Installed Building Products Inc.
11/05/2025 | Press release | Distributed by Public on 11/05/2025 13:44
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements and related notes in "Item 1. Financial Statements" of this Quarterly Report on Form 10-Q, as well as our 2024 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 throughout the United States, including waterproofing, fire-stopping and fireproofing, garage doors, rain gutters, window blinds, shower doors, closet shelving, mirrors and other products. 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 over 250 branch locations. During the three months ended September 30, 2025, 93% of our net revenue came from the service-based installation of these products across all of our end markets which forms our Installation operating segment and single reportable segment. In addition, three regional distribution operations serve the Midwest, Mountain West, Northeast and Mid-Atlantic regions of the United States, and we operate two cellulose insulation manufacturing facilities. We believe our business is well positioned to continue to profitably grow over the long-term 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 availability of mortgage financing.
2025 Third Quarter Highlights
Net revenue increased 2.3%, or $17.6 million to $778.2 million, while gross profit increased 2.9% to $264.2 million during the three months ended September 30, 2025 compared to 2024. The increase in net revenue was primarily due to the 11.7% increase in commercial end market same branch sales growth and the contribution of our recent acquisitions, partially offset by a decline in Installation job volume and sales decreases in the residential end markets. The increase in gross profit was primarily driven by selling price and product mix improvements and improved 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.
As of September 30, 2025, we had $333.3 million of cash and cash equivalents and we 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 dividend 6% over the third quarter of 2024 to $0.37 per share, or $10.1 million in the aggregate. Additionally, we repurchased $51.5 million of our outstanding common stock during the three months ended September 30, 2025 for a total capital return to shareholders of $61.6 million.
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 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 key measures of performance we utilize to evaluate our results:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Period-over-period Growth | |||||||||||||||||||||||
| Consolidated Sales Growth | 2.3 | % | 7.7 | % | 1.5 | % | 6.5 | % | |||||||||||||||
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Consolidated Same Branch Sales Growth(1)
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0.4 | % | 5.2 | % | (0.9) | % | 4.3 | % | |||||||||||||||
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Installation
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Sales Growth (2)
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1.0 | % | 7.9 | % | 0.8 | % | 6.8 | % | |||||||||||||||
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Same Branch Sales Growth (1)(2)
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(0.1) | % | 5.4 | % | (1.0) | % | 4.6 | % | |||||||||||||||
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Single-Family Sales Growth(3)
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(0.3) | % | 8.8 | % | 0.4 | % | 7.7 | % | |||||||||||||||
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Single-Family Same Branch Sales Growth(1)(3)
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(1.9) | % | 5.7 | % | (2.2) | % | 5.1 | % | |||||||||||||||
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Multi-Family Sales Growth(4)
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(6.4) | % | 3.6 | % | (4.8) | % | 7.5 | % | |||||||||||||||
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Multi-Family Same Branch Sales Growth(1)(4)
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(6.5) | % | 2.4 | % | (5.1) | % | 6.6 | % | |||||||||||||||
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Residential Sales Growth(5)
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(1.5) | % | 7.7 | % | (0.7) | % | 7.7 | % | |||||||||||||||
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Residential Same Branch Sales Growth(1)(5)
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(2.8) | % | 5.0 | % | (2.8) | % | 5.4 | % | |||||||||||||||
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Commercial Sales Growth(6)
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12.2 | % | 7.7 | % | 6.8 | % | 2.0 | % | |||||||||||||||
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Commercial Same Branch Sales Growth(1)(6)
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11.7 | % | 6.1 | % | 6.2 | % | (0.1) | % | |||||||||||||||
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Other
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Sales Growth (7)
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41.9 | % | 9.1 | % | 27.9 | % | 6.0 | % | |||||||||||||||
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Same Branch Sales Growth (1)(7)
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29.8 | % | 7.2 | % | 16.6 | % | 4.7 | % | |||||||||||||||
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Same Branch Sales Growth - Installation (8)
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Volume Growth(1)(9)(11)
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(4.8) | % | 3.0 | % | (4.5) | % | 0.4 | % | |||||||||||||||
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Price/Mix Growth(1)(10)(11)
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1.5 | % | 2.7 | % | 1.6 | % | 4.1 | % | |||||||||||||||
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U.S. Housing Market(12)
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| Total Completions Growth | (9.7) | % | 22.7 | % | (6.7) | % | 13.7 | % | |||||||||||||||
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Single-Family Completions Growth
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0.7 | % | 5.7 | % | (1.9) | % | 2.5 | % | |||||||||||||||
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Multi-Family Completions Growth
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(25.4) | % | 62.3 | % | (15.2) | % | 37.7 | % | |||||||||||||||
| (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.
