Beacon Roofing Supply Reports Fourth Quarter And Fiscal Year 2016 Results

Beacon Roofing Supply, Inc. (NASDAQ:BECN) announced results today for its fourth quarter and fiscal year ended September 30, 2016 ("2016").

Paul Isabella, the Company's President and Chief Executive Officer, stated: "2016 was a landmark year for Beacon. We capitalized on the momentum of our transformational acquisition of RSG on the first day of the year to close on seven additional acquisitions and deliver record revenue and strong earnings for our shareholders. Gross margins were excellent, and we achieved growth in residential, commercial and complementary products, with residential roofing sales growth leading the way and remaining particularly strong through the end of the year. We are ahead on our attainment of the RSG synergies, and I am pleased that existing market operating expenses as a percentage of revenue decreased this year, demonstrating that our team is making great progress in achieving operating leverage. Our balance sheet has improved steadily, and we remain focused on reaching our goal of a 2.0x debt leverage ratio, while not sacrificing growth opportunities through additional strategic acquisitions. In 2017, we will continue to focus on revenue growth, both organically and through acquisitions and new branch openings, while improving gross margins and operating expense leverage. I am confident in our ability to build on our successful 2016 and continue to deliver outstanding performance and returns for our shareholders."

Fourth Quarter

Total sales increased 49.1% to a fourth quarter record of $1.17 billion in 2016, from $787.7 million in 2015. Residential roofing product sales increased 63.0%, non-residential roofing product sales increased 29.7%, and complementary product sales increased 47.8% over the prior year. Organic sales, excluding acquisitions, increased 2.4% for the quarter. The fourth quarters of 2016 and 2015 each had 64 business days.

Net income for the fourth quarter was $47.4 million, compared to $30.8 million in 2015. Fourth quarter EPS was $0.78, compared to $0.61 in 2015. Adjusted Net Income, after removing the impact of non-recurring RSG acquisition-related costs and other current year acquisition costs, was $53.6 million in the fourth quarter 2016, with Adjusted EPS of $0.88 (see included financial tables for a definition and reconciliation of "Adjusted" balances). Net income for the quarter was favorably impacted by strong volume growth within residential roofing and a significant improvement in gross margins which increased 140 basis points over the prior year. This was partially offset by declining organic sales of our other two product lines.

Fiscal Year

Total sales increased 64.1% to an annual record of $4.13 billion in 2016, from $2.52 billion in 2015. Residential roofing product sales increased 76.9%, non-residential roofing product sales increased 51.3%, and complementary product sales increased 52.6% over the prior year. Organic sales, excluding acquisitions, increased 9.9% in 2016. The 2016 and 2015 fiscal years had 254 and 253 business days, respectively.

Net income for the full-year was $89.9 million, compared to $62.3 million in 2015. 2016 EPS was $1.49, compared to $1.24 in 2015. Adjusted Net Income, after removing the impact of non-recurring RSG acquisition-related costs and other current year acquisition costs, was $126.5 million in 2016, with Adjusted EPS of $2.10 (see included financial tables for a definition and reconciliation of "Adjusted" balances). Net income for 2016 was favorably impacted by higher levels of storm demand, particularly in Texas, as well as a significant 80 bps year-to-year improvement in gross margins. This was partially offset by increased operating expenses driven by the incremental costs associated with the RSG acquisition made at the beginning of 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 Fourth Quarter and Fiscal Year 2016 Earnings Results Webcast and Conference Call
 
When: Monday, November 21, 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 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 Consolidated Statements of Operations (In thousands, except share and per share amounts)
                 
