Installed Building Products
Annual Report 2021

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INSTALLED BUILDING PRODUCTS ANNUAL REPORT 2021 To Our Stockholders Since IBP was founded in the 1970s with a single branch in Columbus, Ohio, our culture has been built around a core business tenet of treating others as you would like to be treated. We believe showing compassion, respect, and support for our employees, communities, customers, vendors, and shareholders is an important component of our past and future success. We are committed to the values that have allowed us to succeed thus far, but we are equally as committed to growing and evolving as a national organization with local expertise. EIGHT YEARS OF GROWTH AND DIVERSIFICATION For 2021, revenue increased 19.1% to a record $1.97 billion and earnings increased 22.6% to a record $4.01 per diluted share. 2021 was the eighth consecutive year of record revenue and earnings as a public company. Since our IPO in 2014, revenue and net income from continuing operations have grown at compound annual growth rates of 21% and 36%, respectively. As IBP has grown, we have also diversified our mix of revenue from core end markets. We reduced our concentration of new single- family revenue to 64% of our total revenue in 2021 from 74% in 2013, increasing our exposure to commercial and multi-family markets. We have also strategically diversified our product mix with less revenue generated by insulation installation and a higher contribution from the installation of complementary building products. Notably, through nearly 90 completed acquisitions as a public company, we have been able to accelerate our revenue diversification. AN HISTORIC YEAR FOR ACQUISITION GROWTH During 2021, we continued to prioritize profitable growth by completing 12 acquisitions of well-run installation and distribution companies generating total annual revenue of approximately $211 million. The revenue we acquired in 2021 was an historic result and the second consecutive year IBP has exceeded our $100 million acquired revenue target. We expect to acquire at least $100 million of revenue again in 2022. Our 2021 acquisitions spanned the country from Pennsylvania to Oregon, serving residential, commercial, and multi-family customers with diverse products including, insulation, glass and mirrors, drywall, framing, ceiling tiles, and firestopping insulation. IBP’s current geographic footprint provides us with access to approximately 65% of total residential permits, compared to approximately 50% seven years ago. In December 2021, we acquired AMD Distribution, one of the largest acquisitions in our history and the first major acquisition of a distribution business. AMD generated revenue of approximately $71 million for the twelve months ended September 2021. Over the long-term, we expect AMD will bring cost efficiencies and additional flexibility to our supply chain. NAVIGATING A DYNAMIC MATERIAL AND LABOR ENVIRONMENT WHILE THE BACKLOG BUILDS The impacts of the COVID-19 pandemic persisted throughout 2021 and we worked diligently to overcome unprecedented supply chain challenges, material shortages, and construction labor uncertainty. Effective management of our labor and supply chain will remain a priority throughout 2022 as we efficiently start new projects and work through the industry backlog, which continued to increase throughout 2021. The number of total housing units authorized for construction but not started in the U.S. grew 43% in 2021 to the highest level since 1974, according to the U.S. Census Bureau. We believe these permitted homes represent our potential revenue backlog and will extend the housing construction cycle, supporting demand for our installation and distribution services. While we view this dynamic favorably, challenges relating to limited construction trade labor and material shortages contributed to the 50-year high in units authorized but not started. Despite national labor shortages throughout most industries, including construction, our employee turnover remained well below industry averages, which we believe is the result of our continued investment in employee programs. As the demand for new housing outpaces industry capacity, we have needed to supplement our insulation material supply with purchases through non-traditional retail and distribution channels. All of our products and materials experienced meaningful price increases in 2021 and we expect this trend to continue to 2022. Still, insulation and non-insulation products represent a small portion of the total hard cost to build a home, which we believe allows us to prudently increase prices. With our robust cash position and strong industry relationships, we believe we are in a better position to manage the current environment than ever in our history. 2 2021 ANNUAL REPORT APRIL 20 22 OUR STRONG BALANCE SHEET GETS STRONGER EVOLVING AS A COMPANY AND GLOBAL CITIZEN WITH ESG During 2021, we added flexibility to our balance sheet by successfully closing a new 7-year $500 million Term Loan. In addition, we recently increased and extended our asset-based lending credit facility to $250 million. When combining the borrowing capacity under our asset-based lending credit facility with over $330 million in cash and cash equivalents as of December 31, 2021, we have more than $500 million in liquidity to continue to make accretive acquisitions and pursue our long-term growth strategy. In addition, we have limited our interest rate exposure and there are no significant debt maturities until 2028. We finished 2021 with a net debt leverage ratio of 1.9 times, meeting our goal of below 2.0 times. GROWING DIVIDENDS AND EXPANDING SHARE BUYBACK POTENTIAL In February 2021, our Board of Directors approved the initiation of a regular quarterly dividend at $0.30 per share. We believe the dividend portion of our capital allocation strategy rewards shareholders throughout the housing cycle and opens IBP shares up to a new investor base. In February 2022, the Board approved a 5% increase to our regular quarterly cash dividend to $0.315 per share and our first annual variable dividend at $0.90 per share. The variable dividend was based on the cash flow generated by our operations, with consideration for planned and expected cash obligations, acquisitions, and other factors as determined by the Board. Concurrent with the annual variable dividend declaration, the Board approved an extension of the current stock repurchase plan to March 2023 and an increase of the total authorization to $200 million. From 2018 to 2020, we repurchased over 2.7 million shares of our common stock at an average price of approximately $45 per share and we intend to continue to opportunistically repurchase shares through the expanded authorization. I am proud to announce that we issued our inaugural Environmental, Social & Governance (“ESG”) report in October 2021. Our primary installation services are a critical component to improve energy efficiency in residential and commercial structures. Within our report, we highlighted the environmental benefits of insulation as well as our internal initiatives on topics such as health and safety, greenhouse gas emissions, and diversity, equity, and inclusion. We are dedicated to building for the future by implementing critical ESG initiatives. As our ESG program expands, I’m excited by the opportunities we have creating additional value for our employees, communities, customers, vendors, and shareholders. REFLECTING ON THE PAST AND FOCUSING ON THE FUTURE 2021 was another record year of profitable growth and value creation at IBP. Our strong track record of growth reflects our core values, the experience of our leadership team, and the hard work of employees across the nation. We have established a powerful foundation for our future growth and success in 2022 and beyond. We will continue to use our expertise to manage the ever-changing construction landscape and remain resilient in the face of a continuation of material shortages and supply chain challenges. We believe that our revenue diversification through accretive acquisitions and organic growth in key markets will support our long-term growth strategy and our commitment to return capital to shareholders. I am proud of our performance throughout 2021 and IBP’s future opportunities to create value for our shareholders. We are off to a strong start and we expect 2022 to be another successful year for IBP. On behalf of everyone at IBP, thank you for your investment in us. JEFFREY W. EDWARDS CHAIRMAN, PRESIDENT AND CEO INSTALLEDBUILDINGPRODUCTS.COM 3 ESG Report IBP ENVIRONMENTAL TARGETS • REDUCE BY 50% OUR CARBON PRODUCING ELECTRICITY USAGE FROM 2020 BASELINE MEASURED AS KWH/AVERAGE SQUARE FOOT, BY 2030 • REDUCE BY 50% MOBILE COMBUSTION EMISSIONS FROM 2020 BASELINE, MEASURED AS CO2E METRIC TON EMISSIONS PER AVERAGE VEHICLE, BY 2030 • REDUCE BY 50% THE HFC BLOWING AGENT USED FROM 2020 BASELINE, MEASURED AS CO2E METRIC TONS PER $1 MILLION OF REVENUE, AS STATES ADOPT HFO ALTERNATIVE, BY 2030 • IBP RECENTLY ENTERED A NATIONAL WASTE MANAGEMENT AND RECYCLING PROGRAM, TO MEASURE AND REDUCE THE AMOUNT OF LANDFILL WASTE THROUGH INCREASED RECYCLING PROGRAMS 40–80% recycled 75–85% recycled FIBERGLASS INSULATION CELLULOSE INSULATION Fiberglass is comprised of 40–80% recycled material Cellulose insulation is comprised of 75–85% recycled waste paper • Made of fibrous glass held together by a • Made of paper and cardboard, has a very high thermoset resin recycled content • Contains average of 50% recycled content • Available as blankets or loosefill • Most widely used residential insulation material • 83% of IBP insulation sales in 2021 ENERGY EFFICIENCY • Only available in loosefill form and is blown into the structure with specialized equipment • 2% of IBP insulation sales in 2021 Our customers are creating homes in the houses we build with them, and that includes keeping their families safe and warm while also saving energy. We provide reliable insulation that homeowners can be proud of. RESPONSIBLE MATERIALS Responsible material usage is something we consider in every insulation job. The most common type of insulation we install—over 80% of our insulation sales—is fiberglass, which is comprised of up to 80% recycled material. We also install cellulose insulation, which is comprised of at least 75% recycled waste paper. 4 2021 ANNUAL REPORT INSTALLED BUILDING PRODUCTS Financial Highlights NET REVENUE OPERATING INCOME NET INCOME 2017 2018 2019 2020 2021 $1,132,927 $1,336,432 $1,511,629 $1,653,225 $1,968,650 $74,266 $93,217 $121,160 $161,867 $41,140 $54,748 $68,159 $97,239 NET INCOME PER DILUTED SHARE $1.30 $1.75 $2.28 $3.27 CASH $62,510 $90,442 $177,889 $231,520 SHORT-TERM INVESTMENTS $30,053 $10,060 $37,961 — CURRENT ASSETS CURRENT LIABILITIES TOTAL DEBT NET DEBT WORKING CAPITAL (Excluding Cash and Short-Term Investments) 2021 REVENUE $354,942 $411,545 $581,949 $623,943 $159,806 $181,686 $214,149 $236,475 $359,722 $463,454 $575,539 $569,815 $267,159 $362,952 $359,689 $338,295 $102,573 $129,357 $151,950 $155,948 $187,880 $118,763 $4.01 $333,485 — $859,316 $307,569 $868,076 $534,591 $218,262 Revenue By End Product Revenue By End Market Completed Acquisitions 64% 7% INSULATION WATERPROOFING 7% SHOWER DOORS, SHELVING & MIRRORS 5% GARAGE DOORS 4% 3% RAIN GUTTERS FIREPROOFING/ FIRE-STOPPING 3% 64% 12% SINGLE FAMILY NEW MULTI-FAMILY 7% WINDOW BLINDS REPAIR & REMODEL 7% OTHER BUILDING PRODUCTS 17% COMMERCIAL 88 5 2011–PRESENT 2008–2010 54 2003–2007 22 PRIOR TO 2003 We have a successful acquisition strategy with proven integration. STRONG REVENUE GROWTH (in thousands) NET INCOME (LOSS) PER DILUTED SHARE 2021 2020 2019 2018 2017 2016 2015 2014 2013 $1,968,650 $1,653,225 $1,511,629 $1,336,432 $1,132,927 356% Increase 2021 2020 2019 2018 2017 2016 2015 $2.28 $1.75 $1.30 $1.23 $0.85 2014 $(0.20) 2013 $(0.01) $862,980 $662,719 $518,020 $431,929 $4.01 $3.27 INSTALLEDBUILDINGPRODUCTS.COM 5 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________________ FORM 10-K ___________________________ ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2021 OR RR ☐ TRANSIT ION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From To Commission File Number: 001-36307 ___________________________ Installed Building Products, Inc. (Exact name of registrant as specified in its charter) ___________________________ Delaware (State or other jurisdiction of incorporation or organization) 495 South High Street, Suite 50 Columbus, Ohio (Address of principal executive offices) 45-3707650 (I.R.S. Employer Identification No.) 43215 (Zip Code) (614) 221-3399 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $0.01 par value per share Trading Symbol(s) IBP Name of each exchange on which registered The New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None ___________________________ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in RuleRR No ¨ 405 of the Securities Act. Yes x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x Indicate by check mark whether the registrant (1) has filed all reports required to be filff ed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to filff e such reports), and (2) has been subject to such filff ing requirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the No ¨ registrant was required to submit such filff es). Yes x Indicate by check mark whether the registrant is a large accelerated filff er, an accelerated filer, a non-accelerated filff er, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filff er Non-accelerated filff er ☒ ☐ Accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ registrant hhas fililff ded a report on Indicat be byy chheckk markk wh hhether thhe regi di of iit (b) ontrol over fifinanciiall rep l ppublic accounti gng firm that prepared or issued its audit report. ☒ dunder Se iction is internall c iorti gng dand attestatiion to iits man gagement’s assessment of hthe effectiiveness 404(b) of hthe Sarbbane r s-Oxl yey Act ((15 U.S.C. 7 l 262(b)) byby hthe regi registeredd (b)) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ☒ The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold on June 30, 2021 was $2,891,660,953. On February bruary 17, 2022 the registrant had 33,271,659 shares of common stock, par value $0.01 per share, outstanding. , DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s Definitive Proxy Statement relating to the 2022 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2021. 1 11 29 30 30 30 31 32 32 45 46 82 82 83 83 86 86 86 86 86 87 89 90 TABLE OF CONTENTS PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Item 5. Item 6. Item 7. PART II Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities [Reserved] Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures about Market Risk Financial Statements and Supplementary Data Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9. Controls and Procedures Item 9A. Item 9B. Other Information Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections PART III Item 10. Item 11. Item 12. Item 13. Item 14. ers and Corporate Governance Directors, Executive Officff Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services Item 15. Item 16. Exhibits and Financial Statement Schedule Form 10-K Summary SIGNATURES PART IV i Information Regarding Forward-Looking Statements and Risk Factors Summary a rd-looking statements within the meaning of the federal ast,” “may,” “could,” “would,” “should,” “expect,” “intends,” “plan,” and “will” or, in each case, costs, demand for our services and product offerings, expansion of our national footprint and diversification, This Annual Report on Form 10-K (“Form 10-K”) contains forwarr securities laws, including with respect to the housing market and the commercial market, industry conditions, our financial and business model, payment of dividends, the impact of COVID-19 on our business, end markets, and financial results, our efforts to navigate the material pricing environment, our ability to increase selling prices, supply chain and material constraints, our material and labor our ability to grow and strengthen our market position, our ability to pursue and integrate value-enhancing acquisitions, our ability to improve sales and profitabila ity and expectations for demand for our services and our earnings in 2022. Forward- looking statements may generally be identified by the use of words such as “anticipate,” “believe,” “estimate,” “project,” ff “predict,” “possible,” “forec their negative, or other variations or comparam historical facff ff ts. By their nature, forward-looki depend on circumstances that may or may not occur in the futff ure. any futuret expressed in or suggested by such forward-looking statements as a result of various factors, including, without limitation, the duration, effecff t and severity of the COVID-19 crisis; any recurrence of COVID-19, including through any new variant strains of the virus, and the related surges in positive COVID-19 cases; vaccination rates; the adverse impact of the COVID-19 crisis on our business and financial results, our supply chain, the economy and the markets we serve, as well as the factors discussed in the “Risk Factors” section of this Form 10-K, as the same may be updated from time to time in our subsequent filings with the Securities and Exchange Commission ("SEC"). Any forward-looking statement made by the Company in this report speaks only as of the date hereof. New risks and uncertainties arise fromff 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 fede Any forward-looking statements that we make herein and in performance, and actual results may differ materially from those t reports and statements are not guarantees of future ng statements involve risks and uncertainties because they relate to events and terminology. These forward-looking statements include all matters that are not time to time and it is impossible for the Company to predict ral securities laws. blea ff ff Important factors that could cause our results to vary from expectations include, but are not limited to: • • • • • • • • • • • • • • • • • • • • • • • • our dependence on the economy, the housing market, the level of new residential and commercial construction activity and the credit markets; the cyclical and seasonal nature of our business; declines in the economy or slowing of the housing market recovery that could lead to significant impairment charges; the highly fragme product shortages or the loss of key suppliers; changes in the costs and availability of products; our reliance on key personnel; our ability to attract, train and retain qualified employees while controlling labor nted and competitive nature of our industry; costs; a ff scrutiny and expectations from stakeholders regarding our environmental, social and governance ("ESG") practices; the COVID-19 pandemic and its effect on our business; our exposure to severe weather conditions; ons in our information technology systems, including cybersecurity incidents; rr disrupti inability to continue to successfully expand into new products or geographic markets; inability to successfully acquire and integrate other businesses; inability to successfully expand into the commercial construction market or other lines of business; our exposure to claims arising from our operations; changes in employment and/or immigration laws or failure to properly verify the employment eligibility of our employees; our exposure to product liabila proceedings; changes in, or failure to comply with, federal, state, local and other regulations; our ability to implement and maintain effecff our indebtedness and the restrictions imposed on us by its terms and our exposure to interest rate changes; the reduction, suspension or elimination of dividend payments; additional facff Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-K; and r other factors that the Company may not have currentl tors discussed under Item 1, Business; Item 1A, Risk Factors; and Part II, Item 7, Management’s ity, workmanship warranty, casualty, construction defect and other claims and legal tive internal control over financial reporting; y identified or quantified. ii PART I Item 1. Business OUR COMPANY Installed Building Products, Inc. (“IBP”) and its wholly-owned subsidiaries (collectively referred to as the “Company” and “we,” “us” and “our”) primarily install insulation for residential and commercial builders located in the continental United States. We are also a diversified installer of complementary building products including waterproofing, fire-stopping, fireproofing, garage doors, rain gutters, window blinds, shower doors, closet shelving and mirrors and other products. We offer our portfolio of services from our national network of over 210 branch locations serving all 48 continental states and the District of Columbia. The vast majoa rity of our sales are derived fromff the service-based installation of various products in the residential new construction, repair and remodel and commercial construction end markets. Each of our branches has the a capac insulation installation in more than half of the markets in which we operate based on permits issued in those markets. We are committed to delivering quality installation with a commitment to safety, corporate social responsibility and total customer satisfaction. ity to serve all of our end markets. We believe we have the number one or two market position for new single-family ff IBP was formed as a Delaware corporation on October 28, 2011, however our business began in 1977 with one location in Columbus, Ohio. In the late 1990s, we began our acquisition strategy with the goal of creating a national platform and have grown to become one of the nation's largest installers of insulation in the residential new construction market. Since 1999, we have successfully completed and integrated over 180 acquisitions, which has allowed us to generate significant scale and to diversify our product offerings while expanding into some of the most attractive new construction markets in the United States. We believe we are well positioned to continue to profitably grow our business due to our strong balance sheet, liquidity and acquisition strategy. For a furthe Management’s Discussion and Analysis of Financial Condition, "Key Factors Affecting our Operating Results" in this Form 10- K. r discussion of our industry and trends affecting our industry, please refer to Item 7, ff OUR OPERATRR IONS We manage all aspects of the installation process for our customers, from our direct purchase and receipt of materials from national manufacturers critical phase in the construction process, as certain interior work cannot begin until the insulation phase passes inspection. to our timely supply of materials to job sites and quality installation. Installation of insulation is a t Our business model is differentiated and creates value by streamlining the typical value chain. In a typical building products value chain, manufacturers rely on multiple distributors to purchase product. Distributors serve multiple wholesale and retail accounts who in turn sell to local contractors that perform the installation. We buy most of the products that we use in our business direct fromff manufacturers which are delivered to our local installation operations. Insulation Overview iency solutions to our customers through our primary line of business of installing insulation. We are a provider of energy efficff Insulation installation comprised approximately 64% of our net revenue of $2.0 billion, $1.7 billion and $1.5 billion for the years ended December 31, 2021, 2020 and 2019, respectively. We handle every stage of the installation process, including material procurement, project scheduling and logistics, multi-phase professional installation, quality inspection, waste management and recycling. Insulation Materials We offer a wide range of insulation materials consisting of: • Fiberglass and Cellulose Insulation – Fiberglass insulation is made of fibrous glass that is held together by a thermoset resin creating insulating air pockets. It is typically comprised of an average of 50% recycled material, with some products containing up to 80% recycled material. It is primarily availablea batts (also referred to as blankets) and loosefill (also referred to as blown in). Fiberglass is the most widely used residential insulation material ff in two forms: 1 in the United States. Cellulose insulation is made primarily of waste paper and cardboard and has a composition of at least 75% recycled content. Cellulose is only available in loosefill formff equipment. Fiberglass and cellulose insulation accounted forff ended December 31, 2021. and is blown into the structuret approximately 85% of our insulation sales for the year with specialized • Spray Foam Insulation – Spray foam insulation, which is generally a polyurethane foam, is applied at a job site by mixing two chemical components together in specialized application equipment. While typically having the highest insulating value per inch and sealing effectiveness of all insulation materials that we offer, spray foam is also typically the most expensive on an installed basis. Spray foam insulation accounted for approximately 15% of our insulation sales forff the year ended December 31, 2021. Insulation Installati l on Applications Local building codes typically require the installation of insulation in multiple areas of a struct t ure. frequently referred to as a phase of the insulation installation process and requires a separate trip to the job site by our installers at different points in the construction of a structure. Building practice and the inspection process differ geographically and require our involvement at different times during We install insulation and sealant materials in many areas of a structure, including: the construction process. We assist the builders with coordinating inspections. Each of these areas is d rr • • • • Basement and Crawl Space – These spaces often account for the second most energy loss in a residential structure. Building Envelope – We insulate the exterior walls of both residential and commercial structures insulation on the wall or between the studs. t by applying Attic – We insulate the attics of new and existing residential structures. may be lost in a home. tt The attic is the area where the most energy Acoustical – Many builder or architect specifications call for acoustical insulation for sound reduction purposes in both residential and commercial structures. This product is generally installed in the interior walls to minimize sound transmission. In each of these applications, we typically use fiberglass batts, except in attic installations where we typically install loosefill fiberglass or cellulose. We also install a wide variety of advanced caulk and sealant products that control air infiltration in residential and commercial buildings to enhance energy efficiency, improve comfort and meet increasingly stringent energy code requirements. Waterproofing Some of our locations install waterproofing, caulking and moisture protection systems forff commercial and industrial construction projects. We offer a variety of waterproofing options, including, but not limited to, sheet and hot applied waterproofing membranes, deck coating systems, bentonite systems and air & vapor systems. The installation and service of waterproofing comprised approximately 7% of our net revenue for the year ended December 31, 2021. Shower Doors, Closet Shelving and Mirrors Some of our locations install a variety of shower enclosures, ranging from basic sliding door designs to complex custom designs. We have the ability to meet our customers’ diverse needs by customizing shower enclosures by size and style according to their specifications, including framing, hardware and glass options. We design and install closet shelving systems in select markets utilizing some of the highest quality products available fromff custom designed mirrors for our customers. Shower doors, closet shelving and mirror installations comprised approximately 7% of our net revenue for the year ended December 31, 2021. national brands. We also offer standard and Garage Doors Some of our locations install and service garage doors and openers for new residential construction builders, homeowners and commercial customers. We offer a variety of options from some of the best-known garage door brands. We offer steel, aluminum, wood and vinyl garage doors as well as opener systems. Unlike the other products we install, the garage door mately one-quarter of the net revenue business has an ongoing afteff rmarket service component, which represented approxi a 2 resulting from garage doors for the year ended December 31, 2021. The installation and service of garage doors comprised approximately 5% of our net revenue for the year ended December 31, 2021. Rain Gutters Some of our locations install a wide range of rain gutters, which direct water fromff foundation. Rain gutters are typically constructed fromff in a wide variety of colors, shapes and widths. They are generally assembled on the job site using specialized equipment. The installation of rain gutters comprised approximately 4% of our net revenue for the year ended December 31, 2021. aluminum or copper and are availablea a home’s roof away fromff ture and a the strucrr Fire-stopping and Fireproofing Some of our locations install firff e-stopping systems, including fire-rated joint assemblies, perimeter fire containment, and smoke and fire containment systems. Fire-stopping is a passive fire protection approach that relies on compartmentalization of various building components, including fire-rated walls, joints, and floors. The installation of these products collectively comprised approximately 3% of our net revenue for the year ended December 31, 2021. Window Blinds Some of our locations install differe of window blinds comprised m ff nt types of window blinds, including cordless blinds, shades and shutters. The installation approximately 3% of our net revenue for the year ended December 31, 2021. Other Building Products Some of our locations install other complementary building products, none of which is an individually significant percentage of net revenue. Installation of other building products comprised approximately 7% of our net revenue for the year ended December 31, 2021. Sales and Marketing We seek to attract and retain customers through exceptional customer service, superior installation quality, broad service offerings and competm itive pricing. Our strategy is centered on building and maintaining strong customer relationships. We also capita benefit from more than one of our installation service offerings. By executing this strategy, we believe we can continue to generate incremental sales volumes with new and existing customers. existing customer relationships and identifying situations where customers may alize on cross-selling opportunit ies fromff tt Experienced sales and service professionals are important to our customer growth and increasing our profitability. Retaining and motivating local employees has been an important component of our acquisition and operating strategies. As of December 31, 2021, we employed approximately 700 sales professionals and our sales force has spent an average of approximately ten years with our operations. The local sales staff, which is generally led by the branch manager, is responsible for maintaining relationships with our customers. These local teams work diligently to increase sales by supporting our existing customers with excellent service and value while also pursuing new customers with competitive offerings. In addition to the efforts of our sales staff, we market our product and service offerings on the internet, in the local yellow pages, on the radio and through advertisements in trade journals. We primarily conduct our marketing using local trademarks and trade names. ff COMPETITIVE ADVANTAGES We seek to differentiate ourselves in areas where we believe we have a competitive advantage, including: tt ith a s National scale wll trong local presence. Our national scale gives us access to the best products, training and innovation available, while our local teams provide best in class training and installation services and outstanding customer service. Our customers generally select their building products installer based on quality and timeliness of service, knowledge of local building codes, product application expertise, pricing, relationships and reputation in the market. For these reasons, we emphasize the importance of developing and maintaining strong customer relationships at the local level based on the knowledge and experience of our branch management and staff.ff 3 tt a d product linell s, end markets att ies with our existing customers in markets where we install multiple nd geographies. Diversifying our product line offerings provides us opportunity to Diversifiei increase sales to end customers and leverage our branch costs to improve profitability. We continue to generate revenue synergies by taking advantage of cross-selling opportunit products. We have successfully diversified our product offering from the year ended December 31, 2013, when insulation installation comprised approxi mately 74% of revenues, to the year ended December 31, 2021, where it comprised 64% of revenues. We service the residential new construction and repair and remodel markets, both of which consist of single-family and multi-family dwellings, as well as the commercial construction market. We have diversified our end customer demographic from the year ended December 31, 2013, when revenue from the commercial end market comprised approxi revenues, to the year ended December 31, 2021 where it comprised 17% of revenues. Our growing exposure to commercial end markets diversifies our customer base and makes our business less dependent on residential new construction. Commercial construction is also driven by longer term projects which tends to provide greater revenue visibility. In periods of declining insulation installation volumes, our sales force insulation sales by growing sales of complementary building products, further enhancing our ability to perform. Our national a geographic footprint provides us a balanced business not concentrated in any single region. is able to leverage our diversity of products and reduce the impact of lost a mately 11% of a ff t tt m m y forff ees. We offer competitive benefits to our employe es to ensure an engaged workforce. In addition to offering es, including medical insurance, 401k and paid time off benefits, we also offer longevity stock ncial wellness training and savings matching in order to recruit and retain employees. Our retention efforts have Engaged employm certain benefits to most employe awards, finaff reduced our employee turnover to a level below industry averages. Opportunit advancement are strongly encouraged. We focus on the well-being of our employees through our Positive Production Program. This micro-video program is designed to help employees thrive in all aspects of life through learning and practicing research- backed physical, intellectual skilled and efficient, which drives profitability and encourages repeat business and customer loyalty. Higher employee retention also benefits our business through lower recruitment and training expense. We also consider safety and risk management to be a core business objective. Significant staffing, funding and other resources are allocated to our management systems that enhances safetff y and quality for our employees and our customers. Our branch managers are held accountable forff the safety of employees and quality of workmanship at their locations. We provide our employees with ongoing training and development programs necessary to improve safety pt force have significant experience in the industry and have spent an average of more hthan 11 yyears created the Installed Building Products Foundation in 2019 as a separate, not-for-profit organization to help support our employees for their educad erformance and work quality. Our regional managers, local branch managers and sales iwi hth our operatiions. We also and emotional skills. Engaged, long-tenured employees benefit our business by being highly tion, financial and philanthropic needs. professional growth, training and ii variable cll ial strength,tt ost structure and strong free cash flow. We believe that we are among the most financially Financ sound companies in our industry. We place an emphasis on having a strong balance sheet which allows us to focus on our strategic initiatives and pursue growth opportunit cost structurett and most of our iinstallllatiion em lpl yoyees are paidid byby co generation of strong free cash flow. a lmplet ded jojob.b Our minimal capital expenditure requirements support the with a significant portion of operating expenses directly linked to volume. Our largest expenses are materials and labor ies, drive profitability and generate cash. We have a highly variablea t ll .ee We believe that our ability to consistently complete our installations within a customer’s production Execution excellence schedule is recognized by our customers and is a key component of our high level of service. We have a proven track record of customer satisfaction in managing all aspects of the installation process for our customers. Throughout the construction process, our branch sales and supervisory staff and installation teams make freff quent site visits to ensure timely and proper installation and to provide general service support. We believe a high level of service is valued by our customers and generates customer loyalty. tt Broad and stable custome r base.ee We benefit from a diverse customer base that includes production and custom homebuilders, multi-family and commercial construction firms, homeowners and residential repair and remodeling contractors. We continue to enhance our long-standing relationships with some of the largest builders in the country. While we serve many national and regional builders across multiple markets, we compete forff customer turnover is extremely low. business at the local level. Given our emphasis on quality service, ll u tt d relationshi psii with supplie rs. We have strong long-standing relationships with many of the manufacturers Well establishe the materials we use in our business, including the largest manufacturers of fiberglass and spray foam. The fiberglass insulation We buy significant volume manufacturing market is highly consolidated and primarily served by four from all four manufacturers and have relationships with each company spanning more than two decades. Our national scale allows us to purchase volumes that account for a meaningful portion of the production for these suppliers allowing them to better plan their production schedules. Our relationships and purchasing power often allow us to negotiate preferred material supply terms and to keep purchases through distribution and retail to a minimum, giving us an advantage over our competitors. majora manufacturers. of ff ff tt tt 4 Highlgg y ell ienced and incii ee xper Financial Officer and Chief Operating Officff led us through multiple housing industry cycles, providing valuablea and grow our business both organically and through acquisitions. entivizeii d management team. Our senior management team (Chief Executive Officer, Chief er) have been directing our strategy on average for over tw do decaddes T. his team has continuity and a demonstrated abia lity to improve operations BUSINESS STRATRR EGY ff We believe our geographic foot tt print chain and proven track record of successful acquisitions provides us with opportunit markets and expansion into new markets. We believe our continued emphasis on expanding our product offering, further expansion into the commercial construction market and other lines of business, and targeting geographies where we look to grow market share will reduce potential futff urett , long-standing relationships with national insulation manufacturers, streamlined value continued growth in our existing t cyclicality of our operations. Our current strategic objectives include: ies forff • • • • • • • • capitalize on the new residential and large commercial construction markets; continue to strengthen our market share position by working with the best customers. We seek to work with the most profitable and efficient builders and commercial general contractors in our markets; , develop and retain an exceptional workforce by investing in our employees and our communities and recruit rr promoting a famff ily-oriented culture; capitalize on our ability to cross-sell products through existing markets as well as new markets entered as a result of organic expansion and acquisitions. In addition to insulation and air infiltration products, we install garage doors, rain gutters, mirrors and shower doors, waterproofing, fireproofing and fire-stopping, window blinds and various other products; enhance profitabila ity fromff our operating leverage and national scale; continue expansion in the multibillion-dollar commercial end market. This strategy includes acquiring more locations to serve the large commercial market and increasing overall commercial sales at our existing new residential locations; pursue value enhancing acquisitions in markets we currently serve as well as markets that are new to us by continuing our disciplined approach to valuations and pricing. We will continue to be selective in identifying acquisition targets at es with strong reputations and customer bases. As part attractive multiples. We target profitablea markets and companim of our acquisition strategy, we seek to maintain the management teams of the companies we acquire as well as retain their local branding, which furthe r reduces associated risk; and ff we integrate new acquisitions quickly and seamlessly into our corporate infrastructure, employee systems. In addition, we utilize our internal software technology, jobCORE, to integrate most acquired operations and provide in-depth branch-level operational and financial performance data. We realize near term margin enhancement and revenue growth at acquired branches by applyi a relationships with large national homebuilders. ng our national buying power and leveraging including our accounting and t One of our key areas of focus have accomplished this through organic growth as well as acquisitions. We believe the benefits of this diversification include: has been diversifying our product and service offerings, customer base, and end markets. We ff • Margin enhancement by leveraging branch costs across multiple products • • • • Diversifiedff end-market exposure A more diverse customer base Stronger established local relationships Reduced d cyclicality Product and end market diversification has been a primary strategic initiative throughout our history. In addition to acquisition and local market share growth, we typically experience an increased rate of product and end market diversification during periods of reduced demand growth rates in the residential end market. As such, our oldest and most establia exhibit the greatest diversity of service and product offerings. This diversity in turnt compared to branches in our newer, less developed markets. contributes to enhanced profitability as shed branches tend to 5 However, we can provide no assurance that the positive trends reflected in our recent financial and operating results will continue in 2022. TRENDS IN THE MARKETPLACE imilllliion non-seas lBlue hiChip Eco Our business relies on various market factors, one of which is residential housing demand. Following the late 2000s recession in the U.S. economy, housing starts dropped well below historical averages. Rates have since returned to early 2000s levels, lonallyly dadjust cordi gng to Wollters just with 1.6 lKluwer’s nomic I dindicators Janua yry 2022 forecast. We expect to benefit from the recent growth in single-family new residential construction. Commercial demand saw the least amount of growth of the end markets we serve due to impacts from the COVID-19 pandemic ("COVID-19"). However, we expect this sector to recover in 2022 with building starts forecasted to be above pre-pandemic 2019 investment dollars, increasing 12% over 2020 according to Dodge Data & Analytics. ded starts iin 2021, a dnd an hother 1.6 imilllliion starts forecasted fd forff 2022 ac di dd a i t us by increasing the costs of materials, labor ity. Inflation in the United States was 7% in 2021, the highest rate since 1982. While mortgage Inflation can adversely affecff impact on housing affordabila rates were relatively steady throughout most of 2021, rates began to trend upward in December 2021 and have continued that trend in 2022. Additionally, the Federal Reserve has signaled that it plans to begin raising the fedff rate which in turn will cause mortgage interest rates to rise further. Higher material costs contributed to a lower gross margin in the year ended to determine how much of the impact was related to inflation due to the supply chain December 31, 2021, but we are unablea issues that persist. and interest rates which in turn can have a negative ff eral funds a COVID-19 IMPACTS In December 2019, a novel strain of coronavirus surfaced in Wuhan, China. Since then, the virus has spread globally, including to the United States. In response, the World Health Organization declared the situat ion a pandemic and the U.S. Secretary of Health and Human Services declared a public health emergency. The COVID-19 pandemic has caused significant volatility, uncertainty and economic disruption. Many public health organizations and international, federal, state and local governments implemented measures to combat the spread of COVID-19 at various times since the beginning of the pandemic. Some of these measures included quarantines, vaccine and/or masking requirements, “stay-at-home” orders and social distancing ordinances and restricting or prohibiting outright some or all formff uncertainty surrounding the duration and scope of the pandemic, as well as its continued impact on the economy. We cannot predict if federal, state and local governments will implement additional restrictions, when restrictions currently in place will expire or whether restrictions currently in place will become more limiting. s of commercial and business activity. There is still significant tt While the COVID-19 pandemic and related events will likely have a negative effect on us in 2022, the full extent and scope of the impact on our business and industry, as well as national, regional and global markets and economies, depends on numerous evolving factors that we may not be able to accurately predict, including the duradd tion and scope of the pandemic, additional government actions taken in response to the pandemic, the impact on construction activity and demand for homes (based on employment levels, inflation, consumer spending and consumer confidence). The fasff helped offset prolonged impacts of the pandemic already experienced. In the commercial sector, we have experienced delays in ng declines. the onset of certain large-scale infrastructurett Commercial spending rose in 2021, but remains below 2019 levels. Commercial projects could decline in the future if consumer behaviors change in the wake of COVID-19 disruptions to the economy and changes to our general ways of life. For examplem , reduced demand for office buildings and/or educad tional facilities, decreased airport traffic, or decreased usage of sports arenas or similar commercial structures programs due to declining need for such structures and/or project fundi could continue to impact our commercial end market. t recovery in residential housing demand ff tt Our management remains focused on mitigating the impact of COVID-19 on our business and the risk to our employees and customers. We have taken a number of precautionary measures intended to mitigate these risks. We follow all masking requirements imposed by authorities, most of which have had no adverse effecff equipment in the process of completing our installation work is already a common practice in our industry. We have also taken advantage of availablea technologies which allow some employees the ability to work remotely from home. We comply with regulations from federal, state and local government agencies. Certain protocols have evolved throughout 2021 as vaccines have become available and guidelines from public health authorities such as the Centers for Disease Control are updated. We are prepared to take additional actions if necessary as suggested or required by various health agencies. ts on our business since wearing protective We continue to evaluate the nature and extent of the COVID-19 pandemic’s impact on our financial condition, results of operations and cash flows. We have experienced limited business disruptions to date and therefore have not needed to implement significant continuity measures and have not incurred significant related expenditures. Assuming a large number of tt 6 additional states or markets in which we operate do not reverse their current positions about construction being an “essential” business, we do not anticipate having to implement any additional measures in the futff ure. t Our corporate office has been full controls over financial reporting and have confidence controls are operating as designed. We have enhanced our efforts to mitigate cyber threats and phishing, given some employees are still working remotely. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact of their design and operating effecff y operational throughout the pandemic. As such, we have made no modifications to internal tiveness. ff ff ion in working capita to continue in 2022, however to enhanced risk of collectibility fromff We expect some impact from the pandemic to our earnings, financial position and cash flows there is much uncertainty surrounding the estimated magnitude of these impacm ts. We estimate limited impact to our Consolidated Balance Sheets other than a potential reductdd and net income. Trade accounts receivablea may also be reduced somewhat by lower net revenue and a higher allowance for credit losses duedd We anticipate revenue and net income may continue to be negatively impacted into 2022 due to supply constraints and/or material price increases ultimately stemming from the effects of the pandemic, as well as other facff tors such as high demand for housing. While our cash from operations may decline over recent performance due to a decrease in expected net income driven by lower net revenue, we do not anticipate any issues meeting debt obligations or making timely payments to vendors given our strong liquidity and large cash reserves. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Liquidity and Capia tal Resources" below for further information. Given the continued uncertainty created by the COVID-19 pandemic and its potential effects, it is not possible to estimate the full, adverse impact to our futurett 2022 sales or other financial results at this time. some customers, although we have not seen a significant impact to date. al due to the possibility of reduced net revenue SAFETY AND QUALITY CONTROL Our quality control process starts with the initial proposal. Our sales staff and managers are knowledgeablea offerings and scope of work. They are trained on manufacturers’ guidelines as well as state and local building codes. Our quality control programs emphasiz e onsite inspections, training by manufacturers and various certification programs. about our service m We consider safety and risk management to be a core business objective and require our installers to wear personal protective equipment in the process of completing their work. Each year, we allocate significant staffing, funding and resources to our management systems that directly impact safety.t We have strong workplace safety measures, including Safety Wanted 365, an es and other jobsite initiative focused on creating a safer working environment to reduce job site injuries forff f for the safety ot personnel through year-round educad employees and quality of workmanship at their locations. tion and training. Additionally, our branch managers are held accountablea both our employe m We track all incidents that occur on our job sites that could result in injury, aid or medical treatment. We use this incident information to continually refine and develop our safety t new hires and the continual training and safety knowledge throughout employment at IBP. We believe these programs are having a benefit on the safety and physical well-being of our employees. Although total hours worked increased 11% from 2019 to 2021, OSHA-defined incidents increased by only 4% during the same period, resulting in a decline in incident rate per hours worked of 6%. We also reported a 15% drop in severe incidents and OSHA reportablea incidents from 2019 to 2021, had only 11 severe incidents in 2021 and the incident per hour worked dropped 23%. We had zero fatalities in 2019, 2020 and 2021, and are continually findi ng ways to improve our practices throughout the organization in order to improve the health and safety of our workforce. including minor incidents that may not require first t raining programs for n ff CUSTOMERS We serve a broad group of national, regional and local homebuilders, multi-family and commercial construction firms, individual homeowners and repair and remodeling contractors. Our top ten customers, which are primarily a combination of approximately 15% of net revenue for the year ended December 31, 2021. We national and regional builders, accounted forff install a variety of products in multiple markets for our largest customers, further diversifying our relationship with them. For example, our largest customer is independently serviced by 70 differeff approximately 5% of net revenue for the year ended December 31, 2021. While our largest customers are homebuilders, our customer base is also diverse. We work on a range of commercial projects including office buildings, airports, sports complexes, museums, hospitals, hotels and educad ebuildlders rem iainingning three represent commerciiall customers. We have long-term relationships with many of our customers and have served each of our top ten customers for more than a decade. tional facilities. Of our top 20 customers, 17 represent hhom b i nt IBP branches nationwide despite representing dand hthe 7 BACKLOG For contracts that are not complete at the reporting date, we recognize revenue over time utilizing a cost-to-cost input method. 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. The costs of earned revenue include all direct material and labor indirect labor, supplies, tools and repairs. Backlog represents the transaction price forff performed and excludes unexercised contract options and potential modifications. Backlog is not a guarantee of future revenues as contractual commitments may change. There can be no assurance that backlog will result in revenues within the expected timeframe, if at all. We estimate backlog was $143.2 million as of December 31, 2021 and we estimated it to be $78.5 million as of December 31, 2020. costs and those indirect costs related to contract performance, such as contracts forff which work has not been a SUPPLIERS We have long-term relationships with many of our suppliers, and we purchase from manufacturers whenever possible to streamline the typical supply chain. As one of the largest purchasers of insulation in the United States, we believe that we maintain particularly strong relationships with the largest manufacturers of the products we use in our business. The proximity of certain of our branch locations to insulation manufacturers’ facilities provides additional mutual benefits, including opportunities for cost savings and joint planning regarding futurett insulation manufacturers, our three largest suppli ers in the aggregate accounted for approximately 33% of all material purchases for the year ended December 31, 2021. We also believe that we maintain good relationships with suppliers of the non-insulation products we install. We have found that using multiple suppliers ensures a stablea terms as suppliers compete to gain and maintain our business. In addition, our national purchasing volumes provide leverage u with suppli constraints forff bottlenecks caused by manufacturing Analysis of Financial Condition and Results of Operations, "Key Factors Affecting our Operating Results" for more information. ers as we pursue additional purchasing synergies. The industry is currently experiencing manufacturer supply some of the materials we purchase due to an unanticipated increase in demand as well as global supply chain curtailments due to COVID-19. See Part II, Item 7, Management's Discussion and production. Due to the limited number of large fiberglass source of materials and favorablea purchasing u tt SEASONALITY d the second half of the year as our homebuilder customers complem te construction of homes We typically have higher sales during 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 firff st quarter of the calendar year. This winter slowdown contributes to traditionally lower sales and profitabila ity in our first quarter. As a result of the aforementioned material supply constraints, some jobs may be temporarily delayed, resulting in lower revenue in the firff st and/or second quarters of 2022 than we would normally expect. While we anticipate this will not have a significant effecff t on our business, we cannot predict the full impact on our results of operations at this time. d The composition and level of our working capia tal typically change during periods of increasing sales as we carry more inventory and receivables, although these changes are generally offset in part by higher trade payables to our suppliers. Working capita activity. Typically, the subsequent collection of receivablea positively impacted cash flow. facilities to cover short-term working capita In the past, we have from time to time utilized our borrowing availability under our credit al levels increase in the summer and fall seasons due to higher sales during s and reduction in inventory levels during the winter months has the peak of residential construction al needs. d dd ff COMPETITION We believe that competition in our industry is based on quality and timeliness of service, knowledge of local building codes, pricing, relationships and reputation in the market. The building products installation industry is highly fragmented. The markets for our non-insulation installation services are even more fragmented than the markets forff insulation installation services. Our competitors include one other large national contractor, several large regional contractors and numerous local contractors. We expect to continue to effecff access to capital, tenure and quality of local staff, quality installation reputation and competitive pricing. tively compete in our local markets given our long-standing customer relationships, 8 HUMAN CAPITAL RESOURCES As of December 31, 2021, we had approximately 9,500 employees, consisting of approximately 6,700 installers, approximately 700 sales professionals, approximately 600 production personnel and approximately 1,500 administrative and management personnel. Less than 4% of our employees are covered under collective bargaining agreements. We have never experienced a work stoppage or strike, and we believe that we have good relationships with our employees. Our employees are critical to our continued success and are our most important resource. We focus talented and experienced individuals to manage and support our operations. We consider retaining skilled employees to be a competitive advantage and employ various strategies to improve turnover metrics. In addition, we offer many benefits and resources to most employees, some of which are above and beyond what others in our industry offer. See "Competitive Advantages, Engaged employees” above for further details on turnover metrics and the benefits we offer. on attracting and retaining ff Our management team supports the development of our existing workforce by establishing a culture of employee engagement, employee apprec promotion from within forff many leadership positions. We believe this provides increased retention and promotes a long-term focus to our operations. iation and the opportunit y forff a t or any other statustt protected by law. We are proud of our strong and diverse workforce. Our Hispanic/Latino diversityt from discrimination and harassment on the basis of race, color, age, veteran We respect and support the diversity of all people within our workforce. We are committed to diversity, equity and inclusion ("DE&I") practices and maintaining workplaces freeff religion, sex, national origin, ancestry, gender, sexual orientation, gender identification, disability, military status, status, tt outpaces the construction industry average, according to the Bureau of Labor Statistics, and our workforce as a whole is comprised of over 50% ethnic minorities. In addition, based on gender, racial, ethnic and orientation diversity, 50% of our board of directors is diverse, which helps drive our strategies for an inclusive workplace. We are committed in policy and a practice to providing equal employment opportunities for all appli and overall qualifications. Employe committees to determine the standards for how employees should interact with one another and their communities. We do not a tolerate inappropria es across all our branches are invited to participate in our regional and national DE&I cants and employees based uponu te behavior or harassment. their training, experience, m tt icable nd health laws and regulations. In response to the COVID-19 pandemic, we implemented enhanced safety protocols to The health and safety of our employees is of primary importance. See “Safety and Quality Control” above policies and practices. Our policy is designed to protect against accidents, injuries, and illnesses, in complim ance with appl safety at protect our employees’ health and well-being, and to comply with regulations from federal, state and local government agencies. Certain protocols evolved throughout 2021 as vaccines became available and guidelines from public health authorities such as the Centers for Disease Control were updated. See “COVID-19 Impacts” above for more information. for details on our a a INFORMATION TECHNOLOGY d internal software technology used by the majori JobCORE is our web-enablea operate our business in a highly efficff time job-level operational and financial performance data fromff each branch to the corporate office. JobCORE provides us, our branch managers and our sales personnel with an important operational tool for monitoring branch level performance. It assists management in assessing important business questions, including customer analysis, sales staff analysis, branch analysis and other operating activities. ient manner and manage our operations. The jobCORE software provides in-depth real- ty of our branches. The system is designed to a INTELLECTUAL PROPERTY We possess intellectual property rights, including trademarks, trade names and know-how and other proprietary rights that are important to our business. In particular, we maintain registered trademarks and trade names, some of which are the trademarks and trade names under which many of our local branches operate and we own or have licensed rights to use jobCORE and other software used in the operation of our business. While we do not believe our business is dependent on any one of our trademarks or trade names, we believe that our trademarks and trade names are important to the development and conduct of our business as well as to the local marketing of our services. We also maintain domain name registrations for each of our local branch websites. We make efforts to protect our intellectual property rights, although the actions we take may be inadequate to prevent others from using similar intellectual property and we may be unablea property. In addition, third parties may assert claims against our use of intellectual tt to successfully resolve such claims. 9 ENVIRONMENTAL, SOCIAL AND REGULATORY MRR ATTERS As part of our commitment to socially responsible corporate practices, we expanded our Environmental, Social, and Governance ("ESG") efforts and objectives and can be found ff of our website are not incorporated by reference in, or otherwise made a part of, this Form 10-K or in any other report or document we file with the SEC, and any references to our website are intended to be inactive textual by releasing our inaugural ESG report in 2021. This ESG report outlines our sustainability targets //installedbuildingproducts.com/sustainability. The contents on our corporate website at https: references only. ff t t Insulation is a critical component in reducing energy usage and greenhouse gas emissions. The Department of Energy, or DOE, states that over half of the energy used in the average American home is forff heating and cooling due to many homes not having proper insulation. Per an insulation fact sheet provided by the DOE, inadequate insulation and air leakage are leading causes of energy waste in most homes. Through insulating homes and commercial structures, our industry promotes energy efficiency. Our loose-fill cellulose insulation is manufactured fromff . recycled glass which helps reuse resources and reduce our global carbon footprint recycled waste paper and our fiberglass insulation is made from tt We are committed to socially responsible corporate practices. Through the Installed Building Products Foundation and other volunteer opportunities, we give back to the communities we serve. We also provide longevity stock awards and finaff ncial wellness training to our employees. We are subject to various federal, state and local laws and regulations applicable in the jurisdictions in which we operate, including laws and regulations relating to our relationships with our employees, public health and safety, workplace safety,t codes and regulations. codes. We strive to operate in accordance with appl transportation, zoning and fireff icable laws, a eral, state and local regulations covering building codes, complim ance with We are responsible for adhering to several fedff COVID-19 restrictions, labor-related regulations covering minimum wage and employee safety, and transportation procedures. Our transportation operations are subjeu which has broad administrative powers. We are also subject to safety requirements governing interstate operations prescribed by the DOT. In addition, vehicle dimension and weight and driver hours of service are subject to both fede regulation. Our operations are also subject to the regulatory jurisdiction of the U.S. Department of Labor’s and Health Administration, or OSHA, which has broad administrative powers regarding workplace and jobsite safety. ct to the regulatory jurisdiction of the U.S. Department of Transportation, or DOT, ral and state Occupational Safetyt a ff ff ral, state and local laws and regulations relating to the use, storage, handling, Our operations and properties are subject to fede generation, transportation, treatment, emission, release, discharge and disposal of hazardous or toxic materials, substances, waste and petroleum products and the investigation, remediation, removal and monitoring of the presence or release of such materials, substances, waste and petroleum products, including at currently or forme rly owned or occupied premises and off- site disposal locations. We have not previously incurred material costs to comply with environmental laws and regulations. However, we could be subject to material costs, liabilities or claims relating to environmental compliance in the future, especially in the event of changes in existing laws and regulations or in their interpretation or enforcement. ff of our business involves the use or handling of certain potentially hazardous or toxic substances, including spray As the naturet foam applications and lead-based paint, we may be held liable for claims alleging injury or damage resulting from the release of or exposure to such substances, as well as claims relating to the presence of mold, fungal growth and moisture intrusion alleged for, among in connection with our business activities. In addition, as owners and lessees of real property, we may be held liablea other things, releases of hazardous or toxic substances or petroleum products on, at, under or emanating from currently or formerly owned or operated properties, or any off-site disposal locations, or for any known or newly discovered environmental conditions at or relating to any of our properties, including those arising from activities conducted by previous occupants or at ning properties, without regard to whether we knew of or were responsible for such release. We may be required to adjoid investigate, remove, remediate or monitor the presence or release of such hazardous or toxic substances or petroleum products and may be held liablea damages, including for bodily by a governmental entity for fines and penalties or to any third parties forff injury, property damage and natural resource damage in connection with the presence or release of hazardous or toxic substances or petroleum products. n To date, costs to comply with applicablea the environment and natural we do not anticipate incurring material expenditures t tt laws and regulations relating to pollution or the protection of human health and safety, resources have not had a material adverse effect on our financial condition or operating results, and to comply with such laws and regulations in the current fiscal year. In conjunction with our lease agreements and other transactions, we often provide reasonable and customary indemnities relating to various matters, including environmental issues. To date, we have not had to pay a material amount pursuant to any such indemnification obligations. 10 In addition, our suppliers are subjecb purchase of a cellulose manufacturer in November 2018, we are subjecb suppliers. t to various laws and regulations, including environmental laws and regulations. With our t to similar laws and regulations that apply a to our CORPORATE AND AVAILABLE INFORMATION Installed Building Products, Inc. is a holding company that derives all of its operating income fromff principal executive offices are located at 495 South High Street, Suite 50, Columbus, Ohio 43215. Our main telephone number is (614) 221-3399. Our common stock is listed on the New York Stock Exchange, or NYSE, under the symbol “IBP.” its subsidiaries. Our We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and file annual, quarterly and current reports, proxy statements and other information with the SEC. These filings are available to the /www.se c.gov. Our corporate website is located at http:// public on the SEC’s website at http:/ // www.installedbuildingproducts.com, or http:/ // /www.i investors.installedbuildingproducts.com. Copies of our Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports fileff d or furnished free of charge, on our investor relations website as soon as reasonably practicablea electronically to the SEC. pursuant to Section 13(a) or 15(d) of the Exchange Act are available, it bp.com, and our investor relations website is located at http:// after we file such material with or furnish ff ff t t We webcast our earnings calls and post the materials used in meetings with members of the investment community on our investor relations website. Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events and press and earnings releases on our investor relations website. We have used, and intend to continue to use, our investor relations website as a means of disclosing material non-public information and for complying with disclosure obligations under Regulation FD. Further corporate governance information, including our certificate of incorporation, bylaws, governance guidelines, board committee charters and code of business conduct and ethics, is also availablea on our investor relations website under the heading “Corporate Governance.” The contents of our website are not incorporated by reference in, or otherwise made a part of, this Form 10-K or in any other report or document we file with the SEC, and any references to our website are intended to be inactive textual references only. t Item 1A. Risk Factors There are a number of business risks and uncertainties that affect our business. These risks and uncertainties could cause our actual results to differ from past performance or expected results. We consider the following risks and uncertainties to be most relevant to our business activities. Additional risks and uncertainties not presently known to us, or that we currently believe to be immaterial, may also adversely impact our business, financial condition and results of operations. We urge investors to consider carefully the risk fact ors described below in evaluating the information contained in this report. ff For a summary of the following risks, please see "Information Regarding Forward-Looking Statements and Risk Factors Summary" which appears immediately prior to Item 1, Business, of this Form 10-K. RISKS RELATED TO OUR BUSINESS AND INDUSTRY Our business and the industry in which we operate are highly dependent on general and local economic conditions, the housing market, the level of new residential and commercial construction activity and other important factors, all of which are beyond our control. Our business is cyclical, seasonal and highly sensitive to economic and housing market conditions over which we have no control, including: • • • • • • the number of new home and commercial building construction starts; short- and long-term interest rates; inflation; employment levels and job and personal income growth; housing demand from population growth, household formation and other demographic changes; housing affordability; 11 • • • • • • • • • • • • • • • rental housing demand; availabila ity and cost of labor; a availabila ity and cost of land; changes in material prices; local zoning and permitting processes, including the length of building cycles fromff local economic or environmental factors; permit to completion, based on fedff eral, state and local energy efficiency programs, regulations, codes and standards; ity and pricing of mortgage financing for homebuyers and commercial finff ancing for developers of multi- availabila family homes and commercial projects; ff forec losure rates; consumer confidence generally and the confidence of potential homebuyers in particular; U.S. and global finff ancial system and credit market stabia lity; fedff eral government economic, trade, and spending laws and policies; private party and government mortgage loan programs and federal and state regulation, oversight and legal action regarding lending, appraisal, forec losure and short sale practices; ff eral and state personal income tax rates and provisions, including provisions for the deduction of mortgage loan fedff interest payments, state and local income and real estate taxes and other expenses; general economic conditions, including in the markets in which we competm e; and pandemics, natural disasters, war, acts of terrorism and response to these events. Unfavorable changes in any of the above homes and adversely affecff operate. Any deterioration in economic or housing market conditions or continuation of uncertain economic or housing market conditions could have a material adverse effecff t our business generally or be more prevalent or concentrated in particular markets in which we t on our business, financial condition, results of operations and prospects. t consumer spending, result in decreased demand for conditions could adversely affecff a A downturn in the housing market could materially and adversely affect our business and financial results. In 2021, the U.S. Census Bureau reported an estimated 1.6 million non-seasonally adjusted total housing starts, up from 1.4 million starts in 2020. Despite the increase, any future may materially adversely affecff mortgage interest rates and rising home prices, along with other economic factors, may lead to a decline in the home construction market. The demand for residential construction could be negatively impacted if the number of renting households increases, as we have seen in the recent past, or by a shortage in the supply of affordabl home ownership rates. Demand can also be negatively impacted by changing consumer tastes and demographic changes. t our business, financial condition, results of operations and cash flows. In particular, increases in decline in new home construction and resulting product demand levels e housing which could result in lower ff ff Other factors that might impact growth in the homebuilding industry include: uncertainty in finff ancial, credit and consumer lending markets amid slow growth or recessionary conditions; levels of mortgage repayment; limited credit availability; federal and state personal income tax rates and changes to the deductibility of certain state and local taxes; Federal Reserve policy changes; shortages of suitablea markets; and rising materials prices. Given these factors, we can provide no assurance that present growth trends will continue, whether overall or in our markets. The economic downturn in 2007-2010 severely affecff ted our business. Another reduction in housing demand in the future could have a similar effecff building lots in many regions; shortages of experienced labor; soft housing demand in certain t on our business. Our business relies on commercial construction activity, which has faced significant challenges and is dependent on business investment. A portion of the products we sell are for the commercial construction market. If this market does not grow in the future, the growth potential of our business, and our financial condition, results of operations and cash flows could be adversely affecff The commercial construction market, as measured by investment dollars, increased 8% in 2021 from 2020. However, this market has not rebounded from the pandemic as quickly as the new residential market as investment dollars in 2021 were below 2019 levels. ted. 12 According to Dodge Data & Analytics, commercial building starts in 2022, measured by investment dollars, are expected to increase 12% from 2021 while instituti participate) are expected to increase 6% from 2021. onal building starts (a subset of the nonresidential construction market in which we t The strength of the commercial construction market depends on business investment which is a funct regional and local economic conditions beyond our control, including capia tal and credit availability for commercial construction projects, material costs, interest rates, employm employment practices, vacancy rates, labor and healthcare costs, fuel the real estate industry. Adverse changes or continued uncertainty regarding these and other economic conditions could result in a decline or postponement in spending on commercial construction projects, which could adversely affect our financial condition, results of operations and cash flows. ent rates, demand for office space due to COVID-19-related changes in and other energy costs and changes in tax laws affecff ion of many national, ting m ff ff Weakness in the commercial construction market would have a material adverse effect on our business, financial condition and operating results. Continued uncertainty about current economic conditions will continue to pose a risk to our businesses that serve the non-residential markets. If participants in these industries postpone spending in response to tighter credit, negative news surrounding the COVID-19 financial news and declines in income or asset values or other factors such as unfavorablea pandemic, this could have a material negative effecff condition and results of operations. t on the demand for our products and services and on our business, financial A decline in the economy and/or a deterioration in expectations regarding the housing market or the commercial construction market could cause us to record significant non-cash impairment charges, which could negatively affect our earnings and reduce stockholders’ equity. We review our goodwill for impairment annually during the fourth quarter. We also review our goodwill and other intangible assets when events or changes in circumstances indicate the carrying value may not be recoverable. In doing so, we either assess qualitative factors or perform a detailed analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We did not record any goodwill impairment charges in 2021, 2020, or 2019; however, a decline in the expectation of our futuret regarding the general economy and/or the timing and the extent of new home construction, home improvement and commercial construction activity may cause us to recognize non-cash, pre-tax impairment charges for goodwill or other long-lived assets, which are not determinablea incur impairment charges in connection with prior and future impaired, our earnings and stockholders’ equity would be adversely affecff other intangible assets in an aggregate amount of $586.9 million, or approximately 36% of our total assets, which is in excess of our stockholders’ equity. at this time. In addition, as a result of our acquisition strategy, we have recorded goodwill and may acquisitions. If the value of goodwill or other intangible assets is ted. As of December 31, 2021, we had goodwill and performance, a decline in our market capitalization, deterioration in expectations ff Our industry is highly fragmented and competitive, and increased competitive pressure may adversely affect our business, financial condition, results of operations and cash flows. ff The building products installation industry is highly fragmff national, regional and local companies. Any of these competitors may: (i) foresee accurately than we do; (ii) offer services that are deemed superior to ours; (iii) sell building products and services at a lower cost; (iv) develop stronger relationships with homebuilders and suppliers; (v) adapta more quickly to new technologies, new installation techniques or evolving customer requirements; or (vi) have access to financing on more favorablea obtain in the market. As a result, we may not be able to compete successfully with them. If we are unablea effectively, our business, financial condition, results of operations and cash flows may be adversely affecff ented and competitive. We facff e significant competition from other the course of market development more to compete ted. ff terms than we can In the event that increased demand leads to higher prices for the products we use in our business, we may have limited, if any, ability to pass on price increases in a timely manner or at all dued Residential homebuilders have, in the past, placed pressure on their suppliers to keep prices low, also contributing to the possibility of not being able to pass on price increases. to the fragmented and competitive naturet of our industry. Product shortages or the loss of key suppliers could affect our business, financial condition, results of operations and cash flows. Our ability to offer a wide variety of products to our customers depends on our ability to obtain adequate product supply from manufacturers. We do not typically enter into long-term agreements with our suppliers but have done so from time to time, including in 2018 when we entered into a contract to provide a portion of the insulation materials we utilize across our 13 t d certain vendors, circumstances. Generally, our products are availablea from various sources and in sufficient quantities ers or some of the materials we use in our business due to an unanticipated increase in demand as well as global supply 2019, 2020 and 2021. At this time, we do not have any agreements that exceed a one-year commitment in ilities duedd city and production. The industry is currently experiencing manufacturer supply businesses during 2022. We have certain agreements that do not qualify as supply agreements due to a lack of a fixed price and/or lack of a fixff ed and determinable purchase quantity, but nonetheless may require us to purchase certain of our products fromff depending on the specificff to meet our operating needs. However, the loss of, or a substantial decrease in the availability of, products from our suppli the loss of key supplier arrangements could adversely impact our business, financial condition, results of operations and cash flows. Historically, unexpected events, such as incapacitation of supplier facff temporarily reduced manufacturing capaa constraints forff chain bottlenecks caused by manufacturing curtailments dued Analysis of Financial Condition and Results of Operations, "Key Factors Affecting our Operating Results" for more information. In addition, during prior economic downturns in the housing industry, manufacturers have reduced capaa closing plants and production lines within plants. Even if such capaa manufacturers’ ability to increase capaa suppliers exceeds the available supply, we may be unable to source additional products in sufficient quantity or quality in a timely manner and the prices forff the products that we use in our business could rise. These developments could affecff ability to take advantage of market opportunities and limit our growth prospects. We continually evaluate our supplier relationships and at any given time may move some or all of our purchases from one or more of our suppliers. There can be no assurance that any such action would have its intended effecff to COVID-19. See Part II, Item 7, Management's Discussion and city reductions are not permanent, there may be a delay in city in times of rising demand. If the demand forff to extreme weather or fire, have manufacturers and other products fromff city by t our t. u tt Failure by our suppliers to continue to provide us with products on commercially favorablea material adverse effect on our operating margins, financial condition, operating results and/or cash flows. Our inabila source materials in a timely manner could also damage our relationships with our customers. terms, or at all, could have a ity to Changes in the costs of the products we use in our business, an inability to increase our selling prices or a delay in the timing of such increases can decrease our profit margins. The principal building products we use in our business have been subject to price changes in the past, some of which have been significant. For example, the industry supply of a portion of the insulation materials we install was disrupted due to historic winter storms in the southern United States during the firff st quarter of 2021. This event, coupled with other industry impacm ts such as sudden increased demand, resulted in insulation material allocation throughout the industry and, as a result, increased market pricing which impacted our results of operations in 2021 and will likely impact 2022 as well. Increased market pricing, regardless of the catalyst, could impact our results of operations in the future to the extent that price increases cannot be passed on to our customers. While we continue to work with our customers to adjust selling prices to offset the aforemff entioned higher costs, there can be no assurance that any such action would have its intended effecff individual quarterly periods can be, and have been, adversely affecff are implemented and when we are ablea often depend on volume requirements. If we do not meet these volume requirements, our costs could increase and our margins may be adversely affected. In addition, while we have been ablea relationships with suppli business, which could have a material adverse effecff ers, we may not be able to continue to receive advantageous pricing for the products that we use in our t on our financial condition, results of operations and cash flows. our products and services, if at all. Our supplier purchase prices ted by a delay between when building product cost increases to achieve cost savings through volume purchasing and our t. In addition, our results of operations for to increase prices forff u Our success depends on our key personnel. the continued contributions of our senior management team. We do not have Our business results depend largely uponu employment agreements with any of our executive officers other than Jeff Edwards, our Chief Executive Officer and President. Although Mr. Edwards’ employment agreement requires him to devote the amount of time necessary to conduct our business and affairs ff interfere with his service to us, including non-competitive operational activities for his real estate development business. If we lose members of our management team, our business, financial condition and results of operations, as well as the market price of our securities, could be adversely affect , he is also permitted to engage in other business activities that do not create a conflict of interest or substantially ed. ff Our business results also depend upon our branch managers and sales personnel, including those of companies recently acquired. While we customarily sign non-competm ition agreements, which typically continue for two years following the termination of employment, with our branch managers and sales personnel in order to maintain key customer relationships in our markets, such agreements do not protect us fully against competm ition from former employees. 