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| (2) |
Calculated based on period-over-period change in sales of all end markets for our Installation segment.
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| (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.
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| (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.
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| (5) |
Calculated based on period-over-period change in sales in the residential new construction end market for our Installation segment.
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| (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.
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| (7) |
Calculated based on period-over-period gross sales change, including intercompany transactions, in our Other category which consists of our Manufacturing and Distribution operating segments.
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| (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.
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| (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.
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| (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.
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| (11) |
We revised this calculation to exclude certain intercompany sales. Percentages in all periods presented conform to this revised method.
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| (12) | U.S. Census Bureau data, through August 2025, as revised. | ||||
Net Revenue, Cost of Sales and Gross Profit
The components of gross profit were as follows (in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | Change | 2024 | 2025 | Change | 2024 | ||||||||||||||||||||||||||||||
| Net revenue | $ | 778.2 | 2.3 | % | $ | 760.6 | $ | 2,223.3 | 1.5 | % | $ | 2,191.1 | |||||||||||||||||||||||
| Cost of sales | 514.0 | 2.0 | % | 503.8 | 1,475.5 | 1.9 | % | 1,448.4 | |||||||||||||||||||||||||||
| Gross profit | $ | 264.2 | 2.9 | % | $ | 256.8 | $ | 747.8 | 0.7 | % | $ | 742.7 | |||||||||||||||||||||||
| Gross profit percentage | 34.0 | % | 33.8 | % | 33.6 | % | 33.9 | % | |||||||||||||||||||||||||||
Net revenue increased during the three months ended September 30, 2025 over the same period in 2024 due to both organic growth and contributions from our recent acquisitions. Same branch sales from our single-family end market declined 1.9% while same branch sales from our multi-family end market remained resilient with a decrease of only 6.5%, far outpacing the 25.4% decline in national multi-family completions through the latest U.S. Census Bureau data available of August 2025. These markets combined for a residential same branch sales decline of 2.8% for the three months ended September 30, 2025 over the same period in 2024, driven primarily by a 4.8% same branch sales volume decline and selling price and product mix growth of 1.5%. Conversely, our commercial end market grew 11.7% on a same branch basis for the three months ended September 30, 2025 over the same period in 2024, resulting in a 0.4% increase in total same branch sales for the three months ended September 30, 2025 over the same period in 2024. Lastly, sales within our Distribution and Manufacturing businesses, including intercompany sales, increased 29.8% during the three months ended September 30, 2025 which aligns with our strategy to enhance our procurement efforts through vertical integration in select product and end markets.
During the nine months ended September 30, 2025, net revenue increased 1.5% over the same period in 2024 due to contributions from our recent acquisitions and sales growth from our commercial end market.
