Installed Building Products Inc

Previous wording

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 approximately 250 branch locations. 94% of our net revenue comes from the service-based installation of these products across all of our end markets and forms our Installation operating segment and single reportable segment. In addition, two regional distribution operations serve the Midwest, Mountain West, Northeast and Mid-Atlantic regions of the United States, and we operate a cellulose manufacturing facility. We believe our business is well positioned to continue to profitably grow due to our strong balance sheet, liquidity and our continuing acquisition strategy.

Current wording

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 more than 250 branch locations. 94% of our net revenue comes from the service-based installation of these products across all of our end markets and forms our Installation operating segment and single reportable segment. In addition, three regional distribution operations serve the Midwest, Mountain West, Northeast and Mid-Atlantic regions of the United States, and we operate a cellulose manufacturing facility. We believe our business is well positioned to continue to profitably grow due to our strong balance sheet, liquidity and our continuing acquisition strategy.

Previous wording

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, inflation, consumer confidence, employment rates, housing inventory levels and affordability, foreclosure rates, the health of the economy and the availability of mortgage financing. Our strategic acquisitions over the last several years contributed meaningfully to our 4.1% increase in net revenue during the year ended December 31, 2023 compared to 2022.

Current wording

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, inflation, consumer confidence, employment rates, housing inventory levels and affordability, foreclosure rates, the health of the economy and the availability of mortgage financing. Our strategic acquisitions over the last several years contributed meaningfully to our 5.9% increase in net revenue during the year ended December 31, 2024 compared to 2023.

Previous wording

Net revenues increased 4.1%, or $108.8 million, while gross profit increased 12.4% to $930.7 million during the year ended December 31, 2023 compared to 2022. The increase in net revenue was primarily driven by the 33.3% growth in same branch multi-family sales, selling price and product mix improvements and the contribution of our recent acquisitions. The 7.7% increase in our price/mix metric for our Installation segment was primarily due to a higher mix of multi-family and commercial jobs. Gross profit margin grew faster than revenue as we continued to prioritize profitability over sales volume. Specifically, gross profit outpaced sales growth due to higher selling prices and resulting leverage gained on material costs compared to the prior year. Certain net revenue and industry metrics we use to monitor our operations are discussed in the "Key Measures of Performance" section below, and further details regarding results of our various end markets are discussed further in the "Net Revenue, Cost of Sales and Gross Profit" section below.

Current wording

Net revenues increased 5.9%, or $162.7 million, while gross profit increased 6.9% to $994.5 million during the year ended December 31, 2024 compared to 2023. The increase in net revenue was primarily driven by the 6.4% growth in our largest end market, the single-family subset of the residential new construction market. Revenue was also positively impacted by selling price and product mix improvements, the contribution of our recent acquisitions, and same branch sales growth from all of our end markets. The 3.7% increase in our price/mix metric for our Installation segment was primarily due to selling price increases. Gross profit margin grew faster than revenue as we continued to prioritize profitability over sales volume. Specifically, gross profit outpaced sales growth due to higher selling prices and resulting leverage gained on material costs compared to the prior year. Certain net revenue and industry metrics we use to monitor our operations are discussed in the "Key Measures of Performance" section below, and further details regarding results of our various end markets are discussed further in the "Net Revenue, Cost of Sales and Gross Profit" section below.

Previous wording

We generated approximately $340.2 million of cash from operating activities during the year ended December 31, 2023. As of December 31, 2023, we had $386.5 million of cash and cash equivalents and we have not drawn on our revolving line of credit. Our liquidity remains strong despite investing $59.6 million in our acquisition strategy, repurchasing $6.3 million of our Company's stock and paying $63.1 million in dividends during the year ended December 31, 2023. See Note 8, Long-term Debt, in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for more information on our revolving line of credit.

Current wording

We generated approximately $340.0 million of cash from operating activities during the year ended December 31, 2024. As of December 31, 2024, we had $327.6 million of cash and cash equivalents and have not drawn on our revolving line of credit. Our liquidity remains strong despite investing $88.6 million in our acquisition strategy, and we more than tripled the 2023 amount of shareholder return through repurchasing $145.3 million of our Company's stock and paying $84.7 million in dividends during the year ended December 31, 2024. See Note 8, Long-term Debt, in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for more information on our revolving line of credit.

