Prepared remarks
Greetings. Welcome to the Installed Building Products Second Quarter 2026 Financial Results Conference Call. Operator instructions were provided at the start of the call. Please note, this conference is being recorded. I will now turn the conference over to Ryan Ricketts, Managing Director, Investor Relations. Thank you, Ryan. You may begin.
Good morning, and welcome to Installed Building Products second quarter 2026 earnings conference call. Earlier today, we issued a press release on our financial results for the 2026 second quarter, which can be found in the Investor Relations section of our website. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are based on management's current beliefs and expectations and are subject to factors that could cause actual results to differ materially from those described today. Please refer to our SEC filings for cautionary statements and risk factors. We undertake no duty or obligation to update any forward-looking statement as a result of new information or future events, except as required by federal securities laws. In addition, management refers to certain non-GAAP and adjusted financial measures on this call. You can find a reconciliation of such non-GAAP measures to the nearest GAAP equivalent in the company's earnings release and investor presentation, both of which are available in the Investor Relations section of our website. This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer; Michael Miller, our Chief Financial Officer; and we are also joined by Jason Niswonger, our Chief Administrative and Sustainability Officer; and Brad Wheeler, our Chief Operating Officer. Jeff, I will now turn the call over to you.
Thanks, Ryan, and good morning to everyone joining us today. As usual, I will start the call with some highlights and then turn the call over to Michael, who will discuss our financial results in more detail before we take your questions. Our team continued to execute well during the second quarter, working closely with our customers to navigate a challenging residential housing backdrop while maintaining the high level of service they expect from IBP. We delivered positive consolidated revenue growth, supported by the contribution from recent acquisitions and growth within our commercial installation, manufacturing and distribution businesses. These results demonstrate the value of our diversified operating platform and the multiple avenues available to support growth across varying market conditions. Throughout the quarter, the macroeconomic backdrop was impacted by geopolitical factors, which increased the level of uncertainty for U.S. consumers. Low consumer confidence, along with affordability concerns, has made new home sales more challenging. Even with industry-specific headwinds expected to continue to affect our new residential installation segment in the near term, our overall business has been resilient. All the credit goes to the hard-working men and women across our more than 250 branches throughout the United States and those who support them from our office in Columbus, Ohio. To everyone at IBP, thank you for your hard work and dedication. Looking at our 2026 second quarter performance, consolidated sales increased 2% and same-branch sales declined less than 1%. Our commercial end market continued to show strength, delivering double-digit installation sales growth for the fifth consecutive quarter with heavy commercial sales growth exceeding 15% during the quarter. With respect to our new single-family end market, activity remains challenged as a result of affordability concerns and lower consumer confidence with some geographic markets feeling more upbeat than others. In our multifamily end market, our contract backlog continues to grow, which is encouraging. Our other segment revenue grew 50% net of eliminations, partially due to acquisitions. We continue to effectively manage both material and labor to meet the needs of our customers and remain flexible to adjust to varying demand across regions. During the 2026 second quarter and in July, we completed acquisitions representing approximately $30 million of annual sales from a diversified product set in residential, commercial and industrial end markets. Acquisitions during the quarter and in July included an installer of mechanical insulation with the majority of its sales derived from retrofit work between industrial and commercial applications throughout the upper Midwest region with annual sales of approximately $12 million, an installer of car doors, closet shelving, mirrors and other accessories across residential markets serving customers throughout Minnesota and surrounding states with annual sales of approximately $7 million and an installer of door, bath and fencing hardware, primarily in new residential markets throughout South Carolina and Georgia with annual sales of approximately $7 million. Although deal timing is hard to predict, our current outlook for acquisition opportunities in 2026 is strong, and we expect to acquire at least $100 million of annual revenue this year. In terms of broader housing construction activity, U.S. Census Bureau data for the 2026 second quarter showed single-family starts decreased 4% from the prior year, while multifamily starts were up 10% for the same period. I'm proud of our team's continued success and commitment to doing an excellent job for our customers. Once again, to everyone at IBP, thank you. I remain encouraged by the fundamentals of our industry, our competitive positioning and optimistic about the prospects ahead for IBP and the broader insulation and complementary building products installation business. With this overview, I'd like to turn the call over to Michael to provide more detail on our 2026 second quarter financial results.
