Beacon Roofing Supply Reports Second Quarter 2013 Results

May 10, 2013

  • Record second quarter net sales up 5% to $416 million vs. $395 million.
  • Second quarter breakeven EPS ($0.02 adjusted loss) vs. $0.07 income.
  • Record first half net sales up 5% to $930 million vs. $885 million.
  • First half EPS of $0.37 ($0.35 adjusted) vs. $0.47 ($0.45 adjusted).
  • Nineteen branches acquired in the first half.

PEABODY, Mass.--(BUSINESS WIRE)-- Beacon Roofing Supply, Inc. (the "Company") (NASDAQ: BECN) announced results today for its second quarter and first half ended March 31, 2013 of the fiscal year ending September 30, 2013 ("fiscal 2013").

Paul Isabella, the Company's President & Chief Executive Officer, stated: "The second quarter of fiscal 2013 was challenging for us as we experienced harsh weather conditions in many of our markets and we were up against a very strong second quarter last year when our existing market sales were up 28%. Our total sales benefited from the positive impact of several acquisitions made since the start of last year and our gross margin continued to improve over the prior year. In addition, the trend of our residential roofing sales was more favorable in the second quarter compared to the first quarter. During the first half, we took advantage of our financial capacity and flexibility to purchase key products ahead of announced industry-wide price increases. We believe we are well positioned for a successful back half of fiscal 2013 and expect to experience a business rebound following the tough Winter and early Spring conditions."

Second Quarter

Total sales increased 5.3% to $416.3 million in 2013 from $395.2 million in 2012. Existing market (organic) sales, which exclude branches acquired after the beginning of last year's second quarter, declined 5.1%. There was one less business day in this year's second quarter. In existing markets, residential and non-residential roofing product sales decreased 1.4% and 11.2%, respectively, while complementary product sales decreased 3.2%. The 2013 sales performance was unfavorably affected by adverse weather conditions this year, especially compared to last year's mild weather that boosted sales during the normal slow Winter period.

The net loss for the second quarter was $0.2 million compared to net income of $3.1 million in 2012. The second quarter loss per share was $0.00 compared to diluted income per share of $0.07 in 2012. The decline in net income was due to higher operating expenses, including acquired branch expenses, partially offset by the impact from higher gross profit and lower interest expense. The second quarter adjusted loss per share was $0.02 after consideration of the $1.3 million credit to interest expense ($0.8 million net of taxes) resulting from adjustments in the fair values of certain interest rate derivatives.

Earnings before interest, taxes, depreciation and amortization, and stock-based compensation ("Adjusted EBITDA"), which is reconciled to the net income in this press release, was $11.6 million in 2013 compared to $17.8 million in 2012, a decrease of 34.6%.

First Half

Total sales increased 5.1% to $930.0 million in 2013 from $885.0 million in 2012. Existing market (organic) sales, which exclude branches acquired after the beginning of last year, declined 4.5%. There was one additional business day in this year's first half. In existing markets, residential and non-residential roofing product sales decreased 3.5% and 8.2%, respectively, while complementary product sales increased 2.0%. The comparison of the 2013 first half sales to 2012 was unfavorably affected by last year's very high level of re-roofing activities, including the beneficial impact from mild weather in 2012 and strong business in several markets in the first quarter of 2012 that experienced significant storms in 2011.

Net income for the first half was $18.0 million compared to $22.3 million in 2012, a decrease of 18.9%. First half diluted net income per share was $0.37 compared to $0.47 in 2012. The lower net income was due to the same factors mentioned above for the second quarter decline in net income. First half adjusted diluted net income per share was $0.35 compared to an adjusted $0.45 in 2012. The first half of this year included a $2.6 million credit to interest expense ($1.5 million net of taxes), $0.03 per share, resulting from adjustments in the fair values of certain interest rate derivatives, and a $0.9 million charge ($0.5 million net of taxes), $0.01 per share, for termination benefits. Last year's net income included a benefit of $1.0 million, $0.02 per share, from a reduction in a liability for contingent consideration related to the acquisition of Enercon Products.

Adjusted EBITDA for the first half was $53.4 million in 2013 compared to $58.9 million in 2012, a decrease of 9.3%.

Cash flow from operations was $20.6 million compared to $80.3 million in 2012. This comparison in operating cash flows was influenced mostly by less favorable changes in working capital, including additional inventory purchases made in 2013 ahead of announced price increases. Cash on hand decreased by $154.4 million to $16.7 million at March 31, 2013 compared to $171.1 million at March 31, 2012, due primarily to a significant paydown of debt (net of new borrowings) since last year's second quarter and the costs of the acquisitions made since that time.