Previous wording

During the year ended December 31, 2022, we experienced overall sales growth in all of our end markets and we achieved 24.6% year-over-year same branch sales growth, with acquisitions contributing the remaining portion of our total sales growth. Our largest end market, the single-family subset of the residential new construction market, grew revenue 33.5% over the same period in 2021. Our commercial end market experienced sales growth of 15.2% during the year ended December 31, 2022 primarily as a result of acquisitions. We experienced commercial project delays in 2022 due to macroeconomic concerns surrounding the pandemic and general economic uncertainty.

Current wording

During the year ended December 31, 2024, we experienced overall sales growth in all of our end markets and we achieved 3.5% year over year same branch sales growth, with acquisitions contributing the remaining portion of our total sales growth. The multi-family subset of the residential new construction market grew 2024 revenue 6.5% over the same period in 2023 based on the backlog of jobs in that end market. Our commercial end market experienced sales growth of 3.0% during the year ended December 31, 2024 primarily through contributions from our recent acquisitions.

Previous wording

We continue to diversify our operations through our acquisition strategy as we acquired 8 businesses in 2023 that we expect to contribute approximately$75.0 million inannual aggregate revenues. We expect to meet our goal of acquiring at least$100.0 million in annual aggregate revenue in 2024.

Current wording

We continue to diversify our operations through our acquisition strategy as we acquired nine businesses in 2024 that we expect to contribute approximately $104.2 million inannual aggregate revenues. We expect to also meet our goal of acquiring at least $100.0 million in annual aggregate revenue in 2025.

Previous wording

In August 2023, we amended our Term Loan (as defined below) to reprice the applicable interest rate paid by 0.25% below our prior rate (the "Second Amendment"). We expect that this repricing will result in interest rate cost savings exceeding $1.0 million annually through the 2028 maturity date. See Note 8, Long-term Debt, for more information on our Term Loan and the Second Amendment. Additionally, in August 2023 we published our annual ESG report which highlights important milestones and our commitment to the environment, employees, communities and stakeholders.

Current wording

In March 2024, we amended our existing Term Loan Credit Agreement (as defined below) which included the issuance of a new seven-year term loan in the amount of $500.0 million. We used the net proceeds to refinance the remaining $490.0 million on our previous term loan, pay fees and increase working capital. In November 2024, we amended our Term Loan to reprice the applicable interest rate paid by 0.25% below our prior rate. We expect that this repricing will result in interest rate cost savings exceeding $1.0 million annually through the 2031 maturity date. See Note 8, Long-term Debt, for more information on our Term Loan and the Fourth Amendment. Additionally, in November 2024 we published our annual ESG report which highlights important milestones and our commitment to the environment, employees, communities and stakeholders.

Previous wording

The residential homebuilding market is forecasted to decline slightly in 2024 primarily due to elevated interest rates, with the decrease concentrated in the multi-family subset of the residential end market. However, we expect to benefit from a forecasted increase in the single-family end market in 2024 over 2023 since over half of our net revenue comes from this end market. While total housing starts are currently projected to be slightly lower in 2024 than 2023, we believe there are several trends that should drive long-term growth in the housing market, even if there are temporary periods of slowed growth. These long-term trends include an aging housing stock, population growth, demographic changes and household formation growth. We expect that our net revenue, gross profit and operating income will benefit from this growth over time although we will be negatively impacted by a slowdown in the homebuilding industry in the near term.

Current wording

The residential homebuilding market is forecasted to decline slightly in 2025 on the basis of housing starts, primarily due to elevated home and rental prices and mortgage interest rates, with the decrease expected to be concentrated in the multi-family subset of the residential end market. While total housing starts are currently projected to be slightly lower in 2025 than 2024, we believe there are several trends that should drive long-term growth in the housing market, even if there are temporary periods of slowed growth. These long-term trends include an aging housing stock, population growth, demographic changes and household formation growth. We expect that our net revenue, gross profit and operating income will benefit from this growth over time. U.S. economic growth and employment data is healthy and we anticipate our business will continue to grow organically, although we could be negatively impacted by a temporary slowdown in the homebuilding industry in the near term.

Previous wording

Net revenues increased 35.6%, or $701.2 million, while gross profit increased 40.4% to $827.8 million during the year ended December 31, 2022 compared to 2021. We also generated approximately $277.9 million of cash from operating activities. The increase in net revenue and gross profit was primarily driven by the contribution of our recent acquisitions, selling price and product mix improvements as evidenced by the 23.0% increase in our price/mix metric and increased sales volume of 5.5% on a same branch basis for our Installation segment. Gross profit grew faster than revenue primarily due to higher selling prices and resulting leverage gained on labor and other costs of sales. These synergies were partially offset by higher fuel costs and higher material costs due to increased Distribution segment sales which generally have higher material costs than our other segments. Supply chain constraints and inflationary pressures also contributed to higher material costs in 2022, particularly for spray foam and several complementary installed products, as some products continued to be difficult to source near volume and pricing levels secured in prior periods.

