Installed Building Products Inc

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND JUNE 30, 2024

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND JUNE 30, 2024

(in millions, except share and per shares amounts)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, CONTINUED)

(in millions)

NOTE 1 -ORGANIZATION

Installed Building Products (“IBP”), a Delaware corporation formed on October 28, 2011, and its wholly-owned subsidiaries (collectively referred to as the “Company,” and “we,” “us” and “our”) primarily install insulation, waterproofing, fire-stopping, fireproofing, garage doors, rain gutters, window blinds, shower doors, closet shelving and mirrors and other products for residential and commercial builders located in the continental United States. The Company operates in more than 250 locations and its corporate office is located in Columbus, Ohio.

The vast majority of our sales originate from ourone reportable segment, Installation. Substantially all of our Installation segment sales are derived from the service-based installation of various products in the residential new construction, repair and remodel and commercial construction end markets from our national network of branch locations. Each of our Installation branches has the capacity to serve all of our end markets. See Note 3, Revenue Recognition, for information on our revenues by product and end market, and see Note 10, Information on Segments, for information on how we segment the business.

NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements include all of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

The information furnished in the Condensed Consolidated Financial Statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations and statements of financial position for the interim periods presented. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) have been omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to prevent the information presented from being misleading when read in conjunction with our audited consolidated financial statements and the notes thereto included in Part II, Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“2023 Form 10-K”), as filed with the SEC on February 22, 2024. The December 31, 2023 Condensed Consolidated Balance Sheet data herein was derived from the audited consolidated financial statements, but the related footnotes do not include all disclosures required by U.S. GAAP.

Our interim operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected in future operating quarters.

Note 2 to the audited consolidated financial statements in our 2023 Form 10-K describes the significant accounting policies and estimates used in preparation of the audited consolidated financial statements. Other than the recently implemented accounting policy described below, there have been no changes to our significant accounting policies during the six months ended June 30, 2024.

Recently Adopted Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

We are currently evaluating the impact of the following Accounting Standards Update ("ASU") on our Condensed Consolidated Financial Statements or Notes to Condensed Consolidated Financial Statements:

NOTE 3 -REVENUE RECOGNITION

We disaggregate our revenue from contracts with customers for our Installation segment 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. Revenues for the Other category are presented net of intercompany sales in the tables below. The following tables present our net revenues disaggregated by end market and product (in millions):

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 are 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 millions):

Uncompleted contracts were as follows (in millions):

Net under billings were as follows (in millions):

The difference between contract assets and contract liabilities as of June 30, 2024 compared to December 31, 2023 is primarily the result of timing differences between our performance of obligations under contracts and customer payments and billings. During the three and six months ended June 30, 2024, we recognized $1.6 million and $17.1 million of revenue that was included in the contract liability balance at December 31, 2023. We didnot recognize any impairment losses on our contract assets during the three and six months ended June 30, 2024 or 2023.

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 June 30, 2024, the aggregate amount of the transaction price allocated to remaining uncompleted contracts was $120.1 million. We expect to satisfy remaining performance obligations and recognize revenue on substantially all of these uncompleted contracts over the next 18 months.

NOTE 4 -CREDIT LOSSES

Our expected loss allowance methodology for accounts receivable is developed using historical experience, present economic conditions and other factors management considers relevant to estimate expected credit losses. We also perform ongoing evaluations of creditworthiness of our existing and potential customers.

Changes in our allowance for credit losses were as follows (in millions):

NOTE 5 -CASH AND CASH EQUIVALENTS

Cash and cash equivalents include money market funds which are highly liquid instruments with insignificant interest rate risk and original or remaining maturities of three months or less at the time of purchase. These money market funds amounted to approximately $350.2 million and $344.8 million as of June 30, 2024 and December 31, 2023, respectively. See Note 9, Fair Value Measurements, for additional information.

NOTE 6 -GOODWILL AND INTANGIBLES

Goodwill

The change in carrying amount of goodwill by reporting segment was as follows (in millions):

Other adjustments presented in the above table primarily includeone immaterial acquisition and adjustments for the allocation of certain acquisitions still under measurement made during the six months ended June 30, 2024.

We test goodwill for impairment annually during the fourth quarter of our fiscal year or earlier if there is an impairment indicator. The accumulated impairment losses included within the above table were all associated with the Installation segment and substantially all of the impairment losses were recorded prior to the year ended December 31, 2010. During the three months ended June 30, 2024, we made the determination to wind downone of our branches. The fair value of the impaired goodwill associated with this branch was not material.

