BEACON ROOFING SUPPLY, INC. The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto and Management's Discussion and Analysis included in our 2021 Annual Report on Form 10-K, our Condensed Consolidated Financial Statements and the notes thereto included in our Transition Report on Form 10-Q for the period fromOctober 1, 2021 toDecember 31, 2021 and our Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this document. Unless otherwise indicated, references to "2022" refer to the three or six months endedJune 30, 2022 being discussed and references to "2021" refer to the three or six months endedJune 30, 2021 being discussed.
Cautionary Statement Regarding Forward-Looking Information
Our disclosure and analysis in this report contains forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, that involves risks and uncertainties. Our forward-looking statements express our current expectations or forecasts of possible future results or events, including projections of future performance, statements of management's plans and objectives, future contracts, and forecasts of trends and other matters. You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as "anticipate," "estimate," "expect," "believe," "will likely result," "outlook," "project" and other words and expressions of similar meaning. No assurance can be given that the results in any forward-looking statements will be achieved and actual results could be affected by one or more factors, which could cause them to differ materially. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law. Certain factors that may affect our business and could cause actual results to differ materially from those expressed in any forward-looking statements include those set forth under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2021 . We may not succeed in addressing these and other risks. Consequently, all forward-looking statements in this report are qualified by the factors, risks and uncertainties contained therein and readers are cautioned not to place undue reliance on forward-looking statements. Overview We are the largest publicly traded distributor of roofing materials and complementary building products inNorth America . We have served the building industry for over 90 years and as ofJune 30, 2022 , we operated 450 branches throughout all 50 states in theU.S. and 6 provinces inCanada . We offer one of the most extensive ranges of high-quality professional grade exterior products comprising over 100,000 SKUs, and we serve over 80,000 residential and non-residential customers who trust us to help them save time, work more efficiently and enhance their businesses. We are strategically focused on the two core markets of residential and non-residential roofing. As a distributor, our national scale, networked model and specialized capabilities are competitive advantages, providing strong value for both customers and suppliers. We intend to grow faster than the market by enhancing our customers' experience, activating a complete go-to-market strategy, and expanding our footprint while also driving margin-enhancing initiatives. Our differentiated service model is designed to solve customer needs. The scale of our business provides branch coverage, technology enablement and investment in our team that is the foundation of customer excellence. In addition, service is further enhanced by our On Time and Complete network (Beacon OTC®), market-based sales teams, and national call center. We also provide the most complete digital commerce platform in roofing distribution, creating value for customers who are able to operate their businesses more effectively and efficiently. Our history has been strongly influenced by significant acquisition-driven growth, highlighted by the acquisitions ofAllied Building Products Corp. for$2.88 billion in 2018 andRoofing Supply Group, LLC for$1.17 billion in 2016. These strategic acquisitions expanded our geographic footprint, enhanced our market presence, and diversified our product offerings. The scale we have achieved from our expansion efforts serves as a competitive advantage, allowing us to use our assets more efficiently, and control our expenses to drive operating leverage. OnFebruary 24, 2022 , we announced our Ambition 2025 Value Creation Framework ("Ambition 2025") to drive growth, enhance customer service and expand our footprint in key markets, which included new Ambition 2025 financial targets and the Repurchase Program (as defined and further detailed below) as well as strategic deployment of capital on acquisitions. We have pursued and finalized numerous smaller acquisitions in key markets to complement the expansion of our geographic footprint, including 13 total branches from these recent acquisitions (for additional information, see Note 3 in the Notes to Condensed Consolidated Financial Statements):
•On
23
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•On April 29, 2022 , we acquired Wichita Falls Builders Wholesale, Inc. , a
distributor of complementary residential exterior building materials, including
windows, doors and siding to contractors, homebuilders and retail customers,
with 1 branch located in Texas and annual sales of approximately $4 million
prior to the acquisition;
•On January 1, 2022 , we acquired Crabtree Siding and Supply, a wholesale
distributor of residential exterior building materials, including a broad
offering of complementary products, to contractors and homebuilder customers,
with 1 branch located in Tennessee and annual sales of approximately $1 million
prior to the acquisition; and
•On November 1, 2021 , we acquired Midway Sales & Distributing, Inc. , a leading
Midwest distributor of residential and commercial exterior building and roofing
supplies, with 10 branches across Kansas , Missouri and Nebraska and annual sales
of approximately $130 million prior to the acquisition.