During the three months ended September 30, 2025, gross profit increased as a percentage of net revenue as compared to the same period in 2024 primarily due to customer and supplier mix, partially offset by increased insurance costs and additional vehicle depreciation expense. Gross profit decreased as a percentage of net revenue during the nine months ended September 30, 2025 compared to the same period in 2024 primarily due to higher insurance and vehicle costs. 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 were as follows (in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | Change | 2024 | 2025 | Change | 2024 | ||||||||||||||||||||||||||||||
| Selling | $ | 36.2 | 1.1 | % | $ | 35.8 | $ | 107.3 | 3.6 | % | $ | 103.6 | |||||||||||||||||||||||
| Percentage of total net revenue | 4.7 | % | 4.7 | % | 4.8 | % | 4.7 | % | |||||||||||||||||||||||||||
| Administrative | $ | 111.1 | 1.7 | % | $ | 109.2 | $ | 332.6 | 4.4 | % | $ | 318.5 | |||||||||||||||||||||||
| Percentage of total net revenue | 14.3 | % | 14.4 | % | 15.0 | % | 14.5 | % | |||||||||||||||||||||||||||
| Asset impairment | $ | - | - | % | $ | - | $ | - | - | % | $ | 4.9 | |||||||||||||||||||||||
| Percentage of total net revenue | - | % | - | % | - | % | 0.2 | % | |||||||||||||||||||||||||||
| Amortization | $ | 10.1 | (3.8) | % | $ | 10.5 | $ | 30.3 | (4.4) | % | $ | 31.7 | |||||||||||||||||||||||
| Percentage of total net revenue | 1.3 | % | 1.4 | % | 1.4 | % | 1.4 | % | |||||||||||||||||||||||||||
Selling
The dollar increase in selling expenses for the three and nine months ended September 30, 2025 compared to 2024 was primarily driven by an increase in selling compensation and increased credit loss expense on higher revenues. Selling expense as a percentage of sales increased during the nine months ended September 30, 2025 compared to 2024 due to higher compensation expense.
Administrative
The dollar increase in administrative expenses for the three and nine months ended September 30, 2025 compared to 2024 was primarily due to an increase in compensation, which was attributable to both acquisitions and wage inflation. Also, facility costs increased due to inflationary pressures and acquisitions factored into the overall increase in administrative operating expenses. Administrative expenses increased as a percentage of sales for the nine months ended September 30, 2025 compared to 2024 primarily due to wage inflationary pressures, while administrative expenses decreased as a percentage of sales for the three months ended September 30, 2025 primarily due to organizational optimization and lower transaction fees.
Amortization
Amortization expense for the three and nine months ended September 30, 2025 compared to 2024 decreased primarily due to the acquisition of fewer finite-lived intangible assets.
Other Expense, Net
Other expense, net was as follows (in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | Change | 2024 | 2025 | Change |
2024
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| Interest expense, net | $ | 6.9 | (10.4) | % | $ | 7.7 | $ | 23.5 | (15.5) | % | $ | 27.8 | |||||||||||||||||||||||
| Other income | (0.4) | 33.3 | % | (0.3) | (0.9) | 12.5 | % | (0.8) | |||||||||||||||||||||||||||
| Total other expense, net | $ | 6.5 | $ | 7.4 | $ | 22.6 | $ | 27.0 | |||||||||||||||||||||||||||
Interest expense, net decreased during the three and nine months ended September 30, 2025 compared to the same periods in 2024 due to decreased interest expense associated with prior year term loan repricing, partially offset by decreased interest income on money market accounts.
Income Tax Provision
Income tax provision and effective tax rates were as follows (in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 |
2024
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| Income tax provision | $ | 25.9 | $ | 25.3 | $ | 66.2 | $ | 67.3 | |||||||||||||||
| Effective tax rate | 25.8 | % | 26.9 | % | 26.0 | % | 26.2 | % | |||||||||||||||
The effective tax rates for each of the three and nine months ended September 30, 2025 were based on an estimated annual effective tax rate and were favorably impacted by recognition of a windfall tax benefit from equity award vesting. The effective tax rates for the three and nine months ended September 30, 2024 were based on an estimated annual effective tax rate, and the rate for nine months ended September 30, 2024 was favorably impacted by recognition of a windfall tax benefit from equity vesting. We do not expect the enactment of the One Big Beautiful Bill Act to have a material impact to our 2025 effective tax rate.
