Installed Building Products Inc.

02/26/2026 | Press release | Distributed by Public on 02/26/2026 13:53

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following in conjunction with the consolidated financial statements and related notes thereto included in Item 8, Financial Statements and Supplemental Data, of Part II of this Form 10-K. This discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section captioned "Risk Factors" and elsewhere in this Form 10-K.
OVERVIEW
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. 93% 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, we have regional distribution operations that serve the Midwest, Mountain West, Northeast and Mid-Atlantic regions of the United States, and we operate multiple cellulose manufacturing facilities. We believe our business is well positioned to continue to profitably grow due to our strong balance sheet, liquidity and our continuing acquisition strategy.
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 continue to contribute to our operating results.
We have omitted discussion of 2023 results in the sections that follow where it would be redundant to the discussion previously included in Part II, Item 7, of Form 10-K for the year ended December 31, 2024.
2025 Highlights
Net revenues increased 1.0%, or $29.5 million to $2,970.8 million, while gross profit increased 1.5% to $1,009.3 million during the year ended December 31, 2025 compared to 2024. The increase in net revenue was primarily due to the 10.4% increase in commercial end market same branch sales growth, selling price and product mix improvements, and the contribution of our recent acquisitions, partially offset by sales decreases in the residential end markets. The increase in gross profit was primarily driven by selling price and product mix improvements and improved management of material costs. Specifically, gross profit outpaced sales growth due to higher selling prices compared to the prior year as we continued to prioritize profitability over sales volume. 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.
We generated approximately $371.4 million of cash from operating activities during the year ended December 31, 2025. As of December 31, 2025, we had $321.9 million of cash and cash equivalents and have not drawn on our revolving line of credit. This strong liquidity position allowed us to return capital to shareholders by increasing our regular quarterly dividends and our annual variable dividend by 6% during the year ended December 31, 2025 compared to 2024. In total, we paid $87.6 million in dividends and returned additional capital to shareholders by repurchasing $172.6 million of our outstanding common stock in 2025. Overall, we increased the amount of capital returned to shareholders in 2024 by 13.1% during the year ended December 31, 2025. 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.
We continued to diversify our operations through our acquisition strategy by investing $51.5 million during the year ended December 31, 2025. We acquired seven businesses in 2025 that we expect to contribute approximately $53.3 million in annual aggregate revenues, and we also completed four bolt-on acquisitions that were merged into our existing businesses. We will continue to use our disciplined approach in identifying and purchasing attractive acquisition targets to meet our goal of acquiring at least $100.0 million in annual aggregate revenue in 2026.
Additionally, in October 2025 we published our annual ESG report which highlights important milestones and our commitment to the environment, employees, communities and stakeholders.
The residential homebuilding market is expected to remain stable in 2026, supported by forecasted housing starts that are anticipated to be generally consistent with 2025 levels. Elevated spec home inventory and mortgage interest rates may continue to suppress demand, particularly when combined with broader macroeconomic volatility. 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 favorable long-term trends include an aging housing stock, population growth, persistent housing shortages, demographic changes and household formation growth. We expect that our net revenue, gross profit and operating income will benefit from this growth over time. While U.S. economic growth and employment data remain healthy, and we anticipate our business will continue to grow organically,a temporary slowdown in the homebuilding industry could negatively impact our results in the near term.
2024 Highlights
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.
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 more than tripling the 2023 amount of returned to shareholders through repurchasing $145.3 million of our Company's stock and paying $84.7 million in dividends during the year ended December 31, 2024.
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 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.
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.
Key Measures of Performance
We utilize certain net revenue and industry metrics to monitor our operations. Key metrics include total sales growth and same branch growth metrics for our consolidated results, our Installation reportable segment and our Other category consisting of our Distribution and Manufacturing operating segments. We also monitor sales growth for our Installation segment by end market and track volume growth and price/mix growth.
We believe the revenue growth measures shown in the table that follows are important indicators of how our business is performing, however, we may rely on different metrics in the future. We also utilize gross profit percentage as shown in the following section to monitor our most significant variable costs and to evaluate labor efficiency and success at passing increasing costs of materials to customers.
