Beacon Roofing Supply Reports Third Quarter 2019 Results

Beacon Roofing Supply, Inc. (Nasdaq: BECN) (“Beacon” or the “Company”) announced results today for its third quarter and nine-month period ended June 30, 2019 (“2019”).

Paul Isabella, the Company's President and Chief Executive Officer, stated: “Although our fiscal third quarter results fell short of expectations, there were several positives supporting optimism for the fourth quarter and fiscal year 2020. Most notably, we saw a 3% organic sales increase within our residential product line, our 2nd consecutive quarter of positive growth. In addition, we reduced our debt and our digital platform performance was exceptional; Beacon Pro+ is unquestionably continuing to evolve as a differentiator in the marketplace. July results also were favorable on a daily sales basis, suggesting underlying demand remains healthy. Overall, third quarter results were hampered by persistent weather challenges, resulting primarily from 25-30% more rain days compared to the prior year. This translates into approximately $85 million of sales and 20 cents of Adjusted EPS impact, affecting both gross margins and operating expense leverage. To further right size our fixed cost structure, we have taken specific company-wide actions that will generate annualized savings of approximately $25 million. These efforts will result in greater operating leverage when volumes increase, as expected in Q4 and next year. Beacon will remain focused on our growth initiatives and cost reduction in order to maximize performance for our shareholders.”

Third Quarter

Net sales decreased 0.5% to $1.92 billion in 2019, from $1.93 billion in 2018. Residential roofing product sales increased 2.9%, non-residential roofing product sales decreased 2.4% and complementary product sales decreased 3.6% over the prior year. Existing markets net sales decreased 1.1% compared to the prior year period, primarily due to higher rainfall levels across the U.S. in the current period, which negatively impacted contractor installations. The third quarter of fiscal years 2019 and 2018 each had 64 business days.

Net income (loss) attributable to common shareholders was $25.0 million, compared to $43.4 million in 2018. Diluted net income (loss) per share (“EPS”) was $0.32, compared to $0.55 in 2018. Third quarter results were negatively impacted by reduced gross margins and higher operating costs. The Company implemented actions at the end of the quarter to significantly reduce its cost structure to align with its long-term goals.

Adjusted Net Income (Loss) was $72.6 million, compared to $93.4 million in 2018. Adjusted EPS was $0.92, compared to $1.18 in 2018. Adjusted EBITDA was $157.8 million, compared to $187.7 million in 2018. (Please see the included financial tables for a reconciliation of “Adjusted” financial measures to the most directly comparable GAAP financial measures as well as further detail on the components driving the net changes over the comparative periods.)

Nine Months

Net sales increased 13.2% to $5.08 billion, up from $4.48 billion in the comparative 2018 period. Residential roofing product sales increased 8.7%, non-residential roofing product sales increased 4.8% and complementary product sales increased 27.1% over the prior year. Existing markets net sales increased 0.9% compared to the prior year period, primarily due to sales gains in our Northeast and Mid-Atlantic markets. The first nine months of fiscal years 2019 and 2018 each had 189 business days.

Net income (loss) attributable to common shareholders was $(56.0) million, compared to $38.3 million in 2018. EPS was $(0.82), compared to $0.51 in 2018. The nine-month results were negatively impacted by higher operating costs and increases in interest expense and preferred dividend payments that were both related to the acquisition of Allied. In addition, 2018 results include a $49.2 million net tax benefit resulting from the enactment of the Tax Cuts and Jobs Act of 2017. The nine-month results were positively impacted by price gains across all product lines.

Adjusted Net Income (Loss) was $94.2 million, compared to $122.6 million in 2018. Adjusted EPS was $1.21, compared to $1.62 in 2018. Adjusted EBITDA was $307.0 million, compared to $305.3 million in 2018. (Please see the included financial tables for a reconciliation of “Adjusted” financial measures to the most directly comparable GAAP financial measures as well as further detail on the components driving the net changes over the comparative periods).

