BEACON ROOFING SUPPLY INC - FORM 8-K - EX-99.1

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EX-99.2 - EX-99.2 - BEACON ROOFING SUPPLY INC	d430148dex992.htm
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Exhibit 99.1

LOGO

August 2, 2017

Beacon Roofing Supply Reports Third Quarter 2017 Results

•

Record third quarter sales of $1.21 billion (5.3% growth year-over-year)

•

Third quarter EPS of $0.73 ($0.84 Adjusted) vs. $0.68 ($0.77 Adjusted) in the prior year

•

Net income improved to $44.7 million in third quarter 2017 from $41.1 in 2016

•

Third quarter Adjusted EBITDA grew 9.5% to $120.0 million or 9.9% of sales

•

Completed five acquisitions totaling 23 branches (including Lowry’s in Q3), and opened 4 greenfield locations this fiscal year

HERNDON, VA. — (BUSINESS WIRE) — Beacon Roofing Supply, Inc. (NASDAQ: BECN) announced results today for its third quarter ended June 30, 2017 and nine months ended June 30, 2017 of the fiscal year ending September 30, 2017 (“2017” or “Fiscal 2017”).

Paul Isabella, the Company’s President and Chief Executive Officer, stated: “Record sales and EPS highlighted our solid third quarter results. Existing residential roofing sales produced a thirteenth consecutive quarter of year-to-year gains, exhibiting great consistency. Our complementary products business posted strong 6.3% existing market growth, reflecting the healthy residential market and our focus on expanding complementary product offerings across our entire footprint. Overall existing market sales growth was encouraging when viewed against the significant rain disruptions in the Eastern U.S., consecutive mild winters lessening demand across Northern markets, and the challenging comparison to last year’s Q3. Despite the demand pressures, gross margins improved meaningfully on a sequential basis and remained solid in the quarter, which is encouraging for Q4. We have been pleased to see our pricing show increased signs of stabilization, which is on target with our previous expectations. Our operating cost leverage highlights continued focus on tight expense control, even as we invest in key initiatives across the company. As I look ahead to Q4, I believe that Beacon is well positioned for a strong fourth quarter and delivery of another year of great performance and earnings for our shareholders.”

Third Quarter

Total sales increased 5.3% to a third quarter record of $1.21 billion in third quarter 2017, from $1.15 billion in 2016. Residential roofing product sales increased 8.3%, non-residential roofing product sales declined 4.7%, and complementary product sales increased 15.7% over the prior year. Existing markets same day sales, excluding acquisitions, increased 2.2% for the quarter. The third quarter 2017 had an identical number of business days as the year ago period (64 vs. 64 days).

Net income for the third quarter was $44.7 million, compared to $41.1 million in 2016. Third quarter EPS was $0.73, compared to $0.68 in 2016. Adjusted Net Income, after removing the impact of certain non-recurring costs related to acquisitions, was $51.4 million in the third quarter 2017, compared to $46.6 million in 2016. Third quarter Adjusted EPS was $0.84 (see included financial tables for a reconciliation of “Adjusted”), compared to $0.77 in 2016. Third quarter results were positively impacted by sustained strength in residential roofing, strong complementary products demand and attractive operating cost leverage. Operating performance was negatively impacted by a sales decline in non-residential roofing.

Nine Months

Total sales increased 4.5% to a nine-month record of $3.09 billion in 2017, from $2.95 billion in 2016. Residential roofing product sales increased 8.2%, non-residential roofing product sales decreased 8.1%, and complementary product sales increased 20.4% over the prior year. Existing market same day sales, excluding acquisitions, increased 1.3% year to date. The nine months of Fiscal 2017 and 2016 had 189 and 190 business days, respectively.

Net income for the nine months was $55.7 million, compared to $42.5 million in 2016. The nine-month EPS was $0.91, compared to $0.71 in 2016. Adjusted Net Income, after removing certain non-recurring costs related to acquisitions, was $75.8 million year to date, compared to $72.9 million in 2016. The nine-month Adjusted EPS was $1.24 (see included financial tables for a reconciliation of “Adjusted”) compared to $1.21 in 2016. The net income for the nine months was positively impacted by existing market growth in residential roofing and complementary products, and operating margin expansion. Results were negatively impacted by a sales decrease in non-residential roofing.

