Beacon Roofing Supply Reports Third Quarter 2019 Results - Beacon Roofing Supply (NASDAQ:BECN)

Third quarter net sales of $1.92 billion vs. $1.93 billion in the prior year
Third quarter net income of $31.0 million vs. $49.4 million in the prior year; Adjusted Net Income (Loss) of $72.6 million vs. $93.4 million in the prior year
Third quarter EPS of $0.32 vs. $0.55 in the prior year; Adjusted EPS of $0.92 vs. $1.18 in the prior year
Third quarter results reflect negative impact of rainfall levels (up 25-30% vs. prior year) on net sales; estimated $0.20 drag on Adjusted EPS

Beacon Roofing Supply, Inc. BECN ("Beacon" or the "Company") announced results today for its third quarter and nine-month period ended June 30, 2019 ("2019").

Paul Isabella, the Company's President and Chief Executive Officer, stated: "Although our fiscal third quarter results fell short of expectations, there were several positives supporting optimism for the fourth quarter and fiscal year 2020. Most notably, we saw a 3% organic sales increase within our residential product line, our 2nd consecutive quarter of positive growth. In addition, we reduced our debt and our digital platform performance was exceptional; Beacon Pro+ is unquestionably continuing to evolve as a differentiator in the marketplace. July results also were favorable on a daily sales basis, suggesting underlying demand remains healthy. Overall, third quarter results were hampered by persistent weather challenges, resulting primarily from 25-30% more rain days compared to the prior year. This translates into approximately $85 million of sales and 20 cents of Adjusted EPS impact, affecting both gross margins and operating expense leverage. To further right size our fixed cost structure, we have taken specific company-wide actions that will generate annualized savings of approximately $25 million. These efforts will result in greater operating leverage when volumes increase, as expected in Q4 and next year. Beacon will remain focused on our growth initiatives and cost reduction in order to maximize performance for our shareholders."

Third Quarter

Net sales decreased 0.5% to $1.92 billion in 2019, from $1.93 billion in 2018. Residential roofing product sales increased 2.9%, non-residential roofing product sales decreased 2.4% and complementary product sales decreased 3.6% over the prior year. Existing markets net sales decreased 1.1% compared to the prior year period, primarily due to higher rainfall levels across the U.S. in the current period, which negatively impacted contractor installations. The third quarter of fiscal years 2019 and 2018 each had 64 business days.

Net income (loss) attributable to common shareholders was $25.0 million, compared to $43.4 million in 2018. Diluted net income (loss) per share ("EPS") was $0.32, compared to $0.55 in 2018. Third quarter results were negatively impacted by reduced gross margins and higher operating costs. The Company implemented actions at the end of the quarter to significantly reduce its cost structure to align with its long-term goals.

Adjusted Net Income (Loss) was $72.6 million, compared to $93.4 million in 2018. Adjusted EPS was $0.92, compared to $1.18 in 2018. Adjusted EBITDA was $157.8 million, compared to $187.7 million in 2018. (Please see the included financial tables for a reconciliation of "Adjusted" financial measures to the most directly comparable GAAP financial measures as well as further detail on the components driving the net changes over the comparative periods.)

Nine Months

Net sales increased 13.2% to $5.08 billion, up from $4.48 billion in the comparative 2018 period. Residential roofing product sales increased 8.7%, non-residential roofing product sales increased 4.8% and complementary product sales increased 27.1% over the prior year. Existing markets net sales increased 0.9% compared to the prior year period, primarily due to sales gains in our Northeast and Mid-Atlantic markets. The first nine months of fiscal years 2019 and 2018 each had 189 business days.

Net income (loss) attributable to common shareholders was $(56.0) million, compared to $38.3 million in 2018. EPS was $(0.82), compared to $0.51 in 2018. The nine-month results were negatively impacted by higher operating costs and increases in interest expense and preferred dividend payments that were both related to the acquisition of Allied. In addition, 2018 results include a $49.2 million net tax benefit resulting from the enactment of the Tax Cuts and Jobs Act of 2017. The nine-month results were positively impacted by price gains across all product lines.