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 2019 Earnings Conference Call
				When			Tuesday, August 6, 2019
				Time:			5:00 p.m. ET
				Webcast:			http://ir.beaconroofingsupply.com/events.cfm (live and replay)
				Live Call:			720-634-9063; Conf. ID #2640209

To assure timely access, conference call participants should dial in prior to the 5:00 p.m. ET 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 is the largest publicly traded distributor of residential and commercial roofing materials and complementary building products in North America, operating over 500 branches throughout all 50 states in the U.S. and 6 provinces in Canada. Beacon serves an extensive base of over 100,000 customers, utilizing its vast branch network and diverse service offerings to provide high-quality products and support throughout the entire business lifecycle. Beacon also offers its own private label brand, TRI-BUILT, and has a proprietary digital account management suite, Beacon Pro+, which allows customers to manage their businesses online. A Fortune 500 company, Beacon’s stock is traded on the Nasdaq Global Select Market under the ticker symbol BECN. To learn more about Beacon and its brands, please visit www.becn.com.

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,
	2019				% of Net Sales				2018				% of Net Sales				2019				% of Net Sales				2018				% of Net Sales
Net sales	$	1,924,534				100.0	%		$	1,934,951				100.0	%		$	5,075,247				100.0	%		$	4,482,555				100.0	%
Cost of products sold		1,451,998				75.4	%			1,441,057				74.5	%			3,832,154				75.5	%			3,380,531				75.4	%
Gross profit		472,536				24.6	%			493,894				25.5	%			1,243,093				24.5	%			1,102,024				24.6	%
Operating expense1:
Selling, general and administrative		328,827				17.1	%			323,194				16.7	%			976,928				19.3	%			858,534				19.2	%
Depreciation		17,731				0.9	%			15,811				0.8	%			52,779				1.0	%			41,640				0.9	%
Amortization		51,724				2.7	%			50,076				2.6	%			155,508				3.1	%			105,339				2.3	%
Total operating expense		398,282				20.7	%			389,081				20.1	%			1,185,215				23.4	%			1,005,513				22.4	%
Income (loss) from operations		74,254				3.9	%			104,813				5.4	%			57,878				1.1	%			96,511				2.2	%
Interest expense, financing costs, and other2		38,089				2.0	%			37,348				1.9	%			116,902				2.3	%			99,486				2.2	%
Income (loss) before provision for income taxes		36,165				1.9	%			67,465				3.5	%			(59,024	)			(1.2	%)			(2,975	)			0.0	%
Provision for (benefit from) income taxes		5,178				0.3	%			18,090				0.9	%			(21,032	)			(0.5	%)			(53,291	)			(1.1	%)
Net income (loss)		30,987				1.6	%			49,375				2.6	%			(37,992	)			(0.7	%)			50,316				1.1	%
Dividends on preferred shares3		6,000				0.3	%			6,000				0.4	%			18,000				0.4	%			12,000				0.2	%
Net income (loss) attributable to common shareholders	$	24,987				1.3	%		$	43,375				2.2	%		$	(55,992	)			(1.1	%)		$	38,316				0.9	%
Weighted-average common stock outstanding:
Basic		68,477,946								68,086,387								68,391,882								67,976,980
Diluted		69,265,384								69,148,143								68,391,882								69,240,040
Net income (loss) per share4:
Basic	$	0.32							$	0.56							$	(0.82	)						$	0.52
Diluted	$	0.32							$	0.55							$	(0.82	)						$	0.51

______________________________________________
1		Operating expense for the three months ended June 30, 2019 and 2018 includes acquisition and business restructuring costs of $7.4 million ($4.9 million, net of taxes) and $10.0 million ($7.1 million, net of taxes), respectively. Operating expense for the nine months ended June 30, 2019 and 2018 includes acquisition and business restructuring costs of $23.0 million ($16.3 million, net of taxes) and $43.8 million ($31.0 million, net of taxes), respectively.
2		Interest expense, financing costs, and other for the three months ended June 30, 2019 and 2018 includes acquisition costs of $3.0 million ($2.0 million, net of taxes) and $3.5 million ($2.5 million, net of taxes), respectively. Interest expense, financing costs, and other for the nine months ended June 30, 2019 and 2018 includes acquisition costs of $9.1 million ($6.4 million, net of taxes) and $22.1 million ($15.7 million, net of taxes), respectively.
3		Three months ended June 30, 2019 amount is composed of $5.0 million in undeclared cumulative Preferred Stock dividends, as well as an additional $1.0 million of Preferred Stock dividends that had been declared and paid as of period end. Three months ended June 30, 2018 amount is composed of $6.0 million in undeclared cumulative Preferred Stock dividends. Nine months ended June 30, 2019 amount is composed of $5.0 million in undeclared cumulative Preferred Stock dividends, as well as an additional $13.0 million of Preferred Stock dividends that had been declared and paid as of period end. Nine months ended June 30, 2018 amount is composed of $6.0 million in undeclared cumulative Preferred Stock dividends, as well as an additional $6.0 million of Preferred Stock dividends that had been declared and paid as of period end.
4		Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period, without consideration for common share equivalents or the conversion of Preferred Stock. Common share equivalents consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock unit awards. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to common shareholders by the fully diluted weighted-average number of common shares outstanding during the period. The following table presents the components and calculations of basic and diluted net income (loss) per share for each period presented (in thousands, except share and per share amounts):

