UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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(Address of Principal Executive Offices) (Zip Code)
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(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 |
Results of Operations and Financial Condition |
On August 6, 2020, Beacon Roofing Supply, Inc. (the “Company”) issued a press release providing information regarding earnings for the third quarter ended June 30, 2020. A copy of the press release is attached hereto as Exhibit 99.1.
On August 6, 2020, the Company delivered a presentation as part of the webcast for the earnings conference call for the third quarter ended June 30, 2020. A copy of the presentation is attached hereto as Exhibit 99.2.
The information including Exhibit 99.1 and Exhibit 99.2 in Item 2.02 of this Form 8-K is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section. The information in this Form 8-K shall not be incorporated by reference into any filing under the Securities Act of 1933, except as shall otherwise be expressly set forth by specific reference in such filing.
Item 9.01 |
Financial Statements and Exhibits |
(d) Exhibits
Exhibit Index |
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Exhibit Number |
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Description |
99.1 |
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Beacon Roofing Supply, Inc. press release dated August 6, 2020. |
99.2 |
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Beacon Roofing Supply, Inc. FY 2020 third quarter earnings presentation dated August 6, 2020. |
104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BEACON ROOFING SUPPLY, INC. |
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Date: August 6, 2020 |
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By: |
/s/ FRANK A. LONEGRO |
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Frank A. Lonegro |
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Executive Vice President & Chief Financial Officer |
Exhibit 99.1
BEACON REPORTS THIRD QUARTER 2020 RESULTS
Cost actions drive improved Q3 operating margin percentage
Third quarter cash generation yields significant net debt reduction
• |
Net sales of $1.79 billion, a decrease of 6.9% vs. prior year; sales improvement throughout the quarter, with June daily sales flat vs. prior year |
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• |
Operating expense declined to $357.2 million (19.9% of sales) vs. $398.3 million (20.7% of sales) in the prior year, including a 10.2% decrease in SG&A expenses vs. prior year |
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• |
Adjusted Operating Expense of $306.3 million (17.1% of sales) vs. $339.2 million (17.6% of sales) in the prior year |
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• |
Net income (loss) of $(6.7) million vs. $31.0 million in the prior year, primarily driven by comparative $41.2 million tax provision increase; net margin of (0.4%) vs. 1.6% in the prior year |
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• |
Adjusted EBITDA of $147.5 million vs. $157.8 million in the prior year; Adjusted EBITDA margin of 8.2% in both quarters |
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• |
Cost leverage on improving sales within the quarter and working capital actions drove record Q3 operating cash flows of $401.3 million, yielding significant net debt reduction |
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HERNDON, VA.—(BUSINESS WIRE)—August 6, 2020—Beacon (Nasdaq: BECN) (the “Company”) announced results today for its third quarter and nine-month period ended June 30, 2020 (“2020”).
“Fiscal third quarter results were highlighted by exceptional operating cost and cash flow performance,” said Julian Francis, Beacon’s President and Chief Executive Officer. “Our team rapidly implemented a broad-based cost reduction strategy beginning in March, resulting in meaningful sequential and year-over-year expense decreases, as well as an Adjusted EBITDA margin that was consistent with the prior year period. Although certain cost actions were clearly temporary in nature, we remain focused on improving our expense structure to produce permanent efficiency gains and foster attractive levels of operating leverage as demand improves. Sales steadily improved throughout the quarter, as COVID-19 restrictions eased and economies reopened, highlighted by June daily sales that were similar to prior year levels. Our limited reliance on discretionary product categories and our diverse mix of residential and non-residential markets provides our business with stability in this challenging environment. We produced record operating cash flow this quarter, leveraging favorable operating execution and tighter management of working capital. While uncertainties from the pandemic remain, our results this quarter have reinforced our commitment to our key strategic initiatives and demonstrated our ability to drive productivity and generate strong operating cash flow, even in difficult times.”
Third Quarter
Net sales decreased 6.9% to $1.79 billion, from $1.92 billion in 2019. The sales decrease was influenced by softer demand early in the quarter resulting from government restrictions in reaction to COVID-19, partially offset by stable sales in states/provinces without similar restrictions. Residential roofing product sales decreased 1.3%, non-residential roofing product sales decreased 9.6%, and complementary product sales decreased 12.5% compared to the prior year. The third quarter of fiscal years 2020 and 2019 each had 64 business days.
Net income (loss) was $(6.7) million, compared to $31.0 million in 2019. Net income (loss) attributable to common shareholders was $(12.7) million, compared to $25.0 million in 2019. EPS was $(0.18), compared to $0.32 in 2019. Third quarter results were primarily impacted by reduced sales and lower gross margins, largely attributable to a softer demand environment induced by COVID-19, as well as a net $32.8 million tax provision stemming from the adjustment of a prior quarter deferred tax benefit related to the Company’s application of the CARES Act. These impacts were partially offset by the implementation of aggressive cost-cutting actions, including reductions in both hours worked and headcount as well as decreases in fleet costs and other discretionary expenditures.
Adjusted Net Income (Loss) was $69.5 million, compared to $72.6 million in 2019. Adjusted EBITDA was $147.5 million, compared to $157.8 million in 2019.
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.
Year-to-Date
Net sales decreased 2.9% to $4.93 billion, from $5.08 billion in 2019. The sales decrease was primarily influenced by softer demand resulting from government restrictions in reaction to COVID-19 and decreased hurricane-related demand in the Mid-Atlantic and Southeast, partially offset by the continued positive impact of our industry-leading digital platform. Residential roofing product sales decreased 1.7%, non-residential roofing product sales were flat, and complementary product sales decreased 6.5% compared to the prior year. The first nine months of fiscal years 2020 and 2019 had 190 and 189 business days, respectively.