Adjusted Net Income (Loss) was $94.2 million, compared to $122.6 million in 2018. Adjusted EPS was $1.21, compared to $1.62 in 2018. Adjusted EBITDA was $307.0 million, compared to $305.3 million in 2018. (Please see the included financial tables for a reconciliation of "Adjusted" financial measures to the most directly comparable GAAP financial measures as well as further detail on the components driving the net changes over the comparative periods).

The Company will host a webcast and conference call today at 5:00 p.m. ET to discuss these results. The webcast link and call-in details are as follows:

				What:			Beacon Roofing Supply Third Quarter 2019 Earnings Conference Call
				When			Tuesday, August 6, 2019
				Time:			5:00 p.m. ET
				Webcast:			http://ir.beaconroofingsupply.com/events.cfm (live and replay)
				Live Call:			720-634-9063; Conf. ID #2640209

To assure timely access, conference call participants should dial in prior to the 5:00 p.m. ET start time.

Forward-Looking Statements

This release contains information about management's view of the Company's future expectations, plans and prospects that constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including, but not limited to, those set forth in the "Risk Factors" section of the Company's latest Form 10-K. In addition, the forward-looking statements included in this press release represent the Company's views as of the date of this press release and these views could change. However, while the Company may elect to update these forward-looking statements at some point, the Company specifically disclaims any obligation to do so, other than as required by federal securities laws. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent to the date of this press release.

About Beacon Roofing Supply

Founded in 1928, Beacon Roofing Supply is the largest publicly traded distributor of residential and commercial roofing materials and complementary 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 100,000 customers, utilizing its vast branch network and diverse service offerings to provide high-quality products and support throughout the entire business lifecycle. Beacon also 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. A Fortune 500 company, Beacon's stock is traded on the Nasdaq Global Select Market under the ticker symbol BECN. To learn more about Beacon and its brands, please visit www.becn.com.

BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Operations
(Unaudited; In thousands, except share and per share amounts)

	Three Months Ended June 30,										Nine Months Ended June 30,
	2019		% of Net Sales			2018		% of Net Sales			2019			% of Net Sales			2018			% of Net Sales
Net sales	$	1,924,534		100.0	%	$	1,934,951		100.0	%	$	5,075,247			100.0	%	$	4,482,555			100.0	%
Cost of products sold		1,451,998		75.4	%		1,441,057		74.5	%		3,832,154			75.5	%		3,380,531			75.4	%
Gross profit		472,536		24.6	%		493,894		25.5	%		1,243,093			24.5	%		1,102,024			24.6	%
Operating expense¹:
Selling, general and administrative		328,827		17.1	%		323,194		16.7	%		976,928			19.3	%		858,534			19.2	%
Depreciation		17,731		0.9	%		15,811		0.8	%		52,779			1.0	%		41,640			0.9	%
Amortization		51,724		2.7	%		50,076		2.6	%		155,508			3.1	%		105,339			2.3	%
Total operating expense		398,282		20.7	%		389,081		20.1	%		1,185,215			23.4	%		1,005,513			22.4	%
Income (loss) from operations		74,254		3.9	%		104,813		5.4	%		57,878			1.1	%		96,511			2.2	%
Interest expense, financing costs, and other²		38,089		2.0	%		37,348		1.9	%		116,902			2.3	%		99,486			2.2	%
Income (loss) before provision for income taxes		36,165		1.9	%		67,465		3.5	%		(59,024	)		(1.2	%)		(2,975	)		0.0	%
Provision for (benefit from) income taxes		5,178		0.3	%		18,090		0.9	%		(21,032	)		(0.5	%)		(53,291	)		(1.1	%)
Net income (loss)		30,987		1.6	%		49,375		2.6	%		(37,992	)		(0.7	%)		50,316			1.1	%
Dividends on preferred shares³		6,000		0.3	%		6,000		0.4	%		18,000			0.4	%		12,000			0.2	%
Net income (loss) attributable to common shareholders	$	24,987		1.3	%	$	43,375		2.2	%	$	(55,992	)		(1.1	%)	$	38,316			0.9	%

