throughout the rest of the year. And then, of course, the heavy commercial business is clearly the star within the company right now in terms of their ability to continue to grow at a high rate of growth. Their same-branch sales growth for the heavy commercial business was roughly 16% in the quarter, down from higher percentages in the most recent couple of quarters. But clearly, the comps are getting tougher and tougher. They continue to increase their backlog despite the fact that they're putting up record revenue, every month and at good margins. So we feel really good about the visibility we have into that business and that it should continue to perform well through the rest of the back half of the year, albeit the sales growth -- the rate of sales growth will come down as it hits the very difficult comps from the back half of last year.

Got you. Yes. So it sounds like there wasn't anything really that should drive lumpiness in either other or commercial. You did indicate, though, that in the spray foam pricing dynamic, while certainly the trend is moving higher there, you indicated that there could be some lumpiness in 3Q. So I was just curious, one, what is driving the lumpiness call out in spray foam? Is it significant? And then secondly, just to sort of clean up, you do not expect to see any kind of lumpiness in other or commercial in either 3Q or 4Q, right?

Lumpiness, I would say no, consistency, yes, but particularly again on the commercial side, I'll reiterate that the rate of growth is coming against those really hard comps in the second half. My comment around the spray foam was really just that the price realization is new, and it's such a significant price increase. And just as a reference, it was approximately 25% increase in material costs. So there's still some market participants are still kind of adjusting to that. We feel ultimately that we're going to come out of this at minimum margin neutral, obviously, much higher from a dollars perspective, given the discipline in the spray foam contractor base. But just given the magnitude of the increase, there might be a little bit of turning lumpiness that goes on. It's still a little early to tell. We haven't really seen any demand destruction, if you will, in terms of conversion from spray foam to fiberglass. But we'll have a much clearer picture as to how much of that happens when we report third quarter results.

Our next question is from Philip Ng with Jefferies.

Congrats on a really strong quarter in a tough environment. Michael, your words, heavy commercial was a star yet again. Is there an opportunity to kind of scale that business up in a much bigger way, whether it's organically M&A? And historically, your M&A on the resi install side has been smaller bolt-on in nature. Are there chunkier assets on the heavy commercial side for installation or maybe even pursuing commercial roofing on the contractor side? Any color there?

I mean the simple answer is yes, yes and yes. But on the heavy, I'll let Brad talk about the organic opportunity on the heavy commercial side.

This is Brad. On the heavy side, so yes, we're doing our growth through our customer base as they spread out, we're following those. And then once we obviously build up additional contracts, we'll open up a brick-and-mortar and service that area. So it's a little bit slower growth expansion, I should say, on that, but it's still -- it's in our plan, and we continue to do it every day.

Do you want to talk about M&A?

Well, you said they are absolutely larger prospects in terms of commercial contractors that would be there potentially on the acquisition side, and we continue to be interested in commercial roofing, you also mentioned and mechanical and industrial.

Okay. Super. And then certainly, your largest competitor on the resi installation side got taken out, right? Like any deal of that size, there will be change. Does that present an opportunity for you guys, whether it's share, talent, M&A? Just kind of help us think through potentially any ripple effects that could be good or bad for you guys?

Yes. I think it's still too early to tell. I mean they're trying to figure out exactly what they have. And our continued belief is that on the installation side, they will continue to be a really good competitor, and we'll continue to work. We'll continue to compete with them the same way we are today and we spend success.

Our next question is from Keith Hughes with Truist Securities.

My question is on M&A. Jeff, you addressed a little bit a second ago on the opportunities in the various parts of nonresidential. It has been a success for you here. Would you start to pick individual trades where you really ramp up and do a slug of deals around a certain commercial install trade? Or do you think it will be more opportunistic in terms of doing different trades in that area?

I think clearly, we've kind of signaled and are continuing to try to signal that we'd like to buy a platform business in one of these kind of adjacent market segments and industry segments. And I think clearly, once we do that, the word will be out, and we will identify more deals that are kind of concentrated in one or two of those areas.

And your current heavy commercial, what kind of trade are you the biggest in right now? Is there one that sort of stands out?

Yes. So with our heavy waterproofing is probably our largest product right now and followed by fireproofing.