The Company will host a webcast and conference call today at 5:00 p.m. ET to discuss these results. The webcast link and call-in details are as follows:


What:		Beacon Roofing Supply Third Quarter 2017 Earnings Results Webcast and Conference Call

When:		Wednesday, August 2, 2017

Time:		5:00 p.m. ET

Webcast:		http://ir.beaconroofingsupply.com/events.cfm (live and replay)

Live Call:		720-634-9063, Conf. ID #59356720

To assure timely access, conference call participants should dial in prior to the 5:00 p.m. start time.

Forward-Looking Statements:

This release contains information about management’s view of the Company’s future expectations, plans and prospects that constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including, but not limited to, those set forth in the “Risk Factors” section of the Company’s latest Form 10-K. In addition, the forward-looking statements included in this press release represent the Company’s views as of the date of this press release and these views could change. However, while the Company may elect to update these forward-looking statements at some point, the Company specifically disclaims any obligation to do so, other than as required by federal securities laws. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to the date of this press release.

About Beacon Roofing Supply

Founded in 1928, Beacon Roofing Supply, Inc. is the largest publicly traded distributor of residential and commercial roofing materials and complementary building products, operating 385 branches throughout 48 states in the U.S. and 6 provinces in Canada. To learn more about Beacon and its family of regional brands, please visit www.becn.com.

BECN-F

Beacon Roofing Supply, Inc.

Joseph Nowicki, Executive VP & CFO

571-323-3940

JNowicki@becn.com

BEACON ROOFING SUPPLY, INC.

Consolidated Statements of Operations

(In thousands, except share and per share amounts)


	Three Months Ended June 30,								Nine Months Ended June 30,
	2017¹		% of Net Sales		2016²		% of Net Sales		2017¹		% of Net Sales		2016²		% of Net Sales
Net sales	$	1,213,894		100.0%	$	1,152,726		100.0%	$	3,086,802		100.0%	$	2,952,743		100.0%
Cost of products sold		916,140		75.5%		870,651		75.5%		2,333,504		75.6%		2,241,716		75.9%

Gross profit		297,754		24.5%		282,075		24.5%		753,298		24.4%		711,027		24.1%
Operating expense		212,883		17.5%		203,696		17.7%		624,526		20.2%		601,921		20.4%

Income from operations		84,871		7.0%		78,379		6.8%		128,772		4.2%		109,106		3.7%
Interest expense, financing costs, and other		13,397		1.1%		12,226		1.1%		39,239		1.3%		41,508		1.4%

Income before provision for income taxes		71,474		5.9%		66,153		5.7%		89,533		2.9%		67,598		2.3%
Provision for income taxes		26,815		2.2%		25,027		2.2%		33,800		1.1%		25,073		0.8%

Net income	$	44,659		3.7%	$	41,126		3.5%	$	55,733		1.8%	$	42,525		1.5%


Weighted-average common stock outstanding:
Basic		60,311,923				59,615,121				60,131,546				59,293,500
Diluted		61,350,843				60,619,809				61,163,591				60,276,695

Net income per share:
Basic	$	0.74			$	0.69			$	0.93			$	0.72
Diluted	$	0.73			$	0.68			$	0.91			$	0.71

The third quarter 2017 operating results include $2.0 million ($1.2 million, net of taxes) of non-recurring charges, $7.9 million ($4.9 million, net of taxes) of additional amortization for acquired intangibles, and $1.1 million ($0.7 million, net of taxes) of interest expense, financing costs, and other for the recognition of certain costs related to acquisitions completed in fiscal years 2016 and 2017. For the nine months ended June 30, 2017 operating results include $4.7 million ($2.9 million, net of taxes) of non-recurring charges, $23.7 million ($14.6 million, net of taxes) of additional amortization for acquired intangibles, and $4.3 million ($2.6 million, net of taxes) of interest expense, financing costs, and other for the recognition of certain costs related to acquisitions completed in fiscal years 2016 and 2017. See “Adjusted Net Income (Loss) and Adjusted EPS” table for further details.

The third quarter 2016 operating results include $2.2 million ($1.5 million, net of taxes) of non-recurring charges, $5.7 million ($3.6 million, net of taxes) of additional amortization for acquired intangibles, and $0.4 million ($0.3 million, net of taxes) of interest expense, financing costs, and other for the recognition of certain costs related to acquisitions completed in fiscal year 2016. For the nine months ended June 30, 2016 operating results include $27.6 million ($16.7 million, net of taxes) of non-recurring charges, $17.1 million ($10.4 million, net of taxes) of additional amortization for acquired intangibles, and $5.5 million ($3.3 million, net of taxes) of interest expense, financing costs, and other for the recognition of certain costs related to acquisitions completed in fiscal year 2016. See “Adjusted Net Income (Loss) and Adjusted EPS” table for further details.