Weighted-average common stock outstanding:
Basic		68,477,946					68,086,387					68,391,882						67,976,980
Diluted		69,265,384					69,148,143					68,391,882						69,240,040

Net income (loss) per share⁴:
Basic	$	0.32				$	0.56				$	(0.82	)				$	0.52
Diluted	$	0.32				$	0.55				$	(0.82	)				$	0.51

______________________________________________
¹		Operating expense for the three months ended June 30, 2019 and 2018 includes acquisition and business restructuring costs of $7.4 million ($4.9 million, net of taxes) and $10.0 million ($7.1 million, net of taxes), respectively. Operating expense for the nine months ended June 30, 2019 and 2018 includes acquisition and business restructuring costs of $23.0 million ($16.3 million, net of taxes) and $43.8 million ($31.0 million, net of taxes), respectively.
²		Interest expense, financing costs, and other for the three months ended June 30, 2019 and 2018 includes acquisition costs of $3.0 million ($2.0 million, net of taxes) and $3.5 million ($2.5 million, net of taxes), respectively. Interest expense, financing costs, and other for the nine months ended June 30, 2019 and 2018 includes acquisition costs of $9.1 million ($6.4 million, net of taxes) and $22.1 million ($15.7 million, net of taxes), respectively.
³		Three months ended June 30, 2019 amount is composed of $5.0 million in undeclared cumulative Preferred Stock dividends, as well as an additional $1.0 million of Preferred Stock dividends that had been declared and paid as of period end. Three months ended June 30, 2018 amount is composed of $6.0 million in undeclared cumulative Preferred Stock dividends. Nine months ended June 30, 2019 amount is composed of $5.0 million in undeclared cumulative Preferred Stock dividends, as well as an additional $13.0 million of Preferred Stock dividends that had been declared and paid as of period end. Nine months ended June 30, 2018 amount is composed of $6.0 million in undeclared cumulative Preferred Stock dividends, as well as an additional $6.0 million of Preferred Stock dividends that had been declared and paid as of period end.
⁴		Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period, without consideration for common share equivalents or the conversion of Preferred Stock. Common share equivalents consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock unit awards. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to common shareholders by the fully diluted weighted-average number of common shares outstanding during the period. The following table presents the components and calculations of basic and diluted net income (loss) per share for each period presented (in thousands, except share and per share amounts):

	Three Months Ended June 30,						Nine Months Ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	30,987		$	49,375		$	(37,992	)	$	50,316
Dividends on preferred shares		6,000			6,000			18,000			12,000
Net income (loss) attributable to common shareholders	$	24,987		$	43,375		$	(55,992	)	$	38,316
Undistributed income allocated to participating securities		(3,099	)		(5,406	)		-			(3,293	)
Net income (loss) attributable to common shareholders - basic and diluted	$	21,888		$	37,969		$	(55,992	)	$	35,023

Weighted-average common shares outstanding - basic		68,477,946			68,086,387			68,391,882			67,976,980
Effect of common share equivalents		787,438			1,061,756			-			1,263,060
Weighted-average common shares outstanding - diluted		69,265,384			69,148,143			68,391,882			69,240,040

Net income (loss) per share - basic	$	0.32		$	0.56		$	(0.82	)	$	0.52
Net income (loss) per share - diluted	$	0.32		$	0.55		$	(0.82	)	$	0.51

BEACON ROOFING SUPPLY, INC.
Consolidated Balance Sheets
(Unaudited; In thousands)