		Three Months Ended June 30,								Nine Months Ended June 30,
		2019				2018				2019				2018
Net income (loss)		$	30,987			$	49,375			$	(37,992	)		$	50,316
Dividends on preferred shares			6,000				6,000				18,000				12,000
Net income (loss) attributable to common shareholders		$	24,987			$	43,375			$	(55,992	)		$	38,316
Undistributed income allocated to participating securities			(3,099	)			(5,406	)			-				(3,293	)
Net income (loss) attributable to common shareholders - basic and diluted		$	21,888			$	37,969			$	(55,992	)		$	35,023
Weighted-average common shares outstanding - basic			68,477,946				68,086,387				68,391,882				67,976,980
Effect of common share equivalents			787,438				1,061,756				-				1,263,060
Weighted-average common shares outstanding - diluted			69,265,384				69,148,143				68,391,882				69,240,040
Net income (loss) per share - basic		$	0.32			$	0.56			$	(0.82	)		$	0.52
Net income (loss) per share - diluted		$	0.32			$	0.55			$	(0.82	)		$	0.51

BEACON ROOFING SUPPLY, INC.
Consolidated Balance Sheets
(Unaudited; In thousands)
		June 30,				September 30,				June 30,
		2019				2018				2018
Assets
Current assets:
Cash and cash equivalents		$	27,729			$	129,927			$	27,551
Accounts receivable, net			1,079,091				1,090,533				1,077,888
Inventories, net			1,124,063				936,047				1,165,389
Prepaid expenses and other current assets			361,831				244,360				337,589
Total current assets			2,592,714				2,400,867				2,608,417
Property and equipment, net			269,041				280,407				288,708
Goodwill			2,490,940				2,491,779				2,321,180
Intangibles, net			1,177,694				1,334,366				1,371,005
Other assets, net			1,243				1,243				1,511
Total assets		$	6,531,632			$	6,508,662			$	6,590,821
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	643,411			$	880,872			$	719,686
Accrued expenses			590,756				611,539				520,952
Current portions of long-term debt/obligations			19,366				19,661				19,714
Total current liabilities			1,253,533				1,512,072				1,260,352
Borrowings under revolving lines of credit, net			424,011				92,442				482,489
Long-term debt, net			2,494,648				2,494,725				2,494,308
Deferred income taxes, net			110,180				106,994				93,928
Long-term obligations under equipment financing and other, net			6,332				13,639				15,979
Other long-term liabilities			5,352				5,290				6,319
Total liabilities			4,294,056				4,225,162				4,353,375
Convertible preferred stock			399,195				399,195				399,195
Stockholders' equity:
Common stock			684				681				681
Undesignated preferred stock			-				-				-
Additional paid-in capital			1,077,953				1,067,040				1,063,137
Retained earnings			777,842				833,834				792,502
Accumulated other comprehensive income (loss)			(18,098	)			(17,250	)			(18,069	)
Total stockholders' equity			1,838,381				1,884,305				1,838,251
Total liabilities and stockholders' equity		$	6,531,632			$	6,508,662			$	6,590,821

BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Cash Flows
(Unaudited; In thousands)
		Nine Months Ended June 30,
		2019				2018
Operating Activities
Net income (loss)		$	(37,992	)		$	50,316
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			208,287				146,979
Stock-based compensation			12,901				13,133
Certain interest expense and other financing costs			9,077				11,549
Beneficial lease amortization			1,714				-
Loss on debt extinguishment			-				1,726
Gain on sale of fixed assets			(3,470	)			(1,131	)
Deferred income taxes			3,195				(48,855	)
Changes in operating assets and liabilities, net of the effects of businesses acquired in the period:
Accounts receivable			10,970				(52,024	)
Inventories			(188,213	)			(299,881	)
Prepaid expenses and other assets			(117,520	)			(19,511	)
Accounts payable and accrued expenses			(93,908	)			195,948
Other liabilities			62				732
Net cash provided by (used in) operating activities			(194,897	)			(1,019	)
Investing Activities
Purchases of property and equipment			(44,337	)			(34,978	)
Acquisition of businesses, net			(163,973	)			(2,715,429	)
Proceeds from the sale of assets			6,200				750
Net cash provided by (used in) investing activities			(202,110	)			(2,749,657	)
Financing Activities
Borrowings under revolving lines of credit			1,734,476				2,122,949
Repayments under revolving lines of credit			(1,404,836	)			(1,631,978	)
Borrowings under term loan			-				970,000
Repayments under term loan			(7,275	)			(443,425	)
Borrowings under senior notes			-				1,300,000
Payment of debt issuance costs			-				(65,788	)
Repayments under equipment financing facilities and other			(7,602	)			(8,604	)
Proceeds from issuance of convertible preferred stock			-				400,000
Payment of stock issuance costs			-				(1,279	)
Payment of dividends on preferred stock			(18,000	)			(6,000	)
Proceeds from issuance of common stock related to equity awards			1,654				6,950
Taxes paid related to net share settlement of equity awards			(3,639	)			(3,975	)
Net cash provided by (used in) financing activities			294,778				2,638,850
Effect of exchange rate changes on cash and cash equivalents			31				1,127
Net increase (decrease) in cash and cash equivalents			(102,198	)			(110,699	)
Cash and cash equivalents, beginning of period			129,927				138,250
Cash and cash equivalents, end of period		$	27,729			$	27,551

BEACON ROOFING SUPPLY, INC.
Consolidated Sales by Product Line
(Unaudited; In thousands)
Consolidated Sales by Product Line
		Three Months Ended June 30,
		2019								2018								Change
		Net Sales				Mix %				Net Sales				Mix %				$				%
Residential roofing products		$	848,259				44.1	%		$	824,461				42.6	%		$	23,798				2.9	%
Non-residential roofing products			472,105				24.5	%			483,524				25.0	%			(11,419	)			(2.4	%)
Complementary building products			604,170				31.4	%			626,966				32.4	%			(22,796	)			(3.6	%)
		$	1,924,534				100.0	%		$	1,934,951				100.0	%		$	(10,417	)			(0.5	%)
Existing Market1 Sales by Product Line
		Three Months Ended June 30,
		2019								2018								Change
		Net Sales				Mix %				Net Sales				Mix %				$				%
Residential roofing products		$	846,944				44.3	%		$	821,827				42.5	%		$	25,117				3.1	%
Non-residential roofing products			471,661				24.7	%			483,335				25.0	%			(11,674	)			(2.4	%)
Complementary building products			592,020				31.0	%			627,301				32.5	%			(35,281	)			(5.6	%)
		$	1,910,625				100.0	%		$	1,932,463				100.0	%		$	(21,838	)			(1.1	%)
Existing Market1 Sales by Business Day2
		Three Months Ended June 30,
		2019								2018								Change
		Net Sales				Mix %				Net Sales				Mix %				$				%
Residential roofing products		$	13,234				44.3	%		$	12,841				42.5	%		$	393				3.1	%
Non-residential roofing products			7,370				24.7	%			7,552				25.0	%			(182	)			(2.4	%)
Complementary building products			9,250				31.0	%			9,802				32.5	%			(552	)			(5.6	%)
		$	29,854				100.0	%		$	30,195				100.0	%		$	(341	)			(1.1	%)

__________________________________________________
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 2019.
2		There were 64 business days in each of the quarters ended June 30, 2019 and 2018.