Current wording

Net revenues increased 4.1%, or $108.8 million, while gross profit increased 12.4% to $930.7 million during the year ended December 31, 2023 compared to 2022. The increase in net revenue was primarily driven by the 33.3% growth in same branch multi-family sales, selling price and product mix improvements and the contribution of our recent acquisitions. The 7.7% increase in our price/mix metric for our Installation segment was primarily due to a higher mix of multi-family and commercial jobs. Gross profit margin grew faster than revenue as we continued to prioritize profitability over sales volume. Specifically, gross profit outpaced sales growth due to higher selling prices and resulting leverage gained on material costs compared to the prior year.

Previous wording

As of December 31, 2022, we had $229.6 million of cash and cash equivalents and we have not drawn on our revolving line of credit. We amended and extended our revolving line of credit in February 2022, increasing the commitment to $250.0 million from $200.0 million. Additionally, we received $25.5 million from amending the maturity dates on our three interest rate swaps in July 2022. Our liquidity remained strong despite repurchasing $137.6 million of our Company's stock and paying our variable and regular quarterly dividends of $62.7 million during the year ended December 31, 2022.

Current wording

We generated approximately $340.2 million of cash from operating activities during the year ended December 31, 2023. As of December 31, 2023, we had $386.5 million of cash and cash equivalents and we had not drawn on our revolving line of credit. Our 2023 liquidity was strong despite investing $59.6 million in our acquisition strategy, repurchasing $6.3 million of our Company's stock and paying $63.1 million in dividends during the year ended December 31, 2023.

Previous wording

During the year ended December 31, 2023, we experienced overall and same branch sales growth in our multi-family and commercial end markets. Overall, the strong growth in multi-family and commercial sales helped offset the(5.4)%decrease in the single-family end market, which is our largest end market. Our commercial end market experienced sales growth of 17.2% during the year ended December 31, 2023 primarily through acquisitions and organic growth as the commercial construction cycle returned to normal and project delays experienced in prior periods lessened.

Current wording

During the year ended December 31, 2023, we experienced overall and same branch sales growth in our multi-family and commercial end markets. Overall, the strong growth in multi-family and commercial sales helped offset the 5.4%decrease in the single-family end market, which is our largest end market. Our commercial end market experienced sales growth of 17.2% during the year ended December 31, 2023 primarily through acquisitions and organic growth as the commercial construction cycle returned to normal and project delays experienced in prior periods lessened.

Previous wording

The components of gross profit for 2023, 2022 and 2021 were as follows (in millions):

Current wording

The components of gross profit for the years ended December 31, 2024, 2023 and 2022 were as follows (in millions):

Previous wording

Net revenue increased during the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily dueto increased multi-family and commercial sales and price/mix growth as shown in the Key Measures of Performance section above. Acquisitions also meaningfully contributed to our 2023 revenue growth, adding $102.2 million of revenue in 2023. Our residential end market grew 1.0% primarily due to selling price and product mix improvements and the continued success of our acquisition strategy, but that growth was partially offset by the decline in overall same branch job volume. Despite a reduction in installation jobs we completed in the single-family end market, our diverse end market mix allowed us to complete more jobs in other markets, and we continue to prioritize profitability over volume. Our commercial end market continued to improve as evidenced by a 11.5% annual growth rate in same branch sales in 2023.

Current wording

Net revenue increased during the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily dueto increased sales in all of our end markets and price/mix growth as shown in the Key Measures of Performance section above. Acquisitions also meaningfully contributed to our 2024 revenue growth. Our residential end market grew 6.4% primarily due to selling price and product mix improvements and the continued success of our acquisition strategy, but that growth was partially offset by the slight decline in overall same branch job volume. Despite a reduction in the number of installation jobs completed, we were able to increase net revenue through selling price increases as we continue to prioritize profitability over volume. In addition, our commercial end market continued to improve as evidenced by a 3.0% annual growth rate in sales in 2024.

Previous wording

The remaining overall growth in net revenue for the year December 31, 2023 is attributable to growth in our Distribution and Manufacturing operating segments. These operating segments grew from $162.4 million to $182.0 million in net revenue for the year ended December 31, 2023.

Current wording

The remaining overall growth in net revenue for the year December 31, 2024 is attributable to growth in our Distribution and Manufacturing operating segments. Net revenue in these operating segments combined grew from $182.0 million to $197.9 million for the year ended December 31, 2024 over 2023.