Net income (loss) was $(152.8) million, compared to $(38.0) million in 2019. Net income (loss) attributable to common shareholders was $(170.8) million, compared to $(56.0) million in 2019. EPS was $(2.48), compared to $(0.82) in 2019. Nine-month results were primarily impacted by the second quarter write-off of certain trade names in connection with the Company’s rebranding efforts that were announced in January 2020.
Adjusted Net Income (Loss) was $85.3 million, compared to $94.2 million in 2019. Adjusted EBITDA was $280.7 million, compared to $307.0 million in 2019.
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.
Earnings Call
The Company will host a conference call and webcast today at 5:00 p.m. ET to discuss these results. Details for the earnings release event are as follows:
What:Beacon Third Quarter 2020 Earnings Call
When:Thursday, August 6, 2020
Time:5:00 p.m. ET
Access:Register for the conference call or webcast by visiting:
Beacon Investor Relations – Events & Presentations
Upon registration, participants will receive an email containing event details and unique access codes. To ensure timely access, participants should register for the earnings call at least 10 minutes before the 5:00 p.m. ET start time. An archived copy of the webcast will be available on the Events & Presentations page shortly after the call.
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 Form 10-K for the fiscal year ended September 30, 2019 and Form 10-Q for the quarter ended March 31, 2020. 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
CONTACT:
Brent Rakers, Director Investor Relations
Brent.Rakers@becn.com
901-232-2737
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
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Three Months Ended June 30, |
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Nine Months Ended June 30, |
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2020 |
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% of Net Sales |
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2019 |
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% of Net Sales |
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2020 |
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% of Net Sales |
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2019 |
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% of Net Sales |
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Net sales |
$ |
1,792,505 |
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100.0 |
% |
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$ |
1,924,534 |
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100.0 |
% |
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$ |
4,926,103 |
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100.0 |
% |
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$ |
5,075,247 |
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100.0 |
% |
Cost of products sold |
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1,360,373 |
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75.9 |
% |
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1,451,998 |
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75.4 |
% |
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3,740,873 |
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75.9 |
% |
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3,832,154 |
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75.5 |
% |
Gross profit |
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432,132 |
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24.1 |
% |
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472,536 |
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24.6 |
% |
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1,185,230 |
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24.1 |
% |
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1,243,093 |
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24.5 |
% |
Operating expense: |
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Selling, general and administrative |
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295,426 |
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16.5 |
% |
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328,827 |
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17.1 |
% |
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940,855 |
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19.1 |
% |
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976,928 |
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19.3 |
% |
Depreciation |
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16,986 |
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0.9 |
% |
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17,731 |
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0.9 |
% |
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53,553 |
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1.1 |
% |
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52,779 |
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1.0 |
% |
Amortization1 |
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44,825 |
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2.5 |
% |
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51,724 |
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2.7 |
% |
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276,959 |
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5.6 |
% |
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155,508 |
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3.1 |
% |
Total operating expense |
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357,237 |
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19.9 |
% |
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398,282 |
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20.7 |
% |
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1,271,367 |
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25.8 |
% |
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1,185,215 |
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23.4 |
% |
Income (loss) from operations |
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74,895 |
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4.2 |
% |
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74,254 |
