Beacon Reports First Quarter 2020 Results

Beacon (Nasdaq: BECN) (the “Company”) announced results today for its first quarter ended December 31, 2019 (“2020”).

“Our first quarter delivered important progress toward our goals,” said Julian Francis, Beacon’s President and Chief Executive Officer. “Results were broadly in line with our expectations, highlighted by sequential gross margin improvement and another quarter of growth in our non-residential roofing product line. As expected, our sales declined modestly, which we believe was in line with the market. On the balance sheet, we decreased total debt by more than $300 million over the comparative periods. As part of our strategic review, we recently announced the unification of our 40 exterior product names into a single brand: Beacon Building Products. Our new brand enables us to leverage our nationwide scale to better serve customers, enhances our investment in e-commerce, and furthers our goal of developing innovative service propositions. Overall, we remain well-positioned to deliver annual sales and Adjusted EBITDA growth for fiscal 2020.”

First Quarter

Net sales decreased 2.7% to $1.68 billion, from $1.72 billion in 2019. The sales decline was mainly influenced by decreased hurricane-related demand compared to the prior year. Residential roofing product sales decreased 4.1%, non-residential roofing product sales increased 0.2%, and complementary product sales decreased 3.1% compared to the prior year. The first quarter of fiscal years 2020 and 2019 each had 62 business days.

Net income (loss) was $(23.4) million, compared to $(0.9) million in 2019. Net income (loss) attributable to common shareholders was $(29.4) million, compared to $(6.9) million in 2019. EPS was $(0.43), compared to $(0.10) in 2019. Adjusted Net Income (Loss) was $28.3 million, compared to $46.5 million in 2019. Adjusted EBITDA was $94.3 million, compared to $121.7 million in 2019.

First quarter results were impacted by lower gross margins and debt refinancing expenses that were incurred to reduce future cash outflows. The impact of these items was partially offset by slight increases in non-residential roofing product sales and lower operating expenses.

Please see the included financial tables for a reconciliation of “Adjusted” non-GAAP financial measures to the most directly comparable GAAP financial measure, 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 First Quarter 2020 Earnings Conference Call
	When		Monday, February 3, 2020
	Time:		5:00 p.m. ET
	Webcast:		Beacon Investor Relations – Events & Presentations (live and replay)
	Live Call:		[phone], Conf. ID #1478967

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

Founded in 1928, Beacon is a Fortune 500, publicly-traded distributor of residential and commercial 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 110,000 customers, utilizing its vast branch network and diverse service offerings to provide high-quality products and support throughout the entire business lifecycle. Beacon 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. Beacon’s stock is traded on the Nasdaq Global Select Market under the ticker symbol BECN. To learn more about Beacon, please visit www.becn.com.

BEACON ROOFING SUPPLY, INC. Consolidated Statements of Operations (In thousands, except share and per share amounts)
	Three Months Ended December 31,
	2019				% of Net Sales				2018				% of Net Sales
Net sales	$	1,675,112				100.0	%		$	1,721,676				100.0	%
Cost of products sold		1,264,414				75.5	%			1,286,107				74.7	%
Gross profit		410,698				24.5	%			435,569				25.3	%
Operating expense:
Selling, general and administrative1		326,919				19.5	%			327,693				19.1	%
Depreciation		19,072				1.1	%			17,601				1.0	%
Amortization		44,778				2.7	%			52,021				3.1	%
Total operating expense		390,769				23.3	%			397,315				23.2	%
Income (loss) from operations		19,929				1.2	%			38,254				2.1	%
Interest expense, financing costs, and other2		38,293				2.3	%			38,361				2.2	%
Loss on debt extinguishment		14,678				0.9	%			-				0.0	%
Income (loss) before provision for income taxes		(33,042	)			(2.0	%)			(107	)			(0.1	%)
Provision for (benefit from) income taxes		(9,632	)			(0.6	%)			786				0.0	%
Net income (loss)		(23,410	)			(1.4	%)			(893	)			(0.1	%)
Dividends on Preferred Stock3		6,000				0.4	%			6,000				0.3	%
Net income (loss) attributable to common shareholders	$	(29,410	)			(1.8	%)		$	(6,893	)			(0.4	%)
Weighted-average common stock outstanding:
Basic		68,667,943								68,248,020
Diluted4		68,667,943								68,248,020
Net income (loss) per share5:
Basic	$	(0.43	)						$	(0.10	)
Diluted	$	(0.43	)						$	(0.10	)