Intangibles, net

The following table provides the gross carrying amount, accumulated amortization and net book value for each major class of intangibles (in millions):

The gross carrying amount of intangibles increased during the six months ended June 30, 2024 primarily due to business combinations, offset by a $4.6 million intangible impairment charge related to the wind down of a single branch. For more information on business combinations and asset impairments, see Note 17, Business Combinations and Note 9, Fair Value Measurements, respectively.

Remaining estimated aggregate annual amortization expense is as follows (amounts, in millions, are for the fiscal year ended):

NOTE 7 -LONG-TERM DEBT

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

Remaining required repayments of debt principal, gross of unamortized debt issuance costs, as of June 30, 2024 are as follows (in millions):

Term Loan Agreement Amendment

In March 2024, we entered into Amendment No. 3 to our Term Loan Credit Agreement ("Third Amendment"). The Third Amendment amended certain terms of the existing seven-year term loan facility due December 2028, as amended (the "Term Loan Credit Agreement") and allowed for the issuance of a new term loan ("New Term Loan") in the amount of $500.0 million which will mature on March 28, 2031. Net proceeds of the New Term Loan were used to refinance the remaining $490.0 million on our existing term loan, pay fees and increase working capital. The New Term Loan does not have any financial maintenance covenants, eliminates the credit spread adjustment and the floor is reduced to 0.00%. The New Term Loan bears interest, at our option, at a rate equal to either: the adjusted term secured overnight financing rate plus 2.00% per annum, or an alternative base rate plus 1.00%. The New Term Loan also includes (i) asix-month “soft call” protection provision during which a 1.00% premium will be charged in connection with certain repricing transactions, and (ii) a 50 basis points most favored nation protection for 12 months following the effective date. As of June 30, 2024, we had $494.3 million, net of unamortized debt issuance costs, due on our New Term Loan. We have various interest rates swaps that serve to hedge $400.0 million of the variable cash flows on our New Term Loan through December 14, 2028. For further information about our interest rate swaps, see Note 11, Derivatives and Hedging Activities.

We wrote off $1.1 million in previously capitalized loan costs during the six months ended June 30, 2024. In addition, we expensed loan costs that did not meet the requirements for capitalization of approximately $3.1 million during the six months ended June 30, 2024. We hadno such write-offs or expenses during the six months ended June 30, 2023.

NOTE 8 -LEASES

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, and certain vehicles and equipment to facilitate our operations, including, but not limited to, trucks, forklifts and office equipment. During the six months ended June 30, 2024, we impaired the operating lease right-of-use asset for one of our branches due to its wind down, as described in Note 9, Fair Value Measurements.

The table below presents the lease-related assets and liabilities recorded on the Condensed Consolidated Balance Sheets (in millions):

Lease Costs

The table below presents certain information related to the lease costs for finance and operating leases (in millions):

(1)Includes variable lease costs of$1.3 million and $1.1 million for the three months ended June 30, 2024 and 2023, respectively, and $2.5 million and $2.3 million for the six months ended June 30, 2024 and 2023, respectively, and short-term lease costs of $0.7 million and $0.3 million for the three months ended June 30, 2024 and 2023, respectively and $1.3 million and $0.6 million for the six months ended June 30, 2024 and 2023, respectively.

(2)Includes variable lease costs of $0.2 million and $0.1 million for the three months ended June 30, 2024 and 2023, respectively, and $0.4 million for each of the six months ended June 30, 2024 and 2023, respectively.

Other Information

The table below presents supplemental cash flow information related to leases (in millions):

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 June 30, 2024 (in millions):

NOTE 9 -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 June 30, 2024 and December 31, 2023 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. Discounted cash flows, a Level 3 input, are utilized in determining estimated fair values. Certain long-lived assets were impaired based on estimated future cash flows due to the wind down of a single branch during the three months ended June 30, 2024.

The table below presents asset impairment information related to long-lived assets (in millions):

Estimated Fair Value of Financial Instruments

Accounts receivable, accounts payable and accrued liabilities as of June 30, 2024 and December 31, 2023 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 June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023. All debt classifications represent Level 2 fair value measurements. 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, calculated based on a weighted average of various future forecast scenarios, to their net present value.