Thanks, Jeff, and good morning, everyone. Consolidated net revenue for the second quarter was up 2% to $778 million compared to $760 million for the same period last year. Same-branch sales for the Installation segment were down 2% for the second quarter as a 6% decline in new residential same-branch sales was partially offset by a 10% increase in commercial same-branch sales. Although the components behind our price/mix and volume disclosures have several moving parts that are difficult to forecast and quantify, price/mix was up 1% during the second quarter. And when including heavy commercial, price/mix increased 3%. Volume during the 2026 second quarter decreased by 5%, primarily due to lower new single-family volume. With respect to profit margins in the second quarter, our business achieved adjusted gross margin of 33.3% compared to 34.2% in the prior year period. Our consolidated gross margin was influenced by the relative mix of revenue from our installation and other segments. As we have stated before, our installation business generates a higher gross margin than our other segment. During the quarter, the other segment revenue net of eliminations grew 50%, which contributed positively to consolidated gross profit, but also created a mix headwind to our consolidated gross margin percentage of 40 basis points. Second quarter 2026 Installation segment gross margin was 36.5% compared to 37.1% in the prior year. The decline in gross margin for the Installation segment was primarily due to increased fuel expense, which reduced gross margin by 50 basis points. Adjusted selling and administrative expenses increased 3% compared to the 2025 second quarter. As a percent of second quarter sales, adjusted selling and administrative expense was 18.9% compared to 18.8% in the prior year period. Administrative costs were impacted by higher medical insurance costs, which were a 30 basis point impact to EBITDA margin. Adjusted EBITDA for the 2026 second quarter was $131 million, reflecting an adjusted EBITDA margin of 16.9% and adjusted net income was $78 million or $2.91 per diluted share. Although we do not provide comprehensive financial guidance, based on recent acquisitions, we expect third quarter and full year 2026 amortization expense of approximately $10 million and $42 million, respectively. We would expect these estimates to change with any acquisitions we complete in future periods. Also, we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31, 2026. Our second quarter net interest expense was $11 million compared to $8 million for the 2025 second quarter. We would expect third quarter net interest expense of approximately $10 million. At June 30, 2026, we had a net debt to trailing 12-month adjusted EBITDA leverage ratio of 1.34x compared to 1.15x at June 30, 2025, which remains well below our stated target of 2x. At June 30, 2026, we had $374 million in working capital, excluding cash and cash equivalents. Capital expenditures and total incurred finance leases for the three months ended June 30, 2026, were approximately $18 million combined, which was approximately 2% of revenue. We ended the second quarter with $395 million in cash on the balance sheet, and we will continue to prioritize acquisitions with long-term strategic benefits and attractive returns on invested capital. We expect positive free cash flow will continue to support shareholder returns and stock buybacks based on prevailing market conditions. During the 2026 second quarter, we repurchased approximately 365,000 shares of common stock at a total cost of $76 million. At June 30, 2026, the company had approximately $398 million available under its stock repurchase program, which expires March 1, 2027. IBP's Board of Directors approved a third quarter dividend of $0.39 per share, which is payable on September 30, 2026, to stockholders of record on September 15, 2026. The third quarter dividend represents a more than 5% increase over the prior year period. We are committed to continuing to grow the company while returning excess capital to shareholders through our dividend policy and opportunistic share repurchases. With this overview, I will now turn the call back to Jeff for closing remarks.
Thanks, Michael. I'd like to conclude our prepared remarks by once again thanking IBP employees for their hard work and commitment to our company. Our success over the years is made possible because of you. Operator, let's open up the call for questions.
Questions and answers
Thank you. We will now be conducting a question-and-answer session. Operator instructions were provided for participants. Our first question is from Susan Maklari with Goldman Sachs.