Previous wording

As a percentage of net revenue, gross profit increased during the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily on the strength of price/mix growth as well as leverage gained on material costs compared to the prior year. The highly inflationary economic environment and supply chain issues, both of which rapidly increased material costs in prior periods, moderated during the year ended December 31, 2023, allowing us to improve and enhance our profit margins. We will continue to work with our suppliers to lessen the impact on our margins and with our customers to offset further cost increases through selling price adjustments.

Current wording

As a percentage of net revenue, gross profit increased during the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily on the strength of price/mix growth as well as leverage gained on material costs during the first half of 2024 compared to the prior year, offset by higher material and labor costs as a percentage of net revenue in the second half of 2024 due to changes in our product mix. We will continue to work with our suppliers to lessen the impact on our margins and with our customers to offset further cost increases through selling price adjustments.

Previous wording

Operating expenses for 2023, 2022 and 2021 were as follows (in millions):

Current wording

Operating expenses for the years ended December 31, 2024, 2023 and 2022 were as follows (in millions):

Previous wording

The dollar increase in selling expenses in 2023 was primarily driven by a year-over-year increase in selling wages and commissions to support our increased net revenue of 4.1% and higher credit loss provisions due to increased sales. Selling expense increased as a percentage of sales primarily due to increased selling wages and bonuses due to higher profitability.

Current wording

The dollar increase in selling expenses in 2024 was primarily driven by a year-over-year increase in selling wages and commissions to support our increased net revenue of 5.9%. Selling expense increased as a percentage of sales primarily due to increased commissions due to higher profitability and margins.

Previous wording

2023, we saw our administrative costs increase as a percentage of sales primarily due to higher salaries and bonuses due to higher profitability.

Current wording

2024, we saw our administrative costs increase as a percentage of sales primarily due to higher salaries and bonuses due to higher profitability and margins.

Previous wording

Some of our acquisitions have contingent consideration liabilities in the form of earnouts included in the total purchase price of the business. We assess the fair value of the contingent consideration liability at each reporting period, and any changes in the estimated fair value are reflected in gains on acquisition earnouts on the Consolidated Statements of Operations and Comprehensive Income. There were no gains on acquisition earnouts during the year ended December 31, 2023. The gains recorded during the year ended December 31, 2022 were primarily due to a $15.1 million gain on the Central Aluminum Supply Corporation earnout recorded as a result of revised earnout target expectations.

Current wording

Some of our acquisitions have contingent consideration liabilities in the form of earnouts included in the total purchase price of the business. We assess the fair value of the contingent consideration liability at each reporting period, and any changes in the estimated fair value are reflected in gains on acquisition earnouts on the Consolidated Statements of Operations and Comprehensive Income. There were no gains on acquisition earnouts during the years ended December 31, 2024 and 2023.

Previous wording

Our intangible assets include non-competes, customer relationships, trade names and backlog established upon acquisition of most businesses we acquire. Amortization expense increased in 2023 resulting from the increase in new intangible assets from 2023 acquisitions, with the remaining increase due to a full year of amortization expense attributable to prior year acquisitions. See Note 18, Business Combinations, in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for information on our acquisitions.

Current wording

Our intangible assets include non-competes, customer relationships, trade names and backlog established upon acquisition of most businesses we acquire. Amortization expense decreased in 2024 primarily due to larger 2024 acquisitions occurring later in the year as compared to 2023. See Note 18, Business Combinations, in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for information on our acquisitions.

Previous wording

Other expense, net for 2023, 2022 and 2021 was as follows (in millions):

Current wording

Other expense, net for the years ended December 31, 2024, 2023 and 2022 was as follows (in millions):

Previous wording

Income tax provision and effective tax rates for 2023, 2022 and 2021 were as follows (in millions):

Current wording

Income tax provision and effective tax rates for the years ended December 31, 2024, 2023 and 2022 were as follows (in millions):

Previous wording

Other comprehensive (loss) income, net of tax for 2023, 2022 and 2021 were as follows (in millions):

Current wording

Other comprehensive income (loss), net of tax for the years ended December 31, 2024, 2023 and 2022 were as follows (in millions):

Previous wording

During the year ended December 31, 2022, we amended the maturity dates for our three existing interest rate swaps and the amendment created off-market terms due to an other-than-insignificant financing element. We amortized $3.9 million of the remaining unrealized gains, off-market terms and unrealized losses on our terminated cash flow hedges to interest expense, net during the year ended December 31, 2022, not including tax effects of $1.0 million. Also, during the year ended December 31, 2022, we recorded an unrealized gain, net of taxes, of $37.9 million on our cash flow hedges primarily due to the market's expectations for interest rates in the future relative to our three existing interest rate swaps and two forward interest rate swaps.