Other Comprehensive Loss, Net of Tax
Other comprehensive loss, net of tax was as follows (in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net change on cash flow hedges, net of taxes | $ | (2.2) | $ | (10.6) | $ | (11.6) | $ | (5.9) | |||||||||||||||
During the three and nine months ended September 30, 2025, we recorded unrealized losses of $2.3 million and $12.6 million, net of taxes, on our cash flow hedges due to the market's expectations for lower interest rates in the future relative to our two forward interest rate swaps. During the three and nine months ended September 30, 2024, we recorded unrealized losses of $11.4 million and $8.3 million, respectively, net of taxes, on our cash flow hedges due to the changes in the market's expectations for future long-term interest rates.
During the three months ended September 30, 2025 and 2024, we amortized $0.1 million and $1.1 million, respectively, and during the nine months ended September 30, 2025 and 2024 we amortized $1.4 million and $3.3 million, respectively, of our remaining unrealized gains and losses, net, on our terminated cash flow hedges to interest expense, not including the offsetting tax effects of $21 thousand and $0.3 million for the three months ended September 30, 2025 and 2024, respectively, and $0.4 million and $0.9 million for the nine months ended September 30, 2025 and 2024, respectively.
KEY FACTORS AFFECTING OUR OPERATING RESULTS
Inflation, Housing Affordability and Interest Rates
Inflation that affected the economy as a whole in 2022 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 the remainder of 2025. 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 for the remainder of 2025 and into 2026 but anticipate pressures to lessen over time if mortgage rates are further reduced in the coming months.
In addition, housing affordability is impacted by international trade as certain housing inputs 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
Elevated home prices, high mortgage rates, recent economic uncertainty and rising new home inventory were the primary contributors to the decline in demand of new homes in 2025. Activity slowed in the residential homebuilding market as non-seasonally adjusted single-family starts, our largest end market, decreased 4.9% through August 2025 compared to the same period in 2024, per the latest available U.S. Census Bureau data. Employment remains stable and continues to support demand for residential new construction activity despite the affordability concerns and recent economic uncertainty. 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. Our largest customers are publicly traded homebuilders, and these builders have been able to increase affordability by offering mortgage rate buydowns as incentives to their customers. 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.
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 the remainder of 2025 and beyond if these manufacturers reduce production this year. We also experience price increases from our suppliers from time to time, including multiple increases over the last four years caused by supply shortages and general economic inflationary pressures.We could be subject to increased material pricing on some of the materials we install and sell due to tariffs imposed on goods imported from certain foreign nations. The extent of these increases will depend on a variety of factors including the magnitude of each tariff, the extent our vendors pass on the tariffs they incur, and the number of countries subject to tariffs in the future. We have not experienced a material impact from tariffs to date in 2025. Increased market pricing, regardless of the catalyst, has and could continue to impact our results of operations in 2025, to the extent that price increases cannot be passed on to our customers. We may have more difficulty raising prices in 2025 if housing demand contracts further. 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 and the majority of our employees work as installers on local construction sites. We expect to continue 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.
Our employee retention rates remained better than industry averages in the nine months ended September 30, 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 Installed Building Products Foundation meant to benefit our employees, their families and their communities. While improved retention drives lower costs to recruit and train new employees, resulting in greater installer productivity, these improvements are somewhat offset by the additional costs of these incentives.
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 September 30, 2025, we had cash and cash equivalents of $333.3 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 $579.8 million. Liquidity may also be limited in the future by certain cash collateral limitations under our asset-based credit facility (as defined below), depending on the status of our borrowing base availability.
Short-Term Material Cash Requirements
Our primary capital requirements are to fund working capital needs, operating expenses, acquisitions and capital expenditures, to meet debt and leasing principal and interest obligations and to make required income tax payments. We may also use our resources to fund our optional stock repurchase program and pay quarterly and annual dividends. We expect to spend cash and cash equivalents to acquire various companies with at least $100.0 million in aggregate net revenue each fiscal year. The amount of cash paid for an acquisition is dependent on various factors, including the size and determined value of the business being acquired.