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3.9 |
% |
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(86,137 |
) |
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(1.7 |
%) |
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57,878 |
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1.1 |
% |
Interest expense, financing costs, and other2 |
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35,059 |
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2.0 |
% |
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38,089 |
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2.0 |
% |
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96,806 |
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2.0 |
% |
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116,902 |
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2.3 |
% |
Loss on debt extinguishment |
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- |
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0.0 |
% |
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- |
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0.0 |
% |
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14,678 |
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0.3 |
% |
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- |
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0.0 |
% |
Income (loss) before provision for income taxes |
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39,836 |
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2.2 |
% |
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36,165 |
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1.9 |
% |
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(197,621 |
) |
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(4.0 |
%) |
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(59,024 |
) |
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(1.2 |
%) |
Provision for (benefit from) income taxes3 |
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46,561 |
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2.6 |
% |
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5,178 |
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0.3 |
% |
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(44,846 |
) |
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(0.9 |
%) |
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(21,032 |
) |
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(0.5 |
%) |
Net income (loss) |
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(6,725 |
) |
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(0.4 |
%) |
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30,987 |
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1.6 |
% |
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(152,775 |
) |
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(3.1 |
%) |
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(37,992 |
) |
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(0.7 |
%) |
Dividends on Preferred Stock4 |
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6,000 |
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0.3 |
% |
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6,000 |
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0.3 |
% |
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18,000 |
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0.4 |
% |
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18,000 |
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0.4 |
% |
Net income (loss) attributable to common shareholders |
$ |
(12,725 |
) |
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(0.7 |
%) |
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$ |
24,987 |
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1.3 |
% |
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$ |
(170,775 |
) |
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(3.5 |
%) |
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$ |
(55,992 |
) |
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(1.1 |
%) |
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Weighted-average common stock outstanding: |
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Basic |
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68,840,849 |
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68,477,946 |
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68,775,920 |
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68,391,882 |
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Diluted5 |
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68,840,849 |
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69,265,384 |
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68,775,920 |
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68,391,882 |
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Net income (loss) per share6: |
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Basic |
$ |
(0.18 |
) |
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$ |
0.32 |
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$ |
(2.48 |
) |
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$ |
(0.82 |
) |
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Diluted |
$ |
(0.18 |
) |
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$ |
0.32 |
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$ |
(2.48 |
) |
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$ |
(0.82 |
) |
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____________________________________
1 |
Nine months ended June 30, 2020 amount includes non-cash accelerated intangible asset amortization of $142.6 million in connection with the Rebranding. |
2 |
Nine months ended June 30, 2020 amount includes a $5.6 million settlement received in connection with a class action lawsuit and a $5.3 million refund received as the final true-up of the $164.0 million payment resulting from the 338(h)(10) election made in connection with the acquisition of Allied Building Products Corp. on January 2, 2018 (the “Allied Acquisition”). |
3 |
Three and nine months ended June 30, 2020 amounts include a tax provision (benefit) of $32.8 million and $(0.5) million, respectively, stemming from the revaluation of deferred tax assets and liabilities made in conjunction with the Company’s application of the CARES Act. Nine months ended June 30, 2020 amount also includes an income tax provision (benefit) of $(36.5) million stemming from a decrease of deferred tax liabilities in connection with the Rebranding. |