Current wording

During the year ended December 31, 2024, we recorded unrealized losses, net of taxes, of $2.0 million on our cash flow hedges primarily due to the market's expectations for interest rates to decline in the future which offset the previous unrealized gains on our existing and forward swaps. We also amortized $4.4 million of the remaining unrealized gains, off-market terms and unrealized losses on our terminated cash flow hedges to interest expense, net during the year ended December 31, 2024, not including tax effects of $1.1 million.

Previous wording

Inflation, Housing Affordability and Interest Rates

Current wording

Inflation, Housing Affordability and Mortgage Interest Rates

Previous wording

Higher inflation and interest rates, as discussed above, reduced the demand and affordability of new homes in 2023. According to Wolters Kluwer’s Blue Chip Economic Indicators January 2024 forecast, 1.4 million housing starts are forecasted in 2024 which is a decline of 4% from 2023. We expect this decrease will be concentrated in the multi-family end market, and we expect the single family end market, from which we derive over half of our net revenue, will improve slightly over 2023 levels. Overall, residential housing construction activity remains resilient, despite housing affordability concerns, as stable employment and near historic lows in existing home inventory levels continue to support demand for residential new construction activity. As a result, while we expect cyclicality to continue in the housing industry, we believe the long-term opportunities in our residential and commercial end markets are favorable. We believe the large residential construction backlog of both units under construction and units not started will partially offset these challenges. Additionally, there have been housing shortages in some of the markets we serve and the backlog in our growing multi-family business has helped to partially offset the declines we have faced in the residential homebuilding market. Regarding the repair and remodel markets, many existing homeowners are locked into low interest mortgages, and an aging housing stock exists in many areas of the United States, bolstering demand in this end market. We expect that incentives from the Inflation Reduction Act of 2022 will likely support repair and remodel demand in 2024.

Current wording

Higher inflation and interest rates, as discussed above, reduced the demand and affordability of new homes in 2024. According to Fannie Mae's January 2025 forecast, 1.32 million housing starts are forecasted in 2025 which is a decline of 3% from 2024. These headwinds may impact our business in the near term, but stable employment and lower existing home inventory levels in some markets continue to support demand for residential new construction activity despite the affordability concerns. As a result, while we expect cyclicality to continue in the housing industry, we believe the long-term opportunities in our residential and commercial end markets are favorable. There have been housing shortages in some of the markets we serve and the backlog in our multi-family business demonstrates continued need for multi-family housing. According to Dodge Data & Analytics, commercial building starts in 2025, measured by investment dollars, are expected to increase 6% from 2024 while institutional building starts (a subset of the nonresidential construction market in which we participate) are expected to increase 4% from 2024. Regarding the repair and remodel markets, many existing homeowners are locked into low interest mortgages, and an aging housing stock exists in many areas of the United States, bolstering demand in this end market.

Previous wording

Our operating results may vary based on our product mix and the mix of our end markets among new single-family, multi-family and commercial builders and owners of existing homes. We maintain a mix of business among all types of homebuilders ranging from small custom builders to large regional and national homebuilders as well as a wide range of commercial builders. Net revenue derived from our ten largest homebuilder customers in the United States was approximately 15% for the year ended December 31, 2023. The residential new construction and repair and remodel markets represented approximately 78% of our total net revenue for the year ended December 31, 2023, compared to 80% in the same period in 2022. The remaining portion was attributable to our distribution businesses and the commercial construction end market.

Current wording

Our operating results may vary based on our product mix and the mix of our end markets among new single-family, multi-family and commercial builders and owners of existing homes. We maintain a mix of business among all types of homebuilders ranging from small custom builders to large regional and national homebuilders as well as a wide range of commercial builders. Net revenue derived from our ten largest homebuilder customers in the United States was approximately 15% for the year ended December 31, 2024. The residential new construction and repair and remodel markets represented approximately 78% of our total net revenue for both the years ended December 31, 2024 and 2023. The remaining portion was attributable to our distribution businesses and the commercial construction end market.

Previous wording

In addition, we experience price increases from our suppliers from time to time, including multiple increases over the last four years caused by supply shortages and general economic inflationary pressures. Increased market pricing, regardless of the catalyst, has and could continue to impact our results of operations in 2024, to the extent that price increases cannot be passed on to our customers. Our selling price increases were able to support most material cost increases in 2023 but we may have more difficulty raising prices in 2024 if housing demand slows. We will continue to work with our customers to adjust selling prices to offset higher costs as they occur.