My first question is around the activity that you're seeing on the ground. I think as we ended the first quarter, you had talked about the fact that the private builders had not come back the way that you had anticipated going into the spring. Can you talk about what you're seeing on the ground in the quarter and how things moved relative to the different kinds of customers that you have in the geographies?
Sure. This is Michael. Thanks for the question. We're continuing to see relatively better performance with the private builders relative to the public builders. Of the public builders that have reported their second quarter results, homebuilding revenue is down kind of mid-single digits on a combined basis. Our revenue with them was similarly down. The revenue profile that we had with the private builders, while down, was not down nearly as much as it was with the public builders. We continue to believe that will be the trend through the rest of the year. Although if you look at their guidance and consensus, they're seeing the public builders for the back half of the year, which would imply sequential improvement in the third quarter and the fourth quarter, so that the third quarter would be down roughly low single digits and actually the fourth quarter would be up low single digits. Now that's guidance and consensus, and as we've said many times, we don't provide guidance. I will say, though, that historically our sales to them have tracked very closely to their reported homebuilder revenue.
Okay. All right. That's helpful. And then moving to the gross margin, well done there. You were in line with our expectations. And I know you talked a little bit about some of the headwinds that you saw, especially on the install side. Can you just give us a bit more color on the moving parts that are coming through the gross margin and your ability to offset some of those headwinds that you're seeing, especially on the fuel side? And just anything that we should be thinking about in the forward quarters? Appreciating that you don't give guidance, but just anything in terms of underlying mix or other factors?
Su, thanks for that question. And the gross margin really was consistent with our 32% to 34% full year range that we have talked about. The team is doing a very good job offsetting not just in cost of goods sold, but also in G&A, some of the inflationary pressure that we're seeing across the board. The one thing that has been at least initially up to this point, because it was really a second quarter event, is dealing with the increase in fuel, which was a 50 basis point headwind to the Installation segment. It's important to note that even though we had headwinds in the Installation segment on the residential side, primarily the single-family side, product margin in the Installation segment was actually up slightly in the quarter, which we felt very good about. I would say that there has been a little bit, but it's insignificant at this point, of benefit from the selling price increases associated with the manufactured price increases from spray foam. We expect to see more positive impact from that in the second half of the year. It might be a little bumpy in the third quarter, but ultimately the market is accepting that price increase. As we discussed on our last conference call, the customer base that is the natural user of spray foam is a custom and semi-custom customer base, and those customers are generally more willing to accept higher prices versus the entry-level side. The other thing that was significant from a gross margin perspective, again consistent with our expectations, was the significant growth in our other segment, which represents our distribution and manufacturing business. That business on a net basis grew about 50% in the quarter, which is fantastic, but it structurally has lower gross margins. So while the gross margins in that business actually improved to 24.7% from 23%, they are substantially lower than the Installation segment gross margins, which were basically flat at 37% year-over-year. So that higher relative sales in the other segment was about a 40 basis point headwind to gross margin. All of that being said, we continue to expect that the other segment this year will continue to grow at a much faster rate than the installation segment, so it will weigh on reported gross margin. We think it is very relevant for investors to look at the difference in margin between installation and the other segment. For those of you that read the release closely, you'll see that we provided more detail in the segmentation breakout to make the margin differential clearer.
Our next question is from Sam Reid with Wells Fargo.
I'm going to start with more of an industry question here. We heard from one of the big OEMs yesterday on the insulation side that they're bringing a plant back online in the fourth quarter. Just curious your thoughts on implications for capacity utilization. And that same OEM, I believe, is also hoping to push to some pricing in September. Just curious kind of the puts and takes on that pricing in the context of more capacity.
So were you referring to the new plant coming back up? Yes. I mean that's not a particularly large plant or very much volume, so I don't think it's going to make a very large splash. Between rebuilds and things that aren't online yet or not fully online, I don't think it's going to make a big difference. Material is readily available, both at the low end and other segments, and we'll spend some time talking about the market dynamic. Particularly on the single-family side, and especially the entry-level single-family side, activity continues to be weak, and we don't see dramatic improvement such that you would see material tightness. Even where another manufacturer brought up the largest line in the country, it's still not running at full capacity yet. So there's more supply coming online with that facility.
