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Beacon Roofing Supply Reports Third Quarter 2016 Results

August 2, 2016 4:16 PM

HERNDON, Va.--(BUSINESS WIRE)-- Beacon Roofing Supply, Inc. (NASDAQ: BECN) announced results today for its third quarter ended June 30, 2016 and nine months ended June 30, 2016 of the fiscal year ending September 30, 2016 ("Fiscal 2016").

Paul Isabella, the Company’s President and Chief Executive Officer, stated: “I am excited to announce another record breaking quarter and continued strong results for the year. In the third quarter Beacon achieved a milestone with our first ever billion dollar quarter. Sales grew over 60 percent in the quarter, mainly from the RSG and the seven additional acquisitions made this year. Organic sales grew 8.7 percent in the quarter, driven by our greenfield investments over the last four years and the increased storm activity in the Dallas metropolitan area. Aided by the continued shift to more residential sales, our gross margin grew to 24.5 percent of sales, up 90 basis points over the prior year and 70 basis points over the second quarter. We are continuing to see margin and operating expense benefit from the RSG synergies. Our balance sheet remains strong as our net debt leverage ratio remained at 3.6 times during our seasonal working capital peak. I am also pleased with the management of inventory at our branches as inventory turns have increased to 4.8 times vs. 4.3 times in the prior year. Adjusted EPS of $0.77 is another record and represents over 35 percent growth from the prior year. We continued our acquisition strategy by closing on four deals in the quarter and our pipeline remains robust. In order to finish our year strong we will continue executing on the core deliverables of customer service excellence, strategic growth and superior financial results.”

Third Quarter

Total sales increased 60.5% to a third quarter record of $1.15 billion in Fiscal 2016, from $718.2 million in 2015. Residential roofing product sales increased 73.0%, non-residential roofing product sales increased 43.9%, and complementary product sales increased 57.8% over the prior year. Existing market sales, excluding acquisitions, increased 8.7% for the quarter. The third quarter of Fiscal 2016 and 2015 each had 64 business days.

Net income for the third quarter was $41.1 million, compared to $28.3 million in 2015. Third quarter EPS was $0.68, compared to $0.56 in 2015. Adjusted Net Income, after removing the impact of non-recurring RSG acquisition-related costs and other current year acquisition costs, was $46.6 million in the third quarter 2016, with Adjusted EPS of $0.77 (see included financial tables for a definition and reconciliation of “Adjusted”). Net income for the quarter was favorably impacted by higher volumes and gross margins which improved by 90 basis points over the prior year. This was offset by increased operating expenses driven by the incremental costs associated with the RSG acquisition made this fiscal year.

Nine Months

Total sales increased 70.9% to a nine month record of $2.95 billion in Fiscal 2016, from $1.73 billion in 2015. Residential roofing product sales increased 83.4%, non-residential roofing product sales increased 61.0%, and complementary product sales increased 54.7% over the prior year. Existing market sales, excluding acquisitions, increased 13.9% year to date. The nine months of Fiscal 2016 and 2015 had 190 and 189 business days, respectively.

Net income for the nine months was $42.5 million, compared to $31.5 million in 2015. The nine month EPS was $0.71, compared to $0.63 in 2015. Adjusted Net Income, after removing the impact of non-recurring RSG acquisition-related costs and other current year acquisition costs, was $72.9 million year to date, with Adjusted EPS of $1.21 (see included financial tables for a definition and reconciliation of “Adjusted”). Net income for the nine months was favorably impacted by warmer weather in our second quarter and higher volume and gross margins which improved by 70 basis points over the prior year. This was offset by increased operating expenses driven by the incremental costs associated with the RSG acquisition made this fiscal year.