The fair values of financial assets and liabilities that are recorded at fair value in the Condensed Consolidated Balance Sheets and not described above were as follows (in millions):

See Note 5, Cash and Cash Equivalents, for more information on money market funds included in the table above. Also see Note 11, 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 millions):

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 value and associated fair value of financial liabilities that are not recorded at fair value in the Condensed Consolidated Balance Sheets and not described above include our $300.0 million in aggregate principal amount of 5.75% senior unsecured notes ("Senior Notes"). To estimate the fair value of our Senior Notes, we utilized third-party quotes which are derived all or in part from model prices, external sources or market prices. The Senior Notes represent a Level 2 fair value measurement and are as follows (in millions):

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

See Note 7, Long-Term Debt, for more information on our Senior Notes.

NOTE 10 -INFORMATION ON SEGMENTS

Our Chief Executive Officer, who is also our Chief Operating Decision Maker ("CODM"), reviews financial information of ourthree operating segments consisting of Installation, Distribution and Manufacturing for the purpose of assessing business performance, managing the business and allocating resources.

Our Installation operating segment represents the majority of our net revenue and gross profit and forms ourone reportable segment. This operating segment represents the service-based installation of insulation and complementary building products in the residential new construction, repair and remodel and commercial construction end markets from our national network of branch locations. These branch locations have similar economic and operating characteristics including the nature of products and services offered, operating procedures and risks, customer bases, employee incentives, material procurement and shared corporate resources and therefore combine to formone operating segment.

The Other category reported below reflects the operations of ourtwo remaining operating segments, Distribution and Manufacturing, which do not meet the quantitative thresholds for separate reporting. Our Distribution operating segment includes our businesses that sell insulation, gutters and accessories primarily to installers of these products who operate in multiple end markets. Our Manufacturing operating segment consists of our cellulose insulation manufacturing operation. In addition to sales of cellulose insulation, revenues from this operating segment consist of sales of asphalt and industrial fibers to distributors and installers of these products.

The Installation reportable segment includes substantially all of our net revenue from services while net revenue included in the Other category includes substantially all of our net revenue from sales of products. The intercompany sales from the Other category to the Installation reportable segment include a profit margin while our Installation segment records these transactions at cost. These transactions are shown in the Eliminations column in the tables below.

The key metrics used by our CODM to assess performance, manage the business and allocate resources of our operating segments are revenue and segment gross profit. We define segment gross profit as revenue less cost of sales, excluding depreciation and amortization. We do not report total assets, depreciation and amortization expenses included in reported cost of sales, operating expenses or other expense, net by segment because our CODM does not regularly receive or use this information. The following tables represent our segment information for the three and six months ended June 30, 2024 and 2023 (in millions):

(1)Cost of sales included in segment gross profit is exclusive of depreciation and amortization for the three and six months ended June 30, 2024 and 2023.

The reconciliation between consolidated segment gross profit for each period as shown in the tables above to consolidated income before income taxes is as follows (in millions):

(1)Depreciation and amortization is excluded from segment gross profit for the three and six months ended June 30, 2024 and 2023.

NOTE 11 -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 six months ended June 30, 2024, we used interest rate swaps to hedge the variable cash flows associated with existing variable-rate debt. Interest rate swaps designated as cash flow 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. 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 June 30, 2024, we have not posted any collateral related to these agreements.

As of June 30, 2024 and December 31, 2023, we had the following interest rate swap derivatives (notional amount in millions):

As of June 30, 2024, ourtwo forward interest rate swaps, combined with ourthree active swaps, serve to hedge $400.0 million of the variable cash flows on our variable rate Term Loan through December 14, 2028. The assets associated with these interest rate swaps are included in other current assets and other non-current assets on the Consolidated Balance Sheets at their fair value amounts as described in Note 9, Fair Value Measurements.

In July 2022, we amended the maturity date of each of ourthree active interest rate swaps to December 31, 2025 with the other terms remaining unchanged. The remaining unrealized gains will be amortized as a decrease to interest expense, net through the original maturity dates of April 15, 2030 and December 15, 2028. For each of the three months ended June 30, 2024 and 2023, we amortized$1.8 million, respectively, and for each of thesix months ended June 30, 2024 and 2023, we amortized$3.5 million, respectively, of the remaining unrealized gains as a decrease to interest expense, net. During each of the three months ended June 30, 2024 and 2023, we amortized $1.0 million, respectively, and during each of the six months ended June 30, 2024 and 2023, we amortized$2.1 million, respectively, of the remaining unrealized losses associated with the August 2020 terminated swaps as an increase to interest expense, net.