The Company will host a webcast and conference call today at 10:00 a.m. ET to discuss these results. The live webcast of the call, along with a webcast replay after the call, can be accessed at http://ir.beaconroofingsupply.com/events.cfm (the "Events & Presentations" page of the "Investor Relations" section of the Company's web site). There will be a slide presentation of the results available on that page of the website as well. For those unable to connect to the Internet or who may wish to ask questions, the conference call dial-in number is 719-785-1765. To assure timely access, call participants should call in before 10:00 a.m.

Beacon Roofing Supply, Inc. is a leading distributor of roofing materials and complementary building products, operating 229 branches in 38 states in the United States and across Canada.

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.

 
 
BEACON ROOFING SUPPLY, INC
Condensed Consolidated Statements of Operations
                 
 
Unaudited Three Months Ended Six Months Ended
(Dollars in thousands, except per share data) March 31, 2013

% of Net
Sales

March 30, 2012

% of Net
Sales

March 31, 2013

% of Net
Sales

March 30, 2012

% of Net
Sales

 
Net sales $ 416,277 100.0 % $ 395,161 100.0 % $ 929,987 100.0 % $ 885,011 100.0 %
Cost of products sold   316,626   76.1 %   301,445 76.3 %   703,582 75.7 %   673,970 76.2 %
Gross profit 99,651 23.9 % 93,716 23.7 % 226,405 24.3 % 211,041 23.8 %
 
Operating expenses   97,705   23.5 %   83,963 21.2 %   192,208 20.7 %   166,948 18.9 %
 
Income from operations 1,946 0.5 % 9,753 2.5 % 34,197 3.7 % 44,093 5.0 %
 
Interest expense   1,986   0.5 %   3,279 0.8 %   3,896 0.4 %   6,559 0.7 %
 
Income (loss) before income taxes (40 ) 0.0 % 6,474 1.6 % 30,301 3.3 % 37,534 4.2 %
Income tax expense   121   0.0 %   3,330 0.8 %   12,256 1.3 %   15,275 1.7 %
 
Net income (loss) $ (161 ) 0.0 %   3,144 0.8 % $ 18,045 1.9 % $ 22,259 2.5 %
 
Net income (loss) per share:
Basic $ (0.00 ) $ 0.07 $ 0.37 $ 0.48
Diluted $ (0.00 ) $ 0.07 $ 0.37 $ 0.47
 
Weighted average shares used in computing
 
Basic   48,496,554     46,529,109   48,174,085   46,359,075
Diluted   48,496,554     47,600,215   49,148,923   47,252,547
 
 
BEACON ROOFING SUPPLY, INC
Condensed Consolidated Balance Sheets
       
 

Unaudited

(Dollars in thousands)

March 31, 2013 March 30, 2012 September 30, 2012
 
Assets
Current assets:
Cash and cash equivalents $ 16,728 $ 171,129 $ 40,205
Accounts receivable, net 227,810 210,594 291,456
Inventories 322,939 262,767 222,740
Prepaid expenses and other assets 72,799 81,993 60,287
Deferred income taxes   15,576   14,586   16,087
Total current assets 655,852 741,069 630,775
 
Property and equipment, net 61,576 51,207 57,376
Goodwill 469,587 401,079 443,161
Income (loss) before income taxes   105,026   58,835   85,670
 
Total assets $ 1,292,041 $ 1,252,190 $ 1,216,982
Net income (loss)
 

Liabilities & Stockholders' Equity

Current liabilities:
Accounts payable $ 185,134 $ 239,080 $ 167,390
Accrued expenses 68,624 75,813 71,627
Borrowings under revolving lines of credit 61,000 - 41,300
Current portion of long-term obligations   15,171   86,714   15,632
Total current liabilities 329,929 401,607 295,949
 
Senior notes payable and other obligations, net of current portion 213,994 229,830 220,875
Deferred income taxes 58,005 40,294 48,196
 
Stockholders' equity:
Common stock 487 468 477
Additional paid-in capital 302,496 261,857 280,184
Retained earnings 386,720 315,369 368,675
Accumulated other comprehensive income   410   2,765   2,626
Total stockholders' equity   690,113   580,459   651,962
 
Total liabilities and stockholders' equity $ 1,292,041 $ 1,252,190 $ 1,216,982
 
 
BEACON ROOFING SUPPLY, INC
Condensed Consolidated Statements of Cash Flows
   
 
Six Months Ended

Unaudited

(In thousands)