Absolutely. Thanks for that helpful context. Let's maybe switch gears and just move down the P&L to SG&A. Just looking at the leverage this quarter, I guess I should say the deleverage, it was significantly better than the first quarter. I know that there were a few things you called out last quarter, some facility and liability insurance headwinds. This quarter, it sounds like the deleverage was mostly just a function of medical expenses. Just curious any sequential dynamics we should be mindful of on the SG&A line, perhaps any points of improvement quarter-over-quarter?
Yes. If you strip out medical on a same-branch basis, G&A expenses were actually down about 2% in the quarter from last year, which is an excellent result given the inflationary pressure we're seeing in other types of insurance and facility costs. The team is doing an excellent job managing what they can manage. We'll continue to pursue that through the course of the year. But there's some items like medical, which was up 33% in the quarter versus up 40% last quarter, and that's something we're working on but there are not a lot of easy fixes. We've done all the planning, design and negotiating we can to try to bring costs down, but it's a factor many companies face these days.
Our next question is from Stephen Kim with Evercore ISI.
It was a strong quarter from our perspective, particularly in other. And I was curious if you could talk a little bit about the drivers of strength in that segment. Any particular verticals to call out there? And then similarly, in commercial, I think you indicated there was a lot of strength there and even specifically in light commercial. If you could give us a sense for — was there anything there that wouldn't sort of extend strength-wise into the back half of the year?
A couple of things. Yes, the other division did very well. The 50% is on an as-reported basis and not on a same-branch basis. On a same-branch basis, the other segment grew about 28%, still a phenomenal result. It's across the board, both in distribution and in the manufacturing side. Our manufacturing is cellulose insulation, and they're doing a phenomenal job. The demand drivers there are a bit different than for the residential installation business because it's a lot of R&R and also industrial fibers and road fibers. They're seeing really solid demand and the team is executing extremely well. Even though the gross margins are considerably lower than the installation division, they are improving those margins. So we feel really good about what the team is doing there. On the commercial side, particularly light commercial, it has turned a little bit sooner than we expected, so we feel good about that and believe it will remain positive through the rest of the year. The heavy commercial business is clearly the star within the company right now in terms of its ability to continue to grow at a high rate. Their same-branch sales growth for the heavy commercial business was roughly 16% in the quarter, down from higher percentages in recent quarters. The comps are getting tougher, but they continue to increase backlog despite putting up record revenue at good margins. We feel really good about the visibility we have into that business and that it should continue to perform well through the back half of the year, albeit the rate of sales growth will come down as it hits difficult comps from the back half of last year.
Got you. So it sounds like there wasn't anything really that should drive lumpiness in either other or commercial. You did indicate, though, that in the spray foam pricing dynamic, while certainly the trend is moving higher there, you indicated that there could be some lumpiness in 3Q. So I was just curious, one, what is driving that lumpiness call out in spray foam? Is it significant? And then secondly, just to sort of clean up, you do not expect to see any kind of lumpiness in other or commercial in either 3Q or 4Q, right?
Lumpiness, I would say no, but consistency yes. Particularly on the commercial side, the rate of growth is coming against really hard comps in the second half. My comment around spray foam was that the price realization is new and it's a significant price increase — approximately a 25% increase in material costs. Some market participants are still adjusting. We feel ultimately we'll come out of this at minimum margin neutral, and certainly higher from a dollars perspective given the discipline in the spray foam contractor base. But given the magnitude of the increase, there might be a little bit of lumpiness. It's still a little early to tell. We haven't seen demand destruction in terms of conversion from spray foam to fiberglass, but we'll have a clearer picture when we report third quarter results.
Our next question is from Philip Ng with Jefferies.
Congrats on a really strong quarter in a tough environment. Michael, your words, heavy commercial was a star yet again. Is there an opportunity to scale that business up in a much bigger way, whether it's organically or via M&A? Historically your M&A on the residential install side has been smaller bolt-ons. Are there chunkier assets on the heavy commercial side for installation or maybe even pursuing commercial roofing on the contractor side? Any color there?