BEACON ROOFING SUPPLY, INC.

Consolidated Balance Sheets

(In thousands)


	June 30,		September 30,		June 30, 2016
	2017		2016		June 30, 2016
Assets
Current assets
Cash and cash equivalents	$	33,055	$	31,386	$	36,536
Accounts receivable, net		670,977		626,965		640,101
Inventories		641,425		480,736		620,908
Prepaid expenses and other current assets		221,477		163,103		205,073

Total current assets		1,566,934		1,302,190		1,502,618

Property and equipment, net		156,951		148,569		153,389
Goodwill		1,256,014		1,197,565		1,200,206
Intangibles, net		442,962		464,024		477,250
Other assets, net		1,511		1,511		1,430


Total Assets	$	3,424,372	$	3,113,859	$	3,334,893


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	387,579	$	360,915	$	563,332
Accrued expenses		280,315		161,113		205,412
Current portion of long-term obligations		13,762		14,811		12,605

Total current liabilities		681,656		536,839		781,349

Borrowings under revolving lines of credit, net		449,615		359,661		416,207
Long-term debt, net		721,685		722,929		721,630
Deferred income taxes, net		142,116		135,482		106,337
Long-term obligations under equipment financing and other, net		28,412		35,121		39,720

Total liabilities		2,023,484		1,790,032		2,065,243


Commitments and contingencies

Stockholders’ equity:
Common stock		603		598		597
Undesignated preferred stock		-		-		-
Additional paid-in capital		714,608		694,564		686,943
Retained earnings		703,055		647,322		599,930
Accumulated other comprehensive loss		(17,378)		(18,657)		(17,820)

Total stockholders’ equity		1,400,888		1,323,827		1,269,650

Total Liabilities and Stockholders’ Equity	$	3,424,372	$	3,113,859	$	3,334,893

BEACON ROOFING SUPPLY, INC.

Consolidated Statements of Cash Flows

(In thousands)


	Nine Months Ended June 30,
	2017		2016
Operating activities:
Net income	$	55,733	$	42,525
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		86,238		73,027
Stock-based compensation		11,227		14,070
Certain interest expense and other financing costs		3,989		5,113
Gain on sale of fixed assets		(726)		(838)
Deferred income taxes		6,625		1,460
Other, net		-		(359)
Changes in operating assets and liabilities, net of the effects of businesses acquired:
Accounts receivable		(28,309)		(43,060)
Inventories		(141,942)		(96,363)
Prepaid expenses and other assets		(55,973)		(56,764)
Accounts payable and accrued expenses		137,290		135,548

Net cash provided by operating activities		74,152		74,359


Investing activities:
Purchases of property and equipment		(31,882)		(21,553)
Acquisition of businesses		(128,533)		(1,018,658)
Proceeds from sales of assets		1,839		969

Net cash used in investing activities		(158,576)		(1,039,242)


Financing activities:
Borrowings under revolving lines of credit, net of repayments		88,357		403,052
Borrowings under term loan, net of repayments		(3,375)		261,000
Borrowings under Senior Notes		-		300,000
Borrowings under equipment financing facilities and other, net of repayments		(7,759)		(3,847)
Payment of deferred financing costs		-		(27,813)
Proceeds from exercise of options		9,994		20,213
Taxes paid related to net share settlement of equity awards		(1,172)		-
Excess tax benefit from stock-based compensation		-		4,024

Net cash provided by financing activities		86,045		956,629


Effect of exchange rate changes on cash		48		(871)

Net increase (decrease) in cash and cash equivalents		1,669		(9,125)
Cash and cash equivalents, beginning of period		31,386		45,661

Cash and cash equivalents, end of period	$	33,055	$	36,536

BEACON ROOFING SUPPLY, INC.