As part of Ambition 2025, we will continue to pursue strategic acquisitions to grow our business, while we also remain heavily focused on improving our operations and continuing to identify additional opportunities for organic growth. Our recent highlights in these pursuits are demonstrated by the following results for the first half of 2022:
•2022 organic daily sales growth of 24.2% compared to 2021, driven primarily by successful price execution;
•two new branch locations in 2022; and
•significant improvements in labor efficiency and fleet utilization metrics as compared to pre-pandemic levels, driven by strategic cost actions.
In managing our business, we consider all growth, including the opening of new branches, to be organic growth unless it results from an acquisition. When we refer to organic growth, we include growth from existing and newly opened branches, but exclude growth from acquired branches until they have been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period. In order to pursue these strategic growth initiatives and focus on our core exterior products business, we completed two divestitures in 2021. OnDecember 1, 2021 , we completed the divestiture of our solar products business ("Solar Products"). The results of operations from Solar Products were not material to us and are included in continuing operations for the periods presented. OnFebruary 10, 2021 , we completed the sale of our interior products and insulation businesses ("Interior Products") toFoundation Building Materials Holding Company LLC for the final adjusted purchase price of$842.7 million . We have reflected Interior Products as discontinued operations for the three and six months endedJune 30, 2021 . Unless otherwise noted, amounts and disclosures in our discussion below relate to our continuing operations. For additional information, see Note 4 in the Notes to Condensed Consolidated Financial Statements.
COVID-19 Pandemic and Supply Chain Dynamics
We continue to monitor the ongoing impact of the COVID-19 pandemic, including the effects of recent notable variants of the virus. The health and safety of our employees, customers, and the communities in which we operate remains our top priority. Additional safety measures have been implemented in response to the COVID-19 pandemic. We had an essential business designation status throughout the pandemic in all the local markets that we serve. To date, our business experienced the largest adverse impact from COVID-19 in the third quarter of fiscal year 2020, mainly in areas with significant government construction restrictions that have since been eliminated. We have the financial strength and operational flexibility to respond to future COVID-19 pandemic restrictions, and have taken proactive steps to make a number of the cost management initiatives undertaken in response to the COVID-19 pandemic permanent. The exterior products industry experienced constrained supply chain dynamics in 2021, which has continued in 2022. As a result, we experienced significant cost increases and, at times, a limited ability to purchase enough product to meet consumer demand. We have continued to see an increase in our backlog metrics. Open orders, a measure of our backlog, ended the quarter higher than the prior quarter-end. These trends, caused in large part from global disruptions related to the COVID-19 pandemic and the subsequent rapid economic recovery, may persist in the near-term. In addition to inflationary pressures caused by product shortages, we are also experiencing product cost inflation caused by increased input costs, including rising oil prices, which increases may have been impacted by the Russian invasion ofUkraine . We took proactive measures to actively increase our inventory, price effectively and deliver high-value solutions to our customers' critical building material needs. As a leading distributor of essential building materials, we will continue to react quickly to market and supply chain developments and ensure high-quality service for our customers. 24 --------------------------------------------------------------------------------
Comparison of the Three Months Ended
The following tables set forth condensed consolidated statements of operations
data and such data as a percentage of total net sales for the periods presented
(in millions):
Three Months Ended June 30,
2022 2021
Net sales $ 2,358.2 $ 1,872.1
Cost of products sold 1,708.0 1,354.7
Gross profit 650.2 517.4
Operating expense:
Selling, general and administrative 355.4 296.3
Depreciation 18.9 15.1
Amortization 21.5 25.2
Total operating expense 395.8 336.6
Income (loss) from operations 254.4 180.8
Interest expense, financing costs, and other 18.9 23.2
Loss on debt extinguishment - 50.7
Income (loss) from continuing operations before income taxes 235.5 106.9
Provision for (benefit from) income taxes 61.0 27.1
Net income (loss) from continuing operations 174.5 79.8
Net income (loss) from discontinued operations - (3.3)
Net income (loss) 174.5 76.5
Dividends on Preferred Stock 6.0 6.0
Net income (loss) attributable to common stockholders $
168.5
Three Months Ended June 30,
2022 2021
Net sales 100.0 % 100.0 %
Cost of products sold 72.4 % 72.4 %
Gross profit 27.6 % 27.6 %
Operating expense:
Selling, general and administrative 15.1 % 15.8 %
Depreciation 0.8 % 0.9 %
Amortization 0.9 % 1.3 %
Total operating expense 16.8 % 18.0 %
Income (loss) from operations 10.8 % 9.6 %
Interest expense, financing costs, and other 0.8 % 1.2 %
Loss on debt extinguishment - % 2.7 %
Income (loss) from continuing operations before income taxes 10.0 % 5.7 %
Provision for (benefit from) income taxes 2.6 % 1.4 %
Net income (loss) from continuing operations 7.4 % 4.3 %
Net income (loss) from discontinued operations - % (0.2) %
Net income (loss) 7.4 % 4.1 %
Dividends on Preferred Stock 0.3 % 0.3 %
Net income (loss) attributable to common stockholders 7.1 % 3.8 %
When we refer to regions, we are referring to our geographic regions. When we
refer to our net product costs, we are referring to our invoice cost less the
impact of short-term buying programs.