4 |
Three months ended June 30, 2020 and 2019 amounts are composed of $5.0 million in accrued cumulative Preferred Stock dividends and an additional $1.0 million of Preferred Stock dividends that had been declared and paid as of period end. Nine months ended June 30, 2020 and 2019 amounts are composed of $5.0 million in accrued cumulative Preferred Stock dividends and an additional $13.0 million of Preferred Stock dividends that had been declared and paid as of period end. |
5 |
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. |
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, |
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Nine Months Ended June 30, |
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||||||||||
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2020 |
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2019 |
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2020 |
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2019 |
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||||
Net income (loss) |
$ |
(6,725 |
) |
|
$ |
30,987 |
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|
$ |
(152,775 |
) |
|
$ |
(37,992 |
) |
Dividends on Preferred Stock |
|
6,000 |
|
|
|
6,000 |
|
|
|
18,000 |
|
|
|
18,000 |
|
Net income (loss) attributable to common shareholders |
$ |
(12,725 |
) |
|
$ |
24,987 |
|
|
$ |
(170,775 |
) |
|
$ |
(55,992 |
) |
Undistributed income allocated to participating securities |
|
- |
|
|
|
(3,099 |
) |
|
|
- |
|
|
|
- |
|
Net income (loss) attributable to common shareholders - basic and diluted |
$ |
(12,725 |
) |
|
$ |
21,888 |
|
|
$ |
(170,775 |
) |
|
$ |
(55,992 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic |
|
68,840,849 |
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|
|
68,477,946 |
|
|
|
68,775,920 |
|
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|
68,391,882 |
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Effect of common share equivalents |
|
- |
|
|
|
787,438 |
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|
|
- |
|
|
|
- |
|
Weighted-average common shares outstanding - diluted |
|
68,840,849 |
|
|
|
69,265,384 |
|
|
|
68,775,920 |
|
|
|
68,391,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Net income (loss) per share - basic |
$ |
(0.18 |
) |
|
$ |
0.32 |
|
|
$ |
(2.48 |
) |
|
$ |
(0.82 |
) |
Net income (loss) per share - diluted |
$ |
(0.18 |
) |
|
$ |
0.32 |
|
|
$ |
(2.48 |
) |
|
$ |
(0.82 |
) |
Consolidated Balance Sheets
(In thousands)
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June 30, |
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September 30, |
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June 30, |
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|||
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2020 |
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2019 |
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|
2019 |
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Assets |
|
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Current assets: |
|
|
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|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
1,018,376 |
|
|
$ |
72,287 |
|
|
$ |
27,729 |
|
Accounts receivable, net |
|
993,757 |
|
|
|
1,108,134 |
|
|
|
1,079,091 |
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Inventories, net |
|
951,538 |
|
|
|
1,018,183 |
|
|
|
1,124,063 |
|
Prepaid expenses and other current assets |
|
301,964 |
|
|
|
315,643 |
|
|
|
361,831 |
|
Total current assets |
|
3,265,635 |
|
|
|
2,514,247 |
|
|
|
2,592,714 |
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Property and equipment, net |
|
236,928 |
|
|
|
260,376 |
|
|
|
269,041 |
|
Goodwill |
|
2,489,760 |
|
|
|
2,490,590 |
|
|
|
2,490,940 |
|
Intangibles, net |
|
845,217 |
|
|
|
1,125,540 |
|
|
|
1,177,694 |
|
Operating lease assets |
|
442,287 |
|
|
|
- |
|
|
|
- |
|
Other assets, net |
|
25 |
|
|
|
2,059 |
|
|
|
1,243 |
|
Total assets |
$ |
7,279,852 |
|
|
$ |
6,392,812 |
|
|
$ |
6,531,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
$ |
780,179 |
|
|
$ |
822,931 |
|
|
$ |
643,411 |
|
Accrued expenses |
|
559,123 |
|
|
|
599,155 |
|
|
|
590,756 |
|
Current operating lease liabilities |
|
99,165 |
|
|
|
- |
|
|
|
- |
|
Current portions of long-term debt/obligations |
|
12,858 |
|
|
|
18,689 |
|
|
|
19,366 |
|
Total current liabilities |
|
1,451,325 |
|
|
|
1,440,775 |
|
|
|
1,253,533 |
|
Borrowings under revolving lines of credit, net |
|
848,736 |
|
|
|
80,961 |
|
|
|
424,011 |
|
Long-term debt, net |
|
2,494,474 |
|
|
|
2,494,623 |
|
|
|
2,494,648 |
|
Deferred income taxes, net |
|
58,099 |
|
|
|
103,913 |
|
|
|
110,180 |
|
Non-current operating lease liabilities |
|
339,540 |
|
|
|
- |
|
|
|
- |
|
Long-term obligations under equipment financing, net |
|
400 |
|
|
|
4,609 |
|
|
|
6,332 |
|
Other long-term liabilities |
|
1,351 |
|
|
|
6,383 |
|
|
|
5,352 |
|
Total liabilities |
|
5,193,925 |
|
|
|
4,131,264 |
|
|
|
4,294,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock1 |
|
399,195 |
|
|
|
399,195 |
|
|
|
399,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
688 |
|
|
|
685 |
|
|
|
684 |
|
Undesignated preferred stock |
|
- |
|
|
|
- |
|
|
|
- |
|
Additional paid-in capital |
|
1,095,149 |
|
|
|
1,083,042 |
|
|
|
1,077,953 |
|
Retained earnings |
|
628,447 |
|
|
|
799,222 |
|
|
|
777,842 |
|
Accumulated other comprehensive income (loss) |
|
(37,552 |
) |
|
|
(20,596 |
) |
|
|
(18,098 |
) |
Total stockholders' equity |
|
1,686,732 |
|
|
|
1,862,353 |
|
|
|
1,838,381 |
|
Total liabilities and stockholders' equity |
$ |
7,279,852 |
|
|
$ |
6,392,812 |
|
|
$ |
6,531,632 |
|
____________________________________
1 |
In connection with the Allied Acquisition, 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. |
Consolidated Statements of Cash Flows
(In thousands)
|
Nine Months Ended June 30, |
|
|||||
|
2020 |
|
|
2019 |
|
||
Operating Activities |
|
|
|
|
|
|
|
Net income (loss) |
$ |
(152,775 |
) |
|
$ |
(37,992 |
) |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
330,513 |
|
|
|
208,287 |
|
Stock-based compensation |
|
13,349 |
|
|
|
12,901 |
|
Certain interest expense and other financing costs |
|
8,608 |
|
|
|
9,077 |
|
Beneficial lease amortization |