March 31, 2013 March 30, 2012
 
Operating activities:
Net income $ 18,045 $ 22,259

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 14,595 12,034
Stock-based compensation 4,656 3,777
Adjustment of liability for contingent consideration - (1,000 )
Certain interest expense and other financing costs (2,169 ) -
Gain on sale of assets (576 ) (702 )
Deferred income taxes 527 (921 )

Changes in assets and liabilities, net of the effects of businesses acquired:

Accounts receivable 78,951 82,802
Inventories (87,308 ) (48,675 )
Prepaid expenses and other assets

(2,095

) (43,976 )
Accounts payable and accrued expenses  

(4,035

)   54,683  
Net cash provided by operating activities  

20,591

    80,281  
 
Investing activities:
Purchases of property and equipment (10,778 ) (8,603 )
Acquisition of businesses

(64,484

) (44,370 )
Proceeds from sales of assets   687     788  
Net cash used by investing activities  

(74,575

)   (52,185 )
 
Financing activities:
Borrowings under revolving lines of credit, net 19,700 1
Repayments under senior notes payable and other, net (8,042 ) (10,645 )
Proceeds from exercises of options 15,123 8,958

Income tax benefit from stock-based compensation deductions in excess of the associated compensation costs

  3,151     868  
Net cash provided (used) by financing activities 29,932 (818 )
 
Effect of exchange rate changes on cash   575     824  
Net increase (decrease) in cash and cash equivalents (23,477 ) 28,102
Cash and cash equivalents at beginning of period   40,205     143,027  
Cash and cash equivalents at end of period $ 16,728   $ 171,129  
 
 
BEACON ROOFING SUPPLY, INC
Unaudited
(dollars in millions)
Consolidated Sales by Product Line
           

Three Months Ended

 
March 31, 2013 March 30, 2012
Net Sales Mix % Net Sales Mix % Change
Residential roofing products $ 212.8 51.1 % $ 199.8 50.6 % $ 13.0 6.5 %
Non-residential roofing products 139.8 33.6 % 140.1 35.5 % (0.3 ) -0.2 %
Complementary building products   63.7 15.3 %   55.3 14.0 %   8.4   15.1 %
 
$ 416.3 100.0 % $ 395.2 100.0 % $ 21.1   5.3 %
 
Consolidated Sales by Product Line for Existing Markets*
 

Three Months Ended

 
March 31, 2013 March 30, 2012
Net Sales Mix % Net Sales Mix % Change
Residential roofing products $ 197.0 52.5 % $ 199.8 50.6 % $ (2.8 ) -1.4 %
Non-residential roofing products 124.4 33.2 % 140.1 35.5 % (15.7 ) -11.2 %
Complementary building products   53.6 14.3 %   55.3 14.0 %   (1.7 ) -3.2 %
 
$ 375.0 100.0 % $ 395.2 100.0 % $ (20.2 ) -5.1 %
 
Existing Market Sales By Business Day**
 

Three Months Ended

 
March 31, 2013 March 30, 2012
Net Sales Mix % Net Sales Mix % Change
Residential roofing products $ 3.127 52.5 % $ 3.122 50.6 % $ 0.0 0.2 %
Non-residential roofing products 1.975 33.2 % 2.189 35.5 % (0.2 ) -9.8 %
Complementary building products   0.851 14.3 %   0.864 14.0 %   (0.0 ) -1.5 %
 
$ 5.952 100.0 % $ 6.175 100.0 % $ (0.2 ) -3.6 %
 
Note: Some totals above may not foot due to rounding.
*Excludes branches acquired during the four quarters prior to the start of the second quarter of fiscal 2013.
**There were 63 business days in this year's second quarter compared to 64 business days in last year's second quarter.
 
BEACON ROOFING SUPPLY, INC
Unaudited
(dollars in millions)
Consolidated Sales by Product Line
           
Six Months Ended
 
March 31, 2013 March 30, 2012
Net Sales Mix % Net Sales Mix % Change
 
Residential roofing products $ 455.2 49.0 % $ 433.3 49.0 % $ 21.9 5.1 %
Non-residential roofing products 336.3 36.2 % 334.8 37.8 % 1.5 0.4 %
Complementary building products   138.3 14.9 %   116.8 13.2 %   21.5   18.4 %
 