As of
25
--------------------------------------------------------------------------------Net sales increased 26.0% to$2.36 billion in 2022, up from$1.87 billion in 2021. Net sales increased across all three lines of business, substantially driven by a weighted-average selling price increase of approximately 24-25% as well as an estimated volume increase of approximately 0-1%. Additionally, net sales in 2022 includes the results of acquired branches, while net sales in 2021 includes the results of divested branches that were included in continuing operations. Excluding the impact of acquired and divested branches, the increase in net sales would have been approximately 1% lower. Net sales by geographic region, including the impact of acquired and divested branches, increased from 2021 to 2022 as follows: Northeast 20.8%; Mid-Atlantic 21.4%; Southeast 24.0%; Southwest 29.7%; Midwest 42.6%; West 10.4%; andCanada 13.6%. We estimate the impact of inflation or deflation on our sales and gross profit by looking at changes in our average selling prices and gross margins (discussed below). To calculate approximate weighted average selling price and product cost changes, we review organicU.S. warehouse sales of the same items sold regionally period over period and normalize the data for non-representative outliers. To determine estimated volumes, we subtract the change in weighted average selling price, calculated as described above, from the total changes in net sales, excluding acquisitions and dispositions. As a result, and especially in high inflationary periods, the weighted average selling price and estimated volume changes may not be directly comparable to changes reported in prior periods. The following table summarizes net sales by product line for the periods presented (in millions): Three Months Ended June 30, 2022 2021 Year-over-Year Change Net Sales Mix % Net Sales Mix % $ % Residential roofing products$ 1,196.1 50.7 %$ 981.6 52.4 % $ 214.5 21.9 % Non-residential roofing products 682.6 29.0 % 486.7 26.0 % 195.9 40.3 % Complementary building products 479.5 20.3 % 403.8 21.6 % 75.7 18.7 % Total net sales$ 2,358.2 100.0 %$ 1,872.1 100.0 % $ 486.1 26.0 % Gross Profit
The following table summarizes gross profit and gross margin for the periods presented (in millions):
Three Months Ended June 30, Change1
2022 2021 $ %
Gross profit $ 650.2 $ 517.4 $ 132.8 25.7 %
Gross margin 27.6 % 27.6 % N/A 0.0 %
1.Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period. Percentage changes for percentages represent the net period-to-period change in basis points.
Gross margin was 27.6% in both 2022 and 2021. The consistent gross margin resulted from a weighted-average selling price increase (calculated as described above) of approximately 24-25%, offset by a weighted-average product cost increase of approximately 23-24% and a higher non-residential product mix.
Operating Expense
The following table summarizes operating expense for the periods presented (in
millions):
Three Months Ended June 30, Change1
2022 2021 $ %
Selling, general and administrative $ 355.4 $ 296.3 $ 59.1 19.9 %
Depreciation 18.9 15.1 3.8 25.2 %
Amortization 21.5 25.2 (3.7) (14.7) %
Operating expense $ 395.8 $ 336.6 $ 59.2 17.6 %
% of net sales 16.8 % 18.0 % N/A (1.2) %
1.Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period. Percentage changes for percentages represent the net period-to-period change in basis points.
26
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Operating expense increased 17.6% to $395.8 million in 2022, from $336.6 million
in 2021. The comparative increase in operating expense was mainly influenced by
the following factors:
•a
•a
•a
Operating expense in 2022 includes the results of acquired branches, while operating expense in 2021 includes the results of divested branches that were included in continuing operations, the combined results of which drove a net increase of$7.2 million from 2021 to 2022.