 
Three Months Ended September 30, Year Ended September 30,

2016 1
% of

Net Sales

2015 2
% of

Net Sales

2016 1
% of

Net Sales

2015 2
% of

Net Sales
               
Net sales $ 1,174,366 100.0 % $ 787,729 100.0 % $ 4,127,109 100.0 % $ 2,515,169 100.0 %
Cost of products sold   872,324 74.3 %   596,138 75.7 %   3,114,040 75.5 %   1,919,804 76.3 %
Gross profit 302,042 25.7 % 191,591 24.3 % 1,013,069 24.5 % 595,365 23.7 %
Operating expense   206,164 17.6 %   132,432 16.8 %   808,085 19.6 %   478,284 19.0 %
Income from operations 95,878 8.1 % 59,159 7.5 % 204,984 4.9 % 117,081 4.7 %
Interest expense, financing costs, and other   16,944 1.4 %   3,049 0.4 %   58,452 1.4 %   11,037 0.4 %
Income before provision for income taxes 78,934 6.7 % 56,110 7.1 % 146,532 3.5 % 106,044 4.3 %
Provision for income taxes   31,542 2.7 %   25,303 3.2 %   56,615 1.4 %   43,767 1.7 %
Net income $ 47,392 4.0 % $ 30,807 3.9 % $ 89,917 2.1 % $ 62,277 2.6 %
 
Weighted-average common stock outstanding:
Basic 59,814,221 49,731,527 59,424,372 49,578,130
Diluted 60,839,414 50,422,265 60,418,067 50,173,478
 
Net income per share:
Basic $ 0.79 $ 0.62 $ 1.51 $ 1.26
Diluted $ 0.78 $ 0.61 $ 1.49 $ 1.24
 

1 The fourth quarter 2016 operating results include $1.4 million ($1.2 million net of taxes) of non-recurring charges, $5.7 million ($3.6 million net of taxes) of additional amortization for acquired intangibles, and $2.1 million ($1.4 million net of taxes) of interest expense, financing costs and other for the recognition of certain costs related to acquisitions made in fiscal year 2016. Fiscal year 2016 operating results include $29.1 million ($17.9 million net of taxes) of non-recurring charges, $22.8 million ($14.0 million net of taxes) of additional amortization for acquired intangibles, and $7.6 million ($4.7 million net of taxes) of interest expense, financing costs and other for the recognition of certain costs related to acquisitions made in fiscal year 2016. See "Adjusted Net Income and Adjusted EPS" table for further details.

2 The fourth quarter 2015 and fiscal year 2015 operating results include $7.3 million ($7.0 million net of taxes) of non-recurring charges related to the RSG acquisition. See "Adjusted Net Income and Adjusted EPS" table for further details.
 
BEACON ROOFING SUPPLY, INC Consolidated Balance Sheets (In thousands)
     

September 30, 2016

2016

2015
Assets
Current assets
Cash and cash equivalents $ 31,386 $ 45,661
Accounts receivable, net 626,965 399,732
Inventories 480,736 320,999
Prepaid expenses and other current assets   163,103     97,928  
Total current assets 1,302,190 864,320
 
Property and equipment, net 148,569 90,405
Goodwill 1,197,565 496,415
Intangibles, net 464,024 87,055
Other assets, net   1,511     1,233  
Total Assets $ 3,113,859   $ 1,539,428  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 360,915 $ 244,891
Accrued expenses 161,113 124,794
Borrowings under revolver lines of credit - 11,240
Current portion of long-term obligations   14,811     16,320  
Total current liabilities 536,839 397,245
 
Borrowings under revolving lines of credit, net 359,661 -
Long-term debt, net 722,929 170,200
Deferred income taxes, net 135,482 66,500
Long-term obligations under equipment financing and other, net   35,121     22,367  
Total liabilities   1,790,032     656,312  
 
Commitments and contingencies
 
Stockholders' equity:
Common stock 598 497
Undesignated preferred stock - -
Additional paid-in capital 694,564 345,934
Retained earnings 647,322 557,405
Accumulated other comprehensive loss   (18,657 )   (20,720 )
Total stockholders' equity   1,323,827     883,116  
Total Liabilities and Stockholders' Equity $ 3,113,859   $ 1,539,428  
 
 
BEACON ROOFING SUPPLY, INC Consolidated Statements of Cash Flows (In thousands)
     
 
Year Ended September 30,

2016

2015
Operating activities:
Net income $ 89,917 $ 62,277
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 100,191 34,862
Stock-based compensation 17,749 9,936
Certain interest expense and other financing costs 8,329 (1,450 )