|
- |
|
|
|
1,714 |
|
Loss on debt extinguishment |
|
14,678 |
|
|
|
- |
|
Gain on sale of fixed assets |
|
(2,008 |
) |
|
|
(3,470 |
) |
Deferred income taxes |
|
(41,163 |
) |
|
|
3,195 |
|
338(h)(10) election refund1 |
|
(5,282 |
) |
|
|
- |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
113,277 |
|
|
|
10,970 |
|
Inventories |
|
65,817 |
|
|
|
(188,213 |
) |
Prepaid expenses and other current assets |
|
4,790 |
|
|
|
(117,520 |
) |
Accounts payable and accrued expenses |
|
(102,565 |
) |
|
|
(93,908 |
) |
Other assets and liabilities |
|
3,210 |
|
|
|
62 |
|
Net cash provided by (used in) operating activities |
|
250,449 |
|
|
|
(194,897 |
) |
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
Purchases of property and equipment |
|
(31,397 |
) |
|
|
(44,337 |
) |
Acquisition of businesses, net1 |
|
5,282 |
|
|
|
(163,973 |
) |
Proceeds from the sale of assets |
|
2,399 |
|
|
|
6,200 |
|
Net cash provided by (used in) investing activities |
|
(23,716 |
) |
|
|
(202,110 |
) |
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
Borrowings under revolving lines of credit |
|
2,037,212 |
|
|
|
1,734,476 |
|
Payments under revolving lines of credit |
|
(1,271,233 |
) |
|
|
(1,404,836 |
) |
Payments under term loan |
|
(7,275 |
) |
|
|
(7,275 |
) |
Borrowings under senior notes |
|
300,000 |
|
|
|
- |
|
Payment under senior notes |
|
(309,564 |
) |
|
|
- |
|
Payment of debt issuance costs |
|
(3,900 |
) |
|
|
- |
|
Payments under equipment financing facilities and finance leases |
|
(6,446 |
) |
|
|
(7,602 |
) |
Payment of dividends on Preferred Stock |
|
(18,000 |
) |
|
|
(18,000 |
) |
Proceeds from issuance of common stock related to equity awards |
|
1,627 |
|
|
|
1,654 |
|
Payment of taxes related to net share settlement of equity awards |
|
(2,866 |
) |
|
|
(3,639 |
) |
Net cash provided by (used in) financing activities |
|
719,555 |
|
|
|
294,778 |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
(199 |
) |
|
|
31 |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
946,089 |
|
|
|
(102,198 |
) |
Cash and cash equivalents, beginning of period |
|
72,287 |
|
|
|
129,927 |
|
Cash and cash equivalents, end of period |
$ |
1,018,376 |
|
|
$ |
27,729 |
|
__________________________________________________
1 |
Related to a gain recognized for a partial refund of the $164.0 million payment resulting from the 338(h)(10) election made in connection with the Allied Acquisition. |
Consolidated Sales by Product Line
(In thousands)
Sales by Product Line |
|
||||||||||||||||||||||
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
||||||||||||||
|
2020 |
|
|
2019 |
|
|
Change |
|
|||||||||||||||
|
Net Sales |
|
|
Mix % |
|
|
Net Sales |
|
|
Mix % |
|
|
$ |
|
|
% |
|
||||||
Residential roofing products |
$ |
837,039 |
|
|
|
46.7 |
% |
|
$ |
848,259 |
|
|
|
44.1 |
% |
|
$ |
(11,220 |
) |
|
|
(1.3 |
%) |
Non-residential roofing products |
|
426,961 |
|
|
|
23.8 |
% |
|
|
472,105 |
|
|
|
24.5 |
% |
|
|
(45,144 |
) |
|
|
(9.6 |
%) |
Complementary building products |
|
528,505 |
|
|
|
29.5 |
% |
|
|
604,170 |
|
|
|
31.4 |
% |
|
|
(75,665 |
) |
|
|
(12.5 |
%) |
|
$ |
1,792,505 |
|
|
|
100.0 |
% |
|
$ |
1,924,534 |
|
|
|
100.0 |
% |
|
$ |
(132,029 |
) |
|
|
(6.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Business Day1 |
|
||||||||||||||||||||||
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
2020 |
|
|
2019 |
|
|
Change |
|
|||||||||||||||
|
Net Sales |
|
|
Mix % |
|
|
Net Sales |
|
|
Mix % |
|
|
$ |
|
|
% |
|
||||||
Residential roofing products |
$ |
13,079 |
|
|
|
46.7 |
% |
|
$ |
13,254 |
|
|
|
44.1 |
% |
|
$ |
(175 |
) |
|
|
(1.3 |
%) |
Non-residential roofing products |
|
6,671 |
|
|
|
23.8 |
% |
|
|
7,377 |
|
|
|
24.5 |
% |
|
|
(706 |
) |
|
|
(9.6 |
%) |
Complementary building products |
|
8,258 |
|
|
|
29.5 |
% |
|
|
9,440 |
|
|
|
31.4 |
% |
|
|
(1,182 |
) |
|
|
(12.5 |
%) |
|
$ |
28,008 |
|
|
|
100.0 |
% |
|
$ |
30,071 |
|
|
|
100.0 |
% |
|
$ |
(2,063 |
) |
|
|
(6.9 |
%) |
__________________________________________________
1 |
The third quarter of fiscal years 2020 and 2019 each had 64 business days. |
Sales by Product Line |
|
||||||||||||||||||||||
|
Nine Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
2020 |
|
|
2019 |
|
|
Change |
|
|||||||||||||||
|
Net Sales |
|
|
Mix % |
|
Net Sales |
|
|
Mix % |
|
$ |
|
|
% |
|
||||||||
Residential roofing products |
$ |
2,130,825 |
|
|
|
43.2 |
% |
|
$ |
2,168,755 |
|
|
|
42.7 |
% |
|
$ |
(37,930 |
) |
|
|
(1.7 |
%) |
Non-residential roofing products |
|
1,200,665 |
|
|
|
24.4 |
% |
|
|
1,200,546 |
|
|
|
23.7 |
% |
|
|
119 |
|
|
|
0.0 |
% |
Complementary building products |
|
1,594,613 |
|
|
|
32.4 |
% |
|
|
1,705,946 |
|
|
|
33.6 |
% |
|
|
(111,333 |
) |
|
|
(6.5 |
%) |
|
$ |
4,926,103 |
|
|
|
100.0 |
% |
|
$ |
5,075,247 |
|
|
|
100.0 |
% |
|
$ |
(149,144 |
) |
|
|
(2.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Business Day1 |
|
||||||||||||||||||||||
|
Nine Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
2020 |
|
|
2019 |
|
|
Change |
|
|||||||||||||||
|
Net Sales |
|
|
Mix % |
|
Net Sales |
|
|
Mix % |
|
$ |
|
|
% |
|
||||||||
Residential roofing products |
$ |
11,215 |
|
|
|
43.2 |
% |
|
$ |
11,475 |
|
|
|
42.7 |
% |
|
$ |
(260 |
) |
|
|
(2.3 |
%) |
Non-residential roofing products |
|
6,319 |
|
|
|
24.4 |
% |
|
|
6,352 |
|
|
|
23.7 |
% |
|
|
(33 |
) |
|
|
(0.5 |
%) |
Complementary building products |
|
8,393 |
|
|
|
32.4 |
% |
|
|
9,026 |
|
|
|
33.6 |
% |
|
|
(633 |
) |
|
|
(7.0 |
%) |
|
$ |
25,927 |
|
|
|
100.0 |
% |
|
$ |
26,853 |
|
|
|
100.0 |
% |
|
$ |
(926 |
) |
|
|
(3.4 |
%) |
__________________________________________________
1 |
The first nine months of fiscal years 2020 and 2019 had 190 and 189 business days, respectively. |
Adjusted Net Income (Loss)1
(In thousands)
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Net income (loss) |
$ |
(6,725 |
) |
|
$ |
30,987 |
|
|
$ |
(152,775 |
) |
|
$ |
(37,992 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs2 |
|
48,416 |
|
|
|
60,482 |
|
|
|
142,925 |
|
|
|
185,922 |
|
Business restructuring costs3 |
|
2,846 |
|
|
|
1,664 |
|
|
|
167,836 |
|
|
|
1,664 |
|
COVID-19 impact4 |
|
36,216 |
|
|
|
- |
|
|
|
2,894 |
|
|
|
- |
|
Effects of tax reform |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(462 |
) |
Total adjustments |
|
87,478 |
|
|
|
62,146 |
|
|
|
313,655 |
|
|
|
187,124 |
|
Tax impact of total adjustments5 |
|
(11,271 |
) |
|
|
(20,563 |
) |