BEACON ROOFING SUPPLY, INC.
Consolidated Sales by Product Line
(Unaudited; In thousands)
Consolidated Sales by Product Line
		Nine Months Ended June 30,
		2019								2018								Change
		Net Sales				Mix %				Net Sales				Mix %				$				%
Residential roofing products		$	2,168,755				42.7	%		$	1,995,193				44.6	%		$	173,562				8.7	%
Non-residential roofing products			1,200,546				23.7	%			1,145,064				25.5	%			55,482				4.8	%
Complementary building products			1,705,946				33.6	%			1,342,298				29.9	%			363,648				27.1	%
		$	5,075,247				100.0	%		$	4,482,555				100.0	%		$	592,692				13.2	%
Existing Market1 Sales by Product Line
		Nine Months Ended June 30,
		2019								2018								Change
		Net Sales				Mix %				Net Sales				Mix %				$				%
Residential roofing products		$	1,571,512				53.0	%		$	1,513,880				51.6	%		$	57,632				3.8	%
Non-residential roofing products			843,062				28.5	%			868,354				29.6	%			(25,292	)			(2.9	%)
Complementary building products			546,818				18.5	%			551,366				18.8	%			(4,548	)			(0.8	%)
		$	2,961,392				100.0	%		$	2,933,600				100.0	%		$	27,792				0.9	%
Existing Market1 Sales by Business Day2
		Nine Months Ended June 30,
		2019								2018								Change
		Net Sales				Mix %				Net Sales				Mix %				$				%
Residential roofing products		$	8,315				53.0	%		$	8,010				51.6	%		$	305				3.8	%
Non-residential roofing products			4,461				28.5	%			4,594				29.6	%			(133	)			(2.9	%)
Complementary building products			2,893				18.5	%			2,917				18.8	%			(24	)			(0.8	%)
		$	15,669				100.0	%		$	15,521				100.0	%		$	148				0.9	%

__________________________________________________
1		Excludes acquired branches that have not been under ownership for at least four fiscal quarters prior to the start of fiscal year 2019.
2		There were 189 business days in each of the nine-month periods ended June 30, 2019 and 2018.

BEACON ROOFING SUPPLY, INC.
Adjusted Net Income (Loss) and Adjusted EPS1
(Unaudited; In thousands, except per share amounts)
		Three Months Ended June 30,																Nine Months Ended June 30,
		2019								2018								2019								2018
		Amount				Per Share2				Amount				Per Share2				Amount				Per Share3				Amount				Per Share3
Net income (loss)		$	30,987			$	0.39			$	49,375			$	0.63			$	(37,992	)		$	(0.49	)		$	50,316			$	0.67
Adjustments:
Acquisition costs4			60,482				0.77				63,561				0.80				185,922				2.38				171,289				2.26
Business restructuring costs5			1,664				0.02				-				-				1,664				0.02				-				-
Effects of tax reform6			-				-				(1,166	)			(0.02	)			(462	)			(0.01	)			(49,149	)			(0.65	)
Total adjustments			62,146				0.79				62,395				0.78				187,124				2.39				122,140				1.61
Tax impact of total adjustments7			(20,563	)			(0.26	)			(18,370	)			(0.23	)			(54,946	)			(0.69	)			(49,860	)			(0.66	)
Total adjustments, net of tax			41,583				0.53				44,025				0.55				132,178				1.70				72,280				0.95
Adjusted Net Income (Loss)		$	72,570			$	0.92			$	93,400			$	1.18			$	94,186			$	1.21			$	122,596			$	1.62

____________________________________________
1		Adjusted Net Income (Loss) is defined as net income that excludes acquisition costs, business restructuring costs, and the effects of tax reform. Adjusted net income (loss) 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 after assuming the full conversion of the participating Preferred Stock.
2		The weighted-average share count utilized in the calculation of Adjusted EPS for the three months ended June 30, 2019 is 78,960,003, which is equal to the 69,265,384 diluted weighted-average shares outstanding plus the assumed conversion of 9,694,619 weighted-average shares of participating Preferred Stock. The weighted-average share count utilized in the calculation of Adjusted EPS for the three months ended June 30, 2018 is 78,842,762, which is equal to the 69,148,143 diluted weighted-average shares outstanding plus the assumed conversion of 9,694,619 weighted-average shares of participating Preferred Stock. The shares of participating Preferred Stock were excluded from the GAAP net income (loss) per share calculations for both periods due to their anti-dilutive nature.
3		The weighted-average share count utilized in the calculation of Adjusted EPS for the nine months ended June 30, 2019 is 78,086,501, which is equal to the 68,391,882 diluted weighted-average shares outstanding plus the assumed conversion of 9,694,619 weighted-average shares of participating Preferred Stock. The weighted-average share count utilized in the calculation of Adjusted EPS for the nine months ended June 30, 2018 is 75,632,096, which is equal to the 69,240,040 diluted weighted-average shares outstanding plus the assumed conversion of 6,392,056 weighted-average shares of participating Preferred Stock. The shares of participating Preferred Stock were excluded from the GAAP net income (loss) per share calculations for both periods due to their anti-dilutive nature.
4		The following table presents a breakout of the components of acquisition costs for each of the periods indicated:

				Three Months Ended June 30								Nine Months Ended June 30
				2019				2018				2019				2018
			Amortization of intangible assets	$	51,723			$	50,075			$	155,508			$	105,339
			Costs classified as selling, general, and administrativea		5,733				9,957				21,337				43,827
			Amortization of debt issuance costs		3,026				3,529				9,077				22,123
			Total acquisition costs		60,482				63,561				185,922				171,289

			__________________________________________________
			Selling, general, and administrative costs related to acquisitions are mainly composed of professional fees, branch integration expenses, travel expenses, employee severance and retention costs, and other personnel expenses.