$ 929.8 100.0 % $ 884.9 100.0 % $ 44.9   5.1 %
 
 
Consolidated Sales by Product Line for Existing Markets*
 

Six Months Ended

 
March 31, 2013 March 30, 2012
Net Sales Mix % Net Sales Mix % Change
 
Residential roofing products $ 407.8 49.2 % $ 422.1 48.7 % $ (14.3 ) -3.5 %
Non-residential roofing products 303.7 36.7 % 330.9 38.1 % (27.2 ) -8.2 %
Complementary building products   116.7 14.1 %   114.5 13.2 %   2.3   2.0 %
 
$ 828.2 100.0 % $ 867.5 100.0 % $ (39.2 ) -4.5 %
 
 
Existing Market Sales By Business Day**
 

Six Months Ended

 
March 31, 2013 March 30, 2012
Net Sales Mix % Net Sales Mix % Change
Residential roofing products $ 3.263 49.2 % $ 3.405 48.7 % $ (0.142 ) -4.2 %
Non-residential roofing products 2.430 36.7 % 2.668 38.1 % (0.238 ) -8.9 %
Complementary building products   0.933 14.1 %   0.923 13.2 %   0.010   1.1 %
 
$ 6.626 100.0 % $ 6.996 100.0 % $ (0.370 ) -5.3 %
 
Note: Some totals above may not foot due to rounding.
*Excludes branches acquired during the four quarters prior to the start of fiscal 2013.
**There were 125 business days in this year's first half compared to 124 business days in last year's first half.
 
 
BEACON ROOFING SUPPLY, INC.
Earnings Before Interest, Taxes, Depreciation and Amortization and Stock-Based Compensation ("Adjusted EBITDA")
Unaudited
(Dollars in thousands)
       

Three Months Ended
March 31,

Six Months Ended
March 31,

  2013     2012   2013   2012  
 
Net income (loss) $ (161 ) $ 3,144 $ 18,045 $ 22,259
Interest expense and other financing costs 1,986 3,279 3,896 6,559
Income taxes 121 3,330 12,256 15,275
Depreciation and amortization 7,538 5,979 14,595 12,034
Adjustment of liability for contingent consideration - - - (1,000 )
Stock-based compensation   2,132     2,030   4,656   3,777  
 
Adjusted EBITDA (1) $ 11,616   $ 17,762 $ 53,448 $ 58,904  
 

(1) Adjusted EBITDA is defined as net income plus interest expense and other financing costs (net of interest income), income taxes, depreciation and amortization, adjustments to contingent consideration, and stock-based compensation. 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. Management uses 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.

While we believe Adjusted EBITDA is a useful measure for investors, it is not a measurement presented in accordance with United States generally accepted accounting principles, or 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 and other financing costs and, 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. The Company's management separately monitors 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
Adjusted Net Loss/Diluted Net Income per Share ("Adjusted Earnings per Share")
Unaudited
(Dollars in thousands except per share amounts)
               

Three Months Ended
March 31,

Six Months Ended
March 31,

  2013   EPS   2012 EPS   2013   EPS   2012   EPS
Net income (loss) $ (161 ) $ (0.00 ) $ 3,144 $ 0.07 $ 18,045 $ 0.37 $ 22,259 $ 0.47
 
Fair value of certain interest rate derivatives (767 ) (0.02 ) - - (1,536 ) (0.03 ) - -
Termination benefits - - - - 542 0.01 - -
Adjustment of Liability for Contingent Consideration*   -     -     -   -   -     -     (1,000 )   (0.02 )
 
Net income (loss) per share: $ (928 ) $ (0.02 ) $ 3,144 $ 0.07 $ 17,051   $ 0.35   $ 21,259   $ 0.45  
 

Note: Some totals above may not foot due to rounding.

* This adjustment was not considered to be taxable and was recorded as a permanent difference for income tax reporting purposes.

Note: The Company's management believes that "Adjusted Earnings per Share," which excludes certain events such as the recognition of the fair value of certain interest rate derivatives in interest expense and other financing costs, termination benefits, and the decrease in the liability for consideration due for the Enercon acquisition, is useful to investors because it permits investors to better understand year-over-year changes in underlying operating performance. The above termination benefits are associated with the retirement of our former CFO. While management believes Adjusted Earnings per Share (EPS) is a useful measure for investors, it is not a measurement presented in accordance with United States generally accepted accounting principles (GAAP). You should not consider Adjusted Earnings per Share in isolation or as a substitute for net loss per share or diluted earnings per share calculated in accordance with GAAP.

BECN-F

Beacon Roofing Supply, Inc.
Joseph Nowicki, 571-323-3940
Executive Vice President & CFO
JNowicki@beaconroofingsupply.com

Source: Beacon Roofing Supply, Inc.

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