Beacon Roofing Supply Reports Fourth Quarter and Fiscal Year 2016 Results

HERNDON, Va.--(BUSINESS WIRE)--

Beacon Roofing Supply, Inc. 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,
			20161			% of Net Sales			20152			% of Net Sales			20161			% of Net Sales			20152			% 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 Markets1
			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 Market1 Sales By Business Day2
			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 Markets1
			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 Market1 Sales By Business Day2
			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 EPS1 (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 costs2				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 EBITDA1 (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 costs2				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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