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

What: Beacon Roofing Supply Third Quarter 2016 Earnings Results Webcast and Conference Call
When: Tuesday, August 2, 2016
Time: 5:00 p.m. EST
Webcast:

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

Live Call: 720-634-9063

To assure timely access, conference call participants should call in prior to the 5:00pm 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 369 branches throughout 46 states in the U.S. and six 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

Consolidated Statements of Operations
(Unaudited; In thousands, except share and per share amounts)
Three Months Ended June 30, Nine Months Ended June 30,

20161

% of Net Sales

2015

% of Net Sales

20161

% of Net Sales

2015

% of Net Sales

Net sales $ 1,152,726 100.0 % $ 718,214 100.0 % $ 2,952,743 100.0 % $ 1,727,440 100.0 %
Cost of products sold 870,651 75.5 % 548,778 76.4 % 2,241,716 75.9 % 1,323,666 76.6 %
Gross profit 282,075 24.5 % 169,436 23.6 % 711,027 24.1 % 403,774 23.4 %
Operating expense 203,696 17.7 % 121,445 16.9 % 601,921 20.4 % 345,852 20.0 %
Income from operations 78,379 6.8 % 47,991 6.7 % 109,106 3.7 % 57,922 3.4 %
Interest expense, financing costs and other 12,226 1.1 % 2,494 0.3 % 41,508 1.4 % 7,988 0.5 %
Income before provision for income taxes 66,153 5.7 % 45,497 6.4 % 67,598 2.3 % 49,934 2.9 %
Provision for income taxes 25,027 2.2 % 17,148 2.4 % 25,073 0.8 % 18,464 1.1 %
Net income $ 41,126 3.5 % $ 28,349 4.0 % $ 42,525 1.5 % $ 31,470 1.8 %
Weighted-average common stock outstanding:
Basic 59,615,121 49,638,251 59,293,500 49,526,436
Diluted 60,619,809 50,199,126 60,276,695 50,089,987
Net income per share:
Basic $ 0.69 $ 0.57 $ 0.72 $ 0.64
Diluted $ 0.68 $ 0.56 $ 0.71 $ 0.63

(1) The third quarter 2016 Consolidated Statements of Operations includes $2.2 million ($1.6 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 the RSG acquisition and all other acquisitions made in Fiscal 2016. For the nine months ended June 30, 2016 Consolidated Statement of Operations includes $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 the RSG acquisition and all other Fiscal 2016 acquisitions. See “Adjusted Net Income and Adjusted EPS” table for further details.

BEACON ROOFING SUPPLY, INC
Consolidated Balance Sheets
(In thousands)