|
|
(75,550 |
) |
|
|
(54,946 |
) |
Total adjustments, net of tax |
|
76,207 |
|
|
|
41,583 |
|
|
|
238,105 |
|
|
|
132,178 |
|
Adjusted Net Income (Loss) |
$ |
69,482 |
|
|
$ |
72,570 |
|
|
$ |
85,330 |
|
|
$ |
94,186 |
|
_________________________
1 |
Adjusted Net Income (Loss) is defined as net income excluding the impact of acquisition costs, business restructuring costs, the effects of tax reform, and the direct financial impact of the COVID-19 pandemic. |
2 |
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, |
|
||||||||||
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Amortization of intangible assets |
$ |
44,825 |
|
|
$ |
51,724 |
|
|
$ |
134,310 |
|
|
$ |
155,508 |
|
Costs classified as selling, general, and administrativea |
|
1,588 |
|
|
|
5,733 |
|
|
|
7,887 |
|
|
|
21,337 |
|
Non-operating (income) expensesb |
|
2,003 |
|
|
|
3,025 |
|
|
|
728 |
|
|
|
9,077 |
|
Total acquisition costs |
$ |
48,416 |
|
|
$ |
60,482 |
|
|
$ |
142,925 |
|
|
$ |
185,922 |
|
___________________________
|
a. |
Mainly composed of professional fees, branch integration expenses, travel expenses, employee severance and retention costs, and other personnel expenses. |
|
3 |
The following table presents a breakout of the components of business restructuring costs for each of the periods indicated: |
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Amortization in connection with the Rebranding |
$ |
- |
|
|
$ |
- |
|
|
$ |
142,649 |
|
|
$ |
- |
|
Costs classified as selling, general, and administrativea |
|
1,069 |
|
|
|
1,664 |
|
|
|
1,890 |
|
|
|
1,664 |
|
Non-operating (income) expensesb |
|
1,777 |
|
|
|
- |
|
|
|
23,297 |
|
|
|
- |
|
Total business restructuring costs |
$ |
2,846 |
|
|
$ |
1,664 |
|
|
$ |
167,836 |
|
|
$ |
1,664 |
|
___________________________
|
a. |
Mainly composed of costs stemming from headcount rationalization efforts and certain Rebranding costs. |
|
4 |
Three and nine months ended June 30, 2020 amounts include a tax provision (benefit) of $32.8 million and $(0.5) million, respectively, stemming from the revaluation of deferred tax assets and liabilities made in conjunction with the Company’s application of the CARES Act. Three and nine months ended June 30, 2020 amounts also include $3.4 million of severance and other costs directly related to the Company’s response to the COVID-19 pandemic, which are classified as selling, general and administrative. |
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 over comparative periods by providing financial results that are unaffected by certain items that are not indicative of ongoing operating performance.
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.
Adjusted EBITDA1
(In thousands)
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Net income (loss) |
$ |
(6,725 |
) |
|
$ |
30,987 |
|
|
$ |
(152,775 |
) |
|
$ |
(37,992 |
) |
Interest expense, net |
|
35,360 |
|
|
|
40,169 |
|
|
|
105,781 |
|
|
|
121,800 |
|
Income taxes2 |
|
46,561 |
|
|
|
5,178 |
|
|
|
(44,846 |
) |
|
|
(21,032 |
) |
Depreciation and amortization3 |
|
61,811 |
|
|
|
69,455 |
|
|
|
330,512 |
|
|
|
208,287 |
|
Stock-based compensation |
|
3,532 |
|
|
|
4,637 |
|
|
|
13,349 |
|
|
|
12,901 |
|
Acquisition costs4 |
|
1,588 |
|
|
|
5,733 |
|
|
|
2,605 |
|
|
|
21,337 |
|
Business restructuring costs5 |
|
1,962 |
|
|
|
1,664 |
|
|
|
22,589 |
|
|
|
1,664 |
|
COVID-19 impact6 |
|
3,426 |
|
|
|
- |
|
|
|
3,449 |
|
|
|
- |
|
Adjusted EBITDA |
$ |
147,515 |
|
|
$ |
157,823 |
|
|
$ |
280,664 |
|
|
$ |
306,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
1,792,505 |
|
|
$ |
1,924,534 |
|
|
$ |
4,926,103 |
|
|
$ |
5,075,247 |
|
Net margin7 |
|
(0.4 |
%) |
|
|
1.6 |
% |
|
|
(3.1 |
%) |
|
|
(0.7 |
%) |
Adjusted EBITDA margin7 |
|
8.2 |
% |
|
|
8.2 |
% |
|
|
5.7 |
% |
|
|
6.0 |
% |
_________________________________
1 |
Adjusted EBITDA is defined as net income excluding the impact of interest expense (net of interest income), income taxes, depreciation and amortization, stock-based compensation, acquisition costs, business restructuring costs, and the direct financial impact of the COVID-19 pandemic. |
2 |
Three and nine months ended June 30, 2020 amounts include a tax provision (benefit) of $32.8 million and $(0.5) million, respectively, stemming from the revaluation of deferred tax assets and liabilities made in conjunction with the Company’s application of the CARES Act. Nine months ended June 30, 2020 amount also includes an income tax provision (benefit) of $(36.5) million stemming from a decrease of deferred tax liabilities in connection with the Rebranding. |
3 |
Nine months ended June 30, 2020 amount includes the impact of non-cash accelerated intangible asset amortization of $142.6 million related to the write-off of certain trade names in connection with the Rebranding. |
4 |
Includes selling, general, and administrative costs related to acquisitions such as professional fees, branch integration expenses, travel expenses, employee severance and retention costs, and other personnel expenses. For the nine months ended June 30, 2020, amounts are offset by a $5.3 million refund received as the final true-up of the $164.0 million payment resulting from the 338(h)(10) election made in connection with the Allied Acquisition. Other items the Company classifies as acquisition costs are embedded within the other balances reported in the table. |
5 |
Amounts include accrued estimated costs related to employee benefit plan withdrawals, costs stemming from headcount rationalization efforts, and certain Rebranding costs. Nine months ended June 30, 2020 amount also includes a loss on debt extinguishment of $14.7 million in connection with October 2019 debt refinancing. Other items the Company classifies as business restructuring costs are embedded within the other balances reported in the table. |
6 |
Mainly composed of severance and other costs directly related to the Company’s response to the COVID-19 pandemic. Other items the Company classifies as part of the COVID-19 impact are embedded within the other balances reported in the table. |
7 |
We define net margin as net income (loss) divided by net sales and Adjusted EBITDA margin as Adjusted EBITDA divided by net sales. |
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 over comparative periods by providing financial results that are unaffected by certain items that are not indicative of ongoing operating performance.