The amended swaps included off-market terms at inception. This other-than-insignificant financing element will be amortized as an increase to interest expense, net through the December 31, 2025 maturity date of the amended swaps. For each of thethree months ended June 30, 2024 and 2023, we amortized $1.8 million, respectively, and for each of the six months ended June 30, 2024 and 2023, we amortized$3.7 million, respectively, of the financing element as an increase to interest expense, net. Cash settlements with interest rate counterparties are recognized through cash flows from investing activities in the Condensed Consolidated Statements of Cash Flows due to the other-than-insignificant financing element.

The changes in the fair value of derivatives designated, and that qualify, as cash flow hedges are recorded in other comprehensive income (loss), 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 no such changes during the six months ended June 30, 2024 and 2023.

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, and as our terminated and amended swaps are amortized. Over the next twelve months, we estimate that an additional $12.3 million will be reclassified as a decrease to interest expense, net.

The following table summarizes amounts recorded tointerest expense, net included in the Condensed Consolidated Statements of Operations and Comprehensive Income related to our interest rate swaps (in millions):

NOTE 12 -STOCKHOLDERS’ EQUITY

Accumulated other comprehensive income

The change in accumulated other comprehensive income related to our interest rate derivatives, net of taxes, was as follows (in millions):

The reclassifications of realized net losses to earnings in the above table are recorded within interest expense, net.

Share repurchases

During the three and six months ended June 30, 2024, we repurchased approximately 215 thousand shares of our common stock with an aggregate price of approximately $45.7 million, or $212.83 average price per share. The effect of these treasury shares in reducing the number of common shares outstanding is reflected in our earnings per share calculation. We did not repurchase any common stock during the three and six months ended June 30, 2023.

On February 22, 2024, we announced that our board of directors authorized a new stock repurchase program that allows for the repurchase of up to $300.0 million of our outstanding common stock. The new program replaces the previous program and is in effect through March 1, 2025.

Dividends

During the six months ended June 30, 2024, we declared and paid the following cash dividends (amount declared and amount paid in millions):

During the six months ended June 30, 2023, we declared and paid the following cash dividends (amount declared and amount paid in millions):

The amount of dividends declared may vary from the amount of dividends paid in a period due to the vesting of restricted stock awards and performance share awards, which accrue dividend equivalent rights that are paid when the award vests. During the six months ended June 30, 2024 and 2023, we also paid $0.5 million and $0.6 million, respectively, in accrued dividends not included in the table above related to the vesting of these awards. The payment of future dividends will be at the discretion of our board of directors and will depend on our future earnings, capital requirements, financial condition, future prospects, results of operations, contractual restrictions, legal requirements, and other factors deemed relevant by our board of directors.

NOTE 13 -EMPLOYEE BENEFITS

Healthcare

We participate in multiple healthcare plans, the largest of which is partially self-funded with an insurance company paying benefits in excess of stop loss limits per individual/family. Our healthcare benefit expense (net of employee contributions) was $8.7 million and $8.6 million for the three months ended June 30, 2024 and 2023, respectively and $17.0 million and $16.1 million for the six months ended June 30, 2024 and 2023, respectively. An accrual for estimated healthcare claims incurred but not reported (“IBNR”) is included within accrued compensation on the Condensed Consolidated Balance Sheets and was$4.4 million and $3.9 million as of June 30, 2024 and December 31, 2023, respectively.

Workers’ Compensation

Workers’ compensation expense totaled $2.9 million and $4.7 million for the three months ended June 30, 2024 and 2023, respectively and $8.7 million and $10.5 million for the six months ended June 30, 2024 and 2023, respectively.

Workers’ compensation known claims and IBNR reserves included on the Condensed Consolidated Balance Sheets were as follows (in millions):

We also had an insurance receivable for claims that exceeded the stop loss limit under our self-insured policies as well as claims under our 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 millions):

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 $0.9 million during each of the three months ended June 30, 2024 and 2023, and $1.9 million and $1.8 million for the six months ended June 30, 2024 and 2023, respectively. These expenses are included in administrative expenses on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income.

Multiemployer Pension Plans

We participate in various multiemployer pension plans under collective bargaining agreements in Washington, Oregon, California and Illinois with other companies in the construction industry. These plans cover our union-represented employees and contributions to these plans are expensed as incurred. These plans generally provide for retirement, death and/or termination benefits for eligible employees within the applicable collective bargaining units, based on specific eligibility/participation requirements, vesting periods and benefit formulas. We do not participate in any multiemployer pension plans that are considered to be individually significant.