____________________________________

1		Includes acquisition and business restructuring costs of $3.9 million and $8.9 million for the three months ended December 31, 2019 and 2018, respectively.
2		Includes acquisition and business restructuring costs of $7.8 million and $3.0 million for the three months ended December 31, 2019 and 2018, respectively.
3		Three months ended December 31, 2019 and 2018 amounts are 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.
4		Amounts do not include 9,694,619 shares issuable upon conversion of the Company’s participating Preferred Stock because such conversion would be anti-dilutive.
5		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 December 31,
	2019				2018
Net income (loss)	$	(23,410	)		$	(893	)
Dividends on Preferred Stock		6,000				6,000
Net income (loss) attributable to common shareholders	$	(29,410	)		$	(6,893	)
Undistributed income allocated to participating securities		-				-
Net income (loss) attributable to common shareholders - basic and diluted	$	(29,410	)		$	(6,893	)
Weighted-average common shares outstanding - basic		68,667,943				68,248,020
Effect of common share equivalents		-				-
Weighted-average common shares outstanding - diluted		68,667,943				68,248,020
Net income (loss) per share - basic	$	(0.43	)		$	(0.10	)
Net income (loss) per share - diluted	$	(0.43	)		$	(0.10	)

 

BEACON ROOFING SUPPLY, INC. Consolidated Balance Sheets (In thousands)
	December 31,				September 30,				December 31,
	2019				2019				2018
Assets
Current assets:
Cash and cash equivalents	$	43,749			$	72,287			$	18,423
Accounts receivable, net		861,087				1,108,134				881,749
Inventories, net		1,037,827				1,018,183				1,025,310
Prepaid expenses and other current assets		311,112				315,643				375,598
Total current assets		2,253,775				2,514,247				2,301,080
Property and equipment, net		253,019				260,376				273,742
Goodwill		2,491,166				2,490,590				2,489,730
Intangibles, net		1,077,478				1,125,540				1,282,242
Operating lease assets		463,081				-				-
Other assets, net		10				2,059				1,243
Total assets	$	6,538,529			$	6,392,812			$	6,348,037
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	594,613			$	822,931			$	551,940
Accrued expenses		411,169				599,155				375,672
Current operating lease liabilities		98,994				-				-
Current portions of long-term debt/obligations		13,877				18,689				20,315
Total current liabilities		1,118,653				1,440,775				947,927
Borrowings under revolving lines of credit, net		215,642				80,961				503,216
Long-term debt, net		2,495,135				2,494,623				2,497,123
Deferred income taxes, net		107,085				103,913				110,179
Non-current operating lease liabilities		358,504				-				-
Long-term obligations under equipment financing, net		1,607				4,609				10,689
Other long-term liabilities		2,018				6,383				5,532
Total liabilities		4,298,644				4,131,264				4,074,666
Convertible Preferred Stock1		399,195				399,195				399,195
Stockholders' equity:
Common stock		687				685				684
Undesignated preferred stock		-				-				-
Additional paid-in capital		1,086,970				1,083,042				1,067,711
Retained earnings		769,812				799,222				826,941
Accumulated other comprehensive income (loss)		(16,779	)			(20,596	)			(21,160	)
Total stockholders' equity		1,840,690				1,862,353				1,874,176
Total liabilities and stockholders' equity	$	6,538,529			$	6,392,812			$	6,348,037

____________________________________

1

In connection with the acquisition of Allied Building Products Corp. on January 2, 2018, the Company completed the sale of 400,000 shares of Series A Cumulative Convertible Participating Preferred Stock, par value $0.01 per share (the “Preferred Stock”), with an aggregate liquidation preference of $400.0 million, at a purchase price of $1,000 per share, to CD&R Boulder Holdings, L.P. The Preferred Stock is convertible perpetual participating preferred stock of the Company, and conversion of the Preferred Stock into $0.01 par value shares of the Company’s common stock will be at a conversion price of $41.26 per share (or 9,694,619 shares of common stock). The Preferred Stock accumulates dividends at a rate of 6.0% per annum (payable in cash or in-kind, subject to certain conditions). The Preferred Stock is not mandatorily redeemable; therefore, it is classified as mezzanine equity on the Company’s consolidated balance sheets.

BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Cash Flows
(In thousands)

	Three Months Ended December 31,
	2019				2018
Operating Activities
Net income (loss)	$	(23,410	)		$	(893	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		63,850				69,622
Stock-based compensation		5,156				3,457
Certain interest expense and other financing costs		2,849				3,024
Beneficial lease amortization		-				572
Loss on debt extinguishment		14,678				-
Gain on sale of fixed assets		(330	)			(265	)
Deferred income taxes		2,357				3,201
Changes in operating assets and liabilities, net of the effects of businesses acquired in the period:
Accounts receivable		247,685				207,119
Inventories		(19,147	)			(90,712	)
Prepaid expenses and other current assets		(3,362	)			(131,638	)
Accounts payable and accrued expenses		(417,507	)			(400,616	)
Other assets and liabilities		1,874				246
Net cash provided by (used in) operating activities		(125,307	)			(336,883	)
Investing Activities
Purchases of property and equipment		(12,194	)			(11,688	)
Acquisition of businesses, net		-				(163,973	)
Proceeds from the sale of assets		396				401
Net cash provided by (used in) investing activities		(11,798	)			(175,260	)
Financing Activities
Borrowings under revolving lines of credit		750,711				1,298,654
Payments under revolving lines of credit		(616,767	)			(888,225	)
Payments under term loan		(2,425	)			-
Borrowings under senior notes		300,000				-
Payment under senior notes		(309,564	)			-
Payment of debt issuance costs		(3,582	)			-
Payments under equipment financing facilities and finance leases		(2,282	)			(1,465	)
Payment of dividends on Preferred Stock		(6,000	)			(6,000	)
Proceeds from issuance of common stock related to equity awards		875				834
Payment of taxes related to net share settlement of equity awards		(2,101	)			(3,617	)
Net cash provided by (used in) financing activities		108,865				400,181
Effect of exchange rate changes on cash and cash equivalents		(298	)			458
Net increase (decrease) in cash and cash equivalents		(28,538	)			(111,504	)
Cash and cash equivalents, beginning of period		72,287				129,927
Cash and cash equivalents, end of period	$	43,749			$	18,423