14 We are dependent on attracting, training and retaining qualified employees while controlling labor costs. market for the construction industry is competitive, including within the sector in which we operate. We must attract, a The labor train and retain a large number of qualified employees to install our products while controlling related labor costs. We face significant competition for these employe it even more difficult forff control labor benefit costs. A significant increase in competition, minimum wage or overtime rates in localities where we have employees could have a significant impact on our operating costs and may require that we take steps to mitigate such increases, all of which may cause us to incur additional costs, expend resources responding to such increases and lower our margins. costs is subject to numerous external factors, including competitive wage rates and health and other insurance and es from our industry as well as from other industries. Tighter labor costs. Our ability to attract qualified employees and us to hire and retain installers and control labor markets may make m a a a Higher labor and health care costs could adversely affect our business. Our labor costs have increased in recent years and may continue to increase as a result of competition, health and other ff insurance and benefit costs. In addition, health care coverage requirements, changes in workplace regulations and any future legislation could cause us to experience higher health care and labor health care and insurance costs could have an adverse effect on our business, financial condition and results of operations. costs in the futff ure. Increased labor, a a tt Variability in self-insurance liability estimates could adversely impact our results of operations. risks including, but not limited to, workers’ compensation, general liability, vehicle liability, property We carry insurance forff and our obligation for employee-related health care benefits. In most cases, these risks are insured under high deductible and/or high-retention programs that require us to carry highly subjective liability reserves on our balance sheet. We estimate these insurance liabila ities by considering historical claims experience, including frequency, severity, demographic actuarial assumptions, and periodically analyzing our historical trends with the assistance of external actuarial consultants. Our accruals for insurance reserves reflect these estimates and other management judgments, which are subject to variabila ity. If our claim experience differs reserves, our financial condition and results of operations could be adversely affected. historical trends and actuarial assumptions and we then need to increase our significantly fromff factors and other a ff Increases in union organizing activity and/or work stoppages could delay or reduce availability of products that we use in our business and increase our costs. Currently,ly, lless htha 4n % percent of our em lpl yoyees are covered bd byy c lolllectiive barga However, if a larger number of our employees were to unionize, including in the wake of any futurett easier forff negatively affected. Any inabia lity by us to negotiate collective bargaining arrangements could cause strikes or other work stoppages, and new contracts could result in increased operating costs. If any such strikes or other work stoppages occur, or if other employees become represented by a union, we could experience a disruption of our operations and higher labor employees to unionize, or if we acquire an entity with a unionized workforce in the future, our business could be bargai iini gng or other similar labor agreements. legislation that makes it costs. a We participate in various multiemployer pension plans under collective bargaining agreements in Washington, Oregon, California and Illinois with other companies in the construction industry. We also participate in various multiemployer health and welfareff plans that cover both active and retired participants. These plans cover most of our union-represented employees. If a participating employer stops contributing to the multiemployer plan, the unfunded obligations of the plan may be borne by the remaining participating employers. In addition, if a participating employer chooses to stop participating in these multiemployer plans, the employer may be required to pay those plans a withdrawal liability based upon the underfunded status of the plan. In addition, certain of our suppliers have unionized workforces and certain of our products are transported by unionized truckers. Strikes or work stoppages could result in slowdowns or closures of facilities where the products that we use in our t the ability of our suppliers to deliver such products to us. Any interruption in the business are manufactured production or delivery of these products could delay or reduce availability of these products and increase our costs. or could affecff tt Increases in fuel costs could adversely affect our results of operations. tt The price of oil has fluctuat ed over the last few years, creating volatility in our fuel costs. We do not currently hedge our fuel costs. Increases in fuel costs can negatively impact our cost to deliver our products to our customers and thus increase our cost of sales. If we are unable to increase the selling price of our products to our customers to cover any increases in fuel costs, net income may be adversely affected. 15 Because we operate our business through highly dispersed locations across the United States, our operations may be materially adversely affected by inconsistent practices and the operating results of individual branches may vary. We operate our business through a network of highly dispersed locations throughout the United States, supported and services at our corporate office, with local branch management retaining responsibility for day-to-day operations and adherence to appl us to coordinate procedures across our operations in a timely manner or at all. In addition, our branches may require significant oversight and coordination from our corporate office to support their growth. Inconsistent implementation of corporate strategy and policies at the local level could materially and adversely affect our overall profitability, business, results of operations, financial condition and prospects. icable local laws. Our operating structuret can make it difficult forff by executives u a In addition, the operating results of an individual branch may differ including market size, management practices, competm itive landscape, regulatory requirements, state and local taxes and local economic conditions. As a result, certain of our branches may experience higher or lower levels of growth than other branches. Therefore, our overall financial performance and results of operations may not be indicative of the performance and results of operations of any individual branch. from those of another branch forff a variety of reasons, ff In the ordinary course of business, we are required to obtain performance bonds and licensing bonds, the unavailability of which could adversely affect our business, financial condition, results of operations and/or cash flows. We are often required to obtain performance bonds and licensing bonds to secure our performance under certain contracts and other arrangements. In addition, the commercial construction end market also requires higher levels of performance bonding. al, past performance, management expertise and certain external factors, including the overall capac Our ability to obtain performance bonds and licensing bonds primarily depends on our credit rating, capia talization, working capita and the underwriting practices of surety bond issuers. The ability to obtain performance bonds and licensing bonds can also be impacted by the willingness of insurance companies to issue performance bonds and licensing bonds. If we are unable to obtain performance bonds and licensing bonds when required, our business, financial condition, results of operations and/or cash flows could be adversely impacted. ity of the surety market a Increasing scrutiny and changing expectations from stakeholders regarding our environmental, social and governance ("ESG") practices may impose additional costs on us or expose us to new or additional risks. tt onal investors, investment funds, lenders and other market participants, shareholders, Investor advocacy groups, certain instituti and customers have focused increasingly on the ESG or “sustainability” practices of companies and have placed increasing importance on the social cost of their investments. If our ESG practices do not meet investor, lender, or other industry stakeholder expectations and standards, which continue to evolve, our access to capita assessment of our ESG practices. These limitations, in both the debt and equity markets, may negatively affect our ability to manage our liquidity, our ability to refinaff operations, and the price of our common stock. nce existing debt, grow our businesses, implement our strategies, our results of al may be negatively impacted based on an We released our inaugural ESG report in 2021. The report includes our policies and practices on a variety of social and environmental matters, including, diversity and inclusion initiatives, training and development programs, and employe and safety practices as well as other sustainable business practices and environmental targets. It is possible that stakeholders may not be satisfied with our ESG practices or the speed of their adoption. We could also incur additional costs and require additional resources to monitor, report, and comply with various ESG practices. Also, our failure, or perceived faiff the standards or targets set fort retention, and the willingness of our customers and suppliers to do business with us. h in the sustainability report could negatively impact our reputation and stock price, employee m ff lure, to meet e health RISKS TO OUR BUSINESS FROM EXTERNAL THREATS The COVID-19 pandemic could continue to adversely impact the U.S. economy as well as our business, financial condition, operating results and cash flows. According to the World Health Organization (“WHO”), in December 2019 China reported a cluster of cases of pneumonia in Wuhan, Hubei Province later identified as a novel strain of coronavirus. In response, the WHO declared the situation a pandemic and the U.S. Secretary of Health and Human Services declared a public health emergency. The COVID-19 pandemic has caused significant volatility, uncertainty and economic disruption. Many public health organizations and international, federal, state and local governments implemented measures to combat the spread of COVID-19 during 2020 and 2021. Some of 16 these measures included restrictions on movement such as quarantines, vaccine and/or masking requirements, “stay-at-home” orders and social distancing ordinances and restricting or prohibiting outright some or all formff activity. There is still significant uncertainty surrounding the duration and scope of the pandemic as well as its continued impact on the economy. We cannot predict if federal, state and local governments will implement additional restrictions, when restrictions currently in place will expire or whether restrictions currently in place will become more restrictive. s of commercial and business COVID-19 adversely affected many industries as well as the economies and financial markets of many countries, including the United States, causing a significant deceleration of economic activity during a portion of 2020. This slowdown reduced production, decreased the level of trade, and led to widespread corporate downsizing, causing a sharp increase in unemployment in 2020 from which the economy is still recovering. The continued impact of this pandemic on the U.S. and world economies is uncertain and these adverse impacm ts could worsen, impacting all segments of the global economy, and result in a significant recession or worse. dd Our business has been adversely affected by the COVID-19 pandemic and the global response. The Company and its customers’ businesses were classified as “essential” businesses in most of the jurisdictions in which we operate, permitting us 2020. However, there can be to continue operations in most of our markets when COVID-19-related shutdowns occurred during no assurance that our operations will continue to be classified as “essential” in the future, or that we will not voluntarily limit or cease operations in one or more of our markets if we believe it is in our best interest. For example, during portions of March, April and May of 2020, we saw a temporary but significant reduction in activity in our branches located in seven states and the 10% of our net revenue during the year ended December 31, 2019. Bay Area of California, which collectively accounted forff The reduced activity in these areas was attributable to construction being temporarily deemed non-essential during that time period. While operations have resumed to normal levels in all of these areas, future mandatory shutdowns or reductions in operations could have a material adverse effecff t on our business. During 2020, we laid off or furloughed approximately 600 employees in areas where construction was not deemed “essential.” We have since rehired or brought back substantially all of m Any employe those employees, but we may need to layoff or furlough other employees in the futff ure. associated with futurett but could result in long-term labor shortages in certain markets if we cannot rehire these employees once operations resume. During the second half of 2021, new variants of COVID-19 emerged that were more contagious than previous variants and caused some of our local branches to be shut down or operations to be limited. We continue to assess this evolving situat ion and may adjust our policies and processes to continue to operate effectively. branch closures or slowdowns are assumed to be temporary in naturet e layoffs or furloughs a tt t the initial onset of the pandemic in 2020, the COVID-19 pandemic ff While the U.S. housing industry quickly rebounded fromff may have a material adverse impacm t on our customers and the homebuilding industry in the future stabilized, but inflation has been rising which could raise interest rates and may adversely affect consumer spending or consumer confidence, both of which would typically decrease demand for homes. In the commercial sector, we have experienced delays in the onset of certain large-scale infrastructure programs due to declining need for such structures and/or project funding declines. Commercial spending rose in 2021, but remains below 2019 levels. Commercial projects could decline in the future if consumer behaviors change in the wake of COVID-19 disruptions to the economy and changes to our general ways of life. For example, reduced demand for office buildings, decreased airport traffic or decreased usage of sports arenas could continue to impact our commercial end market. . Unemployment levels have The industry is currently experiencing manufacturer supply constraints forff many of the materials we use in our business due to an unanticipated increase in demand as well as global supply chain bottlenecks as a result of manufacturing curtailments due to COVID-19. These factors affecff ted our ability to complete installation work for certain customers during 2021 and also required us to source many of the materials we install fromff For example, we estimate our cost of sales forff adverse impact on our financial condition, operating results and cash flows. year ended December 31, 2021 were approximately $8.8 million higher than they would have been if we purchased these materials through regular channels. We anticipate this trend of higher materials costs as a result of disruptions caused by the COVID-19 pandemic to continue into 2022. distributors and retail outlets at a premium. These higher costs had an the ff Our management is focused on mitigating the impact of COVID-19 on our business and the risk to our employees, which has partially diverted management’s attention away from normal business operations. Additionally, we have taken a number of precautionary measures intended to mitigate the impact of COVID-19 on our business and the risk to our employees, including increasing the freff quency of regular cleaning and disinfecting processes at our facilities, adhering to social distancing and mask protocols, limiting the number of workers in a branch or warehouse at any given time and periodically allowing employees to work remotely when possible, which could adversely affect personnel and/or a portion of our installer base could be unable to work due to sickness or the need to quarantine, or become temporarily or permanently incapacitated by COVID-19 or related complications. This could result in a material adverse impact While these and other measures we may take are believed ff on our business, financial condition, operating results and cash flows. our business. Despite these measures, our key management ff 17 to be temporary, they may continue until the pandemic is contained or indefinitely and could increase costs and amplify existing risks or introduce new risks that could adversely affecff cybersecurity risks. t our business, including, but not limited to, internal controls and Considerablea uncertainty still surrounds COVID-19 and its duration and potential effects, as well as the extent of, and effectiveness of, any responses taken on a local, national and global level. To date, vaccines have been developed and treatments have improved, but it is too soon to know if they will protect against a worsening of the pandemic due to new variants of the virus or other factors, or to prevent COVID-19 from becoming endemic. While we expect the COVID-19 pandemic and related events may have a negative effecff l extent and scope of the impact on our business and industry, as well as national, regional and global markets and economies, depends on numerous evolving factors that we may not be able to accurately predict, including the duration and scope of the pandemic, additional government actions taken in response to the pandemic, the impact on construction activity and demand for homes (based on employment levels, consumer spending and consumer confidence). Accordingly, our ability to conduct our business in the manner previously or currently expected could be materially and negatively affecff business, financial condition, operating results and cash flows. ted, any of which could have a material adverse impacm t on our t on us in the future, the fulff tt Our business is seasonal and may be affected by adverse weather conditions, natural disasters or other catastrophic events. 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 This winter slowdown contributes to traditionally lower sales and profitabila ity in our first quarter. inclement months. d In addition, climate change and/or adverse weather conditions, such as unusually prolonged cold conditions, rain, blizzards, hurricanes, earthquakes, fires, other natural disasters, epidemics or other catastrophic events could accelerate, delay or halt construction or installation activity or impact our suppliers. For examplem , the February 2021 winter storms in the southern United States significantly impacted our operations across the entire state of Texas. The impact of these types of events on our business may adversely impact quarterly or annual net revenue, cash flows fromff operations and results of operations. Weather is one of the main reasons for annual seasonality cycles of our business, and any adverse weather conditions can enhance this seasonality. tt We may be adversely affected by disruptions in our information technology systems. individual such information technology systems to manage customer orders on a Our operations are dependent upon our information technology systems, including our web-enabled internal software technology, jobCORE. The jobCORE software provides in-depth operational and financial performance data fromff branch locations to the corporate office. We rely uponu timely basis, coordinate our sales and installation activities across locations and manage invoicing. As a result, the proper functioning of our information technology systems is critical to the successful operation of our business. Although our information technology systems are protected through physical and software safeguards, our information technology systems ity are still vulnerablea limits from unexpected increases in our volume of business, telecommunication faiff A substantial disruption in our information technology systems forff inventory and supplies or installing our products on a timely basis for our customers, which could adversely affect our reputation and customer relationships. to natural disasters, power losses, unauthorized access, delays and outages in our service, system capac any prolonged time period could result in delays in receiving r viruses and other problems. lures, computem a 18 In the event of a cybersecurity incident, we could experience operational interruptions, incur substantial additional costs, become subject to legal or regulatory proceedings or suffer damage to our reputation. In addition to the disruptions that may occur in our information technology systems, cybersecurity threats and sophisticated and targeted cyberattacks pose a risk to our information technology systems. We have established security policies, processes and defenses designed to help identify and protect against intentional and unintentional misappropria information technology systems and information and disruption of our operations. Despite these efforts technology systems, including but not limited to jobCORE, finaff management software, and risk management systems may be damaged, disrupted or shut down dued access, malicious softwa circumstances our disaster recovery plans may be ineffective or inadequate. These breaches or intrusions could lead to business interruption, exposure of proprietary or confidential information, data corruption, damage to our reputation, exposure to legal and regulatory proceedings and other costs. Such events could have a material adverse impacm t on our financial condition, results of operations and cash flows. In addition, we could be adversely affecff experiences any similar events that disrupt their business operations or damage their reputation. re, computer viruses, undetected intrusion, hardware failures or other events, and in these ncial systems, Human Resource and payroll systems, fleet tion or corruption of our , our information ted if any of our significant customers or suppliers to attacks by unauthorized a ff ff As cyberattacks become more sophisticated generally, we may be required to incur significant costs to strengthen our systems to protect against outside intrusions and/or continue to maintain insurance coverage related to the threat of such attacks. While we have invested in industry appropriate protections and monitoring practices of our data and information technology to reduce these risks and test our systems on an ongoing basis for any current or potential threats, there can be no assurance that our efforts will prevent breakdowns or breaches of our or our third-party providers’ databases our business. t or systems that could adversely affecff a We carry cybersecurity insurance to help mitigate the financial exposure and related notification procedures in the event of intentional intrusion. The measures that we implem ment to reduce and mitigate these risks may not be effecff tive. While to date these threats have not had a material impact on our business or operations, if such an event occurred, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. Terrorist attacks or acts of war against the United States or increased domestic or international instability could have an adverse effecff t on our operations. Adverse developments in the war on terrorism, terrorist attacks against the United States or any outbreak or escalation of gn power may cause disruption to the economy. Since our business is hostilities between the United States and any forei dependent on the housing and construction industries, such adverse effects on the economy could negatively affect these industries and, therefore, our business, our employees and our customers, which could negatively impact our financial condition and results of operations. ff RISKS ASSOCIATED WITH OUR GROWTH STRATRR EGY We may not be able to continue to successfully expand into new products or geographic markets and further diversify our business, which could negatively impact our future sales and results of operations. Generally, we seek to acquire businesses that will complement, enhance, or expand our current business or product offerings, or that might otherwise offer us growth opportunities into new or existing lines of business, including the expansion of our national foot and end markets. Our business depends in part on our ability to diversify and grow our businesses and also t print expand the types of complementary building products that we install and sell. Our product and geographic expansion may not be successful and may not deliver expected results, which could negatively impact our future sales and results of operations. ff Our expansion into new geographic markets may present competitive, local market and other challenges that differ ones. We may be less familiar with the target customers and may facff e different or additional risks, as well as increased or unexpected costs, compared to existing operations. Expansion into new geographic markets may also bring us into direct competition with companies with whom we have little or no past experience as competitors. To the extent we rely upon expansion into new geographic markets for growth and do not meet the new challenges posed by such expansion, our future sales growth could be negatively impacted, our operating costs could increase, and our business operations and financial results could be adversely affecff from current ted. a ff 19 We may be unable to successfulff acquisitions. ly acquire and integrate other businesses and realize the anticipated benefits of Acquisitions are a core part of our strategy and we may be unablea to continue to grow our business through acquisitions. In addition, acquired businesses may not perform in accordance with expectations, and our business judgments concerning the value, strengths and weaknesses of acquired businesses may not prove to be correct. We may also be unable to achieve expected improvements or achievements in businesses that we acquire. The value of our common stock foll completion of an acquisition could be adversely affecff on a timely basis or at all. Futuret goodwill impairments, increased interest expense and amortization expense and significant integration costs. In addition, future acquisitions could result in dilution of existing stockholders if we issue shares of common stock as consideration. acquisitions may result in the incurrence of debt and contingent liabilities, legal liabilities, to realize the expected benefits fromff ted if we are unablea the acquisition owing the ff Acquisitions involve a number of special risks, including: • • • • • • • • • • • • our inabila ity to manage acquired businesses or control integration costs and other costs relating to acquisitions; potential adverse short-term effecff ts on operating results fromff increased costs, business disruption or otherwise; diversion of management’s attention; loss of suppliers, customers or other significant business partners of the acquired business; failuff re to retain existing key personnel of the acquired business and recruit qualified new employees at the location; failuff re to successfully implement infrastructure, logistics and systems integration; potential impairment of goodwill and other intangible assets; risks associated with new lines of business and business models; risks associated with the internal controls of acquired businesses; exposure to legal claims forff indemnification claims, including with respect to environmental and immigration claims; activities of the acquired business prior to acquisition and inabila ity to realize on any the risks inherent in the systems of the acquired business and risks associated with unanticipated events or liabila and ities; our inabila ity to obtain finaff ncing necessary to complete acquisitions on attractive terms or at all. Our strategy could be impeded if we do not identify, or face increased competition for, suitablea business, financial condition, results of operations and cash flows could be adversely affecff were to occur. acquisition candidates and our ted if any of the foregoing factors Our continued expansion into the commercial construction end market and other new lines of business could affect our revenue, margins, financial condition, operating results and cash flows. ff nt business model than our traditional installation business. See Note In December 2021, we acquired a new entity with a differe 19, Subsequent Events in the notes to our financial statements for additional information. This new line of business, our commercial construction end market business and any other futurett competitive, operational, finaff installation business. For examplem , the typical contractual construction end market are different than the residential new construction end market. In addition, our expansion into these businesses may include opening new branches that have higher start-up costs compared to our acquired branches. These facff and any other challenges we encounter could adversely affecff tors t our margins, financial condition, operating results and cash flows. ncial and accounting challenges and other risks that differ fromff our traditional residential the commercial lines of business we may enter or acquire involve terms and arrangements and billing cycle forff t As of December 31, 2021, our estimated backlog associated with the commercial end market was approximately $143.2 million. In accordance with industry practice, many of our contracts are subjeu ct to cancellation, reduction, termination or suspension at the discretion of the customer in respect of work that has not yet been performed. In the event of a project cancellation, we would generally have no contractual right to the total revenue reflected in our backlog but instead would collect revenues in respect of all work performed at the time of cancellation as well as all other costs and expenses incurred by us through such date. Projects can remain in backlog for extended periods of time because of the naturet of the project, delays in execution of the project and the timing of the particular services required by the project. Additionally, the risk of contracts in backlog being canceled, terminated or suspended generally increases at times, including as a result of periods of widespread ors impacting our business. Many of macroeconomic and industry slowdown, weather, seasonality and many of the other fact ff 20 the contracts in our backlog are subject to changes in the scope of services to be provided as well as adjustments to the costs relating to the contracts. The revenue for certain contracts included in backlog are based on estimates. Therefore, the timing of performance on our individual contracts can affect our margins and future profitability. There can be no assurance that backlog will result in revenues within the expected timeframe, if at all. Our customers could purchase materials directly fromff manufacturers or other sources. We do not have any exclusivity agreements with the manufacturers acquire products fromff building distribution centers. Our ability to grow our business would be impacted and it could negatively affect future net sales and earnings. Additionally, if we are unable to secure favorablea may not be able to offer competitive pricing to our customers. could decide to invest more resources in selling their own products such as hiring salespeople and arrangements on the products we sell from our suppliers, we of the products that we sell. The manufacturers that we tt We may be subject to claims arising from the operations of our various businesses forff acquired them. periods prior to the dates we ities arising from the We have consummated over 180 acquisitions. From time to time we are subject to claims or liabila ownership or operation of acquired businesses for the periods prior to our acquisition of them, including environmental, employee-related and other liabilities and claims not covered by insurance. Any future claims or liabilities could be significant. Our ability to seek indemnification from the former owners of our acquired businesses forff ities may be limited by various factors, including the specific time, monetary or other limitations contained in the respective acquisition agreements and the financial ability of the formff companies may be unwilling to cover claims that have arisen from acquired businesses or locations, or claims may exceed the coverage limits that our acquired businesses had in effecff insurance coverage of third-party claims or enforce our indemnification rights against the formff owners are unablea liable forff and results of operations. to satisfy their obligations for any reason, including because of their financial position, we could be held er owners to satisfy our indemnification claims. In addition, insurance the costs or obligations associated with such claims or liabila ities, which could adversely affect our financial condition t prior to the date of acquisition. If we are unablea er owners, or if the former these claims or liabila to successfully obtain LEGAL AND REGULATORY RR ISKS Changes in employment laws may adversely affect our business. Various federal and state labor a laws govern the relationship with our employees and impact operating costs. These laws include: • • • employee classification as exemptm or non-exempt for overtime and other purposes; workers’ compensat m ion rates; immigration status; tt • mandatory health benefits; • • tax reporting; and other wage and benefit requirements. We have significant exposure to changes in laws governing our relationships with our employees, including wage and hour laws and regulations, fair labor standards, minimum wage requirements, overtime pay, unemployment tax rates, workers’ compensation rates, citizenship requirements and payroll taxes, which likely would have a direct impact on our operating costs. Significant additional government-imposed increases in the preceding areas could have a material adverse effecff business, financial condition and results of operations. t on our Our business could be adversely affected by changes in immigration laws or fail eligibility of our employees. ff ure to properly verify the employment Some states in which we operate are considering or have already adopted new immigration laws or enforcement programs, and the federal government from time to time considers and implem ments changes to federal immigration laws, regulations or enforcement programs. These changes may increase our compliance and oversight obligations, which could subject us to 21 ity of potential employees. Although we additional costs and make our hiring process more cumbersome, or reduce the availabila verify the employment eligibility status of all our employees, including through participation in the “E-Verify” program in the states that require it, some of our employees may, without our knowledge, be unauthorized workers. In addition, use of the “E- Verify” program does not guarantee that we will properly identify all appl Unauthorized workers are subjecb be unauthorized, we could experience adverse publicity that negatively impacts our brand and may make it more difficult to hire and retain qualified employees. Termination of a significant number of employees duedd regulatory issues may disrupt our operations, cause temporary increases in our labor in additional adverse publicity. We could also become subject to fines, penalties and other costs related to claims that we did not fully comply with all recordkeeping obligations of federal and state immigration laws. These factors could have a material adverse effect on our reputation, business, financial condition and results of operations. t to deportation and may subject us to fines or penalties and, if any of our workers are found to to work authorization or other costs as we train new employees and result icants who are ineligible for employment. a a political focff us in recent years, and the U.S. Congress, Furthermore, immigration laws have been an area of considerablea Department of Homeland Security and the Executive Branch of the U.S. government from time to time consider or implement changes to federal immigration laws, regulations or enforcement programs. Changes in immigration or work authorization laws may increase our obligations for complim ance and oversight, which could subject us to additional costs and potential liabila ity and make our hiring process more cumbersome, or reduce the availability of potential employees. We are subject to regulations of U.S. Immigration and Customs Enforcement, or ICE, and Department of Labor, time to time by these parties forff regulations, if we are found actions. compliance with work authentication requirements. While we believe we are in compliance with appl not to be in compliance as a result of any audits, we may be subject to fines or other remedial and we are audited fromff icable laws and a a ff Our results of operations, financial condition and cash flows could be adversely affected if pending or future legal claims against us are not resolved in our favor. We are subject to various claims and lawsuits arising in the ordinary course of business, including wage and hour lawsuits. The ultimate resolution of these matters is subject to inherent uncertainties. It is possible that the costs to resolve these matters could have a material adverse effect on our results of operations, financial condition or cash flows for the periods in which the matters are resolved. Similarly, if additional claims are filed against us in the future, the negative outcome of one or more of such matters could have a material adverse effect on our results, financial condition and cash flows. ff The nature of our business exposes us to product liability, workmanship warranty, casualty, negligence, construction defect, breach of contract and other claims and legal proceedings. We are subject to product liability, workmanship warranty, casualty,t negligence, construction defect, breach of contract and other claims and legal proceedings relating to the products we install or manufacture that, if adversely determined, could adversely affecff and other suppliers to t our financial condition, results of operations and cash flows. We rely on manufacturers provide us with most of the products we use in our business. Other than for our manufacturer of cellulose insulation, we do not have direct control over the quality of such products manufactured exposed to risks relating to the quality of such products. or supplied by such third-party suppliers. As such, we are t tt In addition, we are exposed to potential claims arising from the conduct of our employees, homebuilders and other subcontractors, for which we may be contractually liabla e. We have in the past been, and may in the future penalties and other liabia lities in connection with injury The naturet to persons and property that, if realized, could be material. Although we currentl adequate insurance, we may be unablea to maintain such insurance on acceptablea adequate protection against potential liabilities. In addition, some liabilities may not be covered by our insurance. s, or damage incurred in conjunction with the installation of our products. and extent to which we use hazardous or flammablea materials in our manufacturing processes creates risk of damage y maintain what we believe to be suitablea terms or such insurance may not provide be, subject to fineff and n ff r r casualty, negligence, construction defect, breach of contract and other claims and significant Product liability, workmanship warranty, legal proceedings can be expensive to defend and can divert the attention of management and other personnel forff periods of time, regardless of the ultimate outcome. In addition, lawsuits relating to construction defects typically have statutes of limitations that can run as long as ten years. Claims of this nature could also have a negative impacm t on customer confidence in us and our services. Current or futuret condition and results of operations. For additional information, see Note 16, Commitments and Contingencies, to our audited consolidated finaff claims could have a material adverse effect on our reputation, business, financial ncial statements included in this Form 10-K. 22 Federal, state, local and other laws and regulations could impose substantial costs and/or restrictions on our operations and could adversely affect our business. t egulations promulgated by the OSHA, employment regulations promulgated by the U.S. Equal ommission and tax regulations promulgated by the Internal Revenue Service and various other state We are subject to various federal, state, local and other laws and regulations, including, among other things, worker and workplace health and safety r Employment Opportunity Ct and local tax authorities. Our primary manufacturing facility is also subject to additional laws and regulations which may increase our exposure to health and safety liabilities. In addition, we are subject to increased regulation of data privacy and information security, including the adoption of more stringent state laws, such as the California Consumer Privacy Act and the California Privacy Rights Act, which goes into effect in January 2023. These types of data privacy and security laws, which non-compliance. continue to evolve, create a range of new complim ance obligations for us and increase financial penalties forff Additional or more burdensome regulatory requirements in these or other areas may increase our expenses, reduce demand for our services or restrict our ability to offer services in certain geographies, all of which could adversely affecff financial condition, results of operations and cash flows. Moreover, our failure to comply with any of the regulatory requirements appli business, financial condition, results of operations and cash flows. to our business could subject us to substantial finff es and penalties that could adversely affect our t our business, cablea a Our transportation operations, which we depend on to transport materials from our locations to job sites or customers, are subject to the regulatory jurisdiction of the DOT. The DOT has broad administrative powers with respect to our transportation operations. More restrictive limitations on vehicle weight and size, trailer length and configuration or driver hours of service would increase our costs, which may increase our expenses and adversely affect our financial condition, operating results and/ or cash flows. If we fail to comply with DOT regulations or the regulations become more stringent, we could experience increased inspections, regulatory authorities could take remedial action, including imposing fines or shutting down our operations, and we could be subject to increased audit and compliance costs. We organize our transportation operations as a separate legal entity in certain states, including Ohio and Indiana, to take advantage of sales tax exemptions relating to vehicle operating costs. If legislation is enacted that modifies or eliminates these exemptions, our costs may increase. If any of these events were to occur, our financial condition, results of operations and cash flows may be adversely affecff ted. ct to various federal, state and local In addition, the residential construction and commercial construction industries are subjeu statutett s, ordinances, rules and regulations concerning zoning, building design and safety, construction, contractors’ licensing, energy conservation and similar matters, including regulations that impose restrictive zoning and density requirements on the residential new construction industry or that limit the number of homes that can be built within the boundaries of a particular area. Regulatory restrictions and industry standards may require us to alter our installation processes and our sourcing, increase our operating expenses and limit the availabila affect our business, financial condition and results of operations. building lots for our customers, any of which could negatively ity of suitablea We are subject to environmental regulation and potential exposure to environmental liabilities. ct to various federal, state and local environmental laws and regulations. Although we believe that we operate our icable laws and regulations and maintain all material permits We are subjeu business, including each of our locations, in complim ance with appl required under such laws and regulations to operate our business, we may be held liablea with such requirements. In addition, environmental laws and regulations, including those related to energy use and climate change, may become more stringent over time, and any future laws and regulations could have a material impact on our operations or require us to incur material additional expenses to comply with any such future laws and regulations. or incur fines or penalties in connection a ities. Despite providing a benefit to the environment by making structures more energy efficient, certain Our primary manufacturing facility is also subject to additional laws and regulations which may increase our exposure to environmental liabila types of insulation, particularly spray foamff substances. While our employees who handle these and other potentially hazardous or toxic materials, including lead-based paint, receive specialized training and wear protective clothing, there is still a risk that they, or others, may be exposed to these substances. Exposure to these substances could result in significant injury occupants, and damage to our property or the property of others, including natural resource damage. Our