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. We granted approximately four thousand andseven thousand shares during the three and six months ended June 30, 2024 and 2023, respectively, under our 2023 Omnibus Incentive Plan to non-employee members of our board of directors.

In addition, we granted approximately 30 thousand and 62 thousand shares of our common stock to employees during the three and six months ended June 30, 2024 and 2023, respectively.

Employees – Performance-Based Stock Awards

During the six months ended June 30, 2024, we issued approximately 67 thousand shares of our common stock to certain officers, which vest intwo equal installments on each of April 20, 2025 and April 20, 2026. In addition, during the six months ended June 30, 2024, we established, and our board of directors approved, performance-based targets in connection with common stock awards to be issued to certain officers in 2025 contingent upon achievement of these targets.

In addition, there are long-term performance-based restricted stock awards to be issued to certain employees annually through the 2024 performance period contingent upon achievement of certain performance targets. These awards are accounted for as liability-based awards since they represent a predominantly-fixed monetary amount that will be settled with a variable number of common shares annually. These awards will vest in 2025 and are included in other current liabilities on the Condensed Consolidated Balance Sheets. During the six months ended June 30, 2024 and 2023, we issued approximately four thousand andeight thousand shares of our common stock, respectively.

Employees – Performance-Based Restricted Stock Units

During 2023, 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 in 2024 based upon achievement of a performance target. In addition, during the six months ended June 30, 2024, we established, and our board of directors approved, performance-based restricted stock units in connection with common stock awards to be issued to certain employees in 2025 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.

Share-Based Compensation Summary

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

The following table summarizes the share-based compensation expense recognized by award type (in millions):

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

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.

Unrecognized share-based compensation expense related to unvested awards was as follows (in millions):

Total unrecognized compensation expense is subject to future adjustments for forfeitures. This expense is expected to be recognized over the remaining weighted-average period shown above on a straight-line basis except for the Performance-Based Stock Awards which uses the graded-vesting method. Shares forfeited are returned as treasury shares and available for future issuances.

During the six months ended June 30, 2024, our employees surrendered approximately 36 thousand shares of our common stock to satisfy tax withholding obligations arising in connection with the vesting of common stock awards issued under our 2023 and 2014 Omnibus Incentive Plans.

In May 2023, our stockholders approved a new 2023 Omnibus Incentive Plan which became effective on May 26, 2023. All future awards as of this date will be granted under the new plan, and awards granted previously under the 2014 Omnibus Incentive Plan will not be modified or impacted by this adoption. As of June 30, 2024, approximately 1.8 million of the 2.1 million shares of common stock authorized for issuance were available for issuance under the 2023 Omnibus Incentive Plan.

NOTE 14 -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 six months ended June 30, 2024, our effective tax rate was 24.8% and 25.7%, respectively. During the three and six months ended June 30, 2023, our effective tax rate was 25.5% and 26.1%, respectively. The rates for each of the three and six months ended June 30, 2024 and 2023 were favorably impacted by recognition of a windfall tax benefit from equity vesting.

NOTE 15 -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 8, Leases, for future minimum lease payments to be paid to these related parties.

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

We had related party balances of approximately $2.5 million and $1.8 million included in accounts receivable on our Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023, respectively. These balances primarily represented trade accounts receivable arising during the normal course of business with various related parties. M/I Homes,

Inc., a customer whose Chairman, Chief Executive Officer and President serves on our board of directors, accounted for $2.2 million and $1.4 million of the related party accounts receivable balances as of June 30, 2024 and December 31, 2023, respectively. Additionally, M/I Homes, Inc. accounted for a significant portion of our related party sales during the three and six months ended June 30, 2024 and 2023.

NOTE 16 -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 millions):

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

Leases

See Note 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.

We have a supply agreement with variable pricing withone of our suppliers to purchase a portion of the materials we utilize in our business. This agreement is effective March 31, 2023 through March 31, 2026 with a purchase obligation of 12.0 million pounds for the period ending May 15, 2024,14.4 million pounds for the period ending March 31, 2025 and 17.3 million pounds for the period ending March 31, 2026. Through June 30, 2024, we have purchased approximately 1.7 million pounds of materials under the agreement period ending March 31, 2025. The agreement for the period ending May 15, 2024 has been satisfied as of June 30, 2024.