Consolidated Sales by Product Line

(Dollars in thousands)


Consolidated Sales by Product Line
	Three Months Ended June 30,
	2017				2016				Change
	Net Sales		Mix %		Net Sales		Mix %		$		%
Residential roofing products	$	669,437		55.1%	$	618,365		53.6%	$	51,072		8.3%
Non-residential roofing products		344,792		28.4%		361,790		31.4%		(16,998)		-4.7%
Complementary building products		199,665		16.5%		172,571		15.0%		27,094		15.7%

	$	1,213,894		100.0%	$	1,152,726		100.0%	$	61,168		5.3%


Consolidated Sales by Product Line for Existing Markets¹
	Three Months Ended June 30,
	2017				2016				Change
	Net Sales		Mix %		Net Sales		Mix %		$		%
Residential roofing products	$	651,648		56.0%	$	617,873		54.2%	$	33,775		5.5%
Non-residential roofing products		340,245		29.2%		359,440		31.6%		(19,195)		-5.3%
Complementary building products		172,070		14.8%		161,827		14.2%		10,243		6.3%

	$	1,163,963		100.0%	$	1,139,140		100.0%	$	24,823		2.2%


Existing Market¹ Sales By Business Day²
	Three Months Ended June 30,
	2017				2016				Change
	Net Sales		Mix %		Net Sales		Mix %		$		%
Residential roofing products	$	10,182		56.0%	$	9,654		54.2%	$	528		5.5%
Non-residential roofing products		5,316		29.2%		5,616		31.6%		(300)		-5.3%
Complementary building products		2,689		14.8%		2,529		14.2%		160		6.3%

	$	18,187		100.0%	$	17,799		100.0%	$	388		2.2%

¹	Excludes acquired branches that have not been under ownership for at least four fiscal quarters prior to the start of the third quarter of fiscal year 2017.

²	There were 64 business days in each of the quarters ended June 30, 2017 and 2016.

BEACON ROOFING SUPPLY, INC.

Consolidated Sales by Product Line

(Dollars in thousands)


Consolidated Sales by Product Line
	Nine Months Ended June 30,
	2017				2016				Change
	Net Sales		Mix %		Net Sales		Mix %		$		%
Residential roofing products	$	1,682,387		54.5%	$	1,554,717		52.6%	$	127,670		8.2%
Non-residential roofing products		900,689		29.2%		979,580		33.2%		(78,891)		-8.1%
Complementary building products		503,726		16.3%		418,446		14.2%		85,280		20.4%

	$	3,086,802		100.0%	$	2,952,743		100.0%	$	134,059		4.5%


Consolidated Sales by Product Line for Existing Markets¹
	Nine Months Ended June 30,
	2017				2016				Change
	Net Sales		Mix %		Net Sales		Mix %		$		%
Residential roofing products	$	1,621,546		55.9%	$	1,533,170		53.2%	$	88,376		5.8%
Non-residential roofing products		889,264		30.7%		971,938		33.8%		(82,674)		-8.5%
Complementary building products		388,932		13.4%		372,895		13.0%		16,037		4.3%

	$	2,899,742		100.0%	$	2,878,003		100.0%	$	21,739		0.8%


Existing Market¹ Sales By Business Day²
	Nine Months Ended June 30,
	2017				2016				Change
	Net Sales		Mix %		Net Sales		Mix %		$		%
Residential roofing products	$	8,580		55.9%	$	8,069		53.2%	$	511		6.3%
Non-residential roofing products		4,705		30.7%		5,115		33.8%		(410)		-8.0%
Complementary building products		2,058		13.4%		1,963		13.0%		95		4.8%

	$	15,343		100.0%	$	15,147		100.0%	$	196		1.3%

¹	Excludes acquired branches that have not been under ownership for at least four fiscal quarters prior to the start of fiscal year 2017.

²	There were 189 and 190 business days for the nine months ended June 30, 2017 and 2016, respectively.

BEACON ROOFING SUPPLY, INC.

Adjusted Net Income (Loss) and Adjusted EPS¹

(In thousands except per share amounts)


	Three Months Ended June 30,								Nine Months Ended June 30,
	2017				2016				2017				2016
	Amount		Per Share		Amount		Per Share		Amount		Per Share		Amount		Per Share
Net income	$	44,659	$	0.73	$	41,126	$	0.68	$	55,733	$	0.91	$	42,525	$	0.71
Company adjustments, net of income taxes:
Acquisition costs²		6,761		0.11		5,444		0.09		20,075		0.33		30,405		0.50

Adjusted Net Income (Loss)	$	51,420	$	0.84	$	46,570	$	0.77	$	75,808	$	1.24	$	72,930	$	1.21

Adjusted Net Income (Loss) is defined as net income excluding non-recurring costs and the incremental amortization of intangibles related to acquisitions completed in fiscal years 2016 and 2017. We believe that Adjusted Net Income (Loss) is an operating performance metric that is useful to investors because it permits investors to better understand year-over-year changes in underlying operating performance. Adjusted net income per share or “Adjusted EPS” is calculated by dividing the Adjusted Net Income (Loss) for the period by the weighted-average diluted shares outstanding for the period (see Consolidated Statements of Operations for amounts).