Current wording

We typically purchase the materials we use in our business directly from manufacturers. The largest fiberglass manufacturers have cut production capacity during past business cycles which has caused periods of industry-wide supply allocations. While we are not currently experiencing material supply shortages, we could incur such shortages in 2025 and beyond if these manufacturers reduce production this year. We experience price increases from our suppliers from time to time, including multiple increases over the last four years caused by supply shortages and general economic inflationary pressures. We could be subject to increased material pricing on some of the materials we install and sell due to tariffs imposed on goods imported from certain foreign nations. The extent of these increases will depend on a variety of factors including the magnitude of each tariff, the extent our vendors pass on the tariffs they incur, and the number of countries subject to tariffs in the future. Increased market pricing, regardless of the catalyst, has and could continue to impact our results of operations in 2025, to the extent that price increases cannot be passed on to our customers. Our selling price increases were able to support most material cost increases in 2024 but we may have more difficulty raising prices in 2025 if housing demand slows. We will continue to work with our customers to adjust selling prices to offset higher costs as they occur.

Previous wording

Our business is labor intensive. As of December 31, 2023, we had approximately 10,600 employees, most of whom work as installers on local construction sites. We expect to spend more to hire, train and retain installers to support our growing business in 2024, as tight labor availability continues within the construction industry. Our workers’ compensation costs also continue to rise as we increase our coverage for additional personnel. We were able to keep our labor costs as a percentage of revenue flat during the year ended December 31, 2023 compared to 2022 due to increased selling prices per job. However, inflation and market competition could increase these costs in the near-term. We were successful in achieving higher labor productivity as evidenced by our annual sales per installer per business day increasing 1% in 2023 as compared to 2022.

Current wording

Our business is labor intensive. As of December 31, 2024, we had approximately 10,800 employees, most of whom work as installers on local construction sites. We expect to spend more to hire, train and retain installers to support our growing business in 2025, as tight labor availability continues within the construction industry. Our workers’ compensation costs also continue to rise as we increase our coverage for additional personnel. Labor costs as a percentage of revenue increased during the year ended December 31, 2024 compared to 2023 primarilydue to market competition and expectations for higher wages. We were successful in achieving higher labor productivity as evidenced by our annual sales per installer per business day increasing 1% in 2024 as compared to 2023.

Previous wording

Our employee retention rates remained better than industry averages in the year ended December 31, 2023. We believe this is a result of our strong culture and the various programs meant to benefit our employees, including our financial wellness plan, emotional well-being coaching, longevity stock compensation plan and comprehensive benefit packages we offer. We also provide assistance from the Foundation meant to benefit our employees, their families and their communities. While improved retention drives lower costs to recruit and train new employees, resulting in greater installer productivity, these improvements are somewhat offset by the additional costs of these incentives.

Current wording

Our employee retention rates remained better than industry averages in the year ended December 31, 2024. We believe this is a result of our strong culture and the various programs meant to benefit our employees, including our financial wellness plan, emotional well-being coaching, longevity stock compensation plan and comprehensive benefit packages we offer. We also provide 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, resulting in greater installer productivity, these improvements are somewhat offset by the additional costs of these incentives.

Previous wording

Beyond our service offerings, we also recognize that as a good corporate citizen, we have a responsibility to support our communities and be stewards of the environment. We continue to proactively work to find new ways to reduce our carbon footprint by formalizing a climate risk management framework to guide our climate strategy. We are committed to reducing CO2 emissions. We have transitioned a large portion of our electricity supply to a carbon-free energy source and entered a national waste management program to increase recycling at our facilities, reducing landfill waste. We also support the industry transition to hydrofluoro-olefin ("HFO") spray foam types which have lower greenhouse gas emissions than hydrofluorocarbon ("HFC") materials. For the first time in 2022, we utilized more HFO materials than HFC materials.

Current wording

Beyond our service offerings, we also recognize that as a good corporate citizen, we have a responsibility to support our communities and be stewards of the environment. We continue to proactively work to find new ways to reduce our carbon footprint by formalizing a climate risk management framework to guide our climate strategy. We are committed to reducing CO2 emissions as a percentage of our revenue. For example, we purchase a large portion of our electricity supply from carbon-free energy sources and have a national waste management program to increase recycling at our facilities to reduce landfill waste. We also support the industry transition to hydrofluoro-olefin ("HFO") spray foam types which have lower greenhouse gas emissions than hydrofluorocarbon ("HFC") materials. We utilized more HFO materials than HFC materials and expect this to continue to increase.