	June 30,			September 30,			June 30,
	2019			2018			2018
Assets
Current assets:
Cash and cash equivalents	$	27,729		$	129,927		$	27,551
Accounts receivable, net		1,079,091			1,090,533			1,077,888
Inventories, net		1,124,063			936,047			1,165,389
Prepaid expenses and other current assets		361,831			244,360			337,589
Total current assets		2,592,714			2,400,867			2,608,417
Property and equipment, net		269,041			280,407			288,708
Goodwill		2,490,940			2,491,779			2,321,180
Intangibles, net		1,177,694			1,334,366			1,371,005
Other assets, net		1,243			1,243			1,511
Total assets	$	6,531,632		$	6,508,662		$	6,590,821

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	643,411		$	880,872		$	719,686
Accrued expenses		590,756			611,539			520,952
Current portions of long-term debt/obligations		19,366			19,661			19,714
Total current liabilities		1,253,533			1,512,072			1,260,352
Borrowings under revolving lines of credit, net		424,011			92,442			482,489
Long-term debt, net		2,494,648			2,494,725			2,494,308
Deferred income taxes, net		110,180			106,994			93,928
Long-term obligations under equipment financing and other, net		6,332			13,639			15,979
Other long-term liabilities		5,352			5,290			6,319
Total liabilities		4,294,056			4,225,162			4,353,375

Convertible preferred stock		399,195			399,195			399,195

Stockholders' equity:
Common stock		684			681			681
Undesignated preferred stock		-			-			-
Additional paid-in capital		1,077,953			1,067,040			1,063,137
Retained earnings		777,842			833,834			792,502
Accumulated other comprehensive income (loss)		(18,098	)		(17,250	)		(18,069	)
Total stockholders' equity		1,838,381			1,884,305			1,838,251
Total liabilities and stockholders' equity	$	6,531,632		$	6,508,662		$	6,590,821

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

	Nine Months Ended June 30,
	2019			2018
Operating Activities
Net income (loss)	$	(37,992	)	$	50,316
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		208,287			146,979
Stock-based compensation		12,901			13,133
Certain interest expense and other financing costs		9,077			11,549
Beneficial lease amortization		1,714			-
Loss on debt extinguishment		-			1,726
Gain on sale of fixed assets		(3,470	)		(1,131	)
Deferred income taxes		3,195			(48,855	)
Changes in operating assets and liabilities, net of the effects of businesses acquired in the period:
Accounts receivable		10,970			(52,024	)
Inventories		(188,213	)		(299,881	)
Prepaid expenses and other assets		(117,520	)		(19,511	)
Accounts payable and accrued expenses		(93,908	)		195,948
Other liabilities		62			732
Net cash provided by (used in) operating activities		(194,897	)		(1,019	)

Investing Activities
Purchases of property and equipment		(44,337	)		(34,978	)
Acquisition of businesses, net		(163,973	)		(2,715,429	)
Proceeds from the sale of assets		6,200			750
Net cash provided by (used in) investing activities		(202,110	)		(2,749,657	)

Financing Activities
Borrowings under revolving lines of credit		1,734,476			2,122,949
Repayments under revolving lines of credit		(1,404,836	)		(1,631,978	)
Borrowings under term loan		-			970,000
Repayments under term loan		(7,275	)		(443,425	)
Borrowings under senior notes		-			1,300,000
Payment of debt issuance costs		-			(65,788	)
Repayments under equipment financing facilities and other		(7,602	)		(8,604	)
Proceeds from issuance of convertible preferred stock		-			400,000
Payment of stock issuance costs		-			(1,279	)
Payment of dividends on preferred stock		(18,000	)		(6,000	)
Proceeds from issuance of common stock related to equity awards		1,654			6,950
Taxes paid related to net share settlement of equity awards		(3,639	)		(3,975	)
Net cash provided by (used in) financing activities		294,778			2,638,850

Effect of exchange rate changes on cash and cash equivalents		31			1,127

Net increase (decrease) in cash and cash equivalents		(102,198	)		(110,699	)
Cash and cash equivalents, beginning of period		129,927			138,250
Cash and cash equivalents, end of period	$	27,729		$	27,551