The following table shows certain key measures of performance we utilize to evaluate our results:
Years ended December 31,
2025 2024 2023
Period-over-Period Growth
Consolidated Sales Growth 1.0 % 5.9 % 4.1 %
Consolidated Same Branch Sales Growth (1)
(1.3) % 3.5 % 0.2 %
Installation
Sales Growth (2)
0.1 % 6.0 % 3.7 %
Same Branch Sales Growth (1)(2)
(1.5) % 3.8 % (0.1) %
Single-Family Sales Growth (3)
(1.9) % 6.4 % (5.4) %
Single-Family Same Branch Sales Growth (1)(3)
(4.1) % 3.6 % (9.0) %
Multi-Family Sales Growth (4)
(5.4) % 6.5 % 35.0 %
Multi-Family Same Branch Sales Growth (1)(4)
(5.7) % 5.6 % 33.3 %
Residential Sales Growth (5)
(2.6) % 6.4 % 1.0 %
Residential Same Branch Sales Growth (1)(5)
(4.4) % 4.0 % (2.3) %
Commercial Sales Growth(6)
11.2 % 3.0 % 17.2 %
Commercial Same Branch Sales Growth(1)(6)
10.4 % 1.2 % 11.5 %
Other, net of Eliminations
Sales Growth (7)(11)
15.5 % 3.7 % 10.7 %
Same Branch Sales Growth (1)(7)(11)
2.3 % (1.0) % 5.2 %
Same Branch Sales Growth - Installation (8)
Volume Growth (1)(9)(11)
(5.7) % 0.2 % (8.4) %
Price/Mix Growth(1)(10)(11)
1.6 % 3.7 % 7.2 %
U.S. Housing Market(12)
Total Completions Growth (7.9) % 12.3 % 4.2 %
Single-Family Completions Growth (0.8) % 1.8 % (2.3) %
Multi-Family Completions Growth (20.3) % 35.4 % 22.1 %
(1)
Same-branch basis represents period-over-period change in sales for branch locations owned greater than 12 months as of each financial statement date.
(2)
Calculated based on period-over-period change in sales of all end markets for our Installation segment.
(3)
Calculated based on period-over-period change in sales in the single-family subset of the residential new construction end market for our Installation segment.
(4)
Calculated based on period-over-period change in sales in the multi-family subset of the residential new construction end market for our Installation segment.
(5)
Calculated based on period-over-period change in sales in the residential new construction end market for our Installation segment.
(6)
Calculated based on period-over-period change in sales in the total commercial end market for our Installation segment. Our commercial end market consists of heavy and light commercial projects.
(7)
Calculated based on period-over-period net sales change, excluding intercompany transactions, in our Other category which consists of our Manufacturing and Distribution operating segments.
(8)
The heavy commercial end market, a subset of our total commercial end market, comprises projects that are much larger than our average installation job. This end market is excluded from the volume growth and price/mix growth calculations for our Installation segment as to not skew the growth rates given its much larger per-job revenue compared to the average jobs in our remaining end markets.
(9)
Calculated as period-over-period change in the number of completed same-branch jobs within our Installation segment for all markets we serve except the heavy commercial end market.
(10)
Defined as change in the mix of products sold and related pricing changes and calculated as the change in period-over-period average selling price per same-branch jobs within our Installation segment for all markets we serve except the heavy commercial market, multiplied by total current year jobs. The mix of end customer and product would have an impact on the year-over-year price per job.
(11)
We revised this calculation to exclude certain intercompany sales. Percentages in all periods presented conform to this revised method.
(12) U.S. Census Bureau data, as revised.
Net revenue, cost of sales and gross profit
The components of gross profit for the years ended December 31, 2025, 2024 and 2023 were as follows (in millions):
2025 Change 2024 Change 2023
Net revenue $ 2,970.8 1.0 % $ 2,941.3 5.9 % $ 2,778.6
Cost of sales 1,961.5 0.8 % 1,946.8 5.4 % 1,847.9
Gross profit $ 1,009.3 1.5 % $ 994.5 6.9 % $ 930.7
Gross profit percentage 34.0 % 33.8 % 33.5 %
Net revenue increased during the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to increased sales in our commercial end market and contributions from our recent acquisitions. Same branch sales from our single-family end market declined 4.1% while same branch sales from our multi-family end market remained resilient with a decrease of only 5.7%, far outpacing the 20.3% decline in national multi-family completions per U.S. Census Bureau data. These markets combined for a residential end market same branch sales decline of 4.4% for the year ended December 31, 2025over 2024, driven primarily by lower job volume. Conversely, our commercial end market grew 11.2%primarily due to strong same branch sales growth of 10.4% as well as selling price and product mix improvements that were concentrated within our heavy commercial businesses.
The remaining overall growth in net revenue for the year ended December 31, 2025 is attributable to growth in our Distribution and Manufacturing operating segments. Sales in these operating segments, including intercompany sales, collectively grew from $197.9 million to $259.8 million for the year ended December 31, 2025 over 2024 which aligns with our strategy to enhance our procurement efforts through vertical integration in select product and end markets.
As a percentage of net revenue, gross profit increased during the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to customer and supplier mix changes, partially offset by increased insurance costs and additional vehicle depreciation expense. Despite a reduction in the number of installation jobs completed, we were able to increase gross profit as we continue to prioritize profitability over volume. 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.