Gain on sale of fixed assets
(1,882 ) (1,107 )
Deferred income taxes 25,200 17,634
Other, net - 263
Changes in operating assets and liabilities, net of the effects of businesses acquired:
Accounts receivable (30,408 ) (33,251 )
Inventories 43,489 (9,203 )
Prepaid expenses and other assets (12,841 ) (17,119 )
Accounts payable and accrued expenses   (119,096 )   46,498  
Net cash provided by operating activities   120,648     109,340  
 
Investing activities:
Purchases of property and equipment (26,315 ) (20,802 )
Acquisition of businesses (1,018,188 ) (85,301 )
Proceeds from sales of assets   1,882     1,389  
Net cash used in investing activities   (1,042,621 )   (104,714 )
 
Financing activities:
Borrowings under revolving lines of credit, net of repayments 350,927 (5,373 )
Borrowings under term loan, net of repayments 259,875 (11,250 )
Borrowings under Senior Notes 300,000 -
Repayments under equipment financing facilities and other (4,724 ) (5,553 )
Payment of deferred financing costs (28,325 ) -
Proceeds from exercise of options 24,160 7,943
Taxes paid related to net share settelement of equity awards (2 ) -
Excess tax benefit from stock-based compensation   4,956     1,526  
Net cash provided by (used in) financing activities   906,867     (12,707 )
 
Effect of exchange rate changes on cash 831 (730 )
 
Net decrease in cash and cash equivalents (14,275 ) (8,811 )
Cash and cash equivalents, beginning of period   45,661     54,472  
Cash and cash equivalents, end of period $ 31,386   $ 45,661  
 
 
BEACON ROOFING SUPPLY, INC Consolidated Sales by Product Line (Dollars in thousands)
             
 
Consolidated Sales by Product Line
Three Months Ended September 30,

2016

2015
Change
Net Sales Mix % Net Sales Mix %

$

%
Residential roofing products $ 639,938 54.5 % $ 392,592 49.9 % $ 247,346 63.0 %
Non-residential roofing products 354,732 30.2 % 273,591 34.7 % 81,141 29.7 %
Complementary building products   179,696 15.3 %   121,546 15.4 %   58,150   47.8 %
$ 1,174,366 100.0 % $ 787,729 100.0 % $ 386,637   49.1 %
 
 
 
Consolidated Sales by Product Line for Existing Markets 1
Three Months Ended September 30,

2016

2015
Change
Net Sales Mix % Net Sales Mix %

$

%
Residential roofing products $ 393,787 52.7 % $ 361,017 49.5 % $ 32,770 9.1 %
Non-residential roofing products 236,513 31.7 % 251,026 34.4 % (14,513 ) -5.8 %
Complementary building products   116,926 15.6 %   117,515 16.1 %   (589 ) -0.5 %
$ 747,226 100.0 % $ 729,558 100.0 % $ 17,668   2.4 %
 
 
 
Existing Market 1 Sales By Business Day 2
Three Months Ended September 30,

2016

2015
Change
Net Sales Mix % Net Sales Mix %

$

%
Residential roofing products $ 6,153 52.7 % $ 5,641 49.5 % $ 512 9.1 %
Non-residential roofing products 3,696 31.7 % 3,922 34.4 % (226 ) -5.8 %
Complementary building products   1,827 15.6 %   1,836 16.1 %   (9 ) -0.5 %
$ 11,676 100.0 % $ 11,399 100.0 % $ 277   2.4 %
 
 

1 Excludes branches acquired during the four quarters prior to the start of the fourth quarter of fiscal year 2016

2 There were 64 business days in the quarters ended September 30, 2016 and 2015, respectively
 
             
BEACON ROOFING SUPPLY, INC Consolidated Sales by Product Line (Dollars in thousands)
 