Previous wording

Our capital resources primarily consist of cash from operations and borrowings under our various debt agreements and capital equipment leases and loans. As of December 31, 2023, we had cash and cash equivalents of $386.5 million as well as access to $250.0 million under our asset-based lending credit facility (as defined below), less $5.8 million of outstanding letters of credit, resulting in total liquidity of $630.7 million. Liquidity may also be limited in the future by certain cash collateral limitations under our asset-based lending credit facility (as defined below), depending on the status of our borrowing base availability.

Current wording

Our capital resources primarily consist of cash from operations and borrowings under our various debt agreements and capital equipment leases and loans. As of December 31, 2024, we had cash and cash equivalents of $327.6 million as well as access to $250.0 million under our asset-based lending credit facility (as defined below), less $4.0 million of outstanding letters of credit, resulting in total liquidity of $573.6 million. Liquidity may also be limited in the future by certain cash collateral limitations under our asset-based lending credit facility (as defined below), depending on the status of our borrowing base availability.

Previous wording

For at least the next twelve months, our primary capital requirements are to fund working capital needs, operating expenses, acquisitions and capital expenditures and to meet principal and interest obligations and make required income tax payments. We may also use our resources to fund our optional stock repurchase program and pay quarterly and annual dividends. During 2024, we anticipate discretionary spending for capital improvements and quarterly dividends to approximate 2023 levels of approximately $61.6 million and $37.5 million, respectively, as well as approximately $45.0 million for our annual variable dividend to be paid March 31, 2024. In addition, we expect to use cash and cash equivalents to acquire various companies with at least $100.0 million in aggregate net revenue each fiscal year. The amount of cash paid for an acquisition is dependent on various factors, including the size and determined value of the business being acquired.

Current wording

For at least the next twelve months, our primary capital requirements are to fund working capital needs, operating expenses, acquisitions and capital expenditures and to meet principal and interest obligations and make required income tax payments. We may also use our resources to fund our optional stock repurchase program and pay quarterly and annual dividends. During 2025, we anticipate discretionary spending for capital improvements and quarterly dividends to approximate 2024 levels of approximately $88.6 million and $39.4 million, respectively, as well as approximately $47.2 million for our annual variable dividend to be paid March 31, 2025. In addition, we expect to use cash and cash equivalents to acquire various companies with at least $100.0 million in aggregate net revenue each fiscal year. The amount of cash paid for an acquisition is dependent on various factors, including the size and determined value of the business being acquired.

Previous wording

Firm commitments for funds include $68.1 million in interest and principals payments on long-term debt obligations including our Senior Notes, Term Loan, 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. Additionally, we maintain certain production vehicles under a finance lease structure which will require $3.2 million in interest and principal payments under current agreements in 2024. We lease certain locations, vehicles and equipment under operating lease agreements that will require $31.3 million in funds over the next twelve months. Finally, we have a product supply agreement with a certain vendor that requires us to purchase a minimum quantity of inventory with variable pricing in 2024. Payments for income taxes cannot be estimated at this time, but our effective tax rate was 26.8% for the year ended December 31, 2023.

Current wording

Firm commitments for funds include $67.2 million in interest and principals payments on long-term debt obligations including our Senior Notes, Term Loan, 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. Additionally, we maintain certain production vehicles under a finance lease structure which will require $3.4 million in interest and principal payments under current agreements in 2025. We lease certain locations, vehicles and equipment under operating lease agreements that will require $38.8 million in funds over the next twelve months. Finally, we have two product supply agreements with various vendors that requires us to purchase a minimum quantity of inventory with variable and fixed rate pricing in 2025. Payments for income taxes cannot be estimated at this time, but our effective tax rate was 25.9% for the year ended December 31, 2024.

Previous wording

Known obligations above include $997.9 million in interest and principals payments on long-term debt obligations through 2028. In addition, our finance leases will require $7.3 million in interest and principal payments under current agreements through 2028. Operating lease obligations will require $53.9 million in payments beyond the next twelve months. Finally, we have a product supply agreement with a certain vendor that requires us to purchase a minimum quantity of inventory with variable pricing after 2024.

Current wording

Known obligations above include $1.0 billion in interest and principal payments on long-term debt obligations through 2029. In addition, our finance leases will require $5.9 million in interest and principal payments under current agreements through 2029. Operating lease obligations will require $66.6 million in payments beyond the next twelve months. Finally, we have two product supply agreements with various vendors that requires us to purchase a minimum quantity of inventory with variable and fixed rate pricing after 2025.