Operating Expenses
Operating expenses for the years ended December 31, 2025, 2024 and 2023 were as follows (in millions):
2025 Change 2024 Change 2023
Selling $ 144.6 3.4 % $ 139.8 6.1 % $ 131.8
Percentage of total net revenue 4.9 % 4.8 % 4.7 %
Administrative $ 437.2 2.9 % $ 424.8 10.3 % $ 385.3
Percentage of total net revenue 14.7 % 14.4 % 13.9 %
Asset impairment $ - 100.0 % $ 4.9 100.0 % $ -
Percentage of total net revenue - % 0.2 % - %
Amortization $ 41.1 (3.3) % $ 42.5 (4.5) % $ 44.5
Percentage of total net revenue 1.4 % 1.4 % 1.6 %
Selling
The dollar increase in selling expenses in 2025 was primarily driven by a year-over-year increase in selling compensation and credit losses on our increased net revenue of 1.0%. Selling expense increased as a percentage of sales primarily dueto increased selling wages.
Administrative
The dollar increase in administrative expenses in 2025 was primarily due to an increase in compensation,which was attributable to both acquisitions and wage inflation. Also, facility expenses and insurance costs increased due to inflationary pressures and costs attributable to acquisitions contributed to the overall increase in administrative operating expenses. During
2025, we saw our administrative costs increase as a percentage of sales primarily due to inflationary pressures on compensation, rent and insurance, which were partially offset by lower transaction fees and decreased costs driven by organizational optimization.
Asset Impairment
During the second quarter of 2024, we elected to wind down the operations of a branch that installs one of our non-core building products. As a result, we deemed it necessary to perform an interim assessment of tangible and intangible assets. During the year ended December 31, 2024, we recognized an intangible impairment charge of $4.6 million as a result of our assessment. In addition, we recognized an asset impairment charge of $0.3 million related to tangible assets. We did not recognize any impairment losses on our tangible or intangible assets during the year ended December 31, 2025.
Amortization
Our intangible assets include non-competes, customer relationships, trade names and other and backlog established upon acquisition of most businesses we acquire. Amortization expense decreased in 2025 primarily due to larger 2025 acquisitions occurring later in the year as compared to 2024. See Note 18, Business Combinations, in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for information on our acquisitions.
Other Expense, net
Other expense, net for the years ended December 31, 2025, 2024 and 2023 was as follows (in millions):
2025 Change 2024 Change 2023
Interest expense, net $ 31.7 (14.1) % $ 36.9 (0.3) % $ 37.0
Other income (2.3) 187.5 % (0.8) 20.0 % (1.0)
Total other expense, net $ 29.4 (18.6) % $ 36.1 0.3 % $ 36.0
Other expense, net decreased during 2025 compared to 2024. Interest expense, net decreased primarily due to prior year term loan repricing, which was offset by a decrease in interest income on money market accounts.See Note 8, Long-term Debt, in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for further information regarding debt balances.
Income Tax Provision
Income tax provision and effective tax rates for the years ended December 31, 2025, 2024 and 2023 were as follows (in millions):
2025 2024 2023
Income tax provision $ 91.6 $ 89.8 $ 89.4
Effective tax rate 25.6 % 25.9 % 26.8 %
During the years ended December 31, 2025 and 2024, our tax rate was unfavorably impacted by certain expenses not being deductible for income tax reporting purposes. Our tax rate for the year ended December 31, 2025 was favorably impacted by federal tax credits.
Other comprehensive (loss) income, net of tax
Other comprehensive (loss) income, net of tax for the years ended December 31, 2025, 2024 and 2023 were as follows (in millions):
2025 2024 2023
Unrealized (loss) gain on cash flow hedge, net of taxes $ (12.9) $ 1.3 $ (6.9)
During the year ended December 31, 2025, we recorded unrealized losses, net of taxes, of $14.0 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 swaps. We also amortized $1.5 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, 2025, not including tax effects of $0.4 million.
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.
We amortize the unrealized gains and losses on our terminated cash flow hedges at the time of termination over the course of the originally scheduled settlement dates of the terminated swaps. For more information on our cash flow hedges, see "Liquidity and Capital Resources, Derivative Instruments" below and Note 12, Derivatives and Hedging Activities, in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
KEY FACTORS AFFECTING OUR OPERATING RESULTS
Inflation, Housing Affordability and Mortgage Interest Rates
Inflation has affected the economy as a whole since 2022, but began moderating in 2023 as the Federal Reserve took actions to stabilize inflation by raising the federal funds rate multiple times through July 2023. These rate hikes indirectly affected the 30-year fixed rate mortgage average in the United States, resulting in some rates peaking above 7% in recent years. These rate-driven pressures have curtailed housing demand as mortgage financing affordability has been reduced. Inflation rates in 2025 have remained above the 2% stated target, however the Federal Reserve has signaled plans to potentially lower rates further during 2026. While a more accommodating Federal Reserve monetary policy does not directly determine mortgage rates, the expected easing of rates will likely contribute to a downward trend in mortgage rates in the near term. We expect to be impacted by the current elevated rates into 2026 but anticipate pressures to lessen over time if mortgage rates are further reduced.
In addition, housing affordability is impacted by international trade as certain housing inputs such as lumber are more reliant on imports than domestic production. While we purchase the large majority of the products we install and sell domestically, our business could be impacted if overall home affordability is further reduced by higher material prices due to increased tariffs.