personnel and others at our work sites are also at risk forff applications, require our employees to handle potentially hazardous or toxic other workplace-related injuries, including slips and falls. to our employees and others, including site n In addition, as owners and lessees of real property, we may be held liablea substances, including asbestos or petroleum products on, at, under or emanating from currently or formerly owned or operated properties, or any off-site disposal locations, or for any known or newly discovered environmental conditions at or relating to any of our properties, including those arising from activities conducted by previous occupants or at adjoid ning properties, without regard to whether we knew of or were responsible for such release. We may be required to investigate, remove, for, among other things, hazardous or toxic 23 remediate or monitor the presence or release of such hazardous or toxic substances or petroleum products. We may also be held fines, penalties or damages, including for bodily injury, property damage and natural resource damage in connection liable forff with the presence or release of hazardous or toxic substances or petroleum products. In addition, expenditures may be required in the futff uret currently unknown environmental conditions or changes in environmental laws and regulations or their interpretation or enforcement and, in certain instances, such expenditures as a result of releases of, or exposure to, hazardous or toxic substances or petroleum products, the discovery of may be material. tt RISKS RELATED TO OUR INDEBTEDNESS We have debt principal and interest payment requirements that may restrict our future operations and impair our ability to meet our obligations. Our degree of leverage and level of interest expense may have important consequences, including: • • • our leverage may place us at a competitive disadvantage as compared with our less leveraged competitors and make us more vulnerable in the event of a downturn in general economic conditions or in any of our businesses; our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate may be limited; a substantial portion of our cash flow from operations will be dedicated to the payment of interest and principal on our indebtedness, thereby reducing the funds available to us forff al expenditures, acquisitions, future business opportunities or obligations to pay rent in respect of our operating leases; and operations, capita Our ability to service our debt and other obligations will depend on our future operating performance, which will be affecff prevailing economic conditions and financial, business and other facff may not generate sufficient cash flow, and future these obligations or to successfully execute our business strategies. See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, "Liquidity and Capia tal Resources, Credit Facilities." tors, many of which are beyond our control. Our business to provide sufficient net proceeds, to meet financings may not be availablea ted by ff Restrictions in our existing credit facilities, senior notes, and any future facff incur in the future, limit our ability to take certain actions and could adversely affect our business, financial condition, results of operations, and the value of our common stock. ilities or any other indebtedness we may ilities, or any futuret Our credit facff we may incur, impose certain restrictions and obligations on us. Under certain of these instruments, we must comply with defined covenants that limit our ability to, among other things: facilities we may enter into, the indenturett governing our senior notes, or other indebtedness • incur or guarantee additional debt and issue preferred stock; • make distributions or dividends on or redeem or repurchase shares of common stock; • make certain investments and acquisitions; • make capital expenditures; • • • • incur certain liens or permit them to exist; enter into certain types of transactions with affilff iates; acquire, merge or consolidate with another company; or transfer, sell or otherwise dispose of all or substantially all of our assets. ilities contain, and any future facilities or other debt instruments we may enter into may contain, covenants ff ncial ratios and meet certain tests, such as an excess cash flow test, fixed charge coverage Our credit facff requiring us to maintain certain finaff ratio, leverage ratio or debt to earnings ratio. See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, "Liquidity and Capia tal Resources, Credit Facilities." Our ability to comply with those financial ratios and tests can be affected by events beyond our control, and we may not be able to comply with those ratios and tests when required to do so under the applicable debt instruments. The provisions of our credit facilities, or other debt instruments, may affect our ability to obtain futurett attractive business opportunities and our flexibility in planning for, and reacting to, changes in business conditions. In addition, financing and pursue 24 ff ure to comply with the provisions of our credit facilities, any future credit facility, the indenture governing our senior a fail notes, or other debt instruments could result in a default or an event of default that could enable our lenders or other debt holders to declare the outstanding principal of that debt, together with accruedrr payablea could experience a partial or total loss of their investment. . If the payment of our debt is accelerated, our assets may be insufficient to repay such debt in full, and our stockholders and unpaid interest, to be immediately due and Our use of interest rate hedging instruments could expose us to risks and financial losses that may adversely affect our financial condition, liquidity and results of operations. in existence at the time of this Form 10-K as a cash flowff (“ASC”) 815, Derivatives and Hedging. However, in the future, we may fail to qualify for hedge accounting From time to time, we utilize interest rate derivatives to hedge the cash flows associated with existing variable-rate debt. The purpose of these instruments is to substantially reduce exposure to market risks on our Term Loan. We designated our interest rate swapsa Codification ff treatment under these standards for a number of reasons, including if we fail to satisfy hedge documentation and hedge effectiveness assessment requirements or if our derivative instruments are not highly effective. If we faiff accounting treatment, losses on the swaps caused by the change in its faiff rather than being recognized as part of other comprehensive income. Any such adverse developments could result in material liabilities and expense and could have a material adverse effect on our business. r value would be recognized as part of net income, hedge in accordance with Accounting Standards l to qualify for hedge Interest rate derivative instruments can be expensive and we could incur significant costs associated with the settlement or early termination of the agreements. In addition, our hedging transactions may expose us to certain risks and finaff including, among other things: ncial losses, • • • • • the risk that the other parties to the agreements would not perform; the risk that the duration or amount of the hedges may not match the duration or amount of the related liability; the risk that the hedging instruments and the related liabilities do not transition to the same LIBOR replacement rate or that the timing or mechanics of such transition do not match between the hedging instruments and the related liabilities, in which case any such differences could decrease the effectiveness of the hedging instruments and increase our net liability; the risk that hedging transactions may be adjusted fromff changes in fair values including downward adjustments which would affecff time to time in accordance with accounting rules to reflect t our stockholders’ equity; and the risk that we may not be able to meet the terms and conditions of the hedging instruments, in which case we may be required to settle the instruments prior to maturity with cash payments that could significantly affect our liquidity. If we default on our obligations under the instruments governing our indebtedness, we may not be able to make payments on our debt and our business and financial condition could be adversely affected. ff ure by us to comply with the agreements governing our indebtedness, including, without limitation, our existing credit A fail facilities or any future facilities, the indenturett restrictive, finaff d costs or to post collateral under (including under hedging arrangements) could result in a variety of material adverse consequences, including a default our indebtedness and the exercise of remedies by our creditors, lessors and other contracting parties, and such defaults could trigger additional defaul ncial and other covenants included therein), to pay our indebtedness and fixeff governing our senior notes and our other contractual obligations (including ts under other indebtedness or agreements. ff ff Any such default under the agreements governing our existing or futurett such indebtedness could make us unable to make payments to pay principal of, or premium, if any, and interest on the senior notes, substantially decrease the market value of the senior notes and result in a cross-default under the senior notes. In the event of a default under our existing credit facff such indebtedness may be ablea terminate outstanding credit commitments and/or may be ablea declare all of the funds borrowed under the appli unpaid interest, and we could be forced into bankruptcy or liquidation. to to cease making loans to us and, in any event, could elect to agreement to be immediately due and payable, together with accruedrr ilities or any future facilities or in respect of other indebtedness, the holders of cash flow to be used to pay such indebtedness, may be ablea indebtedness and the remedies sought by the holders of to cause all of our availablea cablea and a If our operating performance declines, we may need to seek waivers from the holders of our indebtedness to avoid being in default under the instruments governing such indebtedness. If we breach our covenants under our indebtedness, we may not be 25 able to obtain a waiver fromff default under such indebtedness, the holders of such indebtedness and other lenders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation. the holders of such indebtedness on terms acceptable to us or at all. If this occurs, we would be in Adverse credit ratings could increase our costs of borrowing money and limit our access to capital markets and commercial credit. Moody’s Investor Service and Standard & Poor’s routinely evaluate our credit profile on an ongoing basis and have assigned ratings for our long-term debt. If these rating agencies downgrade any of our current credit ratings, our borrowing costs could increase and our access to the capita agencies have started to incorporate ESG factors into their credit ratings. Unfavorable ESG ratings could have a negative impact on our access to and costs of capia tal. al and commercial credit markets could be adversely affected. Additionally, some rating Our indebtedness exposes us to interest expense increases if interest rates increase. If interest rates increase, our debt service obligations on our variablea would increase even though the amount borrowed would remain the same, and our net income and cash flows would correspondingly decrease. Specifically, we had no outstanding borrowings on our Revolver, as hereinafter defined, as of December 31, 2021, but should we have a balance in the future, we would incur interest based on a rate that varies per the conditions set fort rate indebtedness, if any exists at the balance sheet date, h in our agreement. ff t a mated the prime rate) plus a margin based on the type of rate applied and leverage In addition, advances under our credit facilities generally bear interest based on, at our election, either the Eurodollar rate (“LIBOR”) or the base rate (which approxi ratio. On July 27, 2017, the Financial Conduct Authority ( the authority that regulates LIBOR) ("FCA") announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Intercontinental Exchange Benchmark Administration, the administrator of LIBOR, announced in November 2020 a consultation regarding its intention to extend the publication of certain LIBOR settings, including the setting we use as a reference rate, to June 2023. On Mar hch 5, 2021, hthe FCA announcedd thhat thhe overnight contiinue to bbe publi publica ition of non-representa itive ysyn hth ietic rates forff Bothh o rur Term Loan Agreement, and our ABL Credit Agreement, as hereinafter defined, include a provision related to the potential discontinuance of LIBOR to be replaced with one or more Secured Overnight Financing Rate ("SOFR") values or another alternate benchmark rate. However, if LIBOR ceases to exist after June 2023, the SOFR rates or other interest rates under the alternative rate could be higher than LIBOR. To the extent that these interest rates are higher, our interest expense will increase, which could adversely affect our financial condition, operating results and cash flows. publi hshedd u intill June 30, 2023. hThe FC iA is curre lntlyy considideringring hwhe hther to use iits powers to com lpel hthe one- monthh, hthree-m honth andd siix-monthh USD LIBOR beyond isix-m honth andd 12-monthh USD LIBOR rates rnight, one-m honth, hthree-monthh, beyond June 2023. lwouldd bli Our term loan bears interest at a variable rate, however interest rate hedges in place mitigate the risk of interest rate flucff associated with a portion of the outstanding debt balance. These derivative instruments are indexed to LIBOR, the value of which could also be impacted if LIBOR is limited or discontinued. For some instruments, the method of transitioning to an alternative reference rate may be challenging, especially if we cannot agree with the respective counterparty about how to make the transition. If a contract is not transitioned to an alternative reference rate and LIBOR is discontinued, the impact on our contracts is likely to vary brr y contract. If LIBOR is discontinued or if the methods of calculating LIBOR change from their current form, interest rates on our current or futurett ted. While we currently expect LIBOR to be available to us as a reference rate in substantially its current form until June 2023, it is possible that LIBOR will become unavailable prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified. indebtedness may be adversely affecff tuations We may require additional capital in the future, which may not be available on favorable terms or at all. ff business combinations and expansion of our existing operations. We anticipate that we may need in order to grow our business and implement our business strategy. We anticipate that any such Our future capia tal requirements will depend on many factors, including industry and market conditions, our ability to successfully complete futff urett to raise additional funds additional funds may be raised through equity or debt financings. Any equity or debt financing, if availablea terms that are not favorablea we are able to raise capita stockholders in our company may be diluted, and the securities we issue may have rights, preferences and privileges that are t the holdings or rights of our existing senior to those of our common stock or may otherwise materially and adversely affecff al through equity or debt financings, as to which there can be no assurance, the interest of existing at all, may be on al markets environment. Even if to us and will be subject to changes in interest rates and the capita 26 stockholders. If we cannot obtain adequate capital, we may not be able to full business, results of operations and financial condition could be adversely affected. ff y implement our business strategy and our RISKS RELATED TO OUR SECURITIES The price of our common stock may fluctuate substantially and your investment may decline in value. The market price of our common stock may be significantly affected by factors, such as: • market conditions affecting the residential construction, commercial construction and building products industries; • • • • • • • • • • • • • quarterly variations in our results of operations; changes in government regulations; the announcement of acquisitions by us or our competitors; changes in general economic and political conditions; volatility in the financial markets; results of our operations and the operations of others in our industry; changes in interest rates; the reduction, suspension or elimination of dividend payments; threatened or actual litigation and government investigations; the addition or departurett of key personnel; actions taken by our stockholders, including the sale or disposition of their shares of our common stock; the extent of short-selling of shares of our common stock and the stock of our competitors; and rences between our actual finff ancial and operating results and those expected by investors and analysts and diffeff changes in analysts’ recommendations or projections. These and other factors may lower the market price of our common stock, regardless of our actual operating performance. Furthermore, in recent years the stock market and the price of our common stock has experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including ar to occur without regard to the operating performance of the affected companies in our industry. The changes frequently appe companies. Hence, the price of our common stock could fluctuat and these fluctuat investment. ions could materially reduce the price of our common stock and materially affecff e based upon factors that have little or nothing to do with us, t the value of your a tt t Our internal controls over financial reporting may not be effective, which could have a significant and adverse effecff our business and reputation. t on As a public company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes- Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. To comply with the requirements of being a public company, we may undertake various actions, such as implementing additional internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal controls can divert our management’s attention from other matters that are important to the operation of our business. If we identify material weaknesses in our internal controls over financial reporting or are unablea to comply with the requirements of Section 404 or are unablea effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affecff authorities, which could require additional financial and management resources. ted, and we could become subject to investigations by the SEC or other regulatory to assert that our internal controls over financial reporting are 27 Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price. The market price of our common stock could decline significantly as a result of sales of a large number of shares of our common stock. These sales, or the perception that these sales might occur, could depress the market price of our common stock or make it more difficult for us to sell equity securities in the futff urett at a time and at a price that we deem appropria te. a iates, the sale of which will be restricted under the Securities Act of 1933, as amended. As of We have approximately 29.7 million shares of common stock outstanding as of December 31, 2021. The shares of common stock are freff ely tradable, except for any shares of common stock that may be held or acquired by our directors, executive officers and other affilff December 31, 2021, approximately 1.8 million of the 3.0 million shares of common stock authorized forff 2014 Omnibus Incentive Plan were availablea future, subject to certain legal and contractual limitations. If our existing stockholders sell substantial amounts of our common stock in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our common stock, even if there is no relationship between such sales and the performance of our business. for issuance. These shares will become eligible for sale in the public market in the issuance under the Jeff Edwards has significant ownership of our common stock and may have interests that conflict with those of our other stockholders. As of December 31, 2021, Jeff Edwards beneficially owned approximately 17.8% of our outstanding common stock. As a result of his beneficial ownership of our common stock, he has sufficient voting power to significantly influence all matters requiring stockholder approval, including the election of directors, amendment of our amended and restated certificate of incorporation and approval of significant corporate transactions, and he has significant influence over our management and policies. This t of delaying or preventing a change in control of us or discouraging others concentration of voting power may have the effecff from making tender offers for our shares of common stock, which could prevent stockholders from receiving a premium for their shares of common stock. These actions may be taken even if other stockholders oppose them. The interests of Jeff Edwards may not always coincide with the interests of other stockholders, and he may act in a manner that advances his best interests and not necessarily those of our other stockholders. In addition, under our amended and restated certificate of incorporation, Jeff Edwards is permitted to pursue corporate opportunities for himself, rather than forff us. Provisions of our charter documents and Delaware law could delay, discourage or prevent an acquisition of us, even if the acquisition would be beneficial to our stockholders, and could make it more difficult for our stockholders to change our management. ff Our amended and restated certificate of incorporation and bylaws may discourage, delay or prevent a merger, acquisition or blea other change in control that stockholders may consider favora receive a premium for their shares of our common stock. In addition, these provisions may frustra our stockholders to replace or remove our current management by making it more difficult to replace or remove members of our board of directors. These provisions include a classified board of directors with three-year staggered terms; no cumulative voting in director elections; the exclusive right of our board of directors to fill vacancies on our board; the ability of our board to authorize the issuance of shares of preferred stock and to determine the price and other terms without stockholder approval; a prohibition on stockholder action by written consent; a requirement that a special meeting of stockholders be called only by a resolution duly adopted by our board; and advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon , including transactions in which stockholders might otherwise te or prevent any attempt by at a stockholders’ meeting. u ff rr on Law, which prohibits a person who owns 15% or more of our outstanding voting stock fromff As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporati with us for a period of three years afteff voting stock, unless the merger or combination is approved in a prescribed manner. Any delay or prevention of a change of control transaction or changes in our board of directors and management could deter potential acquirers or prevent the completion of a transaction in which our stockholders could receive a substantial premium over the then-current market price for their shares of our common stock. merging or combining r the date of the transaction in which the person acquired 15% or more of our outstanding We pay dividends to holders of our common stock, but may reduce, suspend, or eliminate dividend payments in the future. Our board of directors approved the initiation of a quarterly cash dividend program in 2021. We also announced that our board on March 31, 2022 at a rate of 90 cents per common share. of directors has approved our first annual variable dividend, payablea 28 However, part of our business strategy includes retaining our futuret growth of our business, including our continued growth by acquisition strategy, and, therefore, we may reduce, suspend or eliminate dividend payments in the futff ure. directors and will depend on our financial condition, results of operations, capita of our credit facilities, or any then-existing debt instruments, and such other factors as our board of directors deems relevant. Accordingly, investors in our common stock may need to sell their shares to realize a returnt them. stock, and investors may not be able to sell their shares at or above the prices paid forff Any future determination to pay dividends will be at the discretion of our board of earnings, if any, in order to reinvest in the development and al requirements, the limits imposed by the terms on their investment in our common tt If securities analysts do not publish favorable reports about us or if we, or our industry, are the subject of unfavorable commentary, the price of our common stock could decline. The trading price for our common stock depends in part on the research and reports about the financial industry. Analysts could issue negative commentary about us or our industry, or they could downgrade our common stock. We may also not receive sufficient research coverage or visibility in the market. Any of these facff result in the decline of the trading price of our common stock, causing investors in our common stock to lose all or a portion of their investment. us that are published by analysts in tors could a Item 1B. Unresolved Staff Comments None. 29 Item 2. Properties Real Property We lease office and warehouse space in 38 states, including our corporate office in Columbus, Ohio. Our leases are typically short in duration with customary extensions at our option. We believe suitable alternative space is availablea markets. We also own our cellulose manufacturing facility in Bucyrus, Ohio. We believe that our facilities are suitable and adequate forff summarizes our locations as of December 31, 2021. ity in such facilities is substantially being utilized. The tablea present purposes, and that the productive capac in all of our a below Number of Locations 3 2 24 13 2 4 26 14 3 6 13 1 4 2 3 4 4 3 8 Approximate Total Square Footage State 29,150 26,159 231,269 124,621 31,292 37,175 234,133 220,471 43,000 80,118 237,676 14,206 46,330 19,535 38,750 59,710 45,303 41,800 Washington Nebraska Nevada New Hampshire New Jersey New York North Carolina Ohio Oklahoma Oregon Pennsylvania South Carolina South Dakota Tennessee Texas Utah Vermont Virginia 231,885 Wisconsin Number of Locations 2 1 8 4 8 13 10 3 2 3 7 2 7 18 7 1 6 12 9 Approximate Total Square Footage 23,241 15,350 76,920 41,100 101,630 155,765 443,995 35,543 32,928 41,894 103,475 50,000 111,482 349,982 115,523 31,020 73,941 147,770 187,131 State Alabama Arizona California Colorado Connecticut Delaware Florida Georgia Idaho Illinois Indiana Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Our Fleet As of December 31, 2021, our fleet consisted of approximately 5,300 total vehicles that we either leased or owned, including approximately 5,100 installation vehicles that our installers use to deliver and install products from our locations to job sites, and approximately 200 other vehicles that are utilized for various purposes, primarily by our sales staff, bff ranch managers and various senior management personnel. For additional information, see Note 8, Long-Term Debt, and Note 16, Commitments and Contingencies, to our audited consolidated financial statements included in this Form 10-K. Item 3. Legal Proceedings We are involved in various claims and lawsuits incidental to the conduct of our business in the ordinary course, including wage and hour lawsuits. We carry insurance coverage that we believe to be reasonable under the circumstances, although insurance may or may not cover any or all of our liabilities in respect to claims and lawsuits. While management currently believes that the ultimate resolution of these matters, individually or in the aggregate, will not have a material adverse effecff consolidated financial position, results of operations or cash flows, 16, Commitments and Contingencies, within Part II, Item 8, Financial Statements and Supple for additional information on significant legal proceedings. such matters are subject to inherent uncertainties. See Note mentary Data, of this Form 10-K t on our u ff Item 4. Mine Safety Disclosures Not applicable. 30 Item 5. Market forff Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PART II Market Information for Common Stock Our common stock is traded on the NYSE under the symbol “IBP.” Holders of Record bruary 17, As of February holder of shares held through the Depository Trust Company. , 2022 there were 939 holders of record of our common stock, one of which was Cede & Co., which is the Dividend Policy Our board of directors approved the initiation of a quarterly cash dividend program in 2021, payable to stockholders of record on specific dates each quarter. In addition to the quarterly cash dividend, our board of directors has approved our first annual variable dividend, payablea dividends on our common stock during the years ended December 2020 or 2019. Future determinations relating to payments of dividends will be made at the discretion of our board of directors and will depend on a number of factors, including our futuret earnings, capita factors our board of directors may deem relevant. on March 31, 2022 at a rate of 90 cents per common share. We did not declare or pay any cash al requirements, financial condition, futurett restrictions, legal requirements and other prospects, contractual tt ff Stock Performance Graph below compares the cumulative total shareholder return on our common stock with the cumulative total returnt The tablea the Russell 2000 Index (“Russell 2000”), (ii) the Standard & Poor’s Industrials Index (“S&P 500 Industrials”) and (iii) the S&P Smallcap 600 Index (“S&P Smallcap 600”). The graph assumes investments of $100 in our common stock and in each of the three indices and the reinvestment of dividends for the last five fiscal years through December 31, 2021. of (i) s n r u t e R e c i r P $ 400 300 200 100 0 12/31/2016 12/29/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 IBP Russell 2000 S&P 500 Industrials S&P Smallcap 600 IBP Russell 2000 S&P 500 Industrials S&P Smallcap 600 12/31/2016 12/29/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 100 100 100 100 184 115 121 113 82 102 105 104 167 128 136 127 247 153 151 141 342 176 182 179 31 Purchases of Equity Securities by the Issuer The following tabla e shows the stock repurchase activity for the three months ended December 31, 2021: October 1 - 31, 2021 November 1 - 30, 2021 December 1 - 31, 2021 Total Number of Shares Purchased 101 Average Price Paid Per Share $ 106.82 — — — — Total Number of Shares Purchased as Part of Publiu cly Announced Plans or Programs — — — Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (1) — — — 101 $ 106.82 — $ 100.0 million (1) In February 2018, our board of directors authorized a $50.0 million stock repurchase program, and in October 2018, they increased the program by an additional $100.0 million. In February 2020, our board of directors approved an extension of the existing stock repurchase program to March 1, 2021 and in February 2021, they extended the share repurchase plan to March 1, 2022 while simultaneously approving us to purchase up to $100.0 million of our outstanding common stock. During the year ended December 31, 2021, we did not repurchase any shares of our common stock under our stock repurchase program. On February 24, 2022, we announced that our board of directors authorized an extension of our stock repurchase program through March 1, 2023 and concurrently authorized an increase in the total amount of our outstanding common stock we can purchase up to $200.0 million. For more information about our stock repurchase program, see Note 12, Stockholders' Equity within Item 8, Financial Statements and Supplementary Data, of this Form 10-K. rr Recent Sales of Unregistered Securities During 2021, we did not issue or sell any unregistered equity securities. Item 6. [Reserved] Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ial Statements att nd related notes thereto included in You should read the following in conjunction with the consolidated finff ancial statements att Item 8, Financ ooking on contains forward-l ii discussi FF statements reflecting current expex materially from those contained in these the section captia nd uncertainties. Actual results and the timing of events may diffeff r forward-looking statements due to a number of fac nd Supplemental Data, of Part II of this Fii tors, including those discussed in oned “Riskii Factors” and elsewll ctations that involve risks akk here in this Fii 10-K. TKK hisTT 10-K.KK ormFF ormFF rr tt ff 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 fireff gutters, window blinds, shower doors, closet shelving, mirrors and other products throughout the United States. We offer our portfolio of services forff continental states and the District of Columbia from our national network of over 210 branch locations. The vast majoa rity of our net revenue comes fromff service-based installation of these products in the residential new construction, repair and remodel and grow due to our commercial construction end markets. We believe our business is well positioned to continue to profitablya strong balance sheet, liquidity and our continuing acquisition strategy. See “Key Factors Affecting Our Operating Results, COVID-19 Impacts” below for a discussion of short-term impacts to our business from the pandemic. new and existing single-family and multi-family residential and commercial building projects in all 48 proofing, garage doors, rain tors, including demographic A large portion of our net revenue comes fromff economic facff levels, foreclosure rates, the health of the economy and availability of mortgage financing. Our strategic acquisitions over the last several years contributed meaningfully to our 19.1% increase in net revenue during the year ended December 31, 2021 compared to 2020. trends, interest rates, consumer confidence, employment rates, housing inventory the U.S. residential new construction market, which depends upon a number of a 32 We have omitted discussion of 2019 results in the sections that folff included in Part II, Item 7, of our Form 10-K for the year ended December 31, 2020. low where it would be redundant d to the discussion previously 2021 Highlights i Net revenues increased 19.1%, or $315.4 million, while gross profit increased 15.6% to $589.5 million during the year ended December 31, 2021 compared to 2020. We also generated approximately $138.3 million of cash from operating activities. The increase in net revenue and gross profit was primarily driven by the contribution of our recent acquisitions, selling price and product mix improvements as evidenced by the 3.2% increase in our price/mix metric and increased sales volume of 7.7% on a same branch basis. Gross profit grew slower than revenue primarily dued supply chain constraints, higher fuel challenges fromff materials, particularly spray foam, gutters, and other complementary installed products, continued to be difficult to source near volume and pricing levels secured in prior periods. costs and reduced efficiencies within the large commercial construction market dued the COVID-19 pandemic. Inflationary pressure contributed to the year-over-year margin compression as to higher material costs caused by pandemic-related to ff to take advantage of favorablea market conditions, entering into a new term loan credit agreement which provided forff As of December 31, 2021, we had $333.5 million of cash and cash equivalents. In December 2021, we modified our debt structurett a seven-year $500 million term loan facility. A portion of the proceeds from the term loan were used to repay, in full, all amounts outstanding under the previous term loan agreement. We had not drawn on our $200.0 million revolving line of credit existing at December 31, 2021, which was increased to $250.0 million in February of 2022. Additionally, we paid our first quarterly dividends as a public company in 2021. During the year ended December 31, 2021, we experienced overall sales growth in all of our end markets and we achieved 9.7% year-over-year same branch sales growth, with acquisitions contributing the remaining portion of our total sales growth. Our largest end market, the single-family subset of the residential new construction market, grew revenue 21.9% over the same period in 2020. Our commercial end market experienced sales growth of 10.2% during the year ended December 31, 2021 primarily through acquisitions, but we experienced project delays dued resulting in a decline in same branch sales within this market. These fluctuat Measures of Performance" section below, and impacts fromff to macroeconomic concerns surrounding the pandemic, ions are shown in further detail in the "Key r in the sections that follow. COVID-19 are discussed furthe ff t We b lbeliieve hthere are severall t periperi dods of lslowed gd growthh. hThese long-t renewedd p iositiive at iti dtudes abbout long-t long-term hihist opera iti gng iincome ioric ave grages forff a l drends hthat sh hould dd d irive long-t long-term tre dnds iincl dlude an gaginging h hhome ownershihip, hhouseh ldhold formatiion ggrow hth andd thhe fact thhat housing long-term ggrowth ih in thhe hhousinging ma krket, even ifif hthere are tem popula ition ggrowthh, ddemographi housi gng stockk, l i y porary hanges, ographic change housing starts remaiined bd b lelow lowi gng hthe 2008 reces ision. We expect thhat our net revenue, ggross p fi l over da dec dade f lolff illwill bbenefifit from hthiis ggrow hth. i rofit andd 2020 Highlightstt Net revenues increased 9.4%, or $141.6 million, while gross profit increased 17.3% to $510.0 million during the year ended December 31, 2020 compared to 2019. We also generated approxi at December 31, 2020 we had $231.5 million of cash and cash equivalents. We did not draw on our existing $200 million revolving line of credit. The increase in net revenue and gross profit was primarily driven by selling price increases, the contribution of our recent acquisitions, lower fuel experienced sales growth year-over-year as reflected in the sales and relative performance metrics detailed below. costs and increased sales volume of complementary products. We mately $180.8 million of cash fromff operating activities, and a ff ts of temporary business interruptions early in 2020 due to federal, state and local requirements in The highest level of growth occurred in our multi-family end market which grew by 37.5% for the year ended December 31, 2020 compared to 2019. We grew our largest end market, the single famff ily subset of the residential new construction market, by 5.0% despite the effecff response to COVID-19. All of our locations serving the residential new construction end market were operating at December 31, 2020, although some continued to experience limitations depending on their local market. The large commercial end market experienced sales growth of 15.3% during the year ended December 31, 2020 primarily through acquisitions as same branch sales growth lagged resulting from certain production inefficiencies dued requirements as well as project delays due to macroeconomic concerns surrounding the pandemic. These fluctuat in further detail in the "Key Measures of Performance" section below, and impacts fromff sections that folff COVID-19 are discussed furthe to COVID-19 social distancing ions are shown r in the low. ff tt 33 Key Measures of Po erformr ance The following tablea shows additional key measures of performance we utilize to evaluate our results: Period-over-Period Growth Sales Growth Same Branch Sales Growth (1) Single-Family Sales Growth (2) Single-Family Same Branch Sales Growth (1)(2) Multi-Family Sales Growth (3) Multi-Family Same Branch Sales Growth (1)(3) Residential Sales Growth (4) Residential Same Branch Sales Growth (1)(4) Commercial Sales Growth (5) Commercial Same Branch Sales Growth (1)(5) Same Branch Sales Growth(6)( ) Volume Growth (1)(7) Price/Mix Growth (1)(8) Large Commercial Same Branch Sales Growth (1)(9) (10) U.S. Housing Market g Total Completions Growth Single-Family Completions Growth (2) Multi-Family Completions Growth (3) Years ended December 31, 2020 2019 2021 19.1 % 9.7 % 21.9 % 14.0 % 14.7 % 6.7 % 20.7 % 12.8 % 10.2 % (8.0)% 7.7 % 3.2 % (3.8)% 4.0 % 6.1 % (0.3)% 9.4 % 4.5 % 5.0 % 0.4 % 37.5 % 33.2 % 9.2 % 4.7 % 10.4 % 3.6 % 1.9 % 2.8 % 2.8 % 2.5 % 0.9 % 6.3 % 13.1 % 8.6 % 10.5 % 4.8 % 13.5 % 13.2 % 10.9 % 5.9 % 24.7 % 21.5 % 2.6 % 5.4 % 14.3 % 5.9 % 7.5 % 2.2 % (1) Same-branch basis represents period-over-period growth for branch locations owned greater than 12 months as of each financial ff statement date. (2) Calculated based on period-over-period growth in the single-family subset of the residential new construction end market. (3) Calculated based on period-over-period growth in the multi-family subset of the residential new construction end market. (4) Calculated based on period-over-period growth in the residential new construction end market. (5) Calculated based on period-over-period growth in the total commercial end market. Our commercial end market consists of large and light commercial projects. (6) During the year ended December 31, 2021, we changed the classification of one of our branches to the large commercial subset of the commercial end market, based on the type of work this branch performs. While this change is immaterial to the sales growth calculations, it affects comparability to the corresponding prior year metrics as the change was made prospectively beginning January 1, 2021. We continually evaluate the branch classifications utilized in our sales growth metrics based on changes in our business and operations over time and future changes may occur to these classifications. (7) Excludes the large commercial end market; calculated as period-over-period change in the number of completed same-branch residential new construction and repair and remodel jobs. (8) Excludes the large commercial end market; 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 residential new construction and repair and remodel jobs 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. (9) The large commercial end market, as a subset of our total commercial end market, comprises certain of our branches working on projects constructed primarily out of steel and concrete, which are much larger than our average residential job. This market in excluded from the above same branch price/mix and volume growth metrics as to not skew the rates given the much larger per-job revenue compared to our average job. (10) U.S. Census Bureau data, as revised. 