Irvine’s Interior Logic Group Holdings Inc., already the country’s largest provider of outsourced interior finish and design services for homebuilders, has plans to build a much bigger national footprint.
The company, which provides homebuilders a variety of sales and marketing, design, and installation services via a network of design studios, warehouses and fabrication facilities, and also has a growing technology platform, this month filed plans to go public via an initial public offering.
The company set a placeholder value of $100 million as the amount it aims to raise in the IPO, with proceeds largely going to pay down debt. The private equity-backed firm carried some $383 million of debt at the end of September.
Interior Logic reported $1.2 billion in revenue for the nine months ended Sept. 30. That’s down about 6% year-over-year as a result of the pandemic on its operations, it said.
Net income for the nine-month period ended Sept. 30 was $7.9 million; for the same period of 2019 the company reported a $17.5 million loss.
It’s operating a business with thin margins, reporting adjusted earnings before interest, taxes, depreciation and amortization below 10% since 2017.
“We are subject to significant pricing pressures from our customers,” the filing noted.
National Reach
Interior Logic’s IPO filings indicate that all 20 of the nation’s largest homebuilders use some of its services.
Its design centers help homebuyers select flooring, cabinets, countertops, and window treatments, which in turn are installed using the company’s inventory and contractors.
The company’s 10 biggest national homebuilder clients represent a little more than 40% of its revenues, filings show.
In addition to homebuilders, it also offers its services to the multifamily industry, repair and remodel customers, and big-box home improvement retailers.
The company plans to list its stock on the Nasdaq, under the symbol ILG. The IPO counts a heavyweight team of underwriters, including Citigroup, Goldman Sachs and BofA Securities.
Specific terms of the offering, including a likely stock price, haven’t been disclosed. It’s one of two OC businesses with close ties to the residential real estate sector to file plans to go public in less than a week, along with Lake Forest’s loanDepot Inc. (see story, page 1).
Another residential real estate firm, Newport Beach-based homebuilder Landsea Homes Corp. (Nasdaq: LSEA), went public on Jan. 8 via a reverse merger.
Roll Ups
Interior Logic, initially known as Interior Specialists Inc. and previously based in Carlsbad, got its start in 2013, and has expanded via organic growth as well an aggressive roll-up strategy, completing more than 18 acquisitions since its founding.
After getting backing from Greenwich, Conn.-based private equity firm Littlejohn & Co. in 2014, it moved to OC and made its biggest growth push in mid-2018 when it acquired Atlanta’s Interior Logic Group.
The combined firm kept the Atlanta company’s name but put the Irvine team’s management, including Chief Executive Alan Davenport, in charge of the company.
Davenport has been with the firm since its founding and previously worked for Henry Co., a national supplier of air and vapor barrier, roofing and waterproofing products.
At the time of the 2018 deal, Interior Logic and Interior Specialists were already the two largest companies in the interior finish industry. They reported about $1.5 billion in revenue at the time of the combination.
The combined firm is now far and away the largest country’s largest provider of outsourced design centers to homebuilders, according to regulatory filings. It says it serves 46 of the top 50 U.S. homebuilding markets.
Branded Centers
The company operates 64 builder-branded design studios on behalf of large national homebuilders, as well as 46 company-branded design studios “that provide the same professionally-managed design experience for multiple homebuilders in a single location,” it says.
Anaheim, Irvine and Corona are among local locations of its design centers, according to its website. The builders it works with at those locations weren’t disclosed.
Interior Logic’s IPO registration statement indicates the company is now more than three times larger than its nearest competitor, based on number of locations.
Still, there’s plenty of room to grow, filings indicate, noting it has just a 6% market share of the highly fragmentized design studio and installation industry.
Along with the 110 design studios, the company’s network includes 109 warehousing and logistics centers, and nine countertop fabrication facilities. Its total real estate portfolio, most of which is leased, runs some 2.6 million square feet, including 423,000 square feet of space in California.
Interior Logic leases about 13,000 square feet at its Irvine Spectrum headquarters, brokerage data indicates. The building was previously used by local homebuilder Warmington Group for an interior and design affiliate of the Costa Mesa real estate firm.
Tech Push
While the pandemic has put a crimp on sales, the company believes its growing technology platform mitigated its impact over the past year and has left the firm in a good position to succeed going forward.
“Advancements in visualization technology and younger demographics reaching peak homebuying age have led to increasing demand for a more virtual homebuying and home design experience in recent years,” its registration statement said.
“Additionally, we believe the COVID-19 pandemic has been a catalyst for virtual engagement by homebuyers, resulting in a substantial increase in the use of our technology platform by our customers.”
Nearly 10% of the company’s design sessions are now conducted virtually, and “the demand for online design appointments continues to increase,” it said.
Recent tech-focused acquisitions by the company include last year’s $16.5 million buy of Roomored Inc., a Dallas-based company that provides online visualization technology focused on increasing buyer engagement in the new home sale and design.
Irvine-based New Home Co. (NYSE: NWHM) is among the builders Roomored cites as a partner.
Interior Logic has 4,200 employees, including nearly 300 design professionals and 470 field managers. It says it utilizes an additional 9,000 independent installation subcontractors.
Its technology team includes approximately 140 software engineers, digital artists and technology specialists; it added 40 new members to the technology team last year and expects to continue to grow this group in 2021.