NOTE 17 -BUSINESS COMBINATIONS

As part of our ongoing strategy to expand geographically and increase market share in certain markets, as well as diversify our products and end markets, we completed five business combinations andone insignificant tuck-in acquisition merged into an existing operation during the six months ended June 30, 2024 andfour business combinations andone insignificant tuck-in acquisition merged into an existing operation during the six months ended June 30, 2023. The largest of these acquisitions was Anchor Insulation Co., Inc. ("Anchor") in March 2023.

Below is a summary of each significant acquisition by year, including revenue and net income since date of acquisition shown for the year of acquisition. Net income includes amortization and taxes when appropriate.

For the three and six months ended June 30, 2024 (in millions):

For the three and six months ended June 30, 2023 (in millions):

Acquisition-related costs recorded within administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income amounted to $0.6 million and $0.5 million for the three months ended June 30, 2024 and 2023, respectively and $1.1 million for each of the six months ended June 30, 2024 and 2023, 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 (including the identifiable intangible assets). The goodwill recognized for Anchor reflects the value of its location, revenue enhancements, assembled workforce and other synergies that are expected to be realized from the acquisition. We expect to deduct approximately $6.7 million of goodwill for tax purposes as a result of 2024 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 millions):

Contingent consideration, non-compete agreements and/or amounts based on working capital calculations are included as “seller obligations” in the above table or within “fair value of assets acquired” if subsequently paid during the period presented. Contingent consideration payments consist primarily of earnouts based on performance that are recorded at fair value at the time of acquisition. When these payments are expected to be made overone year from the acquisition date, the contingent consideration is discounted to net present value of future payments based on a weighted average of various future forecast scenarios.

Further adjustments to the allocation for each acquisition still under its measurement period are expected as third-party or internal valuations are finalized, certain tax aspects of the transaction are completed and customary post-closing reviews are concluded during the measurement period attributable to each individual business combination. As a result, 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. Any acquisition acquired after June 30, 2023 is deemed to be within the measurement period and its purchase price considered preliminary.

Goodwill and intangibles per the above table may not agree to the total gross increase of these assets as shown in Note 6, Goodwill and Intangibles, during each of the six months ended June 30, 2024 and 2023 due to adjustments to goodwill for the allocation of certain acquisitions still under measurement as well as intangible impairment charges and other immaterial intangible assets added during the ordinary course of business. One immaterial acquisition had its respective goodwill assigned to Other during the six months ended June 30, 2024. All other acquisitions during the six months ended June 30, 2024 and 2023 had their respective goodwill assigned to our Installation operating segment.

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

Pro Forma Information

The unaudited pro forma information for the combined results of the Company has been prepared as if the 2024 acquisitions had taken place on January 1, 2023 and the 2023 acquisitions had taken place on January 1, 2022. 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, 2023 and 2022, respectively, and the unaudited pro forma information does not purport to be indicative of future financial operating results (in millions, except per share data):

Unaudited pro forma net income reflects additional intangible asset amortization expense of approximately $0.2 million and $0.5 million for the three months ended June 30, 2024 and 2023, respectively, and $0.4 million and $1.5 million for the six months ended June 30, 2024 and 2023, respectively, as well as additional income tax expense of approximately $23 thousand and $0.3 million for the three months ended June 30, 2024 and 2023, respectively, and $0.1 million and $0.8 million for the six months ended June 30, 2024 and 2023, respectively, that would have been recorded had the 2024 acquisitions taken place on January 1, 2023 and the 2023 acquisitions taken place on January 1, 2022.

NOTE 18 -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. 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 approximately 143 thousand and 178 thousand shares for the three and six months ended June 30, 2024, respectively, and 99 thousand and 151 thousand shares for the three and six months ended June 30, 2023, respectively. Shares of potential common stock that were not included in the calculation of diluted net income per common share because the effect would have been anti-dilutive were not material for the three and six months ended June 30, 2024 and 2023.

NOTE 19 -SUBSEQUENT EVENTS

On July 29, 2024, we acquired the assets of Euroview Enterprises, LLC and Contract Mirror and Supply Co. for total consideration of approximately $20.2 million. The initial accounting for the business combination was not complete at the time the financial statements were issued due to the timing of the acquisitions and the filing of this Quarterly Report on Form 10-Q. As a result, disclosures required under ASC 805-10-50, Business Combinations, cannot be made at this time.

We announced on August 1st, 2024 that our board of directors declared a quarterly dividend, payable on September 30, 2024 to stockholders of record on September 15, 2024, at a rate of 35.0 cents per share.