INSTALLED BUILDING PRODUCTS, INC. 2026 Q2 Earnings Call

Good morning. 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. We are also joined by Jason Niswonger, our Chief Administrative and Sustainability Officer, Brad Wheeler, our Chief Operating Officer. Jeff, I will now turn the call over to you.

Thanks, Ryan. Good morning to everyone joining us today. As usual, I will start the call with some highlights. 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 hardworking men and women across our more than 250 branches throughout the U.S. 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 shower 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 am 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.

Thank you, Jeff, 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. We continue to expect an effective tax rate of 25%-27% for the full year ending December 31st, 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 30th, 2026, we had a net debt to trailing 12-month adjusted EBITDA leverage ratio of 1.34 times compared to 1.15 times at June 30th, 2025, which remains well below our stated target of two times. At June 30th, 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 30th, 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. 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 30th, 2026, the company had approximately $398 million available under its stock repurchase program, which expires March 1st, 2027. IBP's Board of Directors approved the third quarter dividend of $0.39 per share, which is payable on September 30th, 2026 to stockholders of record on September 15th, 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.