The simple answer is yes, yes and yes. But on the heavy side, I'll let Brad talk about the organic opportunity.
This is Brad. On the heavy side, we're growing through our customer base as they expand geographically. We follow those customers. Once we build up additional contracts in an area, we'll open a brick-and-mortar to service that area. It's a bit slower growth expansion, but it's in our plan and we continue to execute it every day.
Do you want to talk about M&A?
There are absolutely larger prospects in terms of commercial contractors on the acquisition side, and we continue to be interested in commercial roofing, and mechanical and industrial opportunities as well.
Okay. Super. And then certainly, your largest competitor on the residential installation side was acquired. Like any deal of that size, there will be change. Does that present an opportunity for you guys, whether it's share, talent, M&A? Just kind of help us think through potentially any ripple effects that could be good or bad for you guys?
I think it's still too early to tell. They're trying to figure out exactly what they have. Our continued belief is that on the installation side, they will remain a good competitor and we'll continue to compete with them the same way we do today.
Our next question is from Keith Hughes with Truist Securities.
My question is on M&A. Jeff, you addressed a little bit a second ago on the opportunities in the various parts of nonresidential. It has been a success for you here. Would you start to pick individual trades where you really ramp up and do a slug of deals around a certain commercial install trade? Or do you think it will be more opportunistic in terms of doing different trades in that area?
We've signaled and continue to signal that we'd like to buy a platform business in one of these adjacent market segments. Once we do that, the word will be out and we will identify more deals concentrated in one or two of those areas.
And your current heavy commercial, what kind of trade are you the biggest in right now? Is there one that sort of stands out?
Our largest product on the heavy side is waterproofing, followed by fireproofing.
Our next question is from Trey Grooms with Stephens.
This is Ethan on for Trey. I wanted to start off with multifamily. There has been some discussion recently around the validity of the census numbers, but you guys mentioned that you feel pretty good about multifamily heading into the second half and your backlog continues to grow. That's maybe despite some projects slowing down. Any updated thoughts on the multifamily business would be great.
We continue to feel good about multifamily. I would agree that the census numbers may overstate the trend. Our view is that single-family is probably down mid-single digits, maybe more this year from a starts perspective. Year-to-date multifamily starts are reported up roughly 10%, but a more realistic number might be mid-single digit growth this year. Our multifamily sales inflected positively in June and were positive in July as well, so we are seeing an inflection based on backlog growth. That doesn't guarantee growth for the back half of the year, but we are encouraged by the trends. The team continues to add to backlog. For color, the South Census region represents roughly 60% of our multifamily revenue, while it only represents about 43% of total U.S. completions, implying our market share in the South region in multifamily is very strong. The growth we're seeing from the South region in multifamily has been very solid.
Okay. That's great color. Shifting gears, you bought back a decent amount of stock in the quarter. This is just a high-level question around your thoughts internally around balancing M&A with buybacks, given where we are in the cycle. And then, of course, your ambitions for a larger platform deal, could you remind us of any criteria around M&A perhaps in terms of margin profile, returns, or where you'd be willing to flex on leverage? Any high-level thoughts would be great.
For a platform deal, we'd target margins that are not dilutive and potentially accretive to the overall margin profile. We're currently significantly below our stated 2x leverage target. For the right deals, we would consider taking leverage up to as high as maybe 3x, recognizing that the businesses we buy and the existing business generate substantial free cash flow and we would delever quickly. Our consistent performance even in a challenging environment gives us confidence to use more leverage for the right opportunities. M&A is priority number one, but share repurchases are also important. We've done extremely well financially repurchasing shares and will continue to do that, caveated by the priority on M&A.
Our next question is from Ken Zener with Seaport Research.
I'm sure I'll take some of this offline with you, but Michael, it seems like you're disclosing more information again. The gross margins in installation that you highlighted, 36.5% versus 37.1% and on the product side, 24.7% versus 23%. When you say those gross margins, can you tie off which part sales is the installation that you're referring to in your expanded disclosure? Is that the normal installation for commercial and residential, not the other products like fireproofing, closets, etc.?