Trends in the Construction Industry
According to Fannie Mae's January 2026 forecast, 1.31 million housing starts are forecasted in 2026. Higher inflation and interest rates, as discussed above, reduced the demand and affordability of new homes in 2025. 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 chronic 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 2026, measured by investment dollars, are expected to increase 3% from 2025 while institutional building starts (a subset of the nonresidential construction market in which we participate) are expected to increase 6% from 2025. 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.
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 14% for the year ended December 31, 2025. The residential new construction and repair and remodel markets represented approximately 76%of our total net revenue for both the years ended December 31, 2025 and 2024. The remaining portion was attributable to our distribution and manufacturing businesses and the commercial construction end market.
Cost and Availability of Materials
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 2026 and beyond if these manufacturers reduce production this year. We experience price increases from our suppliers from time to time, and we may
have more difficulty raising selling prices to offset any material price increases in 2026 if housing demand slows.We could be subject to increased material pricing on some of the complementary building products 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 2026, to the extent that price increases cannot be passed on to our customers. We will continue to work with our customers to adjust selling prices to offset higher costs as they occur.
Cost of Labor
Our business is labor intensive. As of December 31, 2025, we had approximately 10,400 employees, most of whom work as installers on local construction sites. We anticipate a slower hiring pace in 2026, but still expect to spend more to hire, train and retain installers to support our business 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 successful in achieving higher labor productivity as evidenced by our annual sales per installer per business day increasing 4% in 2025 as compared to 2024.
Our employee retention rates remained better than industry averages in the year ended December 31, 2025. 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.
Environmental, Social and Governance
According to the Office of Energy Efficiency & Renewable Energy, over $400 billion is spent each year to power homes and commercial structures that consume 75% of all electricity used in the United States and 40% of the nation's total energy. Insulation is a critical component in the construction of homes and commercial structures and helps increase energy conservation because it is the best way to prevent energy waste in most homes and commercial structures. As a leading installer of insulation products, we help ensure that insulation is properly installed to achieve the desired energy conservation and efficiency.
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.
Certain effects of climate change that may cause severe weather events could have a material effect on our operations. Climate change and/or adverse weather conditions such as unusually prolonged cold conditions, rain, blizzards, hurricanes, earthquakes, fires, or other natural disasters could accelerate, delay or halt construction or installation activity or impact our suppliers. The impacts of climate change may subject us to increased costs, regulations, reporting requirements, standards or expectations regarding the environmental impacts of our business. Most, if not all, of our locations may be vulnerable to the adverse effects of climate change. Weather is one of the main reasons for annual seasonality cycles of our business, and any adverse weather conditions can enhance this seasonality.
Lastly, we expect our selling and administrative expenses to continue to increase as our business grows, which could impact our future operating profitability.
SEASONALITY
We tend to have higher sales during the second half of the year as our homebuilder customers complete construction of homes placed under contract for sale in the traditionally stronger spring selling season. In addition, some of our larger branches operate in states impacted by winter weather and as such experience a slowdown in construction activity during the first quarter of the calendar year. This winter slowdown contributes to traditionally lower sales and profitability in our first quarter. See Part I, Item 1, Business, of this Form 10-K for further information.
LIQUIDITY AND CAPITAL RESOURCES
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, 2025, we had cash and cash equivalents of $321.9 million as well as access to $250.0 million under our asset-based lending credit facility (as defined below), less $3.5 million of outstanding letters of credit, resulting in total liquidity of $568.4 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.
Short-Term Material Cash Requirements
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 2026, we anticipate discretionary spending for capital improvements and quarterly dividends to approximate 2025 levels of approximately $70.6 million and $40.4 million, respectively, as well as approximately $48.6 million for our annual variable dividend to be paid March 31, 2026. In addition, we expect to use cash and cash equivalents to acquire various companies with a goal of 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.
Firm commitments for funds as of December 31, 2025 included $79.0 million in interest and principals payments on long-term debt obligations including our 2028 Senior Notes (which, as described below, have now been redeemed in full), 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 $3.1 million in interest and principal payments under current agreements in 2026. We lease certain locations, vehicles and equipment under operating lease agreements that will require $41.1 million in funds over the next twelve months. Finally, we have various product supply agreements with several vendors that requires us to purchase a minimum quantity of inventory with variable and fixed rate pricing in 2026. Payments for income taxes cannot be estimated at this time, but our effective tax rate was 25.6% for the year ended December 31, 2025.
We expect to meet our short-term liquidity requirements primarily through net cash flows from operations, our cash and cash equivalents on hand and borrowings from banks under the Master Loan and Security Agreement, the Master Equipment Agreement and the Master Loan Agreements. Additional sources of funds, should we need them, include borrowing capacity under our asset-based lending credit facility (as defined below).