While we believe Adjusted EBITDA is useful to investors when evaluating our business, it is not prepared and presented in accordance with 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.
Adjusted Operating Expense1
(In thousands)
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Operating expense |
$ |
357,237 |
|
|
$ |
398,282 |
|
|
$ |
1,271,367 |
|
|
$ |
1,185,215 |
|
Amortization2 |
|
(44,825 |
) |
|
|
(51,724 |
) |
|
|
(276,959 |
) |
|
|
(155,508 |
) |
Acquisition costs3 |
|
(1,588 |
) |
|
|
(5,733 |
) |
|
|
(7,887 |
) |
|
|
(21,337 |
) |
Business restructuring costs4 |
|
(1,069 |
) |
|
|
(1,664 |
) |
|
|
(1,890 |
) |
|
|
(1,664 |
) |
COVID-19 impact5 |
|
(3,426 |
) |
|
|
- |
|
|
|
(3,449 |
) |
|
|
- |
|
Adjusted Operating Expense |
$ |
306,329 |
|
|
$ |
339,161 |
|
|
$ |
981,182 |
|
|
$ |
1,006,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
1,792,505 |
|
|
$ |
1,924,534 |
|
|
$ |
4,926,103 |
|
|
$ |
5,075,247 |
|
Operating expense as a % of net sales |
|
19.9 |
% |
|
|
20.7 |
% |
|
|
25.8 |
% |
|
|
23.4 |
% |
Adjusted Operating Expense as a % of net sales |
|
17.1 |
% |
|
|
17.6 |
% |
|
|
19.9 |
% |
|
|
19.8 |
% |
_________________________________
1 |
Adjusted Operating Expense is defined as operating expense excluding the impact of amortization, acquisition costs, business restructuring costs, and the direct financial impact of the COVID-19 pandemic. |
2 |
Nine months ended June 30, 2020 amount includes the impact of non-cash accelerated intangible asset amortization of $142.6 million related to the write-off of certain trade names in connection with the Rebranding. |
3 |
Mainly composed of professional fees, branch integration expenses, travel expenses, employee severance and retention costs, and other personnel expenses. |
4 |
Mainly composed of costs stemming from headcount rationalization efforts and certain Rebranding costs. |
5 |
Mainly composed of severance and other costs directly related to the Company’s response to the COVID-19 pandemic. |
We use Adjusted Operating Expense 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 Operating Expense consistently using the same methods each period.
We believe that Adjusted Operating Expense is a useful measure because it permits investors to better understand changes over comparative periods by providing financial results that are unaffected by certain items that are not indicative of ongoing operating performance.
While we believe Adjusted Operating Expense is useful to investors when evaluating our business, it is not prepared and presented in accordance with GAAP, and therefore should be considered supplemental in nature. Adjusted Operating Expense should not be considered in isolation or as a substitute for operating expense calculated in accordance with GAAP. Adjusted Operating Expense may have material limitations and may differ from similarly titled measures presented by other companies.
august 6, 2020 2020 3rd quarter earnings call Exhibit 99.2
Disclosure notice This presentation 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 Form 10-K for the fiscal year ended September 30, 2019 and Form 10-Q for the quarter ended March 31, 2020. 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. This presentation contains references to certain financial measures that are not presented in accordance with United States Generally Accepted Accounting Principles (“GAAP"). The Company uses non-GAAP financial measures to evaluate financial performance, analyze underlying business trends and establish operational goals and forecasts that are used when allocating resources. The Company believes these non-GAAP financial measures permit investors to better understand changes over comparative periods by providing financial results that are unaffected by certain items that are not indicative of ongoing operating performance. While the Company believes these measures are useful to investors when evaluating performance, they are not prepared and presented in accordance with GAAP, and therefore should be considered supplemental in nature. The Company’s non-GAAP financial measures should not be considered in isolation or as a substitute for other financial performance measures presented in accordance with GAAP. These non-GAAP financial measures 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, these non-GAAP financial measures may differ from similarly titled measures presented by other companies. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure can be found in the Appendix as well as Company’s latest Form 8-K, filed with the SEC on August 6, 2020.