Operating expense as a percent of sales was lower in 2022, driven by the positive impact from net sales growth as well as productivity gains.
Interest Expense, Financing Costs and Other
Interest expense, financing costs and other expense was$18.9 million in 2022, compared to$23.2 million in 2021. The comparative decrease is primarily due to a lower weighted-average interest rate on our outstanding debt.
Loss on Debt Extinguishment
Loss on debt extinguishment was$50.7 million in 2021 and includes the write-off of debt issuance costs and payment of redemption premiums stemming from our 2021 Debt Refinancing. Income Taxes Income tax provision (benefit) was$61.0 million in 2022, compared to$27.1 million in 2021. The comparative increase in income tax provision was primarily due to higher pre-tax income from continuing operations. The effective tax rate, excluding any discrete items, was 26.1% in 2022, compared to 25.9% in 2021. We expect our 2022 effective tax rate, excluding any discrete items, will range from approximately 25.5% to 26.5%.
Net Income (Loss)/Net Income (Loss) Per Share
Net income (loss) from continuing operations was$174.5 million in 2022, compared to$79.8 million in 2021. Net income (loss) from discontinued operations was$(3.3) million in 2021 (see Note 4 in the Notes to Condensed Consolidated Financial Statements for further discussion). Consolidated net income (loss) was$174.5 million in 2022, compared to$76.5 million in 2021. There were$6.0 million of dividends on preferred shares for both 2022 and 2021, making consolidated net income (loss) attributable to common stockholders$168.5 million and$70.5 million , respectively. We calculate net income (loss) per share by dividing net income (loss), less dividends on preferred shares and adjustments for participating securities, by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by utilizing the most dilutive result after applying and comparing the two-class method and if-converted method (see Note 6 in the Notes to Condensed Consolidated Financial Statements for further discussion). 27 --------------------------------------------------------------------------------
The following table presents all the components utilized to calculate basic and diluted net income (loss) per share (in millions, except per share amounts; certain amounts may not recalculate due to rounding):
Three Months Ended
2022 2021
Numerator:
Net income (loss) from continuing operations $ 174.5$ 79.8 Dividends on Preferred Stock (6.0) (6.0)
Undistributed income from continuing operations allocated to participating securities
(20.9) (9.0)
Net income (loss) from continuing operations attributable to common stockholders - Basic and Diluted (if-converted and two-class method)
147.6 64.8
Net income (loss) from discontinued operations - (3.3)
Undistributed income from discontinued operations allocated to participating securities
- 0.4
Net income (loss) from discontinued operations attributable to common stockholders - Basic and Diluted (if-converted and two-class method)
- (2.9)
Net income (loss) attributable to common stockholders - Basic and Diluted (if-converted and two-class method)
$ 147.6 $ 61.9 Denominator:
Weighted-average common shares outstanding - Basic 68.1 69.9 Effect of common share equivalents 1.4 1.4 Weighted-average common shares outstanding - Diluted 69.5 71.3 Net income (loss) per share: Basic - Continuing operations $ 2.17$ 0.93 Basic - Discontinued operations - (0.04) Basic net income (loss) per share $ 2.17$ 0.89 Diluted - Continuing operations $ 2.12$ 0.91 Diluted - Discontinued operations - (0.04) Diluted net income (loss) per share (if-converted and two-class method) $ 2.12$ 0.87 28
--------------------------------------------------------------------------------
Comparison of the Six Months Ended
The following tables set forth condensed consolidated statements of operations
data and such data as a percentage of total net sales for the periods presented
(in millions):
Six Months Ended June 30,
2022 2021
Net sales $ 4,045.1 $ 3,190.1
Cost of products sold 2,955.4 2,339.9
Gross profit 1,089.7 850.2
Operating expense:
Selling, general and administrative 664.7 564.1
Depreciation 36.4 29.7
Amortization 42.9 52.8
Total operating expense 744.0 646.6
Income (loss) from operations 345.7 203.6
Interest expense, financing costs, and other 35.5 51.8
Loss on debt extinguishment - 60.2
Income (loss) from continuing operations before income taxes 310.2 91.6