We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to support our ongoing operations and to fund our business needs, commitments and contractual obligations for at least the next 12 months as evidenced by our net positive cash flows from operations for the years ended December 31, 2025, 2024 and 2023. We believe that we have access to additional funds, if needed, through the capital markets to obtain further debt financing under the current market conditions, but we cannot guarantee that such financing will be available on favorable terms, or at all.
Long-Term Material Cash Requirements
Beyond the next twelve months, our principal demands for funds will be to fund working capital needs and operating expenses, to meet principal and interest obligations on our long-term debts and finance leases as they become due or mature, and to make required income tax payments. Additional funds may be spent on acquisitions, capital improvements and dividend payments, at our discretion.
Known obligations beyond the next twelve months as of December 31, 2025 are as follows (in millions):
2027 $ 105.0
2028 378.0
2029 53.6
2030 41.0
Thereafter 477.6
Known obligations above include $1.0 billion in interest and principal payments on long-term debt obligations through 2031. In addition, our finance leases will require $4.4 million in interest and principal payments under current agreements through 2030.
Operating lease obligations will require $67.0 million in payments beyond the next twelve months. Finally, we have various product supply agreements with several vendors that requires us to purchase a minimum quantity of inventory with variable and fixed rate pricing after 2026.
In January 2026, we completed an offering (the "2026 Offering") of $500.0 million aggregate principal amount of 5.625% Senior Notes due 2034 (the "2034 Senior Notes"). We used part of the proceeds from the 2026 Offering to redeem in full the 2028 Senior Notes. This transaction would have reduced the principal payments included in the 2028 known obligations by $300.0 million and increased the thereafter known obligations by $500.0 million in the above table. The increased principal and extended maturity of the 2034 Senior Notes will also increase the amount of interest we will be required to pay in 2026 and beyond. The $181.8 million in remaining proceeds on the 2034 Senior Notes will also increase our short-term liquidity and be used for short-term material cash obligations. See Note 20, Subsequent Events, in Item 8, Financial Statements and Supplementary Data of this Form 10-K for more information regarding the 2034 Senior Notes.
Sources and Uses of Cash and Related Trends
Working Capital
We carefully manage our working capital and operating expenses. As of December 31, 2025 and 2024, our working capital, including cash and cash equivalents, was $698.4 million, or 23.5% of net revenue, and $695.9 million, or 23.7% of net revenue, respectively. The increase in working capital year-over-year was driven primarily by accounts receivable increasing $10.2 million resulting from higher year over year net revenue, inventories increasing $8.4 million due to expanded distribution operations and accounts payable decreasing $27.6 million due to timing. We continue to look for opportunities to reduce our working capital as a percentage of net revenue.
The following table presents our cash flows (in millions):
Years ended December 31,
2025 2024 2023
Net cash provided by operating activities $ 371.4 $ 340.0 $ 340.2
Net cash used in investing activities (112.0) (159.1) (103.4)
Net cash used in financing activities (265.1) (239.8) (79.9)
Cash Flows from Operating Activities
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 inventory, compensation costs, leases, income taxes and other general corporate expenditures included in net income. Net cash provided by operating activities increased from 2024 to 2025 primarily driven by higher net income due to increased consolidated sales of 1.0%. The increase was partially offset by the increase in accounts receivable and inventory due to higher sales and expanded distribution operations and the decrease in accounts payable.
Cash Flows from Investing Activities
Sources of cash from investing activities consist primarily of proceeds from the sales of property and equipment and, periodically, maturities from short term investments. Cash used in investing activities consists primarily of purchases of property and equipment, payments for acquisitions and, periodically, purchases of short term investments.
Net cash used by investing activities decreased from 2024 to 2025 primarily due to the decrease in payments for property and equipment purchases and acquisitions. We completed two less acquisitions in 2025 compared to 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 2025, 2024 and 2023.
As a result of declining job volumes, we strategically made fewer capital expenditures to purchase property and equipment during the year ended December 31, 2025. However, 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.
Cash Flows from Financing Activities
Our sources of cash from financing activities consist of proceeds from periodic new issuances of debt (including the 2026 Offering) and from new vehicle and equipment notes payable. Cash used in financing activities consists primarily of debt repayments, acquisition-related obligations, dividends and stock repurchases.
We had a net use of cash in financing activities in both 2025 and 2024. The increase in cash used in financing activities in2025 was primarily due to common stock repurchases increasing to $172.6 million during the year ended December 31, 2025 from $145.3 million during the year ended December 31, 2024.This was partially offset by increase in net proceeds from vehicle and equipment notes.
Debt
5.75% Senior Notes due 2028
In September 2019, we issued $300.0 million in aggregate principal amount of 5.75% senior unsecured notes (the "2028 Senior Notes"). In January, we redeemed in full the 2028 Senior Notes. The 2028 Senior Notes would have matured on February 1, 2028 and interest was payable semi-annually in cash in arrears on February 1 and August 1, commencing on February 1, 2020. The net proceeds from the 2028 Senior Notes offering were $295.0 million after debt issuance costs. See Note 20, Subsequent Events, in Item 8, Financial Statements and Supplementary Data of this Form 10-K for more information regarding the early redemption of our 2028 Senior Notes.