Previous wording

We carefully manage our working capital and operating expenses. As of December 31, 2023 and 2022, our working capital, including cash and cash equivalents, was $723.6 million, or 26.0% of net revenue, and $556.4 million, or 20.8% of net revenue, respectively. The increase in working capital year-over-year was driven primarily by cash and cash equivalents increasing $156.9 million resulting from increased profitability, less acquisition and stock repurchase activity and a$13.8 million decrease in inventories due to our supply chain getting closer to normalizing. These increases were partially offset by accounts receivable increasing $26.1 million resulting from higher net revenue as well as increased capital expenditures on property and equipment. We continue to look for opportunities to reduce our working capital as a percentage of net revenue.

Current wording

We carefully manage our working capital and operating expenses. As of December 31, 2024 and 2023, our working capital, including cash and cash equivalents, was $695.9 million, or 23.7% of net revenue, and $723.6 million, or 26.0% of net revenue, respectively. The decrease in working capital year-over-year was driven primarily by cash and cash equivalents decreasing $58.9 million resulting from increased acquisition activity, dividend payments and stock repurchases. We continue to look for opportunities to reduce our working capital as a percentage of net revenue.

Previous wording

Our primary source of cash provided by operations is revenues generated from installing or selling building products and the resulting operating income generated by these revenues. Operating income is adjusted for certain non-cash items, and our cash flows from operations can be impacted by the timing of our cash collections on sales and collection of retainage amounts. Our primary uses of cash from operating activities include payments for installation materials, compensation costs, leases, income taxes and other general corporate expenditures included in net income. Net cash provided by operating activities increased from 2022 to 2023 primarily due to higher net income due to increased operating margins and cash source of$16.5 million due to the decrease in inventory as some supply chain issues subsided and normalized. These increases were partially offset by a$25.1 million increase in accounts receivable due to higher revenues.

Current wording

Our primary source of cash provided by operations is revenues generated from installing or selling building products and the resulting operating income generated by these revenues. Operating income is adjusted for certain non-cash items, and our cash flows from operations can be impacted by the timing of our cash collections on sales and collection of retainage amounts. Our primary uses of cash from operating activities include payments for installation materials, compensation costs, leases, income taxes and other general corporate expenditures included in net income. Net cash provided by operating activities slightly decreased from 2023 to 2024 primarily driven by the increase in accounts receivable and inventory due to higher sales and material cost inflation and the decrease in accounts payable. The decrease was partially offset by higher net income due to increased consolidated sales of 5.9%.

Previous wording

Net cash used by investing activities decreased from 2022 to 2023 primarily due to the decrease in payments for acquisitions. We completed eight acquisitions in both 2022 and 2023, but the average size of the acquisitions was larger in the year ended December 31, 2022. The amount of cash paid for an acquisition is dependent on various factors, including the size and determined value of the business being acquired. See Note 18, Business Combinations, in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for more information regarding our business acquisitions in 2023, 2022 and 2021.

Current wording

Net cash used by investing activities decreased from 2023 to 2024 primarily due to the increase in payments for acquisitions and property and equipment purchases. We completed one additional acquisition in 2024 compared to 2023 and the average size of the acquisitions was larger in the year ended December 31, 2024. The amount of cash paid for an acquisition is dependent on various factors, including the size and determined value of the business being acquired. See Note 18, Business Combinations, in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for more information regarding our business acquisitions in 2024, 2023 and 2022.

Previous wording

Additionally, total cash used to purchase property and equipment increased in 2023, and 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.

Current wording

Additionally, total cash used to purchase property and equipment increased in 2024, and we expect to continue to support any increases in future net revenue through further capital expenditures. A significant portion 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.

Previous wording

We had a net use of cash in financing activities in both 2023 and 2022 compared to a net inflow of cash in 2021 primarily due to the proceeds on our Term Loan received in 2021. We did not incur any such significant new borrowings during the year ended December 31, 2023. The decrease in cash used in financing activities in 2023 was primarily due to common stock repurchases decreasing to $6.3 million during the year ended December 31, 2023 from $137.6 million during the year ended December 31, 2022.

Current wording

We had a net use of cash in financing activities in both 2024 and 2023. The increase in cash used in financing activities in 2024 was primarily due to common stock repurchases increasing to $145.3 million during the year ended December 31, 2024 from $6.3 million during the year ended December 31, 2023. Dividends paid also increased by $21.6 million in 2024 compared to 2023. This was partially offset by net proceeds from the new Term Loan (as defined below).