No, it's anything that's installed. It's the entire Installation segment, including complementary products. It excludes the manufacturing operations, which are the cellulose manufacturing facilities, and the distribution business.
Okay. Good. I just wanted to make sure I wasn't missing something. The private mix, which has more spray foam and has absorbed favorably the spray foam pricing, is that because your market share is better there or the price increase is so big that contractors have no choice but to accept it?
It's still early. The manufacturers' price increase took effect later in the quarter, but early signs are that the market is taking the price increase. It happens for two reasons. First, the spray foam contractor base is generally disciplined around price. Second, it's a semi-custom and custom product, and homeowners in those segments are more able to accept price increases than buyers at the entry level.
And related to that last point, could you describe the revenue mix and the publics in terms of revenue and units?
The public builders represent roughly 25% of total single-family revenue, which translates into about 15% of total company revenue. In units, they're about 10 percentage points higher, so they'd be roughly 35% of single-family jobs by count. We prefer to look at revenue since average selling prices differ. As a reference, fiberglass installations are roughly 50% of revenue, whereas spray foam is roughly 11% of revenue.
Our next question is from Mike Dahl with RBC Capital Markets.
A quick follow-up on the spray foam dynamic. I think you mentioned that ultimately you expect this to be at least margin neutral, but the comments about the potential bumpy 3Q — is that meant to suggest that in 3Q specifically it might end up being a drag to margin percentage as there's a lag with that pass-through?
Yes, that was the implication.
Okay. And then on the single-family side, many public builders are shifting toward build-to-order and actively reducing spec inventory. When you think about the back half of the year, given that dynamic and your historical tracking to builder reported revenue, do you think there's a risk of lagging builder closings as they execute that shift, creating a timing difference between when your products go in if they start fewer spec homes?
Yes, that's possible, but much of that has already happened. It will be subdivision and builder specific. Community counts continue to be up, and as communities open they need model homes and initial homes, which supports some demand even as spec inventory is reduced. We saw this in the first quarter and somewhat in the second quarter. Historically, our sales have tracked very closely to reported homebuilder revenue.
Okay, that makes sense. So going forward, you'll revert back to the historic norm in terms of timing of orders and starts for your products?
Correct. Their cycle times are currently very tight.
Our next question is from Adam Baumgarten with Vertical Research Partners.
Maybe this is a question for Jeff. On the pushout of the June fiberglass insulation manufacturer price increases to September, do you think there's any chance that sticks?
It's hard to predict. Supply is still somewhat tight, though we are not having issues sourcing product. Given capacity coming online, acceptance of a price increase may be more difficult. We are in daily conversations with the manufacturers around price.
Okay. And you did a relatively small mechanical insulation acquisition in 2Q. Why is that area attractive to you?
It's an adjacent product area and a skilled trade that fits within the insulation world, so it's not a stretch for us in terms of relationships with manufacturers and product understanding. Over time, heavy commercial has seen more insulation requirements. It's a somewhat fragmented segment with opportunity for M&A.
Margins are good and the average contractor is often a bit larger, so it's probably less cyclical than residential and some commercial businesses. There's a significant MRO component. The mechanical and industrial business for us is about $50 million in revenue, so there is room to grow.
Our next question is from Kurt Yinger with D.A. Davidson.
On price versus cost, looking at volume versus margin trade-offs with production builders, has there been progression towards needing to walk away from some business or be more disciplined in how you're pricing jobs?
At the entry level, builders are looking for ways to reduce costs. The team is selective when necessary and works closely with customers to be paid fairly for installed solutions. Pricing is set locally, not nationally, so we may face pressure in one market and get price in another. It's a constant negotiation, particularly in this environment, but our results reflect the team's ability to manage effectively in a challenging single-family environment.
We have reached the end of the question-and-answer session. I would like to turn the floor back over to Jeff Edwards for closing comments.
I'd just like to thank you for your questions, and I look forward to our next quarterly call. Thank you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.