BEACON ROOFING SUPPLY, INC.
Consolidated Sales by Product Line
(Unaudited; In thousands)

Consolidated Sales by Product Line
	Three Months Ended June 30,
	2019					2018					Change
	Net Sales		Mix %			Net Sales		Mix %			$			%
Residential roofing products	$	848,259		44.1	%	$	824,461		42.6	%	$	23,798			2.9	%
Non-residential roofing products		472,105		24.5	%		483,524		25.0	%		(11,419	)		(2.4	%)
Complementary building products		604,170		31.4	%		626,966		32.4	%		(22,796	)		(3.6	%)
	$	1,924,534		100.0	%	$	1,934,951		100.0	%	$	(10,417	)		(0.5	%)


Existing Market¹ Sales by Product Line
	Three Months Ended June 30,
	2019					2018					Change
	Net Sales		Mix %			Net Sales		Mix %			$			%
Residential roofing products	$	846,944		44.3	%	$	821,827		42.5	%	$	25,117			3.1	%
Non-residential roofing products		471,661		24.7	%		483,335		25.0	%		(11,674	)		(2.4	%)
Complementary building products		592,020		31.0	%		627,301		32.5	%		(35,281	)		(5.6	%)
	$	1,910,625		100.0	%	$	1,932,463		100.0	%	$	(21,838	)		(1.1	%)


Existing Market¹ Sales by Business Day²
	Three Months Ended June 30,
	2019					2018					Change
	Net Sales		Mix %			Net Sales		Mix %			$			%
Residential roofing products	$	13,234		44.3	%	$	12,841		42.5	%	$	393			3.1	%
Non-residential roofing products		7,370		24.7	%		7,552		25.0	%		(182	)		(2.4	%)
Complementary building products		9,250		31.0	%		9,802		32.5	%		(552	)		(5.6	%)
	$	29,854		100.0	%	$	30,195		100.0	%	$	(341	)		(1.1	%)

__________________________________________________
¹		Excludes acquired branches that have not been under ownership for at least four fiscal quarters prior to the start of the third quarter of fiscal year 2019.
²		There were 64 business days in each of the quarters ended June 30, 2019 and 2018.

BEACON ROOFING SUPPLY, INC.
Consolidated Sales by Product Line
(Unaudited; In thousands)

Consolidated Sales by Product Line
	Nine Months Ended June 30,
	2019					2018					Change
	Net Sales		Mix %			Net Sales		Mix %			$			%
Residential roofing products	$	2,168,755		42.7	%	$	1,995,193		44.6	%	$	173,562			8.7	%
Non-residential roofing products		1,200,546		23.7	%		1,145,064		25.5	%		55,482			4.8	%
Complementary building products		1,705,946		33.6	%		1,342,298		29.9	%		363,648			27.1	%
	$	5,075,247		100.0	%	$	4,482,555		100.0	%	$	592,692			13.2	%


Existing Market¹ Sales by Product Line
	Nine Months Ended June 30,
	2019					2018					Change
	Net Sales		Mix %			Net Sales		Mix %			$			%
Residential roofing products	$	1,571,512		53.0	%	$	1,513,880		51.6	%	$	57,632			3.8	%
Non-residential roofing products		843,062		28.5	%		868,354		29.6	%		(25,292	)		(2.9	%)
Complementary building products		546,818		18.5	%		551,366		18.8	%		(4,548	)		(0.8	%)
	$	2,961,392		100.0	%	$	2,933,600		100.0	%	$	27,792			0.9	%


Existing Market¹ Sales by Business Day²
	Nine Months Ended June 30,
	2019					2018					Change
	Net Sales		Mix %			Net Sales		Mix %			$			%
Residential roofing products	$	8,315		53.0	%	$	8,010		51.6	%	$	305			3.8	%
Non-residential roofing products		4,461		28.5	%		4,594		29.6	%		(133	)		(2.9	%)
Complementary building products		2,893		18.5	%		2,917		18.8	%		(24	)		(0.8	%)
	$	15,669		100.0	%	$	15,521		100.0	%	$	148			0.9	%

__________________________________________________
¹		Excludes acquired branches that have not been under ownership for at least four fiscal quarters prior to the start of fiscal year 2019.
²		There were 189 business days in each of the nine-month periods ended June 30, 2019 and 2018.