 

BEACON ROOFING SUPPLY, INC. Consolidated Sales by Product Line (In thousands)
Sales by Product Line
	Three Months Ended December 31,
	2019								2018								Change
	Net Sales				Mix %				Net Sales				Mix %				$				%
Residential roofing products	$	702,236				41.9	%		$	732,190				42.5	%		$	(29,954	)			(4.1	%)
Non-residential roofing products		420,853				25.1	%			419,909				24.4	%			944				0.2	%
Complementary building products		552,023				33.0	%			569,577				33.1	%			(17,554	)			(3.1	%)
	$	1,675,112				100.0	%		$	1,721,676				100.0	%		$	(46,564	)			(2.7	%)
Sales by Business Day1
	Three Months Ended December 31,
	2019								2018								Change
	Net Sales				Mix %				Net Sales				Mix %				$				%
Residential roofing products	$	11,326				41.9	%		$	11,810				42.5	%		$	(484	)			(4.1	%)
Non-residential roofing products		6,788				25.1	%			6,773				24.4	%			15				0.2	%
Complementary building products		8,904				33.0	%			9,187				33.1	%			(283	)			(3.1	%)
	$	27,018				100.0	%		$	27,770				100.0	%		$	(752	)			(2.7	%)

__________________________________________________

1

There were 62 business days in each of the quarters ended December 31, 2019 and 2018.

 

BEACON ROOFING SUPPLY, INC. Adjusted Net Income (Loss)1 (In thousands)
	Three Months Ended December 31,
	2019				2018
Net income (loss)	$	(23,410	)		$	(893	)
Adjustments:
Acquisition costs2		51,479				63,962
Business restructuring costs3		19,683				-
Total adjustments		71,162				63,962
Tax impact of total adjustments4		(19,424	)			(16,569	)
Total adjustments, net of tax		51,738				47,393
Adjusted Net Income (Loss)	$	28,328			$	46,500

_________________________

1		Adjusted Net Income (Loss) is defined as net income that excludes acquisition costs, business restructuring costs, and the effects of tax reform
2		The following table presents a breakout of the components of acquisition costs for each of the periods indicated:

			Three Months Ended December 31,
			2019				2018
		Amortization of intangible assets	$	44,778			$	52,021
		Costs classified as selling, general, and administrativea		3,852				8,917
		Amortization of debt issuance costs		2,849				3,024
		Total acquisition costs		51,479				63,962

___________________________

	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.
3	Business restructuring costs are mainly composed of a loss on debt extinguishment of $14.7 million in connection with debt refinancing. Also included are accrued estimated costs related to employee benefit plan withdrawals, costs stemming from headcount rationalization efforts, and re-branding costs.
4	The effective tax rate applied to these adjustments is calculated by using adjusted pre-tax income while factoring in discrete tax adjustments for the fiscal year. The tax impact of adjustments for the quarter ended December 31, 2019 and 2018 were calculated using an effective tax rate of 27.3% and 25.9%, respectively.

We use Adjusted Net Income (Loss) 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 Net Income (Loss) consistently using the same method each period.

We believe that Adjusted Net Income (Loss) 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 Net Income (Loss) 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. You should not consider Adjusted Net Income (Loss) in isolation or as a substitute for net income calculated in accordance with GAAP. Adjusted Net Income (Loss) 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) may differ from similarly titled measures presented by other companies.

 

BEACON ROOFING SUPPLY, INC. Adjusted EBITDA1 (In thousands)
	Three Months Ended December 31,
	2019				2018
Net income (loss)	$	(23,410	)		$	(893	)
Interest expense, net		34,796				39,816
Income taxes		(9,632	)			786
Depreciation and amortization		63,850				69,622
Stock-based compensation		5,156				3,457
Acquisition costs2		3,852				8,917
Business restructuring costs3		19,683				-
Adjusted EBITDA	$	94,295			$	121,705
Adjusted EBITDA as a % of net sales		5.6%				7.1%

_________________________________

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) only. The other items the Company classifies as acquisition costs are embedded within the other balances reported in the table.
3		Business restructuring costs are mainly composed of a loss on debt extinguishment of $14.7 million in connection with debt refinancing. Also included are accrued estimated costs related to employee benefit plan withdrawals, costs stemming from headcount rationalization efforts, and re-branding costs.

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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