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 efficiency and success at passing increasing costs of materials to customers. significant variable costs and to evaluate labor a 34 Net revenue, cost of sales and gross profitff The components of gross profit for 2021, 2020 and 2019 were as follows (dollars in thousands): Net revenue Cost of sales Gross profit Gross profit percentage 2021 Change 2020 Change 2019 $ 1,968,650 1,379,131 589,519 $ 19.1 % $ 1,653,225 9.4% $ 1,511,629 20.6 % 15.6 % $ 1,143,251 509,974 6.2% 17.3% $ 1,076,809 434,820 29.9% 30.8% 28.8% The year-over-year growth in our residential end market was the primary driver of the increase in net revenue during the year ended December 31, 2021 compared to the year ended December 31, 2020 as shown in the Key Measures of Performa section above. Growth in our residential end market was primarily due to selling price increases, higher volume and the continued success of our acquisition strategy. In our commercial end market, challenges associated with the COVID-19 pandemic had an impact as evidenced by the 8.0% decline in same branch sales within this end market. See “Key Factors Affecting Our Operating Results, COVID-19 Impacts” below for further information. Our price/mix metric was positively impacted during the year ended December 31, 2021 as we were able to pass along selling price increases to partially offset rising material costs, especially in the second half of 2021. However, our price/mix improvement was partially offset by a higher volume of insulation sales to production builders. This shift within the single-family end market impacted price/mix as the average insulation selling price for entry level production builder jobs is typically lower than a move-up or custom home builder. nce d ff As a percentage of net revenue, gross profit decreased during the year ended December 31, 2021 compared to the year ended December 31, 2020. The building products supply chain has experienced significant disruptions in 2021 due in part to effecff the COVID-19 pandemic. Industry wide supply chain issues continue to impact our operating efficff higher. In order to meet customer demand during the year, we purchased materials fromff premium to what we typically would purchase directly from manufacturers. As a result, during 2021, we estimate these purchases increased materials expense by approxim ately $8.8 million, therefore reducing gross profit. While we expect new housing construction will remain supportive of our business in 2022, inflation and material supply chain issues are likely to persist throughout the year. Gross profit in 2021 was also impacm ted by higher year-over-year fuel and union costs, reducing gross profit by approxim December 31, 2021. In addition, the impact of the February 2021 winter storms had a lingering effect on portions of 2021 as it disrupted our ability to source certain materials needed for spray foam appli cations. These materials were in short supply after the storms as chemical processing facilities went offline. iency, driving our costs distributors and home centers at a d ately 50 basis points as a percentage of net revenue during the year ended the year ended December 31, a a a ts of Operating Expex nses Operating expenses for 2021, 2020 and 2019 were as follows (dollars in thousands): Selling 2021 93,204 $ Change 14.2% $ Percentage of total net revenue 4.7% 2020 81,613 4.9% Change 8.8% $ 2019 75,016 5.0% Administrative $ 271,356 14.0% $ 237,959 11.1% $ 214,134 Percentage of total net revenue 13.8% 14.4% 14.2% Amortization $ 37,079 29.9% $ 28,535 16.4% $ 24,510 Percentage of total net revenue 1.9% 1.7% 1.6% Sellingg The dollar increase in selling expenses in 2021 was primarily driven by a year-over-year increase in selling wages, benefits and commissions of $13.0 million, or percentage of sales primarily dued 18.0% which supported our increased net revenue of 19.1%. Selling expense decreased as a to a lower current period provision for credit losses in 2021 comparem d to 2020. , 35 Administrative The dollar increase in administrative expenses in 2021 was primarily duedd $20.2 million, which was attributable to both acquisitions and organic growth as well as favorablea During 2021, we saw our administrative costs decrease as a percentage of sales primarily due to the leverage gained on these administrative wages. to an increase in wages and benefits in the amount of company performance. Amortization Our intangible assets include non-competes, customer relationships, trade names and backlog. Amortization of intangibles attributablea acquisitions. See Note 17, Business Combinations, in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for information on our acquisitions. to acquisitions increased by $8.5 million in 2021 resulting from the increase in new intangible assets from x Other Expense, net Other expense, net forff 2021, 2020 and 2019 was as follows (dollars in thousands): 2021 Change 2020 Change 2019 Interest expense, net Other Total other expense, net $ $ 32,842 (437) 32,405 8.4% $ -209.5% 5.6% $ 30,291 399 30,690 7.8% $ -11.5% 7.5% $ 28,104 451 28,555 The year-over-year increase in other expense, net during 2021 was primarily a result of increased debt levels associated with our debt-related financing transactions. Interest expense, net also increased during 2021 due to amortizing our terminated interest rate swap da 10-K for further information regarding debt balances and derivatives, respectively. erivatives. See Note 8 and Note 11 to our audited consolidated finaff ncial statements included in this Form Income Tax Paa rovision Income tax provision and effecff tive tax rates for 2021, 2020 and 2019 were as follows (dollars in thousands): Income tax provision Effective tax rate 2021 2020 2019 $ $ 36,712 23.6% $ 33,938 25.9% 24,446 26.4% During the year ended December 31, 2021, our tax rate was favorablya impacted by the release of a valuation allowance for a tax filing entity, excess tax benefits from share-based compensation arrangements and statute of limitation expirations of uncertain tax positions. During the year ended December 31, 2020, our tax rate was favorablya filing entity. This favorabila recognized due to a full ff ity was offset by the tax effect of losses incurred by separate companies to which no benefit can be valuation allowance against the losses as well as a tax shortfall from equity vesting. impacted by the release of a valuation allowance for a tax Other comprehensive gain (loss), (( net of to ax Other comprehensive gain (loss), net of tax for 2021, 2020 and 2019 were as follows (in thousands): Unrealized gain (loss) on cash flow hedge, net of taxes $ 8,536 $ (1,620) $ (6,712) 2021 2020 2019 During the year ended December 31, 2021, we recorded an unrealized gain, net of taxes, of $6.4 million on our cash flow hedges primarily due to the market's expectations for interest rates in the futff uret amortized $3.2 million of the unrealized loss on our terminated cash flowff December 31, 2021, not including tax effects of $1.1 million. relative to our July 2021 swap.a We also hedges to interest expense, net duridd ng the year ended 36 During the year ended December 31, 2020, we recorded an unrealized loss, net of taxes on our now-terminated cash flowff hedges primarily due to interest rate declines and market responses to the COVID-19 pandemic of $6.3 million. This loss was offset by an unrealized gain, net of taxes of $3.4 million on our remaining cash flow hedge due to favorable market conditions. We also amortized $1.3 million of the unrealized loss on our terminated cash flow hedges to interest expense, net durid year ended December 31, 2020. ng the We amortize the unrealized loss 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. KEY FACTORS AFFECTING OUR OPERATRR ING RESULTS Trends in the Constr CC uction Industry 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 expect to benefit fromff new residential construction as housing has returned interest rates, the underproduction of new homes during demographic changes. We maintain a mix of business among all types of homebuilders ranging from small custom builders to large regional and national homebuilders as well as a wide range of commercial builders. Net revenue derived from our ten largest homebuilder customers in the United States was approximately 15% for the year ended December 31, 2021. The residential new construction and repair and remodel markets represented approxi mately 83% of our total net revenue for the year ended December 31, 2021, compared to 82% in the same period in 2020. The remaining portion was attributable to the commercial construction end market. the housing recovery, low inventory of existing homes for sale and ized levels due to a number of factors, including low to historic stabila the continued growth in single-family d a tt tt supply constraints for most of the materials we installed during 2021 due to an The industry experienced manufacturer unanticipated increase in demand as well as manufacturing curtailments duedd to COVID-19. We anticipate these shortages will continue into 2022. Our results of operations in 2022 are likely to be impacted by the current supply constraints as we may be unable to complete jobs at our preferred pace, but we will continue to respond to the strong demand by continuing to proactively work with our suppliers and customers to offset any potential impact on our operations and profitabila outlook may change depending on continued increased housing demand and the ability of manufacturers supply. to produce adequate ity. This tt Cost and Availabil l ity ott f Mo ateMM rials We typically purchase the materials we use in our business directly fromff is currently experiencing supply shortages dued currently allocating materials across the industry which affecff 31, 2021. In order to meet customer demand during the year, we purchased materials fromff premium to what we typically would purchase directly from manufacturers, therefore reducing gross profit. manufacturers. of these materials ts from the COVID-19 pandemic. Manufacturers are ted the pricing of those materials during the year ended December distributors and home centers at a to strong demand and effecff The industry supply u t In addition, we experience price increases from our suppliers from time to time, including multiple increases over the last two years caused by supply shortages and general economic inflationary pressures. We also experienced unprecedented increased pricing for fiberglass and foamff Increased market pricing, regardless of the catalyst, has and could continue to impact our results of operations in 2022, to the extent that price increases cannot be passed on to our customers. Despite our efforts to raise prices, our selling price increases lagged material cost increases in 2021 until we began to see improvement in our selling prices in the second half of 2021. We will continue to work with our customers to adjust selling prices to offset higher costs as they occur. See “COVID-19 Impacts” below for a discussion of the short-term impacts of the current economic climate on the availability of the materials we install. insulation materials in 2021 and expect manufacturers to seek additional price increases in 2022. Cost of Labor Our business is labor intensive. As of December 31, 2021, we had approximately 9,500 employees, most of whom work as installers on local construction sites. We expect to spend more to hire, train and retain installers to support our growing business in 2022, as tight labor ity continues within the construction industry. We offer a comprehensive benefits package, which many of our local competitors are not able to provide, which will increase costs as we hire additional personnel. Our workers’ compensation costs also continue to increase as we increase our coverage for additional personnel. availabila a 37 We experienced strong employee retention, turnover and labor efficiency rates in the year ended December 31, 2021. We believe this is partially a result of various programs meant to benefit our employees, including our financial wellness plan, longevity stock compensation plan for employees and assistance fromff 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. See “COVID-19 Impacts” below for a discussion of the short-term impacts of the current economic climate on our workforce. COVID-19 Impacts In December 2019, a novel strain of coronavirus surfaced in Wuhan, China. Since then, the virusrr to the United States. In response, the World Health Organization declared the situation a pandemic and the U.S. Secretary of Health and Human Services declared a public health emergency. The COVID-19 pandemic has caused significant volatility, uncertainty and economic disruption. Many public health organizations and international, fede implemented measures to combat the spread of COVID-19 at various times since the beginning of the pandemic. Some of these measures include restrictions on movement such as quarantines, vaccine and/or masking requirements, “stay-at-home” orders and social distancing ordinances and restricting or prohibiting outright some or all forms of commercial and business activity. There is still significant uncertainty surrounding the duration and scope of the pandemic, as well as its continued impact on the economy. We cannot predict if federal, state and local governments will implement additional restrictions, when restrictions currently in place will expire or whether restrictions currently in place will become more limiting. ral, state and local governments has spread globally, including ff ff While the COVID-19 pandemic and related events will likely have a negative effect on us in 2022, the full extent and scope of the impact on our business and industry, as well as national, regional and global markets and economies, depends on numerous tion and scope of the pandemic, additional evolving factors that we may not be able to accurately predict, including the duradd government actions taken in response to the pandemic, the impact on construction activity and demand for homes (based on employment levels, consumer spending and consumer confidence). The fast recovery in residential housing demand helped offset prolonged impacts of the pandemic already experienced. In the commercial sector, we have experienced delays in the onset of certain large-scale infrastructurett ng declines. Commercial spending rose in 2021, but remains below 2019 levels. Commercial projects could decline in the future if consumer behaviors change in the wake of COVID-19 disruptions to the economy and changes to our general ways of life. For examplem , reduced demand for office buildings and/or educad tional facilities, decreased airport traffic, or decreased usage of sports arenas or similar commercial structures programs due to the declining need for such structures and/or project fundi could continue to impact our commercial end market. ff tt Our management remains focused on mitigating the impact of COVID-19 on our business and the risk to our employees and customers. We have taken a number of precautionary measures intended to mitigate these risks. We follow all masking requirements imposed by authorities, most of which have had no adverse effecff equipment in the process of completing our installation work is already a common practice in our industry. We have also taken technologies which allow some employees the ability to work remotely from home. We comply with advantage of availablea regulations from federal, state and local government agencies. Certain protocols have evolved throughout 2021 as vaccines have become available and guidelines from public health authorities such as the Centers for Disease Control are updated. We are prepared to take additional actions if necessary as suggested or required by various health agencies. ts on our business since wearing protective We continue to evaluate the nature and extent of the COVID-19 pandemic’s impact on our financial condition, results of operations and cash flows. We have experienced limited business disruptions to date and therefore have not needed to implement significant continuity measures and have not incurred significant related expenditures. Assuming a large number of additional states or markets in which we operate do not reverse their current positions about construction being an “essential” business, we do not anticipate having to implement any additional measures in the future. tt Our corporate office remains fully operational. As such, we have made no modifications to internal controls over financial reporting and have confidence controls are operating as designed. We have enhanced our efforts to mitigate cyber threats and phishing, given some employees are still working remotely. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impacm t of their design and operating effectiveness. r the pandemic to our earnings, tt ion in working capita We expect some impact fromff there is much uncertainty surrounding the estimated magnitude Consolidated Balance Sheets other than a potential reductdd and net income. Trade accounts receivablea may also be reduced somewhat by lower net revenue and a higher allowance forff credit losses due to enhanced risk of collectibility fromff We anticipate revenue and net income may continue to be negatively impacted into 2022 due to supply material price increases ultimately stemming from the effects of the pandemic, as well as other factors such as high demand for some customers, although we have not seen a significant impact to date. financial position and cash flows to continue in 2022, however of these impacm ts. We estimate limited impact to our al due to the possibility of reduced net revenue constraints and/or u 38 housing. While our cash from operations may decline over recent performance due to a decrease in expected net income driven by lower net revenue, we do not anticipate any issues meeting debt obligations or making timely payments to vendors given our strong liquidity and large cash reserves. See "Liquidity and Capital Resources" below for further information. Given the continued uncertainty created by the COVID-19 pandemic and its potential effects, it is not possible to estimate the full, adverse impact to our future 2022 sales or other financial results at this time. Environmental, Sl ociSS al and Governance, Climate Change and Other FactFF ors t iency & Renewable Energy, over $400 billion is spent each year to power homes and According to the Office of Energy Efficff commercial structures that consume 75% of all electricity used in the United States and 40% of the nation’s total energy. As a result, U.S. buildings account for 35% of the U.S. carbon dioxide emissions that drive the climate crisis. Insulation is a critical component in the construction of homes and commercial structures. Installing insulation also helps increase energy conservation because it is the best way to prevent energy waste in most homes and commercial structures. 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. Recently, we have transitioned a large portion of our electricity supply to a carbon-free energy source and entered a national waste management program to increase recycling at our facilities, reducing landfill waste. We are not aware of pending climate-related regulations that would materially affect our business. However, certain effects of climate change that may cause more severe weather events could have a material effect on our operations. For examplem , whether caused by climate change or not, February 2021 winter storms in the southern United States significantly impacted our operations across the entire state of Texas and disrupted our ability to source certain materials needed forff applications. spray foam 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 calendar year. This winter slowdown contributes to traditionally lower sales and profitabila Item 1, Business, for further information. ity in our first quarter. See Part I, the firff st quarter of the d LIQUIDITY AND CAPITAL RESOURCES Our capital resources primarily consist of cash from operations and borrowings under our various debt agreements and capia tal equipment leases and loans. As of December 31, 2021, we had cash and cash equivalents of $333.5 million as well as access to $200.0 million under our asset-based lending credit facff andi gng lletters of credit, resulting in total liquidity of $489.2 million. Our total liquidity is reducd ed by $5.3 million within our cash and cash ity equivalents duedd policies. This amount can be converted to a letter of credit at our discretion and would reduce the availability of our asset-based lending facility (as defined below). Liquidity may also be limited in the futuret asset-based credit facility (as defined below), depending on the status of our borrowing base availabila by certain cash collateral limitations under our ity. to a deposit into a trust to serve as additional collateral forff ility (as defined below), less $44.3 million of outst di our workers' compensation and general liabila We experienced unprecedented increases in pricing for fiberglass and foamff manufacturers to seek additional price increases in 2022. Increased market pricing on the materials we purchase has and could continue to impact our results of operations in 2022 due to the higher prices we must pay forff materials. See Part I, Item 1A, Risk Factors, for information on the potential and currently known impacm ts on our business and liquidity from the COVID-19 pandemic. insulation materials in 2021 and expect Short-Term Material Cash Requirements For at least the next twelve months, our primary capia tal requirements are to fund working capia tal needs, operating expenses, acquisitions and capia tal expenditures and to meet principal and interest obligations and make required income tax payments. We may also use our resources to fund 2022, we anticipate discretionary spending for capita approximately $37.0 million and $35.0 million, respectively, as well as approximately $27.0 million forff variable dividend to be paid March 31, 2022. In addition, we expect to spend cash and cash equivalents to acquire various our optional stock repurchase program and pay quarterly and annual dividends. During al improvements and quarterly dividends to approximate 2021 levels of our first annual ff 39 companies with at least $100.0 million in aggregate net revenue. The amount of cash paid forff various factors, including the size and determined value of the business being acquired. an acquisition is dependent on Firm commitments for funds include $64.8 million in interest and principals payments on long-term debt obligations including our Senior Notes, Term Loan, notes payable to sellers of acquisitions and vehicles purchased under the Master Loan and Security Agreement, the Master Equipment Agreement and the Master Loan Agreements. Additionally, we maintain certain which will require $2.0 million in interest and principal payments under production vehicles under a finff ance lease structuret current agreements in 2022. We lease certain locations, vehicles and equipment under operating lease agreements that will require $25.2 million in funds that requires us to purchase a minimum of $46.2 million of inventory in 2022. Payments forff at this time. over the next twelve months. Finally, we have a product supply agreement with a certain vendor income taxes cannot be estimated ff 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 capaa under our asset-based lending credit facff ility (as defined below). city Despite the current known impacm ts of the COVID-19 pandemic, we believe that our cash flows from operations, combined with our current cash levels and available borrowing capaa 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, 2021, 2020 and 2019. We believe that we have access to additional funds, if needed, through the capita guarantee that such financing will be availablea al markets to obtain further debt financing under the current market conditions, but we cannot city, will be adequate to support our ongoing operations and to fund our terms, or at all. on favorablea Long-Term Material Cash Requirements al needs and operating expenses, Beyond the next twelve months, our principal demands for funds will be to fund working capita or mature, and to make to meet principal and interest obligations on our long-term debts and finance leases as they become dued 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 include $1,028.1 million in interest and principals payments on long-term debt obligations noted above through 2028, as follows (amounts in thousands): a 2023 2024 2025 2026 $57,945 51,568 49,442 39,868 Thereafter 829,246 In addition, our finance leases will require $3.5 million in interest and principal payments under current agreements through 2026. Operating lease obligations will require $49.7 million in payments beyond the next twelve months. Sources and Uses of Cash and Related Trends Working Capita al We carefully manage our working capia tal and operating expenses. As of December 31, 2021 and 2020, our working capia tal, including cash and cash equivalents, was $551.7 million, or 28.0% of net revenue, and $387.5 million, or 23.4% of net revenue, respectively. The increase in working capia tal year-over-year was driven primarily by a $102.0 million increase in cash and cash equivalents resulting from the increase in Term Loan debt and positive operating cash flows. Additionally, accounts receivable increased $46.2 million resulting from our increased net revenue, and inventories increased by $65.8 million dued price inflation, increased selling activity and acquisitions. These increases were partially offset by an increase of $31.2 million in accounts payablea primarily due material price inflation and increased sales volume. We continue to look for opportunities to reduce our working capita al as a percentage of net revenue. to material 40 The folff lowing tablea presents our cash flows ff (in thousands): Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Cash FloFF ws from Operating Activities Years ended December 31, 2020 2019 2021 $ $ $ 138,314 $ (278,439) $ 242,090 $ 180,789 $ (77,794) $ (49,364) $ 123,067 (131,733) 96,113 Our primary source of cash provided by operations are revenues generated from installing building products and the resulting operating income generated by these revenues. Operating incomes are 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. The COVID-19 pandemic has not had a material impact to our cash collections to date. Our primary uses of cash fromff income taxes and other general corporate expenditures included in net income. operating activities include payments for installation materials, compensat m ion costs, leases, Net cash provided by operating activities decreased from 2020 to 2021 primarily dued to changes in working capia tal dued higher volume of inventory purchases to support our growth and increased pricing on inventory due to price inflation on materials. During the year ended Dece bmber 31, 2020 we saw a significant increase in cash from operations due to payroll tax deferrals under the CARES Act. This negatively impacted the cash from operations during the year ended December 31, 2021 when we paid a portion of this deferral. to , Cash FlowFF s fww romff Investing Activities Sources of cash from investing activities consists primarily of proceeds from the sales of property and equipment and, periodically, maturities fromff property and equipment, payments forff short term investments. Cash used in investing activities consists primarily of purchases of acquisitions and, periodically, purchases of short term investments. Net cash used by investing activities increased from 2020 to 2021 primarily due to the increase in payments forff We completed 2 additional acquisitions in 2021 compared to 2020, and the size of the acquisitions were generally larger in the year ended December 31, 2021. The amount of cash paid is dependent on various factors, including the size and determined value of the business being acquired. See Note 17, Business Combinations, to our audited consolidated finaff ncial statements included in this Form 10-K for more information regarding our business acquisitions in 2021, 2020 and 2019. acquisitions. Additionally, total cash used forff in futurett reimbursed via various vehicle and equipment notes payablea activities. net revenue through further capia tal expenditures. A majority of these capita al expenditures , with related cash inflows shown in cash flows from financing were subsequently t property and equipment increased in 2021, and we expect to continue to support any increases Cash FloFF ws from Financing Activities i . Cashh used id in fiinff ancinging ac iti ivi ities co insists fifinancinging ac iti ivi ities Our source of cash fh fromff payapayablblea stockk repurchhases. consists of proce deds from thhe iissuances of df d bebt a dnd iprima ilrilyy of df d bebt repayyments, ac hivehi lcle a dnd iqui isitiion-rellatedd oblibliggatiions, di idivid ddends equipment notes i dand id rovided bd byy fiinaff inci gng ac iti ivitiie is increa dsed fro NNet cashh p was partially offset by the repayment of our previous term loan agreement. We lplan to use hthe proce deds of hthe Term Loan to yany hshares support our opera itions, inci gng ac iti ivitiies was dunder our stockk repurchhase plla dn d iuridd furthher offse dt d iuridd y com ypany and hd highe 2m 020 to 2021 primarily due to proceeds on our new Term Loan, which gng hthe yyear e dndedd Dece bmber 31, 2021. Our net ca hsh ypayment of hthe fifirst quarterlyrly didi idvide dnds iin our hihi gng hthe yyear e dndedd Dece bmber 31, 2021 byby hthe on-relat ded blobligaiga itions ddue to iincreas ded ac iqui isitiion strat gyegy. We lalso dididd not re ypay d bdebt iissuance costs dand co intinue our ac iqui isitiion ac iti ivi yty. provided bd byy fiinaff igher acq i iuisi iti story as a p blubliic purchase h id l 41 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 will be payablea 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 afteff r 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 capita l alization per fisca icable restricted payment baskets; (iii) prepay subordinated debt; (iv) year, or in an aggregate amount exceeding certain appl create liens; (v) make specified types of investments; (vi) appl y net proceeds from certain asset sales; (vii) engage in transactions with affilff distributions from subsidiaries. iates; (viii) merge, consolidate or sell substantially all of our assets; and (ix) pay dividends and make other a a ff Credit Facilities ility dued December 2028 (the “Term Loan”) under In December 2021, we entered into a $500 million, seven-year term loan facff our credit agreement (the “Term Loan Agreement”), dated as of December 14, 2021 with Royal Bank of Canada as the administrative agent and collateral agent thereunder. The Term Loan amortizes in quarterly principal payments of $1.25 million starting on March 31, 2022, with any remaining unpaid balances dued Loan bears interest at either the base rate (which approxi 1.25% in the case of base rate loans or (B) 2.25% in the case of Eurodollar rate loans. Proceeds from the Term Loan were used to refinance and repay in full all amounts outstanding under our previous term loan agreement. We intend to use the remaining funds to pay for certain feeff including acquisitions and other growth initiatives. As of December 31, 2021, we had $493.3 million, net of unamortized debt issuance costs, dued s and expenses associated with the closing of the Term Loan and for general corporate purposes, mated the prime rate) or the Eurodollar rate, plus a margin of (A) on the maturity date of December 14, 2028. The Term on our Term Loan. a 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 million, subject to certain exceptions and limitations. an asset-based lending credit facff In September 2019, we entered into an asset-based lending credit agreement (the “ABL Credit Agreement”). The ABL Credit -year Agreement provides forff maturity. Borrowing availability under the ABL Revolver is based on a percentage of the value of certain assets securing the Company’s obligations and those of the subsidiary guarantors thereunder. In connection with the Term Loan Agreement, we entered into a Third Amendment (the “Third Amendment”) to the ABL/Term Loan Intercreditor Agreement with Bank of America, N.A., as ABL Agent for the lenders under the ABL Credit Agreement, and Royal Bank of Canada as collateral agent under the Term Loan Agreement. Including outstanding letters of credit, our remaining availability under the ABL Revolver as of December 31, 2021 was $155.7 million. In February 2022, we amended and extended our ABL Credit Agreement. See Note 19, Subsequent Events, forff ility (the “ABL Revolver”) of up tu o $200.0 million with a fiveff additional information. 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 firff st-priority security interest in such assets that constitutett in such assets that constitutet ABL Priority Collateral, as defined in the ABL Credit Agreement, and a second- priority security interest Term Loan Priority Collateral, as defined in the Term Loan Agreement. The ABL Revolver bears interest at either the Eurodollar rate or the base rate (which approxi mated the prime rate), at the Company’s election, plus a margin of (A) 1.25% or 1.50% in the case of Eurodollar rate loans (based on a measure of a 42 availability under the ABL Credit Agreement) and (B) 0.25% or 0.50% in the case of base rate loans (based on a measure of availability under the ABL Credit Agreement). The ABL Revolver also provides incremental revolving credit facility commitments of up tu conditions of any incremental revolving credit facff Revolver. The ABL Revolver also allows for the issuance of letters of credit of up to $75.0 million in aggregate and borrowing of swingline loans of up to $20.0 million in aggregate. o $50.0 million. The terms and than the terms of the ABL ility commitments must be no more favorablea i iactio fff requiringring hthe s iati fsf The ABL Credit Agreement contains a finff ancial covenant of 1.0 ix in thhe event hthat w de do not meet a mi iinimum measure of av iaillabilbila 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 2.0% of market capita l alization per fisca icable restricted payment baskets; (iii) prepay subordinated debt; (iv) year, or in an aggregate amount exceeding certain appl create liens; (v) make specified types of investments; (vi) appl y net proceeds from certain asset sales; (vii) engage in transactions with affilff distributions from subsidiaries. At December 31, 2021, we were in compliance with all applicablea Loan Agreement, ABL Credit Agreement and the Senior Notes. iates; (viii) merge, consolidate or sell substantially all of our assets; and (ix) pay dividends and make other iityy u dnder hthe ABL Rev lolver T. he ABL Credit imi inimum fifi dxed hch garge cove grage ratiio covenants under the Term n off a a a ff Derivative Instr II uments As of December 31, 2021, we had three interest rate swaps.a One interest rate swap ba amount of $200.0 million, a fixff ed rate of 0.51% and a maturi began December 31, 2021, each with a fixff ed notional amount of $100.0 million, a fixeff December 15, 2028. Together, these three swapsa Term Loan through maturity. The assets and liabilities associated with the forward current assets and other current liabilities on the Consolidated Balance Sheets at their fair value amounts as described in Note 10, Fair Value Measurements. ty date of April 15, 2030. We also had two interest rate swapsa serve to hedge $400.0 million of the variablea egan July 30, 2021 and has a fixeff d rate of 1.37%, and a maturit cash flows on our variablea y date of rate interest rate swap aa re included in other non- d notional that ff tt t LIBOR is used as a refereff interest rate exposure. For more information on the discontinuance of LIBOR, see Item 7A. Quantitative and Qualitative Disclosures about Market Risk below. our Term Loan, ABL Revolver and our interest rate swap aa nce rate forff greements we use to hedge our Vehicle and Equipment i 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 forff a note for a period of typically 60 consecutive months after the incurrence of the obligation. to such financing arrangement. Regular payments are due under each the note appli cablea Total gross assets and respective outstanding loan balances relating to our master loan and equipment agreements were $134.5 million and $69.2 million as of December 31, 2021, respectively, and $132.2 million and $67.5 million as of December 31, 2020, respectively. See Note 8 to our audited consolidated finaff information regarding our Master Loan and Security Agreement, Master Equipment Lease Agreement and Master Loan Agreements. ncial statements included in this Form 10-K for more Letters of Credit and Bonds We may use performance bonds to ensure complem tion of our work on certain larger customer contracts that can span multiple the bonds as accounting periods. Performance bonds generally do not have stated expiration dates; rather, we are released fromff the contractual performance is completed. In addition, we occasionally use letters of credit and cash to secure our performance under our general liabila one year and are required by certain municipalities when we obtain licenses and permits to perform work in their jurisdictions. ity and workers’ compensation insurance programs. Permit and license bonds are typically issued forff 43 The folff lowing tablea summarizes our outstanding bonds, letters of credit and cash-collateral (in thousands): Performance bonds Insurance letters of credit and cash collateral Permit and license bonds Total bonds and letters of credit As of December 31, 2021 66,838 $ 51,393 7,002 125,233 $ In 2020, we posted $5.3 million into a trust to serve as additional collateral for our workers’ compensation and general liabila policies. This collateral can be converted to a letter of credit at our discretion and is therefore not considered to be restricted cash. ity Critical Accounting Estimates Management’s discussion and analysis of our financial condition and results of operations is based uponu 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 assumptim ons 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 fromff estimates and assumptions used in preparation of our consolidated financial statements. We believe the folff accounting estimate requires judgement and estimation in the preparation of our consolidated finaff 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 effecff t on our financial statements. ncial statements and to be lowing critical these Revenue recognition a ty of our revenues are recognized when we complete our contracts with customers to install building products and The majori 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 fact knowledge, significant experience and judgement of project management, finance professionals and operational management to assess a variety of fact ors include historical performance, costs of ff materials and labor, for each uncompleted contract at least quarterly to reflect the latest reliable information available. Changes in these estimates ff could favorabl of the work to be performed. We generally review and reassess our estimates ors impacting job completion. Our cost estimation process is based on the ors to determine revenues on uncomplem ted contracts. Such fact y or unfavorable impact revenues and their related profits. change orders and the naturett a ff ff 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 recoverablea 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. . An ff 44 Insurance risks a number of risks, including, but not limited to, workers’ compensation, general liabila We carry insurance policies forff vehicle liabila an element forff which we assume a portion of the risk by having high deductibles or a large cap oa our different insurance programs, see Note 2, Significant Accounting Policies in Item 8, Financial Statements and Supplementary Data in this Form 10-K. ity, property and our obligation for employee-related health care benefits. Most of our insurance policies contain n claims. For a description of ity, 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 $3.3 million and $3.1 million as of December 31, 2021 and 2020, respectively. rr a the deductd ible amount on a per claim basis. We accruerr 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 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 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, 2021 and 2020, we estimated total short-term and long-term known and IBNR claims for workers' compensation to be $21.4 million and $19.7 million, respectively. As of December 31, 2021 and 2020, offsets of these liabila ities were $2.1 million and $1.9 million, respectively, with insurance receivablea claims that exceeded the stop loss limit. the expected levels of costs per claim are considered. These claims are accounted for s and indemnification assets for claims under fully insured policies or a We also participate in a high retention general liabila December 31, 2021 and 2020, general liabila were $21.9 million and $21.5 million, respectively. As of December 31, 2021 and 2020, offsets of these liabila million and $4.7 million, respectively, with insurance receivablea policies or claims that exceeded the stop loss limit. ity and auto insurance reserves included in other current and long-term liabilities ities were $3.9 ity insurance program and a high deductible auto insurance program. As of s and indemnification assets for claims under fully insured Liabilities relating to claims associated with these risks are estimated by considering historical claims experience, including frequency, severity, demographic facff periodically analyze our historical trends, including loss development, and appl incurred costs associated with the claims with the assistance of external actuarial consultants. While we do not expect the amounts ultimately paid to differ ff future claim experience differs significantly from our estimates, our reserves and corresponding expenses could be affected if rial assumptions. In estimating our liability forff historical trends and actuarial assumptions. ate loss development factors to the tors and other actuat significantly fromff such claims, we y appropri a a ff We have not made any material changes in our methodology used to establia December 31, 2021 and 2020, and none of the adjustments to our estimates have been material. sh our insurance reserves during d the years ended 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 this Form 10-K. Item 7A. Quantitative and Qualitative Disclosures about Market Risk tt ions in interest rates on our outstanding variable rate debt. As of We are exposed to market risks related to fluff ctuat December 31, 2021, we had $493.3 million outstanding on the Term Loan, net of unamortized debt issuance costs, no outstanding borrowings on the ABL Revolver and no outstanding borrowings under finance leases subject to variable interest rates. We had three interest rate swapsa which, when combined, serve to hedge $400.0 million of the variable cash flows on our Term Loan until its maturit market risks as of December 31, 2021. A hypothetical one percentage point increase (decrease) in interest rates on our variablea rate debt would increase (decrease) our annual interest expense by approximately $1.0 million. Our Senior Notes accrued interest at a fixeff y as of December 31, 2021. As a result, total variable rate debt of $100.0 million was exposed to d rate of 5.75%. t For variablea earnings and cash flows, derivatives for trading or speculative purposes. ff rate debt, interest rate changes generally do not affect ff the fair value of the debt instrument, but do impact future assuming other factors are held constant. We have not entered into and currently do not hold 45 nce rate forff nce rate, to June 2023 O. ur Term Loan Agreement, interest rate swap agreements and ABL Credit Agreement LIBOR is used as a refereff our Term Loan, ABL Revolver and our interest rate swap agreements we use to hedge our interest rate exposure. In 2017, the Financial Conduct Authority (“FCA”), the authority that regulates LIBOR, announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021, and it is unclear whether new methods of calculating LIBOR will be established. The Intercontinental Exchange Benchmark Administration, the administrator of LIBOR, announced in March 2021 its intention to extend the publication of certain LIBOR settings, including the setting we use as a refereff include a provision related to the discontinuance of LIBOR to be replaced with one or more Secured Overnight Financing Rate ("SOFR") values or another alternative benchmark rate. However, when LIBOR ceases to exist after June rates under the alternative rate could be higher than LIBOR. During the year ended December 31, 2020, we adopted ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). The purpose of this guidance is to provide relief forff apply the hedge accounting expedients related to probabila cash flows to assume that the index uponu corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. impacted areas as it relates to impending reference rate reform. We elected to ity and the assessments of effectiveness for future LIBOR-indexed hedged transactions will be based matches the index on the 2023 the interest ff which future , Item 8. Financial Statements and Supplementary Data 46 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Installed Building Products, Inc. Opinion on the Financial Statements ff We have audited the accompanying consolidated balance sheets of Installed Building Products, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows, referred to as the “financial statements”). In our opinion, the finff ancial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. for each of the three years in the period ended December 31, 2021, and the related notes (collectively for ff We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over finaff ncial reporting as of December 31, 2021, based on criteria established in Internal Control — InteII e grated Commission and our report dated February 24, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting. Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether dued error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether dued examining, on a test basis, evidence regarding the amounts and disclosures in the finff ancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the finff ancial statements. We believe that our audits provide a reasonable basis for our opinion. to error or fraud, and performing procedures that respond to those risks. Such procedures included to Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjeu communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate. ctive, or complex judgments. The Revenue on certain cii tt ontracts recognized over timeii – Refer to Ntt otNN estt 2 and 3 to t tt hett ii financ ial statements Critical Audit MatMM ter Description The Company recognizes revenue from the majority of its installation contracts when control of the promised goods or services is transferred to customers, in an amount that refleff cts the consideration the Company expects to be entitled to in exchange for those goods or services. For contracts that are not complete at the reporting date (“uncompleted contracts”), the Company recognizes revenue over time utilizing a cost-to-cost input method, as the Company believes this represents the best measure of when goods and services are transferred to the customer. When this method is used, the Company estimates the costs to complete individual contracts and records 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 estimated cost to complete each contract requires judgment and can change throughout the duration of a contract due to contract modifications and other factors impacm ting job completion. The costs related to earned revenue include all direct material and labor indirect costs related to contract performance, such as indirect labor, supplies, tools and repairs. costs and those a 47 The Company’s estimation process for determining revenues forff method is based uponu operational and financial professionals, and an assessment of the key underlying factors, such as the value of executed contracts, change orders, and related contract costs, that may impact the revenues and costs of uncompleted contracts. historical experience, the professional judgment and knowledge of the Company’s project management, uncompleted contracts accounted forff under the cost-to-cost Given the judgments necessary to estimate the relationship between executed contract value and contract costs, auditing the amount of revenue recognized for uncompleted contracts involves a high degree of auditor judgment. How the Critical Audit MatMM ter WasWW Addressed in thett Audit Our audit procedures related to estimated revenue recognized on uncompleted contracts included the following, among others: • We tested the effecff tiveness of the Company’s controls over the determination of uncompleted contract revenue, including those over estimated total costs and revenues recognized through performance obligations. • We inquired of project managers and evaluated the reasonableness of management’s ability to accurately estimate costs by comparing incurred contract costs on uncompleted contracts to management’s projections. • We compared accounting records to executed contracts and change orders to verify accuracy of contract values in the Company’s estimates. • We considered the impact of change orders and other related contract costs that may impact the determination of revenue and estimated costs to completion. • We tested the mathematical accuracy of the Company’s calculation of revenue recognized over time. • We selected a sample of contract costs incurred as of December 31, 2021, agreed the costs to supplier invoices or other supporting documents, and evaluated whether the costs were properly allocated to the contracts included in management’s calculation of revenue recognized over time. • We developed an expectation of revenue for uncompleted contracts with remaining performance obligations as of December 31, 2021 based on (1) consideration of incurred contract costs and (2) results realized by the Company on completed contracts. We compared this expectation to the Company’s revenue recognized on uncompleted contracts at December 31, 2021. /s/ Deloitte & Touche TT LLP Columbus, Ohio February 24, 2022 We have served as the Company’s auditor since 2013. 48 INSTALLED BUILDING PRODUCTS, INC. CONSOLIDATED BALANCAA E SHEETS (in thousands, except share and per share amounts) ASSETS Current assets Cash and cash equivalents Accounts receivable (less allowance for credit losses of $8,717 and $8,789 at $ 333,485 $ 231,520 As of December 31, 2020 2021 December 31, 2021 and 2020, respectively) Inventories Prepaid expenses and other current assets Total current assets Property and equipment, net Operating lease right-of-use assets Goodwill Customer relationships, net Other intangibles, net Other non-current assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Current maturities of long-term debt Current maturities of operating lease obligations Current maturities of finaff Accounts payable Accrued compensation Other current liabilities nce lease obligations Total current liabilities Long-term debt Operating lease obligations Finance lease obligations Deferred income taxes Other long-term liabilities Total liabilities Commitments and contingencies (Note 16) Stockholders’ equity Preferred Stock; $0.01 par value: 5,000,000 authorized and 0 shares issued and outstanding at December 31, 2021 and 2020, respectively Common stock; $0.01 par value: 100,000,000 authorized, 33,271,659 and 33,141,879 issued and 29,706,401 and 29,623,272 shares outstanding at December 31, 2021 and 2020, respectively Additional paid in capital Retained earnings Treasury stock; at cost: 3,565,258 and 3,518,607 shares at December 31, 2021 and 2020, respectively Accumulated other comprehensive loss Total stockholders’ equity Total liabilities and stockholders’ equity See accompanying notes to consolidated financial statements 49 $ $ $ $ 312,767 143,039 70,025 859,316 105,933 69,871 322,517 178,264 86,157 31,144 1,653,202 30,839 23,224 1,747 132,705 50,964 68,090 307,569 832,193 46,075 3,297 4,819 42,409 1,236,362 266,566 77,179 48,678 623,943 104,022 53,766 216,870 108,504 62,889 17,682 1,187,676 23,355 18,758 2,073 101,462 45,876 44,951 236,475 541,957 34,413 2,430 35 53,184 868,494 — — 333 211,430 352,543 331 199,847 269,420 (147,239) (227) 416,840 1,653,202 $ (141,653) (8,763) 319,182 1,187,676 $ INSTALLED BUILDING PRODUCTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (in thousands, except share and per share amounts) Net revenue Cost of sales Gross profit Operating expenses Selling Administrative Amortization Operating income Other expense Interest expense, net Other (income) expense Income beforeff Income tax provision Net income Other comprehensive gain (loss), net of tax: income taxes Net change on cash flow hedges, net of tax (provision) benefit of $(2,773), $550 and $2,225 for the twelve months ended December 31, 2021, 2020 and 2019, respectively Comprehensive income Earnings Per Share: Basic Diluted Weighted average shares outstanding: Basic Diluted Cash dividends declared per share Years ended December 31, 2020 1,653,225 $ 1,143,251 509,974 2021 1,968,650 $ 1,379,131 589,519 2019 1,511,629 1,076,809 434,820 93,204 271,356 37,079 187,880 81,613 237,959 28,535 161,867 32,842 (437) 155,475 36,712 118,763 $ 30,291 399 131,177 33,938 97,239 $ 75,016 214,134 24,510 121,160 28,104 451 92,605 24,446 68,159 8,536 127,299 $ (1,620) 95,619 $ (6,712) 61,447 4.04 $ 4.01 $ 3.30 $ 3.27 $ 2.29 2.28 29,367,676 29,628,527 29,504,115 29,717,609 29,752,644 29,873,106 1.20 $ — $ — $ $ $ $ $ $ See accompanying notes to consolidated financial statements 50 INSTALLED BUILDING PRODUCTS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts) Common Stock Shares Amount Additional Paid In Capital Retained Earnings Treasury Stock Shares Amount Accumulated Other Comprehensive Loss Stockholders’ Equity 32,723,972 $ 327 $ 181,815 $105,212 (2,808,361) $(104,425) $ (431) $ 182,498 68,159 (46,803) (2,331) 139,862 2 (2) 8,057 360 7,670 68,159 — (2,331) 8,057 360 (6,712) (6,712) 32,871,504 $ 329 $ 190,230 $173,371 97,239 (1,190) (2,855,164) $(106,756) $ (7,143) $ 264,004 2 (2) 9,286 333 6,371 (30,223) (973) (633,220) (33,924) 250,031 97,239 (1,190) — (973) 9,286 333 (33,924) (1,620) (1,620) 33,141,879 $ 331 $ 199,847 $269,420 118,763 (3,518,607) $(141,653) $ (8,763) $ 125,550 2 (2) (46,651) (5,586) 4,230 11,118 467 (35,640) 319,182 118,763 — (5,586) 11,118 467 (35,640) 33,271,659 $ 333 $ 211,430 $352,543 (3,565,258) $(147,239) $ (227) $ 416,840 8,536 8,536 See accompanying notes to consolidated financial statements BALANCE—January 1, 2019 Net income Issuance of common stock awards to employees Surrender of common stock awards Share-based compensation expense Share-based compensation issued to directors Net change in cash flow hedges, net of tax BALANCE—January 1, 2020 Net income Cumulative effeff ct of accounting change Issuance of common stock awards to employees Surrender of common stock awards Share-based compensation expense Share-based compensation issued to directors Common stock repurchase Net change in cash flow hedges, net of tax BALANCE—January 1, 2021 Net income Issuance of common stock awards to employees Surrender of common stock awards Share-based compensation expense Share-based compensation issued to directors Dividends Declared ($1.20 per share) Net change in cash flow hedges, net of tax BALANCE—December 31, 2021 51 INSTALLED BUILDING PRODUCTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Years ended December 31, 2020 2019 2021 $ 118,763 $ 97,239 $ 68,159 Depreciation and amortization of property and equipment Amortization of operating lease right-of-use assets Amortization of intangibles Amortization of deferred finff ancing costs and debt discount Provision for credit losses Write-off of debt issuance costs Gain on sale of property and equipment Noncash stock compensation Deferred income taxes Amortization of terminated interest rate swap Changes in assets and liabilities, excluding effects ff of acquisitions Accounts receivable Inventories Other assets Accounts payable Income taxes receivable/payable Other liabilities Net cash provided by operating activities Cash flows from investing activities Purchases of investments Maturities of short term investments Purchases of property and equipment Acquisitions of businesses, net of cash acquired of $1,707, $0 and $334 in 2021, 2020 and 2019, respectively Proceeds from sale of property and equipment Other Net cash used in investing activities Cash flows from financing activities Proceeds from senior notes (Note 8) Proceeds from term loan (Note 8) Payments on term loan (Note 8) Proceeds from vehicle and equipment notes payable Debt issuance costs Principal payments on long-term debt Principal payments on finance lease obligations Acquisition-related obligations Dividends paid Repurchase of common stock Surrerr nder of common stock awards by employees Net cash provided by (used in) financing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosures of cash flow information Net cash paid during the period for: Interest Income taxes, net of refunds Supplemental disclosure of noncash activities Right-of-use assets obtained in exchange for operating lease obligations Release of indemnification of acquisition-related debt Termination of operating lease obligations and right-of-use assets Property and equipment obtained in exchange for finance lease obligations Seller obligations in connection with acquisition of businesses Unpaid purchases of property and equipment included in accounts payable 43,562 22,258 37,079 1,354 2,227 1,767 (1,840) 13,752 (438) 3,223 (16,775) (54,003) (19,885) 26,424 (4,403) (34,751) 138,314 — — (36,979) (241,308) 2,694 (2,846) (278,439) — 500,000 (200,000) 27,834 (7,520) (26,301) (2,125) (8,918) (35,294) — (5,586) 242,090 101,965 231,520 333,485 25,976 39,241 38,084 2,036 — 2,735 29,169 441 $ $ 41,339 18,122 28,535 1,332 4,444 — (786) 10,826 (8,475) 1,326 (10,489) 187 (870) (203) 4,296 (6,034) 180,789 (776) 38,693 (33,587) (76,446) 1,187 (6,865) (77,794) — — — 21,290 (157) (26,685) (2,632) (6,283) — (33,924) (973) (49,364) 53,631 177,889 231,520 26,324 37,072 26,001 — — 1,000 14,086 1,013 $ $ 38,862 15,691 24,510 1,184 4,312 3,725 (140) 8,727 5,341 — (29,582) (10,597) (16,959) 947 (3,944) 12,831 123,067 (52,795) 25,061 (50,167) (51,706) 761 (2,887) (131,733) 300,000 — (195,750) 33,090 (6,691) (21,316) (4,157) (6,732) — — (2,331) 96,113 87,447 90,442 177,889 20,943 22,633 18,907 — (2,946) 2,809 7,543 1,903 $ $ See accompanying notes to consolidated financial statements 52 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – ORGANIZATION Installed Building Products (“IBP”), a Delaware corporation formed on October 28, 2011, and its wholly-owned subsidiaries (collectively referred to as the “Company,” and “we,” “us” and “our”) primarily install insulation, waterproofing, fire-stopping, fireproofing, garage doors, rain gutters, window blinds, shower doors, closet shelving and mirrors and other products for residential and commercial builders located in the continental United States. The Company operates in over 210 locations and its corporate office is located in Columbus, Ohio. We have one operating segment and a single reportable segment. The vast majoa rity of our sales are derived fromff based installation of various products in the residential new construction, repair and remodel and commercial construction end markets fromff our national network of branch locations. the service- Each of our branches has the capacity to serve all of our end markets. See Note 3, Revenue Recognition, for information on our revenues by product and end market. ff ral, state and local governments implemented measures to combat the spread of COVID-19 The COVID-19 pandemic has caused significant volatility, uncertainty and economic disruption. Many public health organizations and international, fede at various times since the beginning of the pandemic with some of these restrictions still in place as of the date of filff ing of this Annual Report on Form 10-K ("Form 10-K"). Some of these measures included quarantines, vaccine and/or masking requirements, “stay-at-home” orders and social distancing ordinances and restricting or prohibiting outright some or all forms of commercial and business activity. We do not believe the various orders and restrictions significantly impacted our business during the year ended December 31, 2021. However, COVID-19 has caused disruptions in the building products supply chain, impacting our ability to purchase certain materials through our typical channels. ff NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation p We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying consolidated financial statements include all of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Use of Estimates Preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgements and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Management believes the accounting estimates are appropriate and reasonably determined; however, due to the inherent uncertainties in making these estimates, actual amounts could differ from such estimates. Cash and Cash Equivalents q We consider all highly-liquid investments purchased with original term to maturity of three months or less to be cash equivalents. Substantially all cash is held in banks providing FDIC coverage of $0.25 million per depositor. Revenue and Cost Recognition g Revenue is measured according to Accounting Standards Codification ("ASC") 606, “Revenue from Contracts with Customers.” Our revenues are derived primarily through contracts with customers whereby we install insulation and other complementary building products and are recognized when control of the promised goods or services 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. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectabila portion of our sales, primarily retail and distribution sales, is accounted for on a point-in-time basis when the sale occurs and the risk of loss transfers to the customer, adjusted accordingly forff assurance-type warranties on certain of our installed products and services that do not represent a separate performance obligation and, as such, do not impact the timing or extent of revenue recognition. any return provisions and net of any sales taxes. We do offer ity of consideration is probable. An insignificant 53 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 variablea requires judgment and can change throughout the duration of a contract dued impacting job completion. The costs of earned revenue include all direct material and labor to contract performance, such as indirect labor, contracts are made in the period in which such losses are determined. in the process of determining recognized revenue, to contract modifications and other factors supplies, tools and repairs. Provisions for estimated losses on uncompleted costs and those indirect costs related a a Our long-term contracts can be subject to modification to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new, or changes the existing, enforceablea and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing contract duedd to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reductd ion of revenue) on a cumulative catch-up basis. rights Payment terms typically do not exceed 30 days for short-term contracts and typically do not exceed 60 days for long-term contracts with customers. All contracts are billed either contractual contracts occurs primarily on a monthly basis throughout the contract period whereby we submit invoices forff based on actual or estimated costs incurred during the billing period. On certain of our long-term contracts the customer may withhold payment on an invoice equal to a percentage of the invoice amount, which will be subsequently paid afteff completion of each installation project. This amount is referred to as retainage and is common practice in the construction s industry, as it allows for customers to ensure the quality of the service performed prior to full payment. Retainage receivablea are classified as current or long-term assets based on the expected time to project completion. See "Accounts Receivablea " below for further discussion of our retainage receivables. ly or as work is performed. Billing on our long-term customer payment r satisfactory t We generally expense sales commissions and other incremental costs of obtaining a contract when incurred because the amortization period is usually one year or less. Sales commissions are recorded within selling expenses on the Consolidated Statements of Operations and Comprehensive Income. We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Derivative Instruments and Hedging Activities g g We record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected futuret cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the earnings effect of the hedged forec transactions in a cash flowff risks, even though hedge accounting does not apply or we elect not to apply hedge accounting. See Note 11, Derivatives and Hedging Activities, for additional information on our accounting policy for derivative instruments and hedging activities. hedge. We may enter into derivative contracts that are intended to economically hedge certain of our asted ff Business Combinations business combinations is allocated to the estimated faiff The purchase price forff including goodwill and assumed liabilities, where applicablea and trade names, backlog and non-competition agreements as identifiablea value as of the transaction date. The faiff approach using current industry information which involves significant unobservablea include projected sales, margin and tax rate. r values of acquired tangible and intangible assets, . Additionally, we recognize customer relationships, trademarks intangible assets. These assets are recorded at fair r value of these intangibles is determined using either the income approac a h or the market inputs (Level 3 inputs). These inputs 54 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At times, the total purchase price forff and intangible assets. In these cases, we record a gain on bargain purchase within other expenses in the Consolidated Statements of Operations and Comprehensive Income rather than goodwill in accordance with U.S. GAAP. a business combination could be less than the estimated faiff r values of acquired tangible Accounts Receivabla e We account for trade receivablea contractual terms. We do not accrue interest on any of our trade receivablea s based on amounts billed to customers. Past due receivables are determined based on s. tory completion of each installation project. Management regularly reviews aging of retainage receivablea Retainage receivables represent the amount retained by our customers to ensure the quality of the installation and is received after satisfacff changes in payment trends and records an allowance when collection of amounts dued by project owners under construction contracts and included in accounts receivablea December 31, 2021 and 2020, respectively. In addition, as of December 31, 2021, $0.5 million of retainage receivablea recorded in other non-current assets. are considered at risk. Amounts retained were $40.5 million and $41.7 million as of s were s and Credit losses are measured according to ASC 326, “Financial Instruments – Credit Losses: Measurement of Credit Losses on financial instruments, Financial Instruments.” We consider forwa including trade receivablea rd-looking information to estimate expected credit losses forff ff s, retainage receivablea s and contract assets (unbilled receivables). Our expected loss allowance methodology for accounts receivablea conditions and future market forecasts. We also perform ongoing evaluations of our existing and potential customer’s creditworthiness. To date, the COVID-19 pandemic has not yet had a material impact on the collectabila receivables. See Note 4, Credit Losses, for additional information. is developed using historical losses, current economic ity of our existing trade Concentration of Credit Risk Credit risk is our risk of financial loss from the non-performance of a contractual Such risk arises principally fromff our receivablea accounts receivablea are from entities engaged in residential and commercial construction. We perform periodic credit evaluations of our customers’ financial condition. The general credit risk of our counterparties is not considered to be significant. In addition, no individual customer made up more than 3% of accounts receiivablblea years ended December 31, 2021, 2020 and 2019. obligation on the part of our counterparty. customers and cash and bank balances. Substantially all of our trade or 5% of net revenue for the s fromff tt Inventories Inventories consist of insulation, waterproofing materials, fireproofing and fire-stopping materials, garage doors, rain gutters, window blinds, shower doors, mirrors, closet shelving and other products. We value inventory at each balance sheet date to ensure that it is carried at the lower of cost or net realizablea value with cost determined using the firff st-in, first-out (“FIFO”) method. Net realizablea completion, disposal and transportation. As of December 31, 2021 and 2020, substantially all inventory was finis Inventory provisions are recorded to reduce inventory to the lower of cost or net realizable value for obsolete or slow moving inventory based on assumptions about futurett ity of products, the impact of new product introductions, inventory levels and turns, product spoilage, and specific identification of items such as product discontinuance, engineering/ material changes, or regulatory-related changes. value is the estimated selling price in the ordinary course of business, less reasonably predictable cost of demand and marketabila hed goods. ff Property and Equipment q p y p Property and equipment are stated at cost, less accumulated depreciation. We provide for depreciation and amortization of property and equipment using the straight-line method over the expected useful lives of the assets. Expected useful lives of property and equipment vary but generally are the shorter of lease life or five years for vehicles and leasehold improvements, and equipment and 30 years for buildings. three to fiveff tt years for furniture, fixt ures ff Major renewals and improvem ents are capia talized. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recorded. m 55 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Goodwill business combinations and represents the excess of the purchase price over the faiff Goodwill results fromff tangible assets and liabia lities and identifiable intangible assets. Annually, on October 1, or if conditions indicate an earlier review is necessary, we perform a one-step quantitative test to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The estimate of the reporting unit’s fair value is determined by weighting a discounted cash flow model and a market-related model using current industry information that involve significant unobservable inputs (Level 3 inputs). In determining the estimated futuret and judgments, including current and projected futuret the prospects, market and economic conditions and market-participant considerations. An impairment charge is recognized forff amount by which the carrying value exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. levels of income based on management’s plans, business trends, cash flow, we consider and apply certain estimates r value of acquired g Impairment of Other Intangible and Long-Lived Assets p g Other intangible assets consist of customer relationships, backlog, non-competition agreements and business trademarks and trade names. Amortization of finite lived intangible assets is recorded to refleff ct the pattern of economic benefits based on projected revenues over their respective estimated useful lives (customer relationships – eight to 15 years, backlog – 18 to 36 months, non-competition agreements – one to five years and business trademarks and trade names – two to 15 years). We do not have any indefinite-lived intangible assets other than goodwill. We review long-lived assets and intangible assets whenever events or changes in circumstances indicate that the carrying value cash flows expected to result from of an asset may not be recoverable. An impairment loss is recognized when estimated future the use of an asset and its eventual amount of the asset is reduced to its estimated faiff fair net realizablea for the years ended December 31, 2021, 2020, and 2019. value less cost to sell at the date management commits to a plan of disposal. There was no impairment loss disposition are less than its carrying amount. When impairment is identified, the carrying r value. Assets to be disposed of are recorded at the lower of net book value or ff tt Other Liabilities Our workers’ compensation insurance program, for a significant portion of our business, is considered a high deductible program whereby we are responsible for the cost of claims under approximately $0.8 million. Our general liabila ity insurance program is considered a high retention program whereby we are responsible for the cost of claims up to approximately $5.0 million, subject to an aggregate cap of $10.0 million. Our vehicle liability insurance program is considered a high deductible program whereby we are responsible for the cost of claims under approximately $1.0 million. In each case, if we do not pay these claims, our insurance carriers are required to make these payments to the claimants on our behalf. The liabilities represent our best estimate of our costs, using generally accepted actuarial reserving methods, of the ultimate obligations for reported claims plus those incurred but not reported for all claims incurred through December 31, 2021 and 2020. We establish case reserves forff reported claims using case-basis evaluation of the underlying claims data and we update as information becomes known. We regularly monitor the potential for changes in estimates, evaluate our insurance accruals and adjust our recorded provisions. The assumptim ons underlying the ultimate costs of existing claim losses are subjeu can affect the liability recorded forff workers’ compensation claims can affect the ultimate costs. Similarly, changes in legal trends and interpretations, as well as a change in the naturett anticipate significant changes in historical trends for these variables and any changes could have a considerablea claim costs and currently recorded liabilities. and method of how claims are settled, can affect ultimate costs. Our estimates of liabilities incurred do not effect on future such claims. For example, variability in inflation rates of health care costs inherent in ct to a high degree of unpredictability, which a number of risks, including, but not limited to, workers’ compensation, general liability, vehicle We carry insurance forff liability, property and our obligation for employee-related health care benefits. Liabila these risks are estimated by considering historical claims experience, including frequency, severity, demographic other actuat loss development, and appl ate 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 fromff estimates, our reserves and corresponding expenses could be affected if futff uret historical trends and actuarial assumptim ons. rial assumptions. In estimating our liability forff claim experience differs significantly fromff such claims, we periodically analyze our historical trends, including ities relating to claims associated with factors and y appropri a a a our 56 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Advertising Costs g Advertising costs are generally expensed as incurred. Advertising expense was approxim December 31, 2021, and $3.9 million forff selling expense on the Consolidated Statements of Operations and Comprehensive Income. ately $4.6 million for the year ended both the years ended December 31, 2020 and 2019, respectively, and is included in a Deferred Financing Costs g ncing costs and debt issuance costs combined, totaling $11.4 million and $7.0 million, net of accumulated Deferred finaff amortization as of December 31, 2021 and 2020, respectively, are amortized over the term of the related debt on a straight-line basis which approximates the effective interest method. The deferre ff while the debt issuance costs are included in long-term debt on the Consolidated Balance Sheets as of December 31, 2021 and 2020, respectively. The related amortization expense of these costs combined was $1.4 million, $1.3 million and $1.2 million and is included in interest expense, net on the Consolidated Statements of Operations and Comprehensive Income forff ended December 31, 2021, 2020 and 2019, respectively. ncing costs are included in other non-current assets the years d finaff alization. We had no such write offs or expenses during the year ended December 31, 2020. These amounts are included in We wrote off $0.2 million and $3.3 million in previously capia talized loan costs during the years ended December 31, 2021 and 2019, respectively. In addition, we expensed loan costs of approximately $1.6 million and $0.4 million forff December 31, 2021 and 2019, respectively, associated with our credit facff capita interest expense, net on the Consolidated Statements of Operations and Comprehensive Income. We also had $7.5 million in new costs associated with the debt-related finaff deferred financing costs are included in other non-current assets while the debt issuance costs are included in long-term debt on the Consolidated Balance Sheets. These costs are amortized over the term of the related debt on a straight-line basis which approximates the effecff ncing transactions incurred during the year ended December 31, 2021. The ilities because they did not meet the requirements for tive interest method. the years ended For additional information on our debt instruments, see Note 8, Long-Term Debt. Leases Leases are measure according to ASC 842, “Leases,” which requires substantially all leases, with the exception of leases with a term of one year or less, to be recorded as a lease liability measured as the present value of the futff uret corresponding right-of-use asset. ASC 842 also requires disclosures designed to give financial statement users information on the amount, timing and uncertainty of cash flows. lease payments with a ff We determine if an arrangement is a lease at inception. Most of our operating leases do not provide an implicit rate so we use our incremental borrowing rate based on the information availablea future payments. Leases with an initial term of 12 months or less are not recorded on the balance sheet as we recognize lease expense for these leases on a straight-line basis over the lease term. We elect to not separate lease component non-lease components forff obligations. all fixed payments, and we exclude variable lease payments in the measurement of right-of-use assets and lease at the commencement date to determine the present value of s fromff m Most lease agreements include one or more renewal options, all of which are at our sole discretion. Generally, future renewal options that have not been executed as of the balance sheet date are excluded fromff liabilities. Certain leases also include options to purchase the leased property.t The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Some of our vehicle lease agreements include provisions for residual value guarantees and any expected payment is included in our lease liabia lity. right-of-use assets and related lease Share-Based Compensation p Our share-based compensation program is designed to attract and retain employees while also aligning employees’ interests with the interests of our stockholders. Restricted stock awards are periodically granted to certain employees, officers and non- employee members of our board of directors under the stockholder-approved 2014 Omnibus Incentive Plan. Certain of our stock awards are deemed to be equity-based with a service condition and do not contain a market or performance condition with the exception of performance-based awards granted to certain officers and performance-based stock units. Fair value of the non-performance-based awards to employees and officers is measured at the grant date and amortized to expense 57 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ff value is reduced by assumed forfeitures and adjusted forff over the vesting period of the awards using the straight-line attribution method for all service-based awards with a graded vesting feature. This fair performance-based stock awards to certain officers under our 2014 Omnibus Incentive Plan. The performance-based compensation expense is recorded over the requisite service period using the graded-vesting method for the entire award. Performance-based stock awards are accounted for at fair value at date of grant. We also periodically grant performance-based stock units to certain employees under the stockholder-approved 2014 Omnibus Incentive Plan. These units convert to shares upon meeting time- and performance-based requirements. until vesting. We also issue actual forfe tt itures ff performance-based stock units is recorded based on an assessment each reporting period of the Compensation expense forff probability that certain performance goals will be met during the contingent vesting period. If performance goals are not probable to occur, no compensation expense will be recognized. If performance goals that were previously deemed probable are not or are not expected to be met, the previously recognized compensation cost related to such performance goals will be reversed. Employees and officers are subjecb the grant date if an election is made. t to tax at the vesting date based on the market price of the shares on that date, or on Income Taxes We account for income taxes using the asset and liability method. Under this method, the amount of taxes currently payablea refundablea temporary differences that currently exist between the tax basis and finaff tax consequences of ncial reporting basis of our assets and liabilities. are accrued and deferred tax assets and liabia lities are recognized for the estimated futurett or shed against deferred tax assets when it is more likely than not that the realization of those Valuation allowances are establia deferred tax assets will not occur. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all availablea positive and negative evidence, including scheduled reversals of deferred tax liabilities, the ability to produce future taxable income, prudent and feaff projecting futuret including the amount of futurett implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we use to manage the underlying businesses. federal and state pretax operating income, the reversal of temporary differences and the tor in historical results and changes in accounting policies and incorporate assumptions, sible tax planning strategies and recent financial operations. In income, we facff taxablea Deferred tax assets and liabilities are measured using the enacted tax rates in effect in the years when those temporary differences are expected to reverse. The effect on deferred taxes fromff the period that includes the enactment date of the change. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. a change in tax rate is recognized through operations in A tax benefit fromff sustained upon examination, including resolutions of any related appe Income tax positions must meet a more likely than not recognition threshold to be recognized. an uncertain tax position may be recognized when it is more likely than not that the position will be als or litigation processes, based on the technical merits. a uncertain tax positions and adjust these liabilities when our judgment changes as a result of the We recognize tax liabilities forff evaluation of new information not previously available. Liabilities related to uncertain tax positions are recorded in other long- term liabilities on the Consolidated Balance Sheets. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabia lities. These differences will be reflected as increases or decreases to income tax expense and the effective tax rate in the period in which the new information becomes available. Interest and penalties related to unrecognized tax benefits are recognized within income tax expense in the Consolidated Statements of Operations and Comprehensive Income. Accrued interest and penalties are recognized in other current liabilities on the Consolidated Balance Sheets. unrecognized tax benefits reflect management’s best Our income tax expense, deferred tax assets and liabilities and reserves forff assessment of estimated future taxes to be paid. We are subject to income taxes in the United States, which includes numerous state and local jurisdictions. Significant judgments and estimates are required in determining the income tax expense, deferred tax assets and liabilities and the reserve for unrecognized tax benefits. ff ff Estimated Fair Value of Financial Instruments See Note 10, Fair Value Measurements, for related accounting policies. 58 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Recently Adopted Accounting Pronouncements p g y Standard ASU 2021-01, Reference Rate Reform (Topic 848): Scope Effective Date Effective upon issuance January 1, 2021 ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes Adoption a ication of ASU 2020-04, This pronouncement clarifies the scope and appl "Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)." We continue to evaluate the impact of Topic 848 and may apply other elections as applicablea the market occur. This pronouncement simplifies the accounting for income taxes by removing certain exceptions to the general principles of Topic 740 and improves the consistent application of GAAP by clarifying and amending existing guidance. The adoption of this standard did not impact our financial statements or have a material effect on our disclosures. as additional changes in Recently Issued Accounting Pronouncements Not Yet Adopted p y g We are currently evaluating the impact of certain ASUs on our Consolidated Financial Statements or Notes to Consolidated Financial Statements, which are described below: Standard ASU 2021-08, Business Combinations (Topic 805): Accounting for contract assets and contract liabila from contracts with customers ities Description This pronouncement amends Topic 805 to require an acquirer to account for revenue contracts in a business combination in accordance with Topic 606 as if the acquirer had originated the contracts. NOTE 3 – REVENUE RECOGNITION Effective Date Annual periods beginning after December 15, 2022, including interim periods therein. Early adoption is permitted. Effect on the financial statements or other significant matters We are currently assessing the impact of the adoption on our consolidated financial statements. We disaggregate our revenue from contracts with customers by end market and product, as we believe it best depicts how the nature, tors. The following tabla es amount, timing and uncertainty of our revenue and cash flows are affecff t present our revenues disaggregated by end market and product (in thousands): ted by economic facff Residential new construction Repair and remodel Commercial Net revenues Insulation Shower doors, shelving and mirrors Waterproofing rr Garage doors Rain gutters Fireproofing/firestopping Window blinds Other building products Net revenues Years ended December 31, 2021 1,500,750 133,986 333,914 1,968,650 76 % $ 7 % 17 % 100 % $ 2020 1,243,498 106,784 302,943 1,653,225 75 % $ 7 % 18 % 100 % $ 2019 1,138,475 98,771 274,383 1,511,629 75 % 7 % 18 % 100 % 2021 1,262,628 138,797 130,924 108,675 86,406 59,381 50,255 131,584 1,968,650 Years ended December 31, 64 % $ 7 % 7 % 5 % 4 % 3 % 3 % 7 % 100 % $ 2020 1,058,316 117,131 122,962 93,516 62,672 49,648 46,984 101,996 1,653,225 64 % $ 7 % 7 % 6 % 4 % 3 % 3 % 6 % 100 % $ 2019 970,070 105,745 112,075 89,959 49,788 41,845 41,641 100,506 1,511,629 64 % 7 % 7 % 6 % 3 % 3 % 3 % 7 % 100 % $ $ $ $ 59 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Contract Assets and Liabia lities Our contract assets consist of unbilled amounts typically resulting from sales under contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized, based on costs incurred, exceeds the amount billed to the customer. Our contract assets are recorded in other current assets in our Consolidated Balance Sheets. Our contract liabila ities consist of customer deposits and billings in excess of revenue recognized, based on costs incurred and are included in other current liabilities in our Consolidated Balance Sheets. Contract assets and liabia lities related to our uncompleted contracts and customer deposits were as follow ff s (in thousands): Contract assets Contract liabila ities Uncompleted contracts were as foll ff ows (in thousands): Costs incurred on uncompleted contracts Estimated earnings Total Less: Billings to date Net under billings Net under billings were as follows (in thousands): Costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) Billings in excess of costs and estimated earnings on uncomplem ted contracts (contract liabila ities) Net under billings As of December 31, 2020 2021 32,679 (14,153) $ 24,334 (8,965) $ As of December 31, 2020 2021 169,544 206,050 90,737 106,163 260,281 312,213 240,665 285,978 19,616 26,235 $ As of December 31, 2020 2021 32,679 (6,444) 26,235 $ $ 24,334 (4,718) 19,616 $ $ $ $ $ The difference between contract assets and contract liabila primarily the result of timing differences between our performance of obligations under contracts and customer payments and billings. During the year ended December 31, 2021, we recognized $8.7 million of revenue that was included in the contract liability balance at December 31, 2020. We did not recognize any impairment losses on our receivablea during the years ended December 31, 2021 and 2020. ities as of December 31, 2021 compared to December 31, 2020 is s and contract assets Remaining performance obligations represent the transaction price of contracts forff which work has not been performed and excludes unexercised contract options and potential modifications. As of December 31, 2021, the aggregate amount of the transaction price allocated to remaining uncompleted contracts was $143.2 million. We expect to satisfy remaining performance obligations and recognize revenue on substantially all of these uncompleted contracts over the next 18 months. NOTE 4 – CREDIT LOSSES On January 1, 2020 we adopted ASU 2016-13, “Financial Instruments – Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments” under the modified retrospective approach. ASC 326 replaces the incurred loss impairment model with an expected credit loss impairment model forff receivables and contract assets (unbilled receivables). Results forff presented under ASC 326, while prior period amounts are not adjusted. The amendment requires entities to consider forward- looking information to estimate expected credit losses, resulting in earlier recognition of losses forff s that are current or not yet dued , which were not considered under the previous accounting guidance. reporting periods beginning after January 1, 2020 are financial instruments, including trade receivablea s, retainage receivablea 60 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Upon adoption of ASC 326, we recorded a cumulative effecff of income taxes, on the opening consolidated balance sheet as of January 1, 2020. The adoption of the credit loss standard had no impact to cash fromff or used in operating, financing or investing activities on our consolidated cash flowff t adjustment to retained earnings of $1.2 million, net of $0.4 million statements. Changes in our allowance forff credit losses were as follow ff s (in thousands): January 1, 2019 Current period provision Recoveries collected and additions Amounts written off December 31, 2019 Cumulative effect of change in accounting principle Current period provision Recoveries collected and additions Amounts written off December 31, 2020 Current period provision Recoveries collected and additions Amounts written off December 31, 2021 $ $ $ $ 5,085 4,312 1,269 (3,788) 6,878 1,600 4,444 503 (4,636) 8,789 2,227 574 (2,873) 8,717 NOTE 5 – CASH AND CASH EQUIVALENTS Cash and cash equivalents include highly liquid instruments with insignificant interest rate risk and original or remaining maturities of three months or less at the time of purchase. These instruments amounted to $258.1 million and $170.4 million as of December 31, 2021 and 2020, respectively. See Note 10, Fair Value Measurements, for additional information. NOTE 6 – PROPERTY AND EQUIPMENT Property and equipment consisted of the folff lowing (in thousands): Land Buildings Leasehold improvements tt ures ff Furniture, fixt Vehicles and equipment and equipment Less: accumulated depreciation and amortization As of December 31, 2020 2021 108 3,901 10,935 64,556 248,848 328,348 (222,415) 105,933 $ $ 108 3,901 10,288 55,780 223,003 293,080 (189,058) 104,022 $ $ We recorded the folff category (in thousands): lowing depreciation and amortization expense on our property and equipment, by income statement Cost of sales Administrative Years ended December 31, 2020 2019 2021 $ $ 40,938 2,623 39,011 $ 2,328 36,922 1,939 Property and equipment as of December 31, 2021 and 2020 of $123.3 million and $98.0 million, respectively, were fully depreciated but still being utilized in our business. 