BEACON ROOFING SUPPLY, INC.
Adjusted Net Income (Loss) and Adjusted EPS¹
(Unaudited; In thousands, except per share amounts)

	Three Months Ended June 30,												Nine Months Ended June 30,
	2019						2018						2019						2018
	Amount			Per Share²			Amount			Per Share²			Amount			Per Share³			Amount			Per Share³
Net income (loss)	$	30,987		$	0.39		$	49,375		$	0.63		$	(37,992	)	$	(0.49	)	$	50,316		$	0.67
Adjustments:
Acquisition costs⁴		60,482			0.77			63,561			0.80			185,922			2.38			171,289			2.26
Business restructuring costs⁵		1,664			0.02			-			-			1,664			0.02			-			-
Effects of tax reform⁶		-			-			(1,166	)		(0.02	)		(462	)		(0.01	)		(49,149	)		(0.65	)
Total adjustments		62,146			0.79			62,395			0.78			187,124			2.39			122,140			1.61
Tax impact of total adjustments⁷		(20,563	)		(0.26	)		(18,370	)		(0.23	)		(54,946	)		(0.69	)		(49,860	)		(0.66	)
Total adjustments, net of tax		41,583			0.53			44,025			0.55			132,178			1.70			72,280			0.95
Adjusted Net Income (Loss)	$	72,570		$	0.92		$	93,400		$	1.18		$	94,186		$	1.21		$	122,596		$	1.62

____________________________________________
¹		Adjusted Net Income (Loss) is defined as net income that excludes acquisition costs, business restructuring costs, and the effects of tax reform. Adjusted net income (loss) per share or "Adjusted EPS" is calculated by dividing the Adjusted Net Income (Loss) for the period by the weighted-average diluted shares outstanding for the period after assuming the full conversion of the participating Preferred Stock.
²		The weighted-average share count utilized in the calculation of Adjusted EPS for the three months ended June 30, 2019 is 78,960,003, which is equal to the 69,265,384 diluted weighted-average shares outstanding plus the assumed conversion of 9,694,619 weighted-average shares of participating Preferred Stock. The weighted-average share count utilized in the calculation of Adjusted EPS for the three months ended June 30, 2018 is 78,842,762, which is equal to the 69,148,143 diluted weighted-average shares outstanding plus the assumed conversion of 9,694,619 weighted-average shares of participating Preferred Stock. The shares of participating Preferred Stock were excluded from the GAAP net income (loss) per share calculations for both periods due to their anti-dilutive nature.
³		The weighted-average share count utilized in the calculation of Adjusted EPS for the nine months ended June 30, 2019 is 78,086,501, which is equal to the 68,391,882 diluted weighted-average shares outstanding plus the assumed conversion of 9,694,619 weighted-average shares of participating Preferred Stock. The weighted-average share count utilized in the calculation of Adjusted EPS for the nine months ended June 30, 2018 is 75,632,096, which is equal to the 69,240,040 diluted weighted-average shares outstanding plus the assumed conversion of 6,392,056 weighted-average shares of participating Preferred Stock. The shares of participating Preferred Stock were excluded from the GAAP net income (loss) per share calculations for both periods due to their anti-dilutive nature.
⁴		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
	2019		2018		2019		2018
Amortization of intangible assets	$	51,723	$	50,075	$	155,508	$	105,339
Costs classified as selling, general, and administrative^a		5,733		9,957		21,337		43,827
Amortization of debt issuance costs		3,026		3,529		9,077		22,123
Total acquisition costs		60,482		63,561		185,922		171,289

			__________________________________________________
			Selling, general, and administrative costs related to acquisitions are mainly composed of professional fees, branch integration expenses, travel expenses, employee severance and retention costs, and other personnel expenses.