June 30,2016

September 30,2015

June 30,2015

Assets (unaudited) (audited) (unaudited)
Current assets
Cash and cash equivalents $ 36,536 $ 45,661 $ 17,594
Accounts receivable, net 640,101 399,732 389,499
Inventories 620,908 320,999 386,812
Prepaid expenses and other current assets 205,073 97,928 99,505
Total current assets 1,502,618 864,320 893,410
Property and equipment, net 153,389 90,405 88,868
Goodwill 1,200,206 496,415 498,499
Intangible assets, net 477,250 87,055 91,419
Other assets, net 1,430 1,233 1,233
Total Assets $ 3,334,893 $ 1,539,428 $ 1,573,429
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 563,332 $ 244,891 $ 257,656
Accrued expenses 205,412 124,794 105,756
Borrowings under revolver lines of credit - 11,240 74,110
Current portion of long-term obligations 12,605 16,320 16,474
Total current liabilities 781,349 397,245 453,996
Borrowings under revolving lines of credit 416,207 - -
Long-term debt, net of current 721,630 170,200 175,278
Deferred income taxes 106,337 66,500 68,099
Long-term obligations under equipment financing and other, net of current 39,720 22,367 23,602
Total liabilities 2,065,243 656,312 720,975
Commitments and contingencies
Stockholders' equity:
Common stock 597 497 496
Undesignated preferred stock - - -
Additional paid-in capital 686,943 345,934 340,468
Retained earnings 599,930 557,405 526,598
Accumulated other comprehensive loss (17,820 ) (20,720 ) (15,108 )
Total stockholders' equity 1,269,650 883,116 852,454
Total Liabilities and Stockholders' Equity $ 3,334,893 $ 1,539,428 $ 1,573,429
BEACON ROOFING SUPPLY, INC
Consolidated Statements of Cash Flows
(Unaudited; In thousands)
Nine Months Ended June 30,
2016 2015
Operating activities:
Net income $ 42,525 $ 31,470
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 73,027 25,920
Stock-based compensation 14,070 7,305
Certain interest expense and other financing costs 5,113 814
Gain on sale of fixed assets (838 ) (609 )
Deferred income taxes 1,460 (589 )
Adjustment of liability for contingent consideration and other (359 ) 286
Changes in assets and liabilities, net of the effects of
businesses acquired:
Accounts receivable (43,060 ) (20,581 )
Inventories (96,363 ) (73,717 )
Prepaid expenses and other assets (56,764 ) (7,168 )
Accounts payable and accrued expenses 135,548 48,091
Net cash provided by operating activities 74,359 11,222
Investing activities:
Purchases of property and equipment (21,553 ) (13,787 )
Acquisition of businesses (1,018,658 ) (85,301 )
Proceeds from sales of assets 969 804
Net cash used in investing activities (1,039,242 ) (98,284 )
Financing activities:
Borrowings under revolving lines of credit, net of repayments 403,052 56,778
Borrowings under term loan, net of repayments 261,000 (8,438 )
Borrowings under Senior Notes 300,000 -
Repayments under equipment financing facilities and other (3,847 ) (4,114 )
Payment of deferred financing costs (27,813 ) -
Proceeds from exercise of options 20,213 5,107
Excess tax benefit from stock-based compensation 4,024 1,245
Net cash provided by financing activities 956,629 50,578
Effect of exchange rate changes on cash (871 ) (394 )
Net decrease in cash and cash equivalents (9,125 ) (36,878 )
Cash and cash equivalents, beginning of period 45,661 54,472
Cash and cash equivalents, end of period $ 36,536 $ 17,594
BEACON ROOFING SUPPLY, INC
Consolidated Sales by Product Line
(Unaudited; Dollars in thousands)
Consolidated Sales by Product Line
Three Months Ended June 30,
2016 2015 Change
Net Sales Mix % Net Sales Mix % $ %
Residential roofing products $ 621,742 53.9 % $ 359,455 50.0 % $ 262,287 73.0 %
Non-residential roofing products 363,675 31.5 % 252,718 35.2 % 110,957 43.9 %
Complementary building products 167,309 14.6 % 106,041 14.8 % 61,268 57.8 %
$ 1,152,726 100.0 % $ 718,214 100.0 % $ 434,512 60.5 %
Consolidated Sales by Product Line for Existing Markets1
Three Months Ended June 30,
2016 2015 Change
Net Sales Mix % Net Sales Mix % $ %
Residential roofing products $ 379,987 52.4 % $ 335,713 50.3 % $ 44,274 13.2 %
Non-residential roofing products 236,984 32.7 % 229,982 34.5 % 7,002 3.0 %
Complementary building products 108,242 14.9 % 101,235 15.2 % 7,007 6.9 %
$ 725,213 100.0 % $ 666,930 100.0 % $ 58,283 8.7 %
Existing Market Sales By Business Day2
Three Months Ended June 30,
2016 2015 Change
Net Sales Mix % Net Sales Mix % $ %
Residential roofing products $ 5,937 52.4 % $ 5,246 50.3 % $ 691 13.2 %
Non-residential roofing products 3,703 32.7 % 3,593 34.5 % 110 3.0 %
Complementary building products 1,691 14.9 % 1,582 15.2 % 109 6.9 %
$ 11,331 100.0 % $ 10,421 100.0 % $ 910 8.7 %

(1) Excludes branches acquired during the four quarters prior to the start of the third quarter of Fiscal 2016

(2) There were 64 business days in the quarters ended June 30, 2016 and 2015, respectively