We also satisfied and discharged the indenture covering the 2028 Senior Notes in connection with the redemption of the 2028 Senior Notes. The indenture contained restrictive covenants that, among other things, limited the ability of the Company and certain of our subsidiaries (subject to certain exceptions) to: (i) incur additional debt and issue preferred stock; (ii) pay dividends on, redeem or repurchase stock in an aggregate amount exceeding 2.0% of market capitalization per fiscal year, or in an aggregate amount exceeding certain applicable restricted payment baskets; (iii) prepay subordinated debt; (iv) create liens; (v) make specified types of investments; (vi) apply net proceeds from certain asset sales; (vii) engage in transactions with affiliates; (viii) merge, consolidate or sell substantially all of our assets; and (ix) pay dividends and make other distributions from subsidiaries.
Credit Facilities
In February 2022, we amended and extended the term of our asset-based lending credit agreement (the "ABL Credit Agreement"). The ABL Credit Agreement increased the commitment under the asset-based lending credit facility (the "ABL Revolver") to $250 million from $200.0 million, and permits us to further increased the commitment amount up to $300.0 million. The amendment also extends the maturity date from September 26, 2024 to February 17, 2027. The ABL Revolver bears interest at either the base rate or the Secured Overnight Financing Rate ("Term SOFR"), at our election, plus a margin of 0.25% or 0.50% in the case of base rate loans or 1.25% or 1.50% for Term SOFR advances (in each case based on a measure of availability under the ABL Credit Agreement). The amendment also allows for modification of specified fees depend upon achieving certain sustainability targets, in addition to making other modifications to the ABL Credit Agreement. Including outstanding letters of credit, our remaining availability under the ABL Revolver as of December 31, 2025 was $246.5 million. In January 2026, we amended the ABL Revolver to, among other things, increase the commitment amount of the ABL Revolver and extend its maturity to January 21, 2031. See Note 20, Subsequent Events, in Item 8, Financial Statements and Supplementary Data of this Form 10-K for more information regarding the latest amendment of the ABL Revolver.
The ABL Revolver provides incremental revolving credit facility commitments of up to $50.0 million. The terms and conditions of any incremental revolving credit facility commitments must be no more favorable than the terms of the ABL Revolver. The ABL Revolver also allows for the issuance of letters of credit of up to $100.0 million in aggregate and borrowing of swingline loans of up to $25.0 million in aggregate.
The ABL Credit Agreement contains a financial covenant requiring the satisfaction of a minimum of fixed charge coverage ratio of 1.0x in the event that we do not meet a minimum measure of availability under the ABL Revolver. The ABL Credit Agreement and the Term Loan Agreement contain restrictive covenants that, among other things, limit the ability of the Company and certain of our subsidiaries (subject to certain exceptions) to: (i) incur additional debt and issue preferred stock; (ii) pay dividends on, redeem or repurchase stock in an aggregate amount exceeding the greater of 2.0% of market capitalization per fiscal year or certain applicable restricted payment basket amounts' (iii) prepay subordinated debt; (iv) create liens; (v) make specified types of investments; (vi) apply net proceeds from certain asset sales; (vii) engage in transactions with affiliates; (viii) merge, consolidate or sell substantially all of our assets; and (ix) pay dividends and make other distributions from subsidiaries.
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 previous seven-year term loan facility with Royal Bank of Canada as the administrative agent and collateral agent thereunder under our credit agreement (the "Term Loan Agreement"), dated as of December 14, 2021 (as previously amended by the First Amendment thereto dated April 28, 2023 and the Second Amendment thereto dated August 14, 2023). The Third Amendment allowed for the issuance of a new term loan (the "Term Loan") in the amount of $500 million which will mature on March 28, 2031. Net proceeds of the Term Loan were used to refinance the remaining $490.0 million on our previous term loan, pay fees and increase working capital. In November 2024, we repriced our Term Loan by entering into Amendment No. 4 to our Term loan Credit Agreement ("Fourth Amendment"). The amended Term Loan now bears interest, at our option, at a rate equal to either: the adjusted Term SOFR plus 1.75% per annum, or an alternative base rate plus 0.75%.
The Term Loan amortizes in quarterly principal payments of $1.25 million, with any remaining unpaid balances due on the maturity date of March 28, 2031. As of December 31, 2025, we had $488.1 million, net of unamortized debt issuance costs, due on our Term Loan.