61 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 – GOODWILL AND INTANGIBLES the immediate effects of the COVID-19 pandemic but continues to be The homebuilding industry quickly rebounded fromff affected by other pandemic-related factors that could have long-term impacts, such as reduced rising interest rates, and reduced consumer spending and consumer confidence, any of which could decrease demand for homes and adversely affect our business. As such, we considered whether impairment indicators arose through the date of filff ing of this Form 10-K for our goodwill, long-lived assets and other intangible assets and concluded that no facff tors caused us to impair any asset group during the year ended December 31, 2021. While we ultimately concluded that our goodwill, long-lived assets and other intangibles assets were not impaired as of December 31, 2021, we will continue to assess impairment indicators related to the impact of the COVID-19 pandemic on our business. d employment levels, inflation, Goodwill The change in carrying amount of goodwill was as foll ff ows (in thousands): January 1, 2020 Business combinations Other December 31, 2020 Business combinations Other December 31, 2021 Goodwill (Gross) Accumulated Impairment Losses Goodwill (Net) $ $ 265,656 21,305 (87) 286,874 105,617 30 392,521 $ $ (70,004) $ — — (70,004) — — (70,004) $ 195,652 21,305 (87) 216,870 105,617 30 322,517 Other changes included in the above tabla e primarily include minor adjustments forff under measurement for the years ended December 31, 2021 and 2020. For additional information regarding changes to goodwill resulting from acquisitions, see Note 17, Business Combinations. the allocation of certain acquisitions still , 2021 our measurement date, we tested goodwill forff At October 1, in conformity with generally accepted accounting principles and determined that no impairment of goodwill was required. As such, no impaim rment of goodwill was recognized for the year ended December 31, 2021. In addition, no impairment of goodwill was recognized forff tablea 31, 2010. the years ended December 31, 2020 or 2019. Accumulated impairment losses included within the above the year ended December were incurred over multiple periods, with the latest impairment charge being recorded during impairment by performing a one-step qualitative assessment d Intangibles, net g , The following tablea intangibles (in thousands): provides the gross carrying amount, accumulated amortization and net book value for each majora class of Gross Carrying Amount 2021 Accumulated Amortization As of December 31, Net Book Value Gross Carrying Amount 2020 Accumulated Amortization Net Book Value Amortized intangibles: Customer relationships Covenants not-to-compete Trademarks and tradenames Backlog $ $ 292,113 27,717 103,007 23,724 446,561 $ $ 113,849 16,471 32,623 19,197 182,140 $ $ 178,264 11,246 70,384 4,527 264,421 $ $ 197,641 20,309 79,657 18,847 316,454 $ $ 89,137 13,436 27,245 15,243 145,061 $ $ 108,504 6,873 52,412 3,604 171,393 There was no intangible asset impairment loss for the years ended December 31, 2021, 2020 and 2019. 62 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The gross carrying amount of intangibles increased approximately $130.1 million and $46.4 million during the years ended December 31, 2021 and 2020, respectively. Intangibles associated with business combinations accounted for approximately $130.0 million and $46.2 million of the increases during the years ended December 31, 2021 and 2020, respectively. For more information, see Note 17, Business Combinations. Amortization expense on intangible assets totaled approxi mately $37.1 million, $28.5 million, and $24.5 million during the years ended December 31, 2021, 2020 and 2019, respectively. Remaining estimated aggregate annual amortization expense is as follows (in thousands): a 2022 2023 2024 2025 2026 Thereafter $41,780 37,458 33,762 27,440 23,489 100,492 NOTE 8 – LONG-TERM DEBT Long-term debt consisted of the following (in thousands): 2028, net of unamortized debt issuance costs of $3,633 and $4,230, Senior Notes dued respectively Term loan, net of unamortized debt issuance costs of $6,735 and $1,343, respectively Vehicle and equipment notes, maturing installments, including interest rates ranging from 1.9% to 4.8% Various notes payable, maturing through March 2025; payablea installments, including interest rates ranging from 1.0% to 5.0% in various monthly tt through December 2026; payable in various monthly Less: current maturities Long-term debt, less current maturities As of December 31, 2020 2021 $ $ 296,367 493,265 $ 295,770 198,657 69,228 67,493 4,172 863,032 (30,839) 832,193 $ 3,392 565,312 (23,355) 541,957 Remaining required repayments of debt principal, gross of unamortized debt issuance costs, as of December 31, 2021 are as follows (in thousands): 2022 2023 2024 2025 2026 Thereafter $30,839 24,850 19,098 15,600 8,013 775,000 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 afteff r 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 capita l alization per fisca icable restricted payment baskets; (iii) prepay subordinated debt; (iv) year, or in an aggregate amount exceeding certain appl y net proceeds from certain asset sales; (vii) engage in create liens; (v) make specified types of investments; (vi) appl a a ff 63 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS transactions with affilff u distributions from subsidi aries. iates; (viii) merge, consolidate or sell subsu tantially all of our assets; and (ix) pay dividends and make other Credit Facilities In December 2021, we entered into a new $500 million, seven-year term loan facff ility dued December 2028 (the “Term Loan”) under our credit agreement (the “Term Loan Agreement”), dated as of December 14, 2021 with Royal Bank of Canada as the administrative agent and collateral agent thereunder. The Term Loan amortizes in quarterly principal payments of $1.25 million starting on March 31, 2022, with any remaining unpaid balances due on the maturit Loan bears interest at either the base rate (which approximates the prime rate) or the Eurodollar rate, plus a margin of (A) 1.25% in the case of base rate loans or (B) 2.25% in the case of Eurodollar rate loans. Proceeds from the Term Loan were used to refinance and repay in full all amounts outstanding under our previous term loan agreement. We intend to use the remaining funds to pay for certain feeff including acquisitions and other growth initiatives. As of December 31, 2021, we had $493.3 million, net of unamortized debt issuance costs, dued s and expenses associated with the closing of the Term Loan and for general corporate purposes, y date of December 14, 2028. The Term on our Term Loan. tt 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 million, subject to certain exceptions and limitations. an asset-based lending credit facff In September 2019, we entered into an asset-based lending credit agreement (the “ABL Credit Agreement”). The ABL Credit -year Agreement provides forff maturity. Borrowing availability under the ABL Revolver is based on a percentage of the value of certain assets securing the Company’s obligations and those of the subsidiary guarantors thereunder. In connection with the Term Loan Agreement, we entered into a Third Amendment (the “Third Amendment”) to the Third ABL/Term Loan Intercreditor Agreement with Bank of America, N.A., as ABL Agent for the lenders under the ABL Credit Agreement, and Royal Bank of Canada as collateral agent under the Term Loan Agreement. Including outstanding letters of credit, our remaining availabila ity under the ABL Revolver as of December 31, 2021 was $155.7 million. In February 2022, we amended and extended our ABL Credit Agreement. See Note 19, Subsequent Events, for additional information. ility (the “ABL Revolver”) of up tu o $200.0 million with a fiveff 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 firff st-priority security interest in such assets that constitutett in such assets that constitutet ABL Priority Collateral, as defined in the ABL Credit Agreement, and a second- priority security interest Term Loan Priority Collateral, as defined in the Term Loan Agreement. The ABL Revolver bears interest at either the Eurodollar rate or the base rate (which approxi mated the prime rate), at the Company’s election, plus a margin of (A) 1.25% or 1.50% in the case of Eurodollar rate loans (based on a measure of availability under the ABL Credit Agreement) and (B) 0.25% or 0.50% in the case of base rate loans (based on a measure of availabila ity under the ABL Credit Agreement). a The ABL Revolver also provides incremental revolving credit facff conditions of any incremental revolving credit facility commitments must be no more favorablea Revolver. The ABL Revolver also allows for the issuance of letters of credit of up to $75.0 million in aggregate and borrowing of swingline loans of up to $20.0 million in aggregate. ility commitments of up to $50.0 million. The terms and than the terms of the ABL ncial covenant The ABL Credit Agreement contains a finaff of 1.0 ix in thhe event hthat w de do not meet a mi iinimum measure of av iaillabilbila 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 2.0% of market capita l alization per fisca icable restricted payment baskets; (iii) prepay subordinated debt; (iv) year, or in an aggregate amount exceeding certain appl iityy u dnder hthe ABL Rev lolver T. he ABL Credit imi inimum fifi dxed hch garge cove grage ratiio ff requiringring hthe s iatisf n of a iactio a ff i 64 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS types of investments; (vi) appl a y net proceeds from certain asset sales; (vii) engage in iates; (viii) merge, consolidate or sell substantially all of our assets; and (ix) pay dividends and make other create liens; (v) make specifiedff transactions with affilff distributions from subsidiaries. Vehicle and Equipment Notes q p 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 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. Each finaff Vehicles and equipment purchased or leased under each financing arrangement serve as collateral forff such financing arrangement. Regular payments are due under each note forff incurrence of the obligation. The specific terms of each note are based on specific criteria, including the type of vehicle or equipment and the market interest rates at the time. ncing arrangement under these agreements constitutes a separate note and obligation. a period of typically 60 consecutive months after the the note appli cablea to a Total gross assets relating to our Master Loan and Equipment Agreements were $134.5 million and $132.2 million as of December 31, 2021 and 2020, respectively. The net book value of assets under these agreements was $65.3 million and $65.7 million as of December 31, 2021 and 2020, respectively. Depreciation of assets held under these agreements is included within cost of sales on the Consolidated Statements of Operations and Comprehensive Income. NOTE 9 – LEASES We lease various assets in the ordinary course of business as follows: warehouses to store our materials and perform staging activities forff and certain vehicles and equipment to facilitate our operations, including, but not limited to, trucks, forklifts and office equipment. certain products we install; various office spaces for selling and administrative activities to support our business; The tablea below presents the lease-related assets and liabilities recorded on the Consolidated Balance Sheet: Classification As of December 31, 2021 2020 (in thousands) Assets Non-Current Operating Finance Total lease assets Liabilities Current Operating Financing Non-Current Operating Financing Operating lease right-of-use assets Property and equipment, net Current maturities of operating lease obligations Current maturities of finance lease obligations Operating lease obligations Finance lease obligations Total lease liabilities Weighted-average remaining lease term Operating leases Finance leases Weighted-average discount rate Operating leases Finance leases 65 $ $ $ $ 69,871 5,266 75,137 23,224 1,747 46,075 3,297 74,343 $ $ $ $ 53,766 4,946 58,712 18,758 2,073 34,413 2,430 57,674 4.3 years 3.3 years 3.38 % 4.96 % 4.1 years 2.6 years 3.67 % 5.08 % INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Lease Costs The tablea 2019: below presents certain information related to the lease costs for finance and operating leases during 2021, 2020 and (in thousands) Operating lease cost (1) Finance lease cost Amortization of leased assets (2) Interest on finance lease obligations Total lease costs Classification Years ended December 31, 2020 2019 2021 Administrative $ 27,357 $ 23,454 $ 21,024 Cost of sales Interest expense, net 3,083 218 30,658 $ 3,645 268 27,367 $ 4,942 341 26,307 $ (1) (2) Includes variable lease costs of $3.0 million, $2.9 million and $2.5 million forff and 2019, respectively, and short-term lease costs of $1.1 million, $0.8 million and $0.9 million forff December 31, 2021, 2020 and 2019, respectively. Includes variable lease costs of $0.7 million, $0.7 million and $0.9 million forff and 2019, respectively. the years ended December 31, 2021, 2020 the years ended the years ended December 31, 2021, 2020 Other Information The tablea below presents supplemental cash flowff information related to leases during d 2021, 2020 and 2019: (in thousands) Cash paid for amounts included in the measurement of lease liabila ities: Operating cash flows forff Operating cash flows for finance leases Financing cash flows for finance leases operating leases Undiscounted Cash Flows Years ended December 31, 2020 2021 2019 $ 22,930 $ 218 2,125 19,668 $ 268 2,632 17,521 341 4,157 The tablea finance lease obligations and operating lease obligations recorded on the Consolidated Balance Sheet as of December 31, 2021: each of the first fivff e years and total of the remaining years for the below reconciles the undiscounted cash flowff s forff (in thousands) 2022 2023 2024 2025 2026 Thereafter Total minimum lease payments Less: Amounts representing executory costs Less: Amounts representing interest Present value of future minimum lease payments Less: Current obligation under leases Long-term lease obligations Related Party 1,347 $ 906 645 519 — — 3,417 $ Operating Leases Other $ $ 23,832 18,139 11,006 6,502 4,701 7,283 71,463 Total Operating 25,179 $ 19,045 11,651 7,021 4,701 7,283 74,880 — (5,581) 69,299 (23,224) 46,075 $ Finance Leases $ $ 2,001 1,452 1,043 674 343 — 5,513 (29) (440) 5,044 (1,747) 3,297 66 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 – FAIR VALUE MEASUREMENTS Fair Values Fair value is the price that would be received forff advantageous market for the asset or liabila an asset or paid to transfer a liabila ity (an exit price) in the principal or most ity in an orderly transaction between market participants on the measurement date. ASC 820, “Fair Value Measurement,” establia observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: shes a fair value hierarchy that requires an entity to maximize the use of Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that refleff ct a reporting entity’s own assumptions about the assumptions that ity. market participants would use in pricing an asset or liabila Assets and Liabilities Measured at Fair Value on a Recurring Basis g In many cases, a valuation technique used to measure fair value includes inputs fromff multiple levels of the fair value hierarchy. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. During the periods presented, there were no transfers between faiff r value hierarchical levels. Assets Measured at Fair Value on a Nonrecurring Basis g ff other intangible and long-lived assets, are measured at fair value on a nonrecurring basis in periods Certain assets, specifically subsequent to initial recognition. Assets measured at fair value on a nonrecurring basis as of December 31, 2021 and 2020 are categorized based on the lowest level of significant input to the valuation. The assets are measured at fair value when our impairment assessment indicates a carrying value for each of the assets in excess of the asset’s estimated faiff Undiscounted cash flows, a Level 3 input, are utilized in determining estimated faiff December 31, 2021, 2020 and 2019, we did not record any impairments on these assets required to be measured at fair value on a nonrecurring basis. r values. During each of the years ended r value. Estimated Fair Value of Financial Instruments , accounts payable and accrued liabia lities as of December 31, 2021 and 2020 approximate faiff Accounts receivablea the short-term maturities of these finff ancial instruments. The carrying amounts of certain long-term debt, including the Term Loan and ABL Revolver as of December 31, 2021 and 2020, approximate faiff agreements. The carrying amounts of our operating lease right-of-use assets and the obligations associated with our operating and finance leases as well as our vehicle and equipment notes approximate fair value as of December 31, 2021 and 2020. All debt classifications represent Level 2 faiff r value due to the variable rate naturet r value measurements. of the r value due to Derivative financial instruments are measured at fair value based on observablea market information and appropri methods. Contingent consideration liabilities arise fromff acquisitions and are based on predetermined calculations of certain futuret considering various factors, including business risk and projections. The contingent consideration liabilities are measured at fair value by discounting estimated future payments, calculated based on a weighted average of various future forecast scenarios, to their net present value. future earnout payments to the sellers associated with certain results. These future payments are estimated by ate valuation a ff 67 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS values of financial assets and liabia lities that are recorded at faiff ff The fair described above were as follows (in thousands): r value in the Consolidated Balance Sheets and not As of December 31, 2021 As of December 31, 2020 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Financial assets: Cash equivalents Derivative financial instruments $258,055 $258,055 $ — $ 14,830 — 14,830 Total financial assets Financial liabilities: $272,885 $258,055 $ 14,830 $ — $ — — $170,398 $170,398 $ — — — — $175,528 $170,398 $ 5,130 $ — 5,130 5,130 Contingent consideration Derivative financial instruments Total financial liabilities $ 11,170 $ 1,937 $ 13,107 $ — $ 11,170 $ 4,004 $ — $ — — $ 1,937 $ 11,170 $ 4,328 $ 1,937 324 — — $ — — $ — $ 4,004 — 324 324 $ 4,004 See Note 5, Cash and Cash Equivalents, for more information on cash equivalents included in the tablea 11, Derivatives and Hedging Activities, for more information on derivative financial instruments. above. Also see Note The change in fair value of the contingent consideration (a Level 3 input) was as follows (in thousands): Contingent consideration liability—January 1, 2021 Preliminary purchase price Fair value adjustments Accretion in value Amounts cancelled Amounts paid to sellers Contingent consideration liability—December 31, 2021 $ $ 4,004 8,400 (413) 1,154 (1,035) (940) 11,170 The accretion in value of contingent consideration liabilities is included within administrative expenses on the Consolidated Statements of Operations and Comprehensive Income. The carrying values and associated faiff Consolidated Balance Sheets and not described above include our Senior Notes. To estimate faiff utilized third-party quotes which are derived all or in part from model prices, external sources or market prices. The Senior Notes represent a Level 2 faiff r values of financial assets and liabia lities that are not recorded at fair value in the r value measurement and are as follows (in thousands): r value of our Senior Notes, we As of December 31, 2021 As of December 31, 2020 Carrying Value Fair Value Carrying Value Fair Value Senior Notes (1) $ 300,000 $ 311,028 $ 300,000 $ 320,013 (1) Excludes the impact of unamortized debt issuance costs. Also see Note 8, Long-Term Debt, for more information on our Senior Notes. NOTE 11 – DERIVATIVES AND HEDGING ACTIVITIES Risk Management Objective of Using Derivatives g g j We are exposed to certain risks arising from both our business operations and economic conditions. We manage exposure to a wide variety of business and operational risks through our core business activities. We manage economic risks, including interest rate, liquidity and credit risk primarily by overseeing the amount, sources and duration of debt funding and the use of derivative financial instruments. Specifically, interest rate movements that result in the receipt or payment of future known and uncertain cash amounts, the value of which we have entered into derivative financial instruments to manage exposure to ff 68 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing and duration of our known or expected cash receipts and known or expected cash payments principally related to our investments and borrowings. Cash Flow Hedges of Interest Rate Risk g Our purpose for using interest rate derivatives is to add stability to interest expense and to manage our exposure to interest rate to hedge the variable cash flows associated movements. During the year ended December 31, 2021, we used interest rate swapsa amounts from designated as cash flowff with existing variable-rate debt. Interest rate swapsa a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. We do not use derivatives forff that are not designated as hedges. As of December 31, 2021, we have not posted any collateral related to these agreements. trading or speculative purposes and we currently do not have any derivatives hedges involve the receipt of variablea As of December 31, 2021, we had three interest rate swaps.a One interest rate swap ba amount of $200.0 million, a fixff ed rate of 0.51% and a maturi began December 31, 2021, each with a fixff ed notional amount of $100.0 million, a fixeff December 15, 2028. Together, these three swapsa serve to hedge $400.0 million of the variablea Term Loan through maturity. The assets and liabilities associated with these interest rate swapsa current assets and other current liabilities on the Consolidated Balance Sheets at their fair value amounts as described in Note 10, Fair Value Measurements. ty date of April 15, 2030. We also had two interest rate swapsa cash flows on our variablea are included in other non- egan July 30, 2021 and has a fixeff d rate of 1.37%, and a maturit y date of rate d notional that tt t ff During the year ended December 31, 2020, we terminated two then-existing interest rate swapsa interest rate swap.a We settled the terminated swapsa within cash flows 2020. The unrealized loss included in accumulated other comprehensive loss associated with the terminated swapsa million at the time of termination will be amortized to interest expense over the course of the originally scheduled settlement dates of the terminated swaps.a During the years ended December 31, 2021 and 2020, we amortized $3.2 million and $1.3 million, respectively, of the unrealized loss to interest expense, net. from operating activities within the Consolidated Statements of Cash Flows for the year ended December 31, by making a cash payment of $17.8 million. This payment is classified and one then-existing forward of $17.8 r value of derivatives designated and that qualify as cash flow hedges are recorded in other The changes in the faiff comprehensive income, net of tax on the Consolidated Statements of Operations and Comprehensive Income and in accumulated other comprehensive income on the Consolidated Balance Sheets and subsequent period that the hedged forecasted transaction affects earnings. We had no such changes during the years ended December 31, 2021 or 2020. ly reclassified into earnings in the u Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense, net as interest payments are made on our variable-rate debt. Over the next twelve months, we estimate that an additional $5.7 million will be reclassified as an increase to interest expense, net. nce rate forff our interest rate swap aa on Financial Reporting (Topic 848). The purpose of this guidance is to provide relief for impacted areas as it LIBOR is used as a refereff year ended December 31, 2020, we adopted ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reformff relates to impending reference rate reform. We elected to appl assessments of effectiveness for futurett transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. LIBOR-indexed cash flows to assume that the index upon y the hedge accounting expedients related to probabila greements we use to hedge our interest rate exposure. During the ff which future ity and the hedged u a NOTE 12 – STOCKHOLDERS’ EQUITY As of December 31, 2021 and 2020, we had losses of $0.2 million and $8.8 million, respectively, in accumulated other comprehensive loss on our Consolidated Balance Sheets. The loss as of Decemberm 31, 2021 represented the unrealized loss on our terminated interest rate swapsa ion net of taxes, less the effective portion of the unrealized gain on our interest imillllion, rate swaps of $$9.7 interest rate swaps of $$12.2 of $$3.4 ion net of taxes. The loss as of December 31, 2020 represented the unrealized loss on our terminated imilllliion, net of ta .x For additional information, see Note 11, Derivatives and Hedging Activities. imilllliion, net of tax, less the effective portion of the unrealized gain on our forward interest rate swapa imillllion, of $$9.9 Our board of directors approved a stock repurchase program whereby we are authorized to purchase shares of our outstanding common stock. As of December 31, 2021, we had $100.0 million remaining under this repurchase program. On February 24, 69 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022, we announced that our board of directors extended the program end date fromff authorized an increase in the total amount of our outstanding common stock we can purchase up to $200.0 million. During the year ended December 31, 2020, we repurchased 633 thousand shares of our outstanding common stock with an aggregate price of approximately $33.9 million, or $53.57 average price per share. We did not repurchase any shares during December 31, 2021. The effect of these treasury shares reducing the number of common shares outstanding is reflected in our earnings per share calculation. In response to COVID-19, we temporarily suspended our share repurchase program fromff 2020 until it was reinstated in November 2020. March 1, 2022 through March 1, 2023 and the year ended March d Dividends During the year ended December 31, 2021, we declared and paid the following cash dividends (amount declared and amount paid in thousands): Declaration Date Record Date Payment Date 2/23/2021 5/5/2021 8/5/2021 11/4/2021 3/15/2021 6/15/2021 9/15/2021 12/15/2021 3/31/2021 6/30/2021 9/30/2021 12/31/2021 Dividend Per Share Amount Declared 0.30 $ $ 0.30 0.30 0.30 8,907 8,910 8,912 8,911 $ Amount Paid 8,786 8,821 8,821 8,866 The amount of dividends declared may vary from the amount of dividends paid in a period due to the vesting of restricted stock awards and performance share awards, which accruerr payment of future dividends will be at the discretion of our board of directors and will depend on our future earnings, capita requirements, financial condition, futurett prospects, results of operations, contractual factors deemed relevant by our board of directors. We did not declare or pay any cash dividends on our capital stock during year ended December 31, 2020. restrictions, legal requirements, and other the dividend equivalent rights that are paid when the award vests. The al d tt Our credit facff Note 8, Long-Term Debt, forff more information. ilities place restrictions on the amount of dividends and stock repurchases we can make durid ng a fisff cal year. See NOTE 13 – EMPLOYEE BENEFITS Healthcare We participate in multiple healthcare plans, the largest of which is partially self-funded with an insurance company paying benefits in excess of stop loss limits per individual/family. Our healthcare benefit expense (net of employee contributions) was approximately $28.4 million, $24.1 million and $21.9 million for the years ended December 31, 2021, 2020 and 2019, respectively, for all plans. An accrual for estimated healthcare claims incurred but not reported (“IBNR”) is included within accrued compensation on the Consolidated Balance Sheets and was $3.3 million and $3.1 million as of December 31, 2021 and 2020, respectively. Workers’ Compensation p We participate in multiple workers’ compensation plans. Under these plans, for a significant portion of our business, we use a high deductible program to cover losses above the deductible amount on a per claim basis. We accruerr for the estimated losses premiums is included in other current occurring from both asserted and unasserted claims. Workers’ compensation liability forff liabilities on the Consolidated Balance Sheets. Insurance claims and reserves include accrual s of estimated settlements forff rr known claims, as well as accruals of actuarial estimates of IBNR claims. In estimating these reserves, historical loss experience based on actuarial and judgments about the expected levels of costs per claim are considered. These claims are accounted forff 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. Workers’ compensation expense totaled $17.6 million, $15.7 million and $15.4 million for the years ended December 31, 2021, 2020 and 2019, respectively, and is included in cost of sales on the Consolidated Statements of Operations and Comprehensive Income. 70 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Workers’ compensation known claims and IBNR reserves included on the Consolidated Balance Sheets were as follows thousands): ff (in Included in other current liabilities Included in other long-term liabilities As of December 31, 2020 2021 $ $ 8,048 13,397 21,445 $ $ 7,703 11,986 19,689 We also had an insurance receivable forff Consolidated Balance Sheets. This receivable offsets an equal liabila was as follows (in thousands): claims that exceeded the stop loss limit for fully insured policies included on the ity included within the reserve amounts noted above a and Included in other non-current assets $ 2,137 $ 1,854 As of December 31, 2020 2021 Retirement Plans We participate in multiple 401(k) plans, whereby we provide a matching contribution of wages deferred by employees and can also make discretionary contributions to each plan. Certain plans allow for discretionary employer contributions only. These plans cover substant ially all our eligible employees. During the years ended December 31, 2021, 2020 and 2019, we recognized 401(k) plan expenses of $2.5 million, $2.2 million and $2.0 million, respectively, which is included in administrative expenses on the accompanying Consolidated Statements of Operations and Comprehensive Income. u Multiemployer Pension Plans p y We participate in various multiemployer pension plans under collective bargaining agreements in Washington, Oregon, California and Illinois with other companies in the construction industry. These plans cover our union-represented employees and contributions to these plans are expensed as incurred. These plans generally provide for retirement, death and/or termination benefits for eligible employees within the applicable collective bargaining units, based on specificff participation requirements, vesting periods and benefit formulas. We do not participate in any multiemployer pension plans that are considered to be individually significant. eligibility/ The risks of participating in these multiemployer pension plans are different from single-employer pension plans. For examplem : • • • Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the multiemployer plan, the unfunded obligations of the plan may be borne by the remaining participating employers. If a participating employer chooses to stop participating in these multiemployer plans, the employer may be required to pay those plans a withdrawal liability based upon the underfunded status of the plan. We also participate in various multiemployer health and welfare plans that cover both active and retired participants. Health care benefits are provided to participants who meet certain eligibility requirements under the applicable collective bargaining unit. 71 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our contributions to multiemployer pension and health and welfareff benefit plans were as follows (in thousands): Years ended December 31, 2020 2019 2021 Pension plans Health & welfare plans Total contributions $ $ 2,783 2,893 5,676 $ $ 1,128 $ 952 2,080 $ 809 674 1,483 The increase in contributions for the year ended December 31, 2021 was driven by the acquisition of Alert Insulation in 2021 and a full year of operations for 2020 acquisitions Insulation Contractors/Magellan Insulation and Norkote, Inc. See Note 17, Business Combinations for more information. ff Share-Based Compensation p Common Stock Awards We periodically grant shares of our common stock under our 2014 Omnibus Incentive Plan to non-employee members of our board of directors and our employees. During the years ended December 31, 2021, 2020 and 2019, we granted approximately four thousand, six thousand and eight thousand shares of restricted stock, respectively, to non-employee members of our board of directors. Substantially all of the stock will vest over a one-year service period. In addition, we granted approximately 0.1 million, 0.2 million and 0.1 million shares of our common stock to employees in each of the years ended December 31, 2021, 2020 and 2019, respectively. Substantially all of the stock will vest in three equal installments (rounded to the nearest whole share) annually over a three-year service period. Performance-Based Stock Awards We periodically grant nonvested stock awards subject to performance-based vesting conditions to certain officers. During the year ended December 31, 2021, we issued approxi installments on each of April 20, 2022 and April 20, 2023. In addition, during the year ended December 31, 2021, we establia issued to certain officers in 2022 contingent upon achievement of these targets. shed, and our board of directors approved, performance-based targets in connection with common stock awards to be mately 0.1 million shares of our common stock which vest in two equal a In addition, there are long-term performance-based restricted stock awards to be issued to certain employees annually through 2022 contingent upon achievement of certain performance targets. These awards are accounted for as liabila since they represent a predominantly-fixed monetary amount that will be settled with a variablea number of common shares and as such are included in other current liabilities on the Consolidated Balance Sheets. During the years ended December 31, 2021, 2020 and 2019 we granted approxi respectively, all of which will vest in 2022. mately five thousand, seven thousand and 11 thousand shares of our common stock, ity-based awards a Performance-Based Restricted Stock Units shed, and our board of directors approved, performance-based restricted stock units in connection with During 2020, we establia common stock awards which were issued to certain employees in 2021 based upon achievement of a performance target. In addition, during the year ended December 31, 2021, we established, and our board of directors approved, performance-based restricted stock units in connection with common stock awards to be issued to certain employees in 2022 based upon achievement of a performance target. These units will be accounted forff number of common shares. During the years ended December 31, 2021, 2020 and 2019 we granted approximately eight thousand, 14 thousand and 14 thousand units, respectively, each of which will vest over a one-year service period. d as equity-based awards that will be settled with a fixeff 72 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Share-Based Compensation Summary Amounts and changes for each category of equity-based award were as follow ff s: Common Stock Awards Performance-Based Stock Awards Performance-Based Restricted Stock Units Weighted Average Grant Date Fair Value Per Share $ $ 48.05 124.88 48.87 62.36 68.99 Awards 231,280 55,815 (84,641) (3,101) 199,353 Weighted Average Grant Date Fair Value Per Share $ $ 59.97 123.32 52.79 123.26 81.30 Weighted Average Grant Date Fair Value Per Share $ 36.51 126.89 36.51 73.06 $ 126.89 Units 13,273 8,470 (12,952) (539) 8,252 Awards 166,961 42,449 (64,525) (1,484) 143,401 Nonvested awards/units at December 31, 2020 Granted Vested Forfeited/Cancelled Nonvested awards/units at December 31, 2021 The following tablea thousands): summarizes the share-based compensation expense recognized under our 2014 Omnibus Incentive Plan (in Common Stock Awards Non-Employee Common Stock Awards Performance-Based Stock Awards Liability Performance-Based Stock Awards Performance-Based Restricted Stock Units Years ended December 31, 2020 2021 2019 $ $ 5,285 $ 465 4,528 2,612 862 13,752 $ 4,116 $ 333 3,869 1,969 539 10,826 $ 4,242 359 3,034 432 660 8,727 We recorded the folff lowing stock compensation expense, by income statement category (in thousands): Cost of sales Selling Administrative Years ended December 31, 2020 2019 2021 $ $ 448 $ 204 13,100 13,752 $ 284 $ 202 10,340 10,826 $ 374 194 8,159 8,727 Administrative stock compensation expense includes all stock compensation earned by our administrative personnel, while cost of sales and selling stock compensation represents all stock compensation earned by our installation and sales employees, respectively. We recognized windfall tax benefits of $1.7 million and $0.3 million forff the years ended December 31, 2021 and 2019, and we recognized a tax shortfall of $0.3 million for the year ended December 31, 2020, respectively, within the income tax provision in the Consolidated Statements of Operations and Comprehensive Income. 