5	Business restructuring costs are mainly composed of costs stemming from headcount rationalization efforts.
6	Impact of the Tax Cuts and Jobs Act of 2017.
7	The effective tax rate applied to these adjustments is calculated by using forecasted adjusted pre-tax income while factoring in estimated discrete tax adjustments for the fiscal year. The tax impact of adjustments for the three months ended June 30, 2019 and 2018 were calculated using an effective tax rate of 33.1% and 29.5%, respectively. The tax impact of adjustments for the nine months ended June 30, 2019 and 2018 were calculated using an effective tax rate of 29.3% and 29.5%, respectively.

We use Adjusted Net Income (Loss) and Adjusted EPS to evaluate financial performance, analyze the underlying trends in our business and establish operational goals and forecasts that are used when allocating resources.

We believe that Adjusted Net Income (Loss) and Adjusted EPS are useful measures because they permit investors to better understand changes in underlying operating performance over comparative periods by providing financial results that are unaffected by cyclical variances that can be driven by items such as investment activity or purchase accounting adjustments.

While we believe Adjusted Net Income (Loss) and Adjusted EPS are useful to investors when evaluating our business, they are not prepared and presented in accordance with United States Generally Accepted Accounting Principles (“GAAP”), and therefore should be considered supplemental in nature. 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. Adjusted Net Income (Loss) and Adjusted EPS may have material limitations including, but not limited to, the exclusion of certain costs without a corresponding reduction of net income for the income generated by the assets to which the excluded costs are related. In addition, Adjusted Net Income (Loss) and Adjusted EPS may differ from similarly titled measures presented by other companies.

BEACON ROOFING SUPPLY, INC.
Adjusted EBITDA1
(Unaudited; In thousands)
		Three Months Ended June 30,								Nine Months Ended June 30,
		2019				2018				2019				2018
Net income (loss)		$	30,987			$	49,375			$	(37,992	)		$	50,316
Interest expense, net			40,169				39,055				121,800				104,334
Income taxes			5,178				18,090				(21,032	)			(53,291	)
Depreciation and amortization			69,455				65,887				208,287				146,979
Stock-based compensation			4,637				5,298				12,901				13,133
Acquisition costs2			5,733				9,957				21,337				43,827
Business restructuring costs3			1,664				-				1,664				-
Adjusted EBITDA		$	157,823			$	187,662			$	306,965			$	305,298
Adjusted EBITDA as a % of net sales			8.2	%			9.7	%			6.0	%			6.8	%

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1		Adjusted EBITDA is defined as net income plus interest expense (net of interest income), income taxes, depreciation and amortization, stock-based compensation, acquisition costs, and business restructuring costs. EBITDA is a measure commonly used in the distribution industry, and we present Adjusted EBITDA to enhance your understanding of our operating performance.
2		Represents selling, general, and administrative costs related to acquisitions (excluding the impact of tax). Other items the Company classifies as acquisition costs are embedded in other balances of the table.
3		Business restructuring costs are mainly composed of costs stemming from headcount rationalization efforts.

We use Adjusted EBITDA to evaluate financial performance, analyze the underlying trends in our business and establish operational goals and forecasts that are used when allocating resources. We expect to compute Adjusted EBITDA consistently using the same methods each period.

We believe that Adjusted EBITDA is a useful measure because it permits investors to better understand changes in underlying operating performance over comparative periods by providing financial results that are unaffected by cyclical variances that can be driven by items such as investment activity or purchase accounting adjustments.

While we believe Adjusted EBITDA is useful to investors when evaluating our business, it is not prepared and presented in accordance with United States Generally Accepted Accounting Principles (“GAAP”), and therefore should be considered supplemental in nature. Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operations, or any other items calculated in accordance with GAAP. Adjusted EBITDA may have material limitations including, but not limited to, the exclusion of certain costs without a corresponding reduction of net income for the income generated by the assets to which the excluded costs are related. In addition, Adjusted EBITDA may differ from similarly titled measures presented by other companies.

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