Subject to certain exceptions, the Term Loan will be subject to mandatory prepayments of (i) 100% of the net cash proceeds from issuances or incurrence of debt by the Company or any of its restricted subsidiaries (other than with respect to certain permitted indebtedness (excluding any refinancing indebtedness); (ii) 100% (with step-downs to 50% and 0% based on achievement of specified net leverage ratios) of the net cash proceeds from certain sales or dispositions of assets by the Company or any of its restricted subsidiaries in excess of a certain amount and subject to reinvestment provision and certain other exception; and (iii) 50% (with step-downs to 25% and 0% based upon achievement of specified net leverage ratios) of excess cash flow of the Company and its restricted subsidiaries in excess of $15.0 million, subject to certain exceptions and limitations.
All of the obligations under the Term Loan and ABL Revolver are guaranteed by all of the Company's existing restricted subsidiaries and will be guaranteed by the Company's future restricted subsidiaries. Additionally, all obligations under the Term Loan and ABL Revolver, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and the guarantors, subject to certain exceptions and permitted liens, including a first-priority security interest in such assets that constitute ABL Priority Collateral, as defined in the ABL Credit Agreement, and a second-priority security interest in such assets that constitute Term Loan Priority Collateral, as defined in the Term Loan Agreement.
As of December 31, 2025, we were in compliance with all applicable covenants under the Term Loan Agreement, ABL Credit Agreement, and the 2028 Senior Notes.
Derivative Instruments
As of December 31, 2025, we had two active interest rate swaps. For a summary of notional amounts, maturity dates and interest rates for each of these swaps, see Note 12, Derivatives and Hedging Activities, in Item 8, Financial Statements and Supplementary Data of this Form 10-K. Together, these two 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 the 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 10, Fair Value Measurements, in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
Term SOFR is used as a reference rate for our Term Loan and our interest rate swap agreements we use to hedge our interest rate exposure. For more information on Derivatives, see Note 12, Derivatives and Hedging Activities, of this Form 10-K.
Vehicle and Equipment Notes
We have financing loan agreements with various lenders to provide financing for the purpose of purchasing or leasing vehicles and equipment used in the normal course of business. Vehicles and equipment purchased or leased under each financing arrangement serve as collateral for the note applicable to such financing arrangement. Regular payments are due under each note for a period of typically 60 consecutive months after the incurrence of the obligation.
Total outstanding loan balances relating to our master loan and equipment agreements were $98.5 million and $82.3 million as of December 31, 2025 and 2024, respectively. Depreciation of assets held under these agreements is included within cost of sales on the Consolidated Statements of Operations and Comprehensive Income. See Note 8, Long-term Debt, in Item 8, Financial Statements and Supplementary Data of this Form 10-K for more information regarding our Master Loan and Security Agreement, Master Equipment Lease Agreement and Master Loan Agreements.
Letters of Credit and Bonds
We may use performance bonds to ensure completion of our work on certain larger customer contracts that can span multiple accounting periods. Performance bonds generally do not have stated expiration dates; rather, we are released from the bonds as the contractual performance is completed. In addition, we occasionally use letters of credit and cash to secure our performance under our general liability and workers' compensation insurance programs. Permit and license bonds are typically issued for one year and are required by certain municipalities when we obtain licenses and permits to perform work in their jurisdictions.
The following table summarizes our outstanding bonds, letters of credit and cash-collateral (in millions):
As of December 31, 2025
Performance bonds $ 142.7
Insurance letters of credit and cash collateral 72.4
Permit and license bonds 11.4
Total bonds and letters of credit $ 226.5
We have $65.3 million included in our insurance letters of credit in the above table that are unsecured and therefore do not reduce total liquidity.
Critical Accounting Estimates
Management's discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different amounts could have been reported using different assumptions or under different conditions. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of our assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our consolidated financial statements. We believe the following critical accounting estimates require judgment and estimation in the preparation of our consolidated financial statements and to be fundamental to our results of operations. See Note 2, Significant Accounting Policies included in Item 8 of the Form 10-K for a summary of all of our significant accounting policies and their effect on our financial statements.
Revenue recognition
The majority of our revenues are recognized when we complete our contracts with customers to install building products and the control of the promised good or service is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. For contracts that are not complete at the reporting date, we recognize revenue over time utilizing a cost-to-cost input method as we believe this represents the best measure of when goods and services are transferred to the customer. When this method is used, we estimate the costs to complete individual contracts and record as revenue that portion of the total contract price that is considered complete based on the relationship of costs incurred to date to total anticipated costs. Under the cost-to-cost method, the use of estimated costs to complete each contract is a significant variable in the process of determining recognized revenue and can change throughout the duration of a contract due to contract modifications and other factors impacting job completion. Our cost estimation process is based on the knowledge, significant experience and judgment of project management, finance professionals and operational management to assess a variety of factors to determine revenues on uncompleted contracts. Such factors include historical performance, costs of materials and labor, change orders and the nature of the work to be performed. We generally review and reassess our estimates for each uncompleted contract at least quarterly to reflect the latest reliable information available. Changes in these estimates could favorably or unfavorably impact revenues and their related profits.