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 various lenders under equipment and 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 nine months ended September 30, 2025. 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. In the short-term, we expect the seasonal trends we typically experience to return, including higher sales in the spring, summer and fall than in the winter. This could affect the timing of cash collections and payments during the rest of 2025.
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, stock repurchases, capital improvements and dividend payments, at our discretion.
On a long-term basis, we may refinance existing debt or obtain further debt financing to the extent that our sources of capital are insufficient to meet our operating needs and/or growth strategy.
In "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2024 Form 10-K, we disclosed that we had $1.1 billion aggregate long-term material cash requirements as of December 31, 2024. In addition to these commitments, we have various long-term commitments to purchase material with variable pricing. See Part I, Item 1. Financial Statements, Note 16, Commitments and Contingencies, for more information on these commitments. There were no other material changes to our cash requirements during the period covered by this Quarterly Report on Form 10-Q outside of the normal course of our business.
Sources and Uses of Cash and Related Trends
Working Capital
We carefully manage our working capital and operating expenses. As of September 30, 2025 and December 31, 2024, our working capital including cash and cash equivalents was $663.0 million and $695.9 million, respectively. The decrease in 2025
was primarily driven by other current assets decreasing $32.8 million, the majority of which was a result of the amortization of prepaid expenses including insurance. There was also a $6.9 million decrease in inventory levels that contributed to lower working capital. We continue to look for opportunities to reduce our working capital as a percentage of net revenue.
The following table summarizes our cash flow activity (in millions):
| Nine months ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net cash provided by operating activities | $ | 306.5 | $ | 265.2 | |||||||
| Net cash used in investing activities | (80.4) | (94.4) | |||||||||
| Net cash used in financing activities | (220.4) | (151.1) | |||||||||
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 installation materials, 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 due to higher non-cash adjustments, a decrease in other assets and lower inventory levels partially offset by a decrease in accounts payable and an increase in accounts receivable due to higher net revenue.
Cash Flows from Investing Activities
Sources of cash from investing activities consist primarily of proceeds from the sales of property and equipment, settlements with interest rate swap counterparties 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 in investing activities decreased from 2024 to 2025 primarily due to less spending on acquisitions of businesses and fewer purchases of property and equipment in 2025 compared to 2024, partially offset by additional purchases of insignificant bolt-on acquisitions during the nine months ended September 30, 2025.
Cash Flows from Financing Activities
Our sources of cash from financing activities consist of proceeds from the issuances of vehicle and equipment notes payable and, periodically, other sources of debt financing. Cash used in financing activities consists primarily of debt repayments, acquisition-related obligations, dividends and stock repurchases.
Net cash used in financing activities increased from 2024 to 2025 primarily due to higher amounts of capital returned to shareholders in connection with common stock repurchases and dividend payments during the nine months ended September 30, 2025. These increases were partially offset by greater net proceeds from vehicle and equipment notes. See Part I, Item 1. Financial Statements, Note 12, Stockholders' Equity, for more information on the dividends paid and stock repurchases.
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 "Senior Notes"). The Senior Notes will mature on February 1, 2028 and interest is payable semi-annually in cash in arrears on February 1 and August 1, commencing on February 1, 2020. The net proceeds from the Senior Notes offering were $295.0 million after debt issuance costs.
The indenture covering the Senior Notes contains 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 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
Term Loan Facility
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 $500.0 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 $1.3 million, with any remaining unpaid balances due on the maturity date of March 28, 2031. As of September 30, 2025, we had $489.2 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.
Asset-based Lending Credit Agreement
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 $250.0 million from $200.0 million and permits us to further increase 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 dependent 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 September 30, 2025 was $246.5 million.
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 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.