Acquisition costs reflect total non-recurring charges and the incremental amortization of intangibles related to acquisitions completed in fiscal years 2016 and 2017, net of $4.2 million and $2.9 million in tax for the three months ended June 30, 2017 and 2016, respectively and net of $12.6 million and $19.8 million in tax for the nine months ended June 30, 2017 and 2016, respectively.

While we believe Adjusted Net Income (Loss) and Adjusted EPS are useful measures for investors, these are not measurements presented in accordance with United States Generally Accepted Accounting Principles (“GAAP”). You should not consider Adjusted Net Income (Loss) or Adjusted EPS in isolation or as a substitute for net income and net income per share or diluted earnings per share calculated in accordance with GAAP.

BEACON ROOFING SUPPLY, INC.

Adjusted EBITDA¹

(In thousands)


	Three Months Ended June 30,				Nine Months Ended June 30,
	2017		2016		2017		2016
Net income	$	44,659	$	41,126	$	55,733	$	42,525

Acquisition costs²		1,971		2,157		4,715		23,310
Interest expense, net		13,614		12,508		40,098		41,836
Income taxes		26,815		25,027		33,800		25,073
Depreciation and amortization		29,283		25,375		86,238		73,019
Stock-based compensation		3,653		3,374		11,227		14,070

Adjusted EBITDA	$	119,995	$	109,567	$	231,811	$	219,833


Adjusted EBITDA as a % of net sales		9.9%		9.5%		7.5%		7.4%

Adjusted EBITDA is defined as net income plus interest expense (net of interest income), income taxes, depreciation and amortization, adjustments to contingent consideration, stock-based compensation, and non-recurring acquisition costs from acquisitions completed in fiscal years 2016 and 2017. EBITDA is a measure commonly used in the distribution industry, and we present Adjusted EBITDA to enhance your understanding of our operating performance. Adjusted EBITDA is used in our bank covenants and we use Adjusted EBITDA as an internal performance measurement and as one criterion for evaluating our performance relative to that of our peers. We believe that Adjusted EBITDA is an operating performance measure that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets among otherwise comparable companies. Further, we believe that Adjusted EBITDA is a useful measure because it improves comparability of results of operations, since purchase accounting used for acquisitions can render depreciation and amortization non-comparable between periods. We use these supplemental measures to evaluate performance period over period and to analyze the underlying trends in our business and establish operational goals and forecasts that are used in allocating resources. We expect to compute our non-GAAP financial measures using the same consistent method from quarter-to-quarter and year-to-year.

Acquisition costs reflect all non-recurring charges related to acquisitions completed in fiscal years 2016 and 2017 (excluding the impact of tax) that are not embedded in other balances of the table. Certain portions of the total acquisition costs incurred are included in interest expense, income taxes, depreciation and amortization, and stock-based compensation.

While we believe Adjusted EBITDA is a useful measure for investors, it is not a measurement presented in accordance with GAAP. You should not consider Adjusted EBITDA in isolation or as a substitute for net income, cash flows from operations, or any other items calculated in accordance with GAAP. In addition, Adjusted EBITDA has inherent material limitations as a performance measure. It does not include interest expense. Because we have borrowed money, interest expense is a necessary element of our costs. In addition, Adjusted EBITDA does not include depreciation and amortization expense. Because we have capital and intangible assets, depreciation and amortization expense is a necessary element of our costs. Adjusted EBITDA also does not include stock-based compensation, which is a necessary element of our costs since we make stock awards to key members of management as an important incentive to maximize overall company performance and as a benefit. Moreover, Adjusted EBITDA does not include taxes, and payment of taxes is a necessary element of our operations. Accordingly, since Adjusted EBITDA excludes these items, it has material limitations as a performance measure. We separately monitor capital expenditures, which impact depreciation expense, as well as amortization expense, interest expense, stock-based compensation expense, and income tax expense. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

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