Goodwill Impairment
We performed an annual quantitative goodwill impairment test as of October 1, 2025 on our Distribution operating segment which we have determined is also a reporting unit. The estimate of the reporting unit's fair value was determined by placing a 50% weighting on a discounted cash flow model and a 50% weighting on market-related model using current industry information that involve significant unobservable inputs (Level 3 inputs). Based on the results of this evaluation, we concluded
that there were no impairments of goodwill, as the estimated fair value exceeded its carrying value by 18.4%. This is a decrease from the estimated fair value exceeding the carrying value by 32.1% on October 1, 2024. The primary reasons due to this decline was the additional carrying value resulting from a 2024 distribution acquisition and lower forecasted revenue and EBITDA in future periods due to near-term softening demand.
A 100 basis point change in either the discount rate or residual growth rate, or both, utilized in our discounted cash flow model using our weighted system would not have resulted in an impairment for our Distribution operating segment, nor would any change in the weighting of each method. The estimates and assumptions used in the test are subject to uncertainty due to the professional judgments required. We performed a qualitative evaluation for our Installation and Manufacturing operating segments and determined that it was more likely than not that the fair value of these operating segments exceeded their carrying values.
Business combinations
We have recorded a significant amount of finite lived intangible assets associated with the acquisitions of businesses through our growth strategy. These intangible assets consist of customer relationships, backlog, non-competition agreements and business trademarks and trade names. Fair values and estimated useful lives are assigned to the identified intangible assets at the date of acquisition by financial professionals using either the income approach or the market approach along with certain industry information, professional experience and knowledge. In some instances, the process of assigning values and useful lives requires using judgment and other financial professionals may come to different conclusions. We review intangible assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when estimated future cash flows expected to result from the use of an asset and its eventual disposition are less than its carrying amount. When impairment is identified, the carrying amount of the asset is reduced to its estimated fair value. Impairment losses would negatively affect earnings.
We also record contingent consideration liabilities that 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 can require a significant amount of estimation by considering various factors, including business risk and projections. We have used various estimate techniques and also consult with a third party valuation expert in certain instances. The contingent consideration liabilities are measured at fair value by discounting estimated future payments to their net present value.
Insurance risks
We carry insurance policies for a number of risks, including, but not limited to, workers' compensation, general liability, vehicle liability, property and our obligation for employee-related health care benefits. Most of our insurance policies contain an element for which we assume a significant portion of the risk by having high deductibles or a large cap on claims. For a description of our different insurance programs, see Note 2, Significant Accounting Policies in Item 8, Financial Statements and Supplementary Data in this Form 10-K.
Our largest healthcare plan is partially self-funded with an insurance company paying benefits in excess of stop loss limits per individual/family. An accrual for estimated healthcare claims incurred but not reported ("IBNR") is included within accrued compensation on the Consolidated Balance Sheets and was $4.9 million and $4.8 million as of December 31, 2025 and 2024, respectively.
We participate in multiple workers' compensation plans covering a significant portion of our business. Under these plans, we use a high deductible program to cover losses above the deductible amount on a per claim basis. We accrue for the estimated losses occurring from both asserted and unasserted claims. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of actuarial estimates of IBNR claims. In estimating these reserves, historical loss experience and judgments about the expected levels of costs per claim are considered. These claims are accounted for based on actuarial estimates of the undiscounted claims, including IBNR. We believe the use of actuarial methods to account for these liabilities provides a consistent and effective way to measure these highly judgmental accruals. As of December 31, 2025 and 2024, we estimated total short-term and long-term known and IBNR claims for workers' compensation to be $30.9 million and $27.7 million, respectively. As of December 31, 2025 and 2024, offsets of these liabilities were $4.8 million and $4.4 million, respectively, with insurance receivables and indemnification assets for claims under fully insured policies or claims that exceeded the stop loss limit.
We also participate in a high retention general liability insurance program and a high deductible auto insurance program. As of December 31, 2025 and 2024, general liability and auto insurance reserves included in other current and long-term liabilities were $43.3 million and $32.0 million, respectively. As of December 31, 2025 and 2024, offsets of these liabilities were $5.4
million and $2.8 million, respectively, with insurance receivables and indemnification assets for claims under fully insured policies or claims that exceeded the stop loss limit.
Liabilities relating to claims associated with these risks are estimated by considering historical claims experience, including frequency, severity, demographic factors and other actuarial assumptions. In estimating our liability for such claims, we periodically analyze our historical trends, including loss development, and apply appropriate loss development factors to the incurred costs associated with the claims with the assistance of external actuarial consultants. While we do not expect the amounts ultimately paid to differ significantly from our estimates, our reserves and corresponding expenses could be affected if future claim experience differs significantly from historical trends and actuarial assumptions.
We have not made any material changes in our methodology used to establish our insurance reserves during the years ended December 31, 2025 and 2024, and none of the adjustments to our estimates have been material.
Recent Accounting Pronouncements
For a description of recently issued and/or adopted accounting pronouncements, see Note 2, Significant Accounting Policies, in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
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