⁵	Business restructuring costs are mainly composed of costs stemming from headcount rationalization efforts.
⁶	Impact of the Tax Cuts and Jobs Act of 2017.
⁷	The effective tax rate applied to these adjustments is calculated by using forecasted adjusted pre-tax income while factoring in estimated discrete tax adjustments for the fiscal year. The tax impact of adjustments for the three months ended June 30, 2019 and 2018 were calculated using an effective tax rate of 33.1% and 29.5%, respectively. The tax impact of adjustments for the nine months ended June 30, 2019 and 2018 were calculated using an effective tax rate of 29.3% and 29.5%, respectively.

We use Adjusted Net Income (Loss) and Adjusted EPS to evaluate financial performance, analyze the underlying trends in our business and establish operational goals and forecasts that are used when allocating resources.

We believe that Adjusted Net Income (Loss) and Adjusted EPS are useful measures because they permit investors to better understand changes in underlying operating performance over comparative periods by providing financial results that are unaffected by cyclical variances that can be driven by items such as investment activity or purchase accounting adjustments.

While we believe Adjusted Net Income (Loss) and Adjusted EPS are useful to investors when evaluating our business, they are 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) or Adjusted EPS in isolation or as a substitute for net income and net income per share or diluted earnings per share calculated in accordance with GAAP. Adjusted Net Income (Loss) and Adjusted EPS 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) and Adjusted EPS may differ from similarly titled measures presented by other companies.

BEACON ROOFING SUPPLY, INC.
Adjusted EBITDA¹
(Unaudited; In thousands)

	Three Months Ended June 30,						Nine Months Ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	30,987		$	49,375		$	(37,992	)	$	50,316
Interest expense, net		40,169			39,055			121,800			104,334
Income taxes		5,178			18,090			(21,032	)		(53,291	)
Depreciation and amortization		69,455			65,887			208,287			146,979
Stock-based compensation		4,637			5,298			12,901			13,133
Acquisition costs²		5,733			9,957			21,337			43,827
Business restructuring costs³		1,664			-			1,664			-
Adjusted EBITDA	$	157,823		$	187,662		$	306,965		$	305,298

Adjusted EBITDA as a % of net sales		8.2	%		9.7	%		6.0	%		6.8	%

__________________________________________________
¹		Adjusted EBITDA is defined as net income plus interest expense (net of interest income), income taxes, depreciation and amortization, stock-based compensation, acquisition costs, and business restructuring costs. EBITDA is a measure commonly used in the distribution industry, and we present Adjusted EBITDA to enhance your understanding of our operating performance.
²		Represents selling, general, and administrative costs related to acquisitions (excluding the impact of tax). Other items the Company classifies as acquisition costs are embedded in other balances of the table.
³		Business restructuring costs are mainly composed of costs stemming from headcount rationalization efforts.

We use Adjusted EBITDA to evaluate financial performance, analyze the underlying trends in our business and establish operational goals and forecasts that are used when allocating resources. We expect to compute Adjusted EBITDA consistently using the same methods each period.

We believe that Adjusted EBITDA is a useful measure because it permits investors to better understand changes in underlying operating performance over comparative periods by providing financial results that are unaffected by cyclical variances that can be driven by items such as investment activity or purchase accounting adjustments.

While we believe Adjusted EBITDA is useful to investors when evaluating our business, it is not prepared and presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), and therefore should be considered supplemental in nature. Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operations, or any other items calculated in accordance with GAAP. Adjusted EBITDA may have material limitations including, but not limited to, the exclusion of certain costs without a corresponding reduction of net income for the income generated by the assets to which the excluded costs are related. In addition, Adjusted EBITDA may differ from similarly titled measures presented by other companies.

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