At September 30, 2025, we were in compliance with all applicable covenants under the Term Loan Agreement, ABL Credit Agreement and the Senior Notes.
Derivative Instruments
As of September 30, 2025, we had three active interest rate swaps with maturity dates of December 31, 2025 and two forward interest rate swaps with maturity dates of December 14, 2028. When combined, these five swaps serve to hedge $400.0 million of the variable cash flows on our Term Loan through December 14, 2028. For further information about our interest rate swaps, see Part I, Item 1. Financial Statements, Note 11, Derivatives and Hedging Activities. The assets associated with the interest rate swaps are included in current assets and other non-current assets on the Consolidated Balance Sheets at their fair value amounts as described in Note 9, Fair Value Measurements.
Vehicle and Equipment Notes
We are party to a Master Loan and Security Agreement ("Master Loan and Security Agreement"), a Master Equipment Lease Agreement ("Master Equipment Agreement") and one or more Master Loan Agreements ("Master Loan Agreements" and together with the Master Loan and Security Agreement and Master Equipment Agreement, the "Master Loan and Equipment 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 $92.0 million as of September 30, 2025 and $82.3 million as of December 31, 2024. Depreciation of assets held under these agreements is included within cost of sales on the Condensed Consolidated Statements of Operations and Comprehensive Income included herein.
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 are generally released as the contractual performance is completed. In addition, we occasionally use letters of credit and cash to secure our performance under our general liability, workers' compensation and auto insurance programs. Permit and license bonds are typically issued for one year and are required by certain states and 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 September 30, 2025 | |||||
| Performance bonds | $ | 143.9 | |||
| Insurance letters of credit and cash collateral | 71.7 | ||||
| Permit and license bonds | 11.2 | ||||
| Total bonds and letters of credit | $ | 226.8 | |||
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 Policies and 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. There have been no significant changes
to our critical accounting policies and estimates during the nine months ended September 30, 2025 from those disclosed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our 2024 Form 10-K.
Recent Accounting Pronouncements
For a description of recently issued and/or adopted accounting pronouncements, see Note 2, Significant Accounting Policies, to our audited consolidated financial statements included in our 2024 Form 10-K.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, including with respect to the housing market and the commercial market, our operations, economic and industry conditions, our financial and business model, payment of dividends, the demand for our services and product offerings, trends in the commercial business, expansion of our national footprint and diversification, our ability to grow and strengthen our market position, our ability to pursue and integrate value-enhancing acquisitions, our ability to improve sales and profitability, our efforts to navigate the material pricing environment, our ability to increase selling prices, our material and labor costs, supply chain and material constraints and expectations for demand for our services and our earnings in 2025. Forward-looking statements may generally be identified by the use of words such as "anticipate," "believe," "estimate," "project," "predict," "possible," "forecast," "may," "could," "would," "should," "expect," "intends," "plan," and "will" or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Any forward-looking statements that we make herein and in any future reports and statements are not guarantees of future performance, and actual results may differ materially from those expressed in or suggested by such forward-looking statements as a result of various factors, including, without limitation the general economic and industry conditions; increases in mortgage interest rates and rising home prices; inflation and interest rates; the material price and supply environment; increased tariffs; federal government shutdowns and uncertainty regarding the federal government's changes in fiscal, trade, monetary or regulatory policy; the timing of increases in our selling prices; the risk that the Company may reduce, suspend or eliminate dividend payments in the future; and the factors discussed in the "Risk Factors" section of our 2024 Form 10-K, as the same may be updated from time to time in our subsequent filings with the SEC. In addition, any future declaration of dividends will be subject to the final determination of our Board of Directors. Any forward-looking statement made by the Company in this report speaks only as of the date hereof. New risks and uncertainties arise from time to time and it is impossible for the Company to predict these events or how they may affect it. The Company has no obligation, and does not intend, to update any forward-looking statements after the date hereof, except as required by federal securities laws.
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