President & chief executive officer Julian francis
Company performed well amid unique environment Operating results exceeded internal sales and margin expectations Rising confidence in cost structure potential, the digital opportunity and cash generation Sales steadily improved throughout the quarter with mid-April representing a clear trough Q3 Decremental Margin* outperformed due to benefits from cost actions, OTC network and branch improvement initiatives Strong Q3 cash flow tied to operating performance and tight working capital controls Ceo perspectiveS *Non-GAAP measure; see Appendix for definition and reconciliation
Quarterly Financial results Daily sales -6.9% YoY Res roofing down 1.3% May-June sales stabilized; down modestly YoY Gross margins -45 bps YoY Price-cost -60 bps Gross margin up more than 60 bps sequentially Adj. OpEx* down $33M YoY Positive cost leverage, despite sales decline Benefit of temporary and permanent cost actions Adj. EBITDA* ~$10M lower YoY Strong performance given COVID impact Stable margins reflect operating leverage Q3 2019 Q3 2020 Q3 results driven by heightened cost control and improved operating leverage as sales returned 8.2% *Non-GAAP measure; see Appendix for definition and reconciliation % of Net Sales 8.2%
Sales trends by Product and covid impact Sales stabilized in May-June with May daily sales declining LSD and flattish June daily sales Res roofing driven by non-discretionary sales and consumer focus on exterior projects; sales averaged up MSD during May-June Non-res roofing declines tied to demand pull-forward and state and local restrictions Complementary softness from government restrictions, exposure to new construction and interiors projects As construction restrictions ease, the pace of sales declines has slowed; COVID’s economic impact continues to limit growth Daily Sales Growth – COVID Restricted* vs. Other Mkts April May June COVID Restricted Down ~45% Down ~11% Down ~6% Other Markets Down MSD-to-HSD Up LSD Up LSD Total Down ~20% Down LSD Flattish *COVID restricted markets represent states/provinces identified in March as having significant COVID-driven government construction restrictions
Focused on sales outperformance and operational execution Strategic initiatives Transition to organic growth from M&A focus Increase selling activity 7,000+ recorded daily contacts Pivot Focus to Organic Growth Enhance Branch Operating Performance Improve operating performance of lowest quintile branches Drive operating efficiencies across network Focus branches delivered Q3 YOY operating income improvement Raise customer service levels Generate operating cost savings and cash flow benefits Currently operating 43 OTC markets across our network Operationalize Market Model with OTC Network Important value-add for customers Most complete digital offering within building products distribution Digital remains on target to end year with run-rate ~10% of total sales Expand Industry Leading Digital Platform
Executive vice president & chief financial officer Frank lonegro
Quarterly Margin and expense spotlight Gross margin increased 60 bps sequentially, but declined YoY Price-cost 60 bps unfavorable; but expected given backdrop Adjusted OpEx* down $33M YoY reflecting cost reductions and labor productivity gains Cost controls involve both temporary and permanent actions, including fleet savings, reduced overtime, T&E cuts, furloughs and salary reductions Q3 Decremental Margin* of 8%, better than previously disclosed target **Hours worked reflect all company-wide hourly employees, but exclude salaried/commission-based personnel *Non-GAAP measure; see Appendix for definition and reconciliation
Strong cash flow & favorable debt maturity 3rd quarter operating cash flow of $401M driven by strong cost leverage, improving sales and working capital management Performance illustrates ability to aggressively respond to difficult operating environments Focused on debt reduction, while maintaining liquidity and flexibility Net Debt¹ reduced $394M sequentially Cash position sequentially improved $237M, even with a $153M ABL paydown Favorable maturity schedule gives flexibility ¹Defined as gross debt less cash; decrease in gross debt and increase in cash from 3/31/20 to 6/30/20 was ~$157 million and ~$237 million, respectively
President & chief executive officer Julian francis
closing thoughts Final Third Quarter Takeaways May-June sales returned to down modestly as states are easing construction restrictions Aggressive cost actions drove positive Q3 operating expense leverage Robust quarterly cash flow illustrates flexibility of business model during challenging environment Q4 Outlook July daily sales down ~1% year-over year; anticipating LSD year-to-year sales decline in Q4 Gross margins expected to be up slightly compared to Q3 Adjusted Operating Expense as a percentage of sales is expected to be up slightly compared to Q3 Long-Term Implications Beacon and other industry participants have recently announced price increases within residential roofing YTD results across wide range of operating environments reinforces strategic direction Q3 performance provides valuable insight for LT operating efficiency and overall margin potential Business model continues to show attractive levels of operating cash flow in varying conditions
Reconciliations: non-gaap financial measures Adjusted EBITDA & Decremental margin We define Adjusted EBITDA as net income excluding the impact of interest expense (net of interest income), income taxes, depreciation and amortization, stock-based compensation, acquisition costs, business restructuring costs, and the direct financial impact of the COVID-19 pandemic. Q3 and YTD FY20 adjustments from income taxes include an income tax provision (benefit) of $32.8 million and $(0.5) million, respectively, stemming from the revaluation of deferred tax assets and liabilities made in conjunction with the Company’s application of the CARES Act. YTD FY20 adjustments from income taxes include an income tax benefit of $36.5 million stemming from a decrease in deferred tax liabilities in connection with the Rebranding. YTD FY20 adjustments from depreciation and amortization include the impact of non-cash accelerated intangible asset amortization of $142.6 million ($106.2 million, net of taxes) related to the write-off of certain trade names in connection with the Rebranding. YTD FY20 adjustments from business restructuring costs include a loss on debt extinguishment of $14.7 million in connection with October 2019 debt refinancing We define net margin as net income (loss) divided by net sales and Adjusted EBITDA margin as Adjusted EBITDA divided by net sales. We define Decremental Margin as a decline in Adjusted EBITDA as a percent of a decline in net sales.
Reconciliations: non-gaap financial measures We define Adjusted Operating Expense as operating expense (as reported on a GAAP basis) excluding the impact of amortization, acquisition costs, business restructuring costs, and the direct financial impact of the COVID-19 pandemic. YTD FY20 adjustments from amortization include the impact of non-cash accelerated intangible asset amortization of $142.6 million related to the write-off of certain trade names in connection with the Rebranding. Adjusted Operating Expense