 
Consolidated Sales by Product Line
Year Ended September 30,

2016

2015
Change
Net Sales Mix % Net Sales Mix %

$

%
Residential roofing products $ 2,187,421 53.0 % $ 1,236,397 49.2 % $ 951,024 76.9 %
Non-residential roofing products 1,335,642 32.4 % 882,970 35.1 % 452,672 51.3 %
Complementary building products   604,046 14.6 %   395,802 15.7 %   208,244 52.6 %
$ 4,127,109 100.0 % $ 2,515,169 100.0 % $ 1,611,940 64.1 %
 
 
 
Consolidated Sales by Product Line for Existing Markets 1
Year Ended September 30,

2016

2015
Change
Net Sales Mix % Net Sales Mix %

$

%
Residential roofing products $ 1,275,208 50.7 % $ 1,117,689 48.8 % $ 157,519 14.1 %
Non-residential roofing products 843,197 33.5 % 803,716 35.1 % 39,481 4.9 %
Complementary building products   397,242 15.8 %   367,675 16.1 %   29,567 8.0 %
$ 2,515,647 100.0 % $ 2,289,080 100.0 % $ 226,567 9.9 %
 
 
 
Existing Market 1 Sales By Business Day 2
Year Ended September 30,

2016

2015
Change
Net Sales Mix % Net Sales Mix %

$

%
Residential roofing products $ 5,021 50.7 % $ 4,418 48.8 % $ 603 13.6 %
Non-residential roofing products 3,320 33.5 % 3,177 35.1 % 143 4.5 %
Complementary building products   1,564 15.8 %   1,453 16.1 %   111 7.6 %
$ 9,905 100.0 % $ 9,048 100.0 % $ 857 9.5 %
 
 

1 Excludes branches acquired during the four quarters prior to the start of fiscal year 2016

2 There were 254 and 253 business days for the years ended September 30, 2016 and 2015, respectively
 
 
BEACON ROOFING SUPPLY, INC Adjusted Net Income and Adjusted EPS 1 (In thousands except per share amounts)
                 
 
Three Months Ended September 30, Year Ended September 30,

2016

2015

2016

2015

Amount

Per Share
Amount

Per Share
Amount

Per Share
Amount

Per Share
Net income $ 47,392 $ 0.78 $ 30,807 $ 0.61 $ 89,917 $ 1.49 $ 62,277 $ 1.24
Company adjustments, net of income taxes:
Acquisition costs 2   6,203   0.10   6,978   0.14   36,608   0.61   6,978   0.14
Adjusted Net Income $ 53,595 $ 0.88 $ 37,785 $ 0.75 $ 126,525 $ 2.10 $ 69,255 $ 1.38
 

1 Adjusted Net Income is defined as net income excluding non-recurring costs related to the acquisitions incurred in fiscal years 2015 and 2016 as well as the incremental amortization of acquired intangibles. We believe that Adjusted Net Income 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 for the period by the weighted-average diluted shares outstanding for the period (see "Consolidated Statements of Operations for amounts).

2 Acquisition costs reflect total non-recurring charges related to acquisitions completed, net of $22.9 million and $0.3 million in tax for the years ended 2016 and 2015, respectively and $3.1 million and $0.3 million in tax for the three months ended September 30, 2016 and 2015, respectively.

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 and net loss per share or diluted earnings per share calculated in accordance with GAAP.
         
BEACON ROOFING SUPPLY, INC Adjusted EBITDA 1 (In thousands)
 
 

Three Months Ended September 30,

Year Ended September 30,

2016

2015

2016

2015
Net Income $ 47,392 $ 30,807 $ 89,917 $ 62,277
Acquisition costs 2 1,438 6,978 24,749 6,978
Interest expense, net 16,309 2,811 58,145 10,561
Income taxes 31,542 25,582 56,615 44,046
Depreciation and amortization 27,172 8,926 100,191 34,862
Stock-based compensation   3,679     2,624     17,749     9,936  
Adjusted EBITDA $ 127,532   $ 77,728   $ 347,366   $ 168,660  
Adjusted EBITDA as a % of net sales 10.9 % 9.9 % 8.4 % 6.7 %
 

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 non-recurring acquisition costs incurred in fiscal years 2015 and 2016. 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 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 Acquisition costs reflect all non-recurring charges related to acquisitions completed (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 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.

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