BEACON ROOFING SUPPLY, INC
Consolidated Sales by Product Line
(Unaudited; Dollars in thousands)
Consolidated Sales by Product Line
Nine Months Ended June 30,
2016 2015 Change
Net Sales Mix % Net Sales Mix % $ %
Residential roofing products $ 1,547,483 52.4 % $ 843,805 48.8 % $ 703,678 83.4 %
Non-residential roofing products 980,910 33.2 % 609,379 35.3 % 371,531 61.0 %
Complementary building products 424,350 14.4 % 274,256 15.9 % 150,094 54.7 %
$ 2,952,743 100.0 % $ 1,727,440 100.0 % $ 1,225,303 70.9 %
Consolidated Sales by Product Line for Existing Markets1
Nine Months Ended June 30,
2016 2015 Change
Net Sales Mix % Net Sales Mix % $ %
Residential roofing products $ 909,287 50.3 % $ 772,425 48.6 % $ 136,862 17.7 %
Non-residential roofing products 607,933 33.6 % 552,462 34.8 % 55,471 10.0 %
Complementary building products 291,555 16.1 % 263,225 16.6 % 28,330 10.8 %
$ 1,808,775 100.0 % $ 1,588,112 100.0 % $ 220,663 13.9 %
Existing Market Sales By Business Day2
Nine Months Ended June 30,
2016 2015 Change
Net Sales Mix % Net Sales Mix % $ %
Residential roofing products $ 4,786 50.3 % $ 4,087 48.6 % $ 699 17.1 %
Non-residential roofing products 3,200 33.6 % 2,923 34.8 % 277 9.5 %
Complementary building products 1,535 16.1 % 1,393 16.6 % 142 10.2 %
$ 9,521 100.0 % $ 8,403 100.0 % $ 1,118 13.3 %

(1) Excludes branches acquired during the four quarters prior to the start Fiscal 2016

(2) There were 190 and 189 business days for the nine months ended June 30, 2016 and 2015, respectively

BEACON ROOFING SUPPLY, INC
Adjusted Net Income1 and Adjusted EPS2
(Unaudited; In thousands except per share amounts)
Three Months Ended June 30, Nine Months Ended June 30,
2016 2015 2016 2015

Amount

Per

Share

Amount Per

Share

Amount Per

Share

Amount Per

Share

Net income $ 41,126 $ 0.68 $ 28,349 $ 0.56 $ 42,525 $ 0.71 $ 31,470 $ 0.63
Company adjustments, net of income taxes:
Acquisition costs3 5,444 0.09 - - 30,405 0.50 - -
Adjusted Net Income $ 46,570 $ 0.77 $ 28,349 $ 0.56 $ 72,930 $ 1.21 $ 31,470 $ 0.63

(1) The Company’s management believes that “Adjusted Net Income”, which excludes non-recurring costs related to the RSG acquisition and the other acquisitions made in Fiscal 2016, and incremental amortization of acquired intangibles, is useful to investors because it permits investors to better understand year-over-year changes in underlying operating performance.

(2) Adjusted Net Income Per Share (“Adjusted Earnings Per Share” or “Adjusted EPS”) is calculated by dividing the Adjusted Net Income for the period by the weighted-average diluted shares outstanding for the period (see “Consolidated Statements of Operations” for amounts).

(3) Acquisition costs in fiscal year 2015 were immaterial

While we believe Adjusted Net Income 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 or Adjusted EPS in isolation or as a substitute for net income (loss) or diluted net income per share calculated in accordance with GAAP.

BEACON ROOFING SUPPLY, INC
Adjusted EBITDA1
(Unaudited; In thousands)
Three Months Ended June 30, Nine Months Ended June 30,
2016 2015 2016 2015
Net Income $ 41,126 $ 28,349 $ 42,525 $ 31,470
Acquisition costs2 2,157 - 23,310 -
Interest expense, net 12,508 2,476 41,836 7,760
Income taxes 25,027 17,148 25,073 18,464
Depreciation and amortization 25,375 9,490 73,019 25,920
Stock-based compensation 3,374 2,561 14,070 7,305
Adjusted EBITDA $ 109,567 $ 60,024 $ 219,833 $ 90,919

(1) 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 RSG and other Fiscal 2016 non-recurring acquisitions costs. 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 the Company’s business and to 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.

(2) RSG and other Fiscal 2016 acquisition costs reflect all non-recurring charges related to the acquisition (excluding the impact of tax) that are not embedded in other balances of the table. Additional RSG and other Fiscal 2016 acquisition costs are included in interest expense, income taxes, depreciation and amortization, and stock-based compensation in the table above. Acquisition costs in fiscal year 2015 were immaterial.

While we believe Adjusted EBITDA is a useful measure for investors, it is not a measurement presented in accordance 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, 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.

Beacon Roofing Supply, Inc.

Joseph Nowicki, 571-323-3940

Executive VP & CFO

[email protected]

Source: Beacon Roofing Supply, Inc.

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