73 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unrecognized share-based compensation expense related to unvested awards was as foll ff ows (in thousands): Common Stock Awards Performance-Based Stock Awards Performance-Based Restricted Stock Units Total unrecognized compensation expense related to unvested awards As of December 31, 2021 Unrecognized Compensation Expense on Unvested Awards 7,518 $ 4,832 301 12,651 $ Weighted Average Remaining Vesting Period 1.7 1.6 0.3 Total unrecognized compensation expense is subjecb recognized over the remaining weighted-average period shown above on a straight-line basis except for the Performance-Based Stock Awards which uses the graded-vesting method. Shares forfeited are returned issuances. d ments for forfeitures. This expense is expected to be adjust as treasury shares and availablea t to futff urett for future t During the years ended December 31, 2021, 2020 and 2019, our employees surrendered approxi thousand and 45 thousand shares of our common stock under all plans, respectively, to satisfy tax withholding obligations arising in connection with the vesting of common stock awards issued under our 2014 Omnibus Incentive Plan. mately 44 thousand, 25 a As of December 31, 2021, approximately 1.8 million of the 3.0 million shares of common stock authorized forff available forff issuance under the 2014 Omnibus Incentive Plan. issuance were NOTE 14 – INCOME TAXES The provision for income taxes is comprised of (in thousands): Current: Federal State Deferred: Federal State Total tax expense Years ended December 31, 2020 2021 2019 $ $ 27,011 10,139 37,150 (437) (1) (438) 36,712 $ $ 33,495 8,918 42,413 (7,177) (1,298) (8,475) 33,938 $ $ 14,850 4,127 18,977 4,585 884 5,469 24,446 The reconciliation between our effecff thousands): tive tax rate on net income and the fedff eral statutory rate is as follows (dollars in Income tax at federal statutory rate Stock compensation Other permanent items Change in valuation allowance Change in uncertain tax positions State income taxes, net of fedff Total tax expense eral benefit 2021 Years ended December 31, 2020 2019 $ 32,650 (1,567) 1,274 (922) (2,867) 8,144 $ 36,712 21.0 % $ 27,547 331 (1.0)% 424 0.8 % (207) (0.6)% 65 (1.8)% 5,778 5.2 % 23.6 % $ 33,938 21.0 % $ 19,447 (255) 0.3 % 737 0.3 % 276 (0.2)% 67 0.1 % 4.4 % 4,174 25.9 % $ 24,446 21.0 % (0.3)% 0.8 % 0.3 % 0.1 % 4.5 % 26.4 % 74 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Components of the net deferre ff d tax asset or liabila ity are as follows (in thousands): Deferred Tax Assets Long-term Accrued liabia lities and allowances Allowance for doubtful accounts Inventories Property and equipment Intangibles Net operating loss carryforwards Other Long-term deferred tax assets Less: Valuation allowance Net deferre Deferred Tax Liabilities ff d tax assets Long-term Accrued liabia lities and allowances Property and equipment Intangibles Investment in partnership Other Long-term deferred tax liabila ities Net deferre ff d tax (liabilities) assets The above amounts are included in our Consolidated s: Balance Sheets as follow ff Other non-current assets Long-term deferred income tax liabilities Net deferre ff d tax (liabilities) assets As of December 31, 2020 2021 $ $ 10,200 979 900 333 7,042 1,049 14 20,517 (216) 20,301 (669) (7,629) (6,783) (8,271) (793) (24,145) $ (3,844) $ 9,106 987 402 280 6,582 1,206 16 18,579 (1,263) 17,316 (151) (4,587) (4,810) (6,660) (650) (16,858) 458 975 (4,819) (3,844) $ $ 493 (35) 458 As of December 31, 2021, we had a deferred tax asset balance of $1.0 million reflecting the benefit of $4.8 million in fedff and state income tax net operating loss (NOL) carryforwards, the earliest of which expires in 2030. eral Valuation Allowance positive and negative evidence to estimate if sufficient future taxable income will be generated to We assess the availablea utilize the existing deferred tax assets on a jurisdiction and by tax filff ing entity basis. A significant piece of objective negative evidence evaluated is cumulative losses incurred over the most recent three-year period. Such objective evidence limits our ability to consider other subjective positive evidence such as our projections for future growth. Based on this evaluation, a valuation allowance has been recorded as of December 31, 2021 and 2020 for the net deferred tax assets recorded on certain of our wholly owned subsidiaries. Such deferred tax assets relate primarily to net operating losses that are not more likely than not realizable. However, the amount of the deferred tax asset considered realizablea adjusted if our estimate of future taxable income durid the form of cumulative losses is no longer present. Additional weight may be given to subjective evidence such as our projections for growth in this situation. ng the carryforward period changes, or if objective negative evidence in could be 75 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Uncertain Tax Positions We are subject to taxation in the United States and various state jurisdictions. As of December 31, 2021, our tax years for 2018 through 2020 are subject to examination by the tax authorities. A rollforward of the gross unrecognized tax benefits is as follows (in thousands): Unrecognized tax benefit, January 1, 2019 Increase as a result of tax positions taken during Decrease as a result of tax positions taken during Decrease as a result of expiring statutes Unrecognized tax benefit, December 31, 2019 dd d the period the period Increase as a result of tax positions taken during the period the period Decrease as a result of tax positions taken during Increase as a result of expiring statutes Unrecognized tax benefit, December 31, 2020 d Increase as a result of tax positions taken during the period Decrease as a result of tax positions taken during the period Decrease as a result of expiring statutet s Unrecognized tax benefit, December 31, 2021 d $ $ $ $ 5,349 2,866 (2,482) (16) 5,717 3,822 (2,873) 10 6,676 4,482 (3,999) (2,857) 4,302 No unrecognized tax positions would affecff related to uncertain tax positions as of December 31, 2021 are $0.5 million. t the effecff tive tax rate at December 31, 2021. Interest expense and penalties accrued We expect a decrease to the amount of unrecognized tax benefits (exclusive of penalties and interest) within the next twelve months of zero to $2.4 million. Determining uncertain tax positions and the related estimated amounts requires judgment and carry estimation risk. If future tax law changes or interpretations should come to light, or additional information should become known, our conclusions regarding unrecognized tax benefits may change. NOTE 15 – RELATED PARTY TRANSACTIONS We sell installation services to other companies related to us through common or affilff directors and/or management relationships. We also purchase services and materials and pay rent to companies with common or related ownership. iated ownership and/or board of We lease our headquarters and certain other facilities from related parties. See Note 9, Leases, forff payments to be paid to these related parties. future minimum lease The amount of sales to common or related parties as well as the purchases from and rent expense paid to common or related parties were as follow s (in thousands): ff Sales Purchases Rent Years ended December 31, 2020 2021 2019 $ $ 1,452 1,544 1,322 $ 3,987 1,841 1,125 13,488 1,810 1,040 At December 31, 2021 and 2020, we had related party balances of approxim included in accounts receivable on our Consolidated Balance Sheets. These balances primarily represent trade accounts receivable arising during the normal course of business with various related parties. M/I Homes, Inc., a customer whose Chairman, President and Chief Executive Officer was a member of our board of directors until his resignation from our board effective March 18, 2020, accounted forff December 31, 2020 as well as the year ended December 31, 2019 while it was classified as a related party to the Company. a significant portion of our related party sales during the firff st quarter of the year ended ately $0.9 million and $0.7 million, respectively, a 76 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 – COMMITMENTS AND CONTINGENCIES Accrued General Liabila ity and Auto Insurances y Accrued general liability and auto insurance reserves included on the Consolidated Balance Sheets were as follows thousands): ff (in Included in other current liabilities Included in other long-term liabilities As of December 31, 2020 2021 $ $ 5,889 16,050 21,939 $ $ 5,102 16,440 21,542 We also had insurance receivablea aggregate, offset equal liabila thousands): s and indemnification assets included on the Consolidated Balance Sheets that, in ities included within the reserve amounts noted above a . The amounts were as follows ff (in Insurance receivables and indemnification assets for claims under fully insured policies Insurance receivables for claims that exceeded the stop loss limit $ Total insurance receivables and indemnification assets included in other non-current assets $ 3,578 $ 278 3,856 $ 4,400 328 4,728 As of December 31, 2020 2021 Leases See Note 9, Leases, forff further information on our lease commitments. Other Commitments and Contingencies g From time to time, various claims and litigation are asserted or commenced against us principally arising from contractual matters and personnel and employment disputes. In determining loss contingencies, management considers the likelihood of loss as well as the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when it is considered probablea litigation is subject to inherent uncertainties, we cannot be certain that we will prevail in these matters. However, we do not believe that the ultimate outcome of any pending matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows. ity has been incurred and when the amount of loss can be reasonably estimated. As that such a liabila t During the year ended December 31, 2018, we entered into an agreement with one of our suppliers to purchase a portion of the insulation materials we utilize across our business. This agreement was effecff tive January 1, 2019 through December 31, 2021 with a purchase obligation of $15.0 million forff 2021, which we exceeded. NOTE 17 – BUSINESS COMBINATIONS a dend ma krkets, we co lallyly and id increase ma krket hshare iin certaiin ma krkets, as wellll as didiversify rsify inine ongoi gng strat gyegy to expa dnd g ggeogra hiphic lmplet ded leleven, lvelyy, as wellll as several il insigni ivoti gng As part of our ongoi our dproducts a dnd dand 2019, respec iti 2021, 2020 2019 i, in whihichh we acq iuiredd 100% of hthe $$2.8 iincl dluded id in Addmi iinistra itive expenses on hthe Cons lioliddat ded Statements of Operatiions andd Com hprehe insive Income. hTh ge g recogniz amount assigned as a res lult of 2021 ac combinatiions dduringing hth ye years isti gng opera itions iin iqui isitiions me grged id into e ixi on-relat ded costs amountedd to l lvelyy, iqui dred and ld liiabibia lili ities assumedd. We expect to ddedduct $100.5 million of goodwi equi yty iinterests iin ea hch ac d d dand isix b ibusiness nsignifificant tuck ik-in ac combinatiions represents thhe excess cost of hthe ac quisi iti i i dand 2019, respec iti ended Dece bmber 31, 2021, 2020 conjunctiion iwi hth hthes be busiiness goodwillll for tax purposes iquiredd entiityy over hthe net imilllliion for hthe yyears signed to assets ac iqui dred en iti yty. Ac ogniz ded iin conj dendedd Dece bmber 31, imilllliion, $$2.8 quisi itions. dand $$2.1 doodwililll dand are imilllliion i i bi bi i Bellow iis a summ yary of ea hch signi hshown for hthe yyear of ac signifificant ac quisi ition byby yyear, iincl di i i iqui isitiion. hTh le l gargest of our 2021 ac ludi gng revenue andd net iincome (l(loss)) siince ddate of a quisi itions were I.W. International Insulation, Inc., dba i i cqui i isition, i 77 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Intermountain West Insulation (“IWI”) in March 2021, Alert Insulation ("Alert") and Alpine Construction Services ("Alpine") in April 2021, General Ceiling & Partitions, Inc. ("GCP") in June 2021, Five Star Building Products, LLC and Five Star Building Products of Southern Utah, LLC (collectively "Five Star") in September 2021, Denison Glass and Mirror, Inc. ("DGM") and CFI Insulation ("CFI") in November 2021, and AMD Distribution ("AMD") in December 2021. In eachh t blable, “O hther” represents a am iortiza ition, taxes cqui isitiions hthat were iindi idivid lduallyly iimmate iri lal iin hthat yyear. Ne it incom (e (llo )ss), as ate. i a dand iinterest alllloca itions hwhen a ppropri noted bbellow, iincl dludes d i For the year ended December 31, 2021 (in thousands): 2021 Acquisitions IWI Alert Alpine GCP Five Star DGM CFI AMD Other Total Date 03/01/2021 4/13/2021 4/19/2021 6/7/2021 9/13/2021 11/1/2021 11/22/2021 12/13/2021 Various Acquisition Type Share Asset Asset Asset Share Asset Share Asset Asset Cash Paid $ 42,098 5,850 7,945 9,700 26,308 11,634 13,450 119,490 6,540 $ 243,015 Seller Obligations 5,959 $ 2,980 2,208 1,427 5,466 2,069 1,145 6,631 1,284 $ 29,169 For the year ended December 31, 2020 (in thousands): 2020 Acquisitions Royals Energy One Storm Master ICON Norkote WeatherSeal Other Total Date 2/29/2020 8/10/2020 8/31/2020 10/13/2020 10/26/2020 11/16/2020 Various Acquisition Type Asset Asset Asset Asset Asset Asset Asset Cash Paid 7,590 $ 13,200 13,000 16,900 8,725 9,500 7,531 $ 76,446 Seller Obligations 2,500 $ 1,591 1,336 3,598 2,426 922 1,713 $ 14,086 Total Purchase Price $ 48,057 8,830 10,153 11,127 31,774 13,703 14,595 126,121 7,824 $ 272,184 Total Purchase Price $ 10,090 14,791 14,336 20,498 11,151 10,422 9,244 $ 90,532 Net Income (Loss) 3,373 (151) 189 83 (119) (462) 53 (225) (102) 2,639 Net Income (Loss) 1,332 (558) 619 449 417 (23) (344) 1,892 $ $ $ $ Revenue $ 36,259 13,494 8,267 7,125 6,861 2,198 1,289 3,707 3,231 $ 82,431 Revenue $ 11,095 7,454 8,131 4,798 2,702 766 5,548 $ 40,494 For the year ended December 31, 2019 (in thousands): 2019 Acquisitions 1st State Insulation Expert Insulation Premier Other Total Date 3/18/2019 6/24/2019 11/18/2019 Various Acquisition Type Asset Asset Share Asset Seller Obligations 1,355 $ 1,993 2,765 1,430 7,543 $ Total Purchase Price $ 6,480 18,158 27,765 7,180 $ 59,583 Cash Paid 5,125 $ 16,165 25,000 5,750 $ 52,040 $ Revenue 9,828 6,484 2,161 3,339 $ 21,812 Net Income (Loss) $ $ 476 155 (62) 23 592 78 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Purchase Price Allocations The estimated faiff and cash paid, approximated the following (in thousands): r values of the assets acquired and liabia lities assumed forff the acquisitions, as well as total purchase prices Estimated fair values: Cash Accounts receivable Inventories Other current assets Property and equipment Intangibles Goodwill Other non-current assets Accounts payable and other current liabilities Deferred income tax liabilities Other long-term liabilities Fair value of assets acquired and purchase price Less seller obligations Cash paid Estimated fair values: Accounts receivable Inventories Other current assets Property and equipment Intangibles Goodwill Other non-current assets Accounts payable and other current liabilities Other long-term liabilities Fair value of assets acquired and purchase price Less seller obligations Cash paid IWI Alert Alpine GCP Five Star DGM CFI AMD Other Total 2021 $ 168 5,122 1,157 3,014 796 25,200 23,282 $ — $ 4,710 765 738 693 2,770 940 — $ — 359 — — $ 1,472 4,597 1,399 330 3,067 — — 726 5,543 3,582 206 5,670 2,695 1,161 17,400 6,482 $ — $ 4,007 6 1,016 853 8,800 3,447 67 1,318 311 26 714 7,699 6,799 $ — $ — $ 8,393 7,540 — 1,133 52,800 56,327 446 345 74 932 4,072 2,063 1,707 31,660 11,882 5,198 7,214 129,954 105,617 264 132 — — — 213 — — 18 627 (8,416) (1,184) (57) (493) (1,040) (4,625) (242) (23) (123) (16,203) — — (2,530) (734) — — — — — (2,089) — — (2,089) (18) (27) (14) (8) (49) (3) (3,383) 48,057 8,830 10,153 11,127 31,774 13,703 14,595 126,121 7,824 272,184 5,959 $ 42,098 2,980 $ 5,850 2,208 $ 7,945 1,427 $ 9,700 5,466 $ 26,308 2,069 $ 11,634 1,145 $ 13,450 6,631 1,284 $119,490 $ 6,540 29,169 $ 243,015 Royals Energy One Storm Master ICON Norkote WeatherSeal Other Total 2020 $ $ 2,848 305 430 598 3,930 3,015 58 $ 3,357 838 12 2,319 6,500 3,253 — 2,362 175 — 798 8,720 3,631 $ $ 4,828 243 675 380 11,830 2,870 — 145 (1,059) (1,469) (1,336) (35) (19) (14) (445) (28) 1,926 444 178 584 5,310 2,841 — (86) (46) $ $ 865 156 14 520 5,450 3,472 — (50) (5) $ 1,419 600 145 663 4,483 2,223 17,605 2,761 1,454 5,862 46,223 21,305 38 241 (196) (4,641) (131) (278) 10,090 14,791 14,336 20,498 11,151 10,422 9,244 90,532 2,500 7,590 $ 1,591 13,200 $ 1,336 13,000 $ 3,598 16,900 $ 2,426 8,725 $ $ 922 9,500 $ 1,713 7,531 $ 14,086 76,446 79 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Estimated fair values: Cash Accounts receivable Inventories Other current assets Property and equipment Intangibles Goodwill Other non-current assets Accounts payablea Fair value of assets acquired and purchase price Less seller obligations Cash paid and other current liabilities 1st State Expert 2019 Premier Other Total $ $ — $ — 291 — 989 3,382 1,857 — (39) 6,480 1,355 5,125 $ — $ 1,796 723 — 235 6,740 8,545 161 (42) 18,158 1,993 16,165 $ 334 2,929 1,242 — 876 14,300 10,151 329 (2,396) 27,765 2,765 25,000 $ — $ 479 410 3 887 3,619 1,765 41 (24) 7,180 1,430 5,750 $ $ 334 5,204 2,666 3 2,987 28,041 22,318 531 (2,501) 59,583 7,543 52,040 Contingent consideration is included as “seller obligations” in the above subsequently paid during the period presented. These contingent payments consist primarily of earnouts based on performance that are recorded at faiff r value at the time of acquisition, and/or non-compete agreements and amounts based on working capia tal calculations. When these payments are expected to be made over one year fromff consideration is discounted to net present value of future payments based on a weighted average of various future forecast scenarios. the acquisition date, the contingent r value of assets acquired” if tabla e or within “faiff a ents to the allocation for each acquisition still under its measurement period are expected as third-party or Further adjustmd internal valuations are finalized, certain tax aspects of the transaction are completed, contingent consideration is settled, and customary post-closing reviews are concluded during the measurement period attributablea combination. As a result, insignificant adjustments to the faiff have been made to certain business combinations since the date of acquisition and futuret end of each measurement period. Goodwill and intangibles per the above these assets as shown in Note 7, Goodwill and Intangibles, during the years ended Dece bmber 31, 2021, 2020 and 2019 due to minor adjustments to goodwill forff intangible assets added during ended December 31, 2019 due to various small acquisitions merged into existing operations that do not appear in the above tablea the allocation of certain acquisitions still under measurement as well as other immaterial the ordinary course of business. In addition, goodwill and intangibles increased during the year r value of assets acquired, and in some cases total purchase price, adjustmd tabla e may not agree to the total gross increases of to each individual business ents may be made through the s. d a Estimates of acquired intangible assets related to the acquisitions are as follows (dollars in thousands): 2021 2020 2019 Acquired intangibles assets Customer relationships Trademarks and trade names Non-competition agreements Backlog Estimated Fair Value 94,473 $ 23,349 7,254 4,878 ) Pro Forma Information (unaudited) ( Weighted Average Estimated Useful Life (yrs) Estimated Fair Value 28,307 9,834 3,315 4,767 12 $ 15 5 2.5 Weighted Average Estimated Useful Life (yrs) Estimated Fair Value 20,659 5,286 2,096 — 8 $ 15 5 1.5 Weighted Average Estimated Useful Life (yrs) 8 15 5 — The unaudited pro forma information has been prepared as if the 2021 acquisitions had taken place on January 1, 2020, the 2020 acquisitions had taken place on January 1, 2019 and the 2019 acquisitions had taken place on January 1, 2018. The unaudited pro forma information is not necessarily indicative of the results that we would have achieved had the transactions actually taken place on January 1, 2020, 2019 and 2018 and the unaudited pro forma information does not purport to be indicative of futuret financial operating results (in thousands, except for per share data). 80 INSTALLED BUILDING PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net revenue Net income Basic net income per share Diluted net income per share $ 2021 2,105,295 129,825 4.42 4.38 $ December 31, 2020 1,922,327 107,791 3.65 3.63 $ 2019 1,660,326 76,474 2.57 2.56 Unaudited pro forma net income refleff cts additional intangible asset amortization expense of $8.2 million, $18.2 million and $10.2 million for the years ended December 31, 2021, 2020 and 2019, respectively, additional interest expense of $4.1 million and $4.3 million forff $3.9 million, $3.7 million and $3.0 million forff the years ended December 31, 2021 and 2020, respectively, as well as additional income tax expense of the years ended December 31, 2021, 2020 and 2019, respectively. NOTE 18 – INCOME PER COMMON SHARE Basic net income per common share is calculated by dividing net income by the weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net income per common share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury stock method. Potential common stock is included in the diluted income per common share calculation when dilutive. The dilutive effect of outstanding restricted stock awards after application of the treasury stock method as of December 31, 2021, 2020 and 2019, was 261 thousand, 213 thousand and 120 thousand, respectively. NOTE 19 – SUBSEQUENT EVENTS During the first quarter of 2022, our Chief Executive Officer, who is also our chief operating decision maker, changed the manner in which he reviews financial information for purposes of assessing business performance and allocating resources. In response, we are in the process of modifying our internal reporting and supporting systems to reflect these changes and are evaluating the future impact on our reporting of segments. In February 2022, we amended and extended our ABL Credit Agreement. The ABL Amendment increased the commitment amount under the ABL Revolver to $250.0 million from $200.0 million and extended the maturity to February 17, 2027 from September 26, 2024, and permits us to further increase the commitment amount to up to $300 million. The ABL Amendment provides that the ABL Revolver will bear interest at either the base rate or term Secured Overnight Financing Rate (“Term SOFR”), at our election, plus a margin of 0.25% or 0.50% for base rate advances or 1.25% or 1.50% for Term SOFR advances (in each case based on a measure of availabila ity under the ABL Credit Agreement). The amendment also provides us with the ability to reduce drawn and unused feeff modifications to the ABL Credit Agreement. s based on sustainability-linked key performance indicator targets and makes other On February 24, 2022, we announced that our board of directors approved a special annual dividend, payablea 2022 to stockholders of record on March 15, 2022 at a rate of 90 cents per share. In addition, we recently announced that our board of directors declared a quarterly dividend, payable on March 31, 2022 to stockholders of record on March 15, 2022 at a rate of 31.5 cents per share. on March 31, On February 24, 2022, we announced that our board of directors authorized an extension of our stock repurchase program through March 1, 2023 and concurrently authorized an increase in the total amount of our outstanding common stock we can purchase up to $200.0 million. For more information about our stock repurchase program, see Note 12, Stockholders' Equity. 81 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We conducted an evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2021 with the participation of the Company’s principal executive officer and principal finff ancial officer as required by Exchange Act RulRR e 13a-15(b). Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of December 31, 2021, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we filff e or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and includes, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we filff e or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal finff ancial officer, or persons performing similar funct disclosure. ions, as appropriate to allow timely decisions regarding required ff Management’s Report on Internal Control over Financial Reporting Our management is responsible for establia in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliabia lity of financial reporting and the preparation of financial statements forff purposes in accordance with accounting principles generally accepted in the United States of America. shing and maintaining adequate internal control over finaff ncial reporting (as defined external Management, under the supervision of the principal executive officer and the principal finff ancial officer, assessed the effectiveness of our internal control over finaff subsidiaries listed below that we acquired during Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – IntII egrated Frame scope of management’s assessment of the effectiveness of internal control over finaff includes all of the Company’s subsidiaries except the subsidiaries listed below, which were acquired during financial statements constitutet statements of the Company as of and for the year ended December 31, 2021: the percentages of total assets and net revenue listed below of the consolidated financial ncial reporting, excluding the internal control over finaff ncial reporting as of December 31, 2021 2021 and whose 2021 as of December 31, 2021 using the criteria set forth by the Committee of ncial reporting at the work (2013). The FF d dd Subsidiary Intermountain West Alert Alpine Construction Reliabla e GCP MT Insulation 5 Star Mr. Insulation DGM CFI AMD Acquisition Date March 1, 2021 April 13, 2021 April 19, 2021 May 11, 2021 June 7, 2021 August 23, 2021 September 13, 2021 October 4, 2021 November 1, 2021 November 22, 2021 December 13, 2021 Percentage of Total Assets 3.6% 0.7% 0.6% 0.2% 0.7% 0.2% 2.0% 0.2% 1.1% 1.0% 7.6% Percent of Net Revenue 1.8% 0.7% 0.4% 0.1% 0.4% 0.1% 0.3% 0.0% 0.1% 0.1% 0.2% Management excluded the internal control over finaff the guidance of the staff of the SEC that an assessment of a recently acquired business may be omitted from the scope of management’s assessment of internal control over financial reporting for one year following the acquisition. ncial reporting at these subsidiaries from its assessment in accordance with Based on this assessment, management has determined that our internal control over financial reporting was effective as of December 31, 2021. We have not experienced any material impact to our internal controls over finaff ncial reporting due to the 82 COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation to identify potential limitations on our current internal controls that would adversely impact the design and operating effectiveness of internal controls over financial reporting. The effectiveness of our internal control over financial reporting as of December 31, 2021, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which foll ows below. ff Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during reasonablya the quarter ended December 31, 2021 that has materially affected, or are likely to materially affect, our internal control over financial reporting. dd Item 9B. Other Information On February 24, 2022, we announced that the Board of Directors of Installed Building Products, Inc. (the “Company”) approved the appointment of Jason R. Niswonger, 49, as its Chief Administrative and Sustainability Officer, effective March 1, 2022. Mr. Niswonger was formerly the Company’s Senior Vice President, Finance and Investor Relations since March 2015. Additional biographical information is availablea ("2021 Proxy Statement"). on page 34 of our 2021 Definitive Proxy Statement filed on April 16, 2021 There are no arrangements or understandings between Mr. Niswonger and any other persons pursuant to which he was selected as Chief Administrative and Sustainabila ily relationships between Mr. Niswonger and any director or executive officer of the Company and he has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K. ity Officer. There are no famff Mr. Niswonger is an at-will employee of the Company, and does not have a written employment agreement. Mr. Niswonger is eligible to participate in certain benefit and incentive programs and plans of the Company, as described in our 2021 Proxy Statement. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 83 REPORT OF INDEPENDENT REG SGISTERED PUBLICC ACCCCOUNT GING FIRM To the stockholders and the Board of Directors of Installed Building Products, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Installed Building Products, Inc. (the “Company”) as of December 31, 2021, based on criteria establia e shed in Internal Control — InteII grate of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effecff tive internal control over finaff shed in Internal e grate tt — InteII Control ncial reporting as of December 31, 2021, based on criteria establia ework (2013) issued by the Committee issued by COSO. d Frame d FramFF (( work (rr 2013) FF We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 24, 2022, expressed an unqualified opinion on those financial statements. As described in Management’s Report on Internal Control over Financial Reporting, management excluded fromff the internal control over financial reporting at the subsidiaries listed below, which were acquired during financial statements constitutet of the Company as of and for the year ended December 31, 2021. the percentages of total revenues and assets listed below of the consolidated financial statements 2021 and whose its assessment d Subsidiaryy Intermountain West Alert Alpine Construction Reliablea GCP MT Insulation 5 Star Mr. Insulation DGM CFI AMD Acquisition Date March 1, 2021 April 13, 2021 April 19, 2021 May 11, 2021 June 7, 2021 August 23, 2021 September 13, 2021 October 4, 2021 November 1, 2021 November 22, 2021 December 13, 2021 Percentage of Total Assets 3.6% 0.7% 0.6% 0.2% 0.7% 0.2% 2.0% 0.2% 1.1% 1.0% 7.6% Percent of Net Revenue 1.8% 0.7% 0.4% 0.1% 0.4% 0.1% 0.3% 0.0% 0.1% 0.1% 0.2% . Accordingly, our audit did not include the internal control over financial reporting of the subsidiaries listed above a Basis for Opinion The Company’s management is responsible for maintaining effecff assessment of the effectiveness of internal control over finaff on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rulrr es and regulations of the Securities and Exchange Commission and the PCAOB. ncial reporting, included in the accompanying Management’s Report tive internal control over finaff ncial reporting and forff its We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 84 Definition and Limitations of Internal Control over Financial Reporting control over finaff ncial reporting is a process designed to provide reasonablea r ncial reporting and the preparation of financial statements forff A company’s internal reliabila purposes in accordance with generally ity of finaff accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonablea dispositions of the assets of the company; (2) provide reasonablea preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. detail, accurately and fairly reflect the transactions and assurance that transactions are recorded as necessary to permit of the company are being made only in accordance with authorizations of management and directors of the assurance regarding the r external tt Because of its inherent limitations, internal control over finaff projections of any evaluation of effecff because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ncial reporting may not prevent or detect misstatements. Also, ct to the risk that controls may become inadequate tiveness to future periods are subjeu /s/ Deloitte & Touche TT LLP Columbus, Ohio February 24, 2022 85 PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this item will be set forth under the headings “Election of Directors,” “Executive Officers and Certain Significant Employees,” “Corporate Governance” and “Delinquent Section 16(a) Reports” in our definitive proxy statement for the 2022 Annual Meeting of Stockholders (“2022 Proxy Statement”) to be filff ed with the SEC within 120 days of the fiscal year ended December 31, 2021 and is incorporated herein by reference. Our board of directors has adopted a code of business conduct and ethics that appli directors, including our Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. The full text of our code of business conduct and ethics is posted on the investor relations page on our website which is located at http:/ tt waivers of its requirements, on our website. /i// nvestors.installedbuildingproducts.com. We will post any amendments to our code of business conduct and ethics, or es to all of our employees, officers and a Item 11. Executive Compensation The information required by this item will be set forth under the headings “Executive Compensation,” “Chief Executive Pay Ratio” and “Compensation Committee Interlocks and Insider Participation” in our 2022 Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management and related stockholder matters, as well as equity compensation plan information, will be presented in our Proxy Statement for our 2022 Annual Meeting of Stockholders, to be filed on or before iAprill 16, 2022 a, nd such information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item will be set forth under the headings “Certain Relationships and Related-Party Transactions” and “Corporate Governance” in our 2022 Proxy Statement and is incorporated herein by reference. Item 14. Principal Accounting Fees and Services The information required by this item will be set forth under the heading “Fees Paid to Deloitte" and "Pre-Approval of Services” in our 2022 Proxy Statement and is incorporated herein by reference. 86 PART IV Item 15. Exhibits, Financial Statement Schedules (a) The following documents are filed as a part of this Form 10-K: 1. Financial Statements: The Consolidated Financial Statements, the Notes to Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) for Installed Building Products, Inc. are presented in Item 8, Financial Statements and Supplementary Data, of Part II of this Form 10-K. 2. Financial Schedules: All finff ancial statement schedules have been omitted because they are inapplicable, not required, or shown in the consolidated financial statements and notes in Item 8, Financial Statements and Supplementary Data, of Part II of this Form10-K. (b) Exhibits. Exhibit Number 2.1 3.1 3.2 4.1 4.2 4.3 10.1# 10.2# 10.3# 10.4# 10.5 10.6 10.7 dated September 26, 2019, among Installed Building Products, Inc., the guarantors named therein Descriptionp Share Purchase Agreement, dated as of October 29, 2016, among EMPER Holdings, LLC; PREEM Holdings I, LLC; PREEM Holdings II, LLC; Vikas Verma; Henry Schmueckle; Vikas Verma in his capacity as the equityholders’ representative; and Installed Building Products, Inc., incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on October 31, 2016. Second Amended and Restated Certificate of Incorporation of Installed Building Products, Inc., incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on February 25, 2014. Amended and Restated Bylaws of Installed Building Products, Inc., incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on February 28, 2018. Form of Common Stock Certificate of Installed Building Products, Inc., incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A fileff d on January 27, 2014. Indenture, tt and U.S. Bank National Association, as Trustee (including the Form of Note), incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 27, 2019. Description of Installed Building Product, Inc.’s Securities Registered Pursuant to Section 12 of the Exchange Act, incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K filed on February 27, 2020. Form of Amended and Restated Indemnification Agreement for directors and officers, incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 7, 2021. Amended and Restated Employment Agreement, dated as of April 15, 2021, by and between Installed Building Products, Inc. and Jeffrey W. Edwards, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 7, 2021. Installed Building Products, Inc. 2014 Omnibus Incentive Plan, incorporated by reference to Exhibit 10.21 to the Company’s Registration Statement on Form S-1/A filed on January 27, 2014. Amendment, dated as of February 24, 2017, to the Installed Building Products, Inc. 2014 Omnibus Incentive Plan, incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K filed on February 28, 2017. Term Loan Credit Agreement, dated April 13, 2017, by and among Installed Building Products, Inc., the lenders party t Markets, UBS Securities LLC and Jefferies Finance LLC as joint lead arrangers and joint bookrunners, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 17, 2017. Credit Agreement, dated April 13, 2017, by and among Installed Building Products, Inc., the subsidiary guarantors from time to time party thereto, the financial institutions from time to time party thereto, and SunTrust Bank, as issuing bank, swing bank and administrative agent, with SunTrust Robinson Humphrey, Inc. as left lead arranger and bookrunner, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 17, 2017. ABL/Term Loan Intercreditor Agreement, dated April 13, 2017, by and among Installed Building Products, Inc., SunTrust Bank, as ABL agent, Royal Bank of Canada, as term loan agent, and each of the agents and certain of the Company’s subsidiaries fromff time to time party thereto, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 17, 2017. time to time, Royal Bank of Canada, as term administrative agent, and RBC Capia tal hereto fromff t 87 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20 10.21 10.22 10.23 t Term Collateral Agreement, dated April 13, 2017, among Installed Building Products, Inc., certain of its subsidiaries and Royal Bank of Canada, as term collateral agent, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on April 17, 2017. Security Agreement, dated April 13, 2017, among Installed Building Products, Inc., certain of its subsidiaries and SunTrust Bank, as administrative agent, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 17, 2017. Term Guarantee Agreement, dated April 13, 2017, among certain of Installed Building Products, Inc.’s subsidiaries and Royal Bank of Canada, as term collateral agent, incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on April 17, 2017. Amendment No. 1, dated October 26, 2017, to Term Loan Credit Agreement by and among Installed Building Products, Inc., the other loan parties party t hereto, the participating lenders and fronting bank party thereto, Royal Bank of Canada, as administrative agent, and RBC Capital Markets, as lead arranger and bookrunner, incorporated by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K filed on February 28, 2018. First Amendment, dated November 30, 2017, to Term Loan Credit Agreement, by and among Installed Building Products, Inc., the other loan parties party thereto, the participating lenders and fronting bank party thereto, Royal Bank of Canada, as administrative agent, and RBC Capital Markets, as lead arranger and bookrunner, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 1, 2017. First Amendment, dated October 26, 2017, to the Credit Agreement among Installed Building Products, Inc., certain of its subsidiaries and SunTrust Bank, as administrative agent, incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K filed on February 28, 2018. Second Amendment, dated December 26, 2017, to the Credit Agreement among Installed Building Products, Inc., certain of its subsidiaries and SunTrust Bank, as administrative agent, incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K filed on February 28, 2018. Second Amendment to Term Loan Credit Agreement, dated as of June 19, 2018, by and among Installed Building Products, Inc., the other loan parties party thereto, the participating lenders and fronting bank party thereto, Royal Bank of Canada, as administrative agent, and RBC Capital Markets, as joint lead arranger and joint bookrunner, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 19, 2018. Third Amendment to Credit Agreement, dated as of June 19, 2018, by and among Installed Building Products, Inc., the lenders party thereto, and SunTrust Bank, as administrative agent, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 19, 2018. Restatement Agreement, dated as of December 17, 2019, among Installed Building Products, Inc., as Borrower, the Lenders party thereto and Bank of America, N.A., as Administrative Agent, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 18, 2019. First Amendment to ABL/Term Loan Intercreditor Agreement, dated as of June 19, 2018, by and among Installed Building Products, Inc., SunTrust Bank, as ABL agent, and Royal Bank of Canada, as term loan agent, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 19, 2018. Second Amendment to ABL/Term Loan Intercreditor Agreement, dated as of December 17, 2019, by and among Installed Building Products, Inc., as Borrower, Bank of America, N.A., as ABL Agent, and Bank of America, N.A., as Term Loan Agent, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 18, 2019. Purchase Agreement, dated as of September 16, 2019, by and among Installed Building Products, Inc., as issuer, the subsidiary guarantors party t hereto, and BofA Securities, Inc. for itself and on behalf of several initial purchasers, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 17, 2019. Credit Agreement, dated September 26, 2019, among Installed Building Products, Inc., the guarantors partyt thereto, the lenders party t hereto and Bank of America, N.A., as issuing bank, swing bank and administrative agent, with KeyBank National Association, as a syndication agent and U.S. Bank National Association, as a syndication agent, and Bank of America, N.A., as lead arranger and bookrunner, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 27, 2019. Security Agreement, dated September 26, 2019, among Installed Building Products, Inc., the other grantors party thereto and Bank of America, N.A., as administrative agent, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 27, 2019. Term Loan Credit Agreement, dated December 14, 2021, by and among Installed Building Products, Inc., the hereto fromff lenders party t agent, and RBC Capia tal Markets, BofA Sff and joint bookrunners and Loop Capia tal Markets LLC, US Bank National Associations, KeyBank Capital Markets Inc. and PNC Capita Company's Current Report on Form 8-K filed on December 14, 2021. ecurities, Inc. and Goldman Sachs Bank USA as joint lead arrangers al Markets LLC as Co-managers, incorporate d by reference to Exhibit 10.1 to the time to time, Royal Bank to Canada, as term administrative agent and term collateral rr t t t 88 10.24 10.25 10.26 10.27 10.28 10.29# 10.30 10.31# 10.32# 10.33# 10.34# 10.35# 10.36# 10.37# 21.1* 23.1* 31.1* 31.2* 32.1* 32.2* 101** 104** hereto and Bank of America N.A., as administrative Third Amendment to ABL/Term Loan Intercreditor Agreement, dated December 14, 2021, by and among Installed Building Products, Inc., Bank of America, N.A., as ABL agent, Royal Bank of Canada, as collateral agent and certain of the Company's subsidiaries fromff time to time party thereto, incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on December 14, 2021. Lien Sharing and Priority Confirmation Joinder, dated, December 14, 2021, among Installed Building Products, Inc., the guarantors named therein, Bank of America, N.A., as ABL agent, and Royal Bank of Canada, as collateral agent under the Term Loan Agreement, incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on December 14, 2021. Term Collateral Agreement, dated December 14, 2021, among Installed Building Products, Inc., certain of its subsidiaries and Royal Bank of Canada, as term collateral agent, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on December 14, 2021. Term Guarantee Agreement, dated December 14, 2021 among certain of Installed Building Products, Inc.'s subsidiaries and Royal of Canada, as term collateral agent, incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on December 14, 2021. Consent and Amendment No. 2 to Credit Agreement, dated December 14, 2021, by and among Installed t Building Products, Inc., the financial institutions party t agent, incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on December 14, 2021. Retirement and General Release Agreement, dated as of July 31, 2018, by and among Installed Building Products, Inc., Installed Building Products, LLC, TCI Contracting, LLC and J. Michael Nixon, incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on August 3, 2018. Share Repurchase Agreement, dated November 5, 2018, by and between Installed Building Products, Inc. and PJAM IBP Holdings, Inc., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 5, 2018. Form of Restricted Stock Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 14, 2014. Form of Performance Share Award Agreement, incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on August 13, 2014. Form of Restricted Stock Agreement for Employees, incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed on March 13, 2015. Form of Restricted Stock Agreement for awards made on or afteff Exhibit 10.35 to the Company’s Quarterly Report on Form 10-Q filed on May 8, 2017. Form of Performance Share Agreement for awards made on or after April 19, 2017, incorporated by reference to Exhibit 10.36 to the Company’s Quarterly Report on Form 10-Q filed on May 8, 2017. Form of Stock Award Agreement, incorporated by reference to Exhibit 10.37 to the Company’s Quarterly Report on Form 10-Q filed on May 8, 2017. Form of Performance-Based Cash Award Agreement, incorporated by reference to Exhibit 10.38 to the Company’s Quarterly Report on Form 10-Q filed on May 8, 2017. List of Subsidiaries of Installed Building Products, Inc. Consent of Deloitte & Touche LLP. CEO Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. CFO Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. The following financial statements fromff the Company's Annual Report on Form 10-K for the period ended December 31, 2021, formatted in inline XBRL, include: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements. Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) r April 19, 2017, incorporated by reference to ___________ * ** # Filed herewith Submitted electronically with the report. Indicates management contract or compensatory plan. Item 16. Form 10-K Summary None 89 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has dulydd report to be signed on its behalf by the undersigned, thereunto dulydd authorized. caused this Date: February 24, 2022 INSTALLED BUILDING PRODUCTS, INC. /s/ Jeffrey W. Edwards Jeffrey W. Edwards By: President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capaa cities and on the dates indicated. Signature g /s/ Jeffrey W. Edwards Jeffrey W. Edwards /s/ Michael T. Miller Michael T. Miller /s/ Todd R. Fry Todd R. Fry /s/ Margot L. Carter Margot L. Carter /s/ Lawrence A. Hilsheimer Lawrence A. Hilsheimer /s/ Janet E. Jackson Janet E. Jackson /s/ David R. Meuse David R. Meuse /s/ Michael H. Thomas Michael H. Thomas /s/ Vikas Verma Vikas Verma Title Date President, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) February 24, 2022 Executive Vice President, Chief Financial Officer and Director (Principal Financial Officer) February 24, 2022 Chief Accounting Officer and Treasurer (Principal Accounting Officer) February 24, 2022 Director Director Director Director Director Director February 24, 2022 rr February 24, 2022 rr February 24, 2022 rr February 24, 2022 February 24, 2022 February 24, 2022 90 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] Board of Directors MARGOT L. CARTER President and Founder Living Mountain Capital L.L.C. DAVID R. MEUSE Senior Advisor of Stonehenge Partners, Inc. JEFFREY W. EDWARDS Chairman, President and Chief Executive Officer Installed Building Products, Inc. LAWRENCE A. HILSHEIMER Executive Vice President and Chief Financial Officer Greif, Inc. JANET E. JACKSON President and Chief Executive Officer (Retired 2017) United Way of Central Ohio Executive Officers MICHAEL T. MILLER Executive Vice President and Chief Financial Officer Installed Building Products, Inc. MICHAEL H. THOMAS Partner (Retired 2014) Stonehenge Partners VIKAS VERMA President of Commercial Development Installed Building Products, Inc. JEFFREY W. EDWARDS Chairman, President and Chief Executive Officer JAY P. ELLIOTT Chief Operating Officer TODD R. FRY Chief Accounting Officer and Treasurer W. JEFFREY HIRE President, External Affairs MICHAEL T. MILLER Executive Vice President and Chief Financial Officer JASON R. NISWONGER Chief Administrative and Sustainability Officer INVESTOR Information STOCK INFORMATION Ticker Symbol: IBP Exchange: NYSE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP Columbus, Ohio TRANSFER AGENT AND REGISTRAR Computershare 462 South 4th Street, Suite 1600 Louisville, KY 40202 Shareholder Services Number – (800) 736-3001 www.computershare.com/investor ANNUAL MEETING OF STOCKHOLDERS May 26, 2022 at 10:00 a.m. ET http://www.meetnow.global/MYPCSXQ ADDITIONAL INFORMATION Additional information about the Company and copies of this Annual Report, along with our periodic filings with the Securities and Exchange Commission, are available on our website at installedbuildingproducts.com. Printed copies are also available upon request, free of charge, by contacting: INVESTOR RELATIONS Installed Building Products, Inc. 495 South High Street, Suite 50 Columbus, Ohio 43215 (614) 221-9944 This document contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may generally be identified by the use of words such as “anticipate,” “believe,” “expect,” “intends,” “plan,” “target,” 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 adverse impact of the COVID-19 crisis on our business and financial results, our supply chain, the economy and the markets we serve; general economic and industry conditions; the material price and supply environment; the timing of increases in our selling prices and the factors discussed in the “Risk Factors” section of the enclosed Annual Report on Form 10-K for the year ended December 31, 2021, as the same may be updated from time to time in our subsequent filings with the Securities and Exchange Commission. Any forward-looking statement made by the Company in this document 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. Creating spaces in which people thrive is what we do. From improving homes, to lifting up communities, to creating a rewarding workplace, we take immense pride in laying the groundwork for a brighter future. INSTALLED BUILDING PRODUCTS | 495 South High Street, Suite 50 | Columbus, OH 43215 | (614) 221-3399

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