Provision for (benefit from) income taxes 79.9 22.3
Net income (loss) from continuing operations 230.3 69.3
Net income (loss) from discontinued operations - 0.9
Net income (loss) 230.3 70.2
Dividends on Preferred Stock 12.0 12.0
Net income (loss) attributable to common stockholders $ 218.3 $ 58.2
Six Months Ended June 30,
2022 2021
Net sales 100.0 % 100.0 %
Cost of products sold 73.1 % 73.3 %
Gross profit 26.9 % 26.7 %
Operating expense:
Selling, general and administrative 16.4 % 17.7 %
Depreciation 0.9 % 0.9 %
Amortization 1.1 % 1.7 %
Total operating expense 18.4 % 20.3 %
Income (loss) from operations 8.5 % 6.4 %
Interest expense, financing costs, and other 0.8 % 1.6 %
Loss on debt extinguishment - % 1.9 %
Income (loss) from continuing operations before income taxes 7.7 % 2.9 %
Provision for (benefit from) income taxes 2.0 % 0.7 %
Net income (loss) from continuing operations 5.7 % 2.2 %
Net income (loss) from discontinued operations - % - %
Net income (loss) 5.7 % 2.2 %
Dividends on Preferred Stock 0.3 % 0.4 %
Net income (loss) attributable to common stockholders 5.4 % 1.8 %
When we refer to regions, we are referring to our geographic regions. When we
refer to our net product costs, we are referring to our invoice cost less the
impact of short-term buying programs.
As of
29
--------------------------------------------------------------------------------Net sales increased 26.8% to$4.05 billion in 2022, up from$3.19 billion in 2021. Net sales increased across all three lines of business, substantially driven by a weighted-average selling price increase of approximately 23-24% as well as an estimated volume increase of approximately 2-3%. Additionally, net sales in 2022 includes the results of acquired branches, while net sales in 2021 includes the results of divested branches that were included in continuing operations. Excluding the impact of acquired and divested branches, the increase in net sales would have been approximately 1% lower. Net sales by geographic region, including the impact of acquired and divested branches, increased from 2021 to 2022 as follows: Northeast 23.3%; Mid-Atlantic 22.0%; Southeast 20.6%; Southwest 31.5%; Midwest 45.1%; West 12.4%; andCanada 17.2%. We estimate the impact of inflation or deflation on our sales and gross profit by looking at changes in our average selling prices and gross margins (discussed below). To calculate approximate weighted average selling price and product cost changes, we review organicU.S. warehouse sales of the same items sold regionally period over period and normalize the data for non-representative outliers. To determine estimated volumes, we subtract the change in weighted average selling price, calculated as described above, from the total changes in net sales, excluding acquisitions and dispositions. As a result, and especially in high inflationary periods, the weighted average selling price and estimated volume changes may not be directly comparable to changes reported in prior periods. The following table summarizes net sales by product line for the periods presented (in millions): Six Months Ended June 30, 2022 2021 Year-over-Year Change Net Sales % Net Sales % $ % Residential roofing products$ 2,042.6 50.5 %$ 1,676.7 52.6 % $ 365.9 21.8 % Non-residential roofing products 1,170.3 28.9 % 816.5 25.6 % 353.8 43.3 % Complementary building products 832.2 20.6 % 696.9 21.8 % 135.3 19.4 % Total net sales$ 4,045.1 100.0 %$ 3,190.1 100.0 % $ 855.0 26.8 % Gross Profit
The following table summarizes gross profit and gross margin for the periods presented (in millions):
Six Months Ended June 30, Change1
2022 2021 $ %
Gross profit $ 1,089.7 $ 850.2 $ 239.5 28.2 %
Gross margin 26.9 % 26.7 % N/A 0.2 %
1.Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period. Percentage changes for percentages represent the net period-to-period change in basis points.
Gross margin was 26.9% in 2022, up 0.2 percentage points from 26.7% in 2021. The comparative increase in gross margin resulted from a weighted-average selling price increase (calculated as described above) of approximately 23-24%, largely offset by a weighted-average product cost increase of approximately 23-24% and a higher non-residential product mix.
Operating Expense
The following table summarizes operating expense for the periods presented (in
millions):
Six Months Ended June 30, Change1
2022 2021 $ %
Selling, general, and administrative $ 664.7 $ 564.1 $ 100.6 17.8 %
Depreciation 36.4 29.7 6.7 22.6 %
Amortization 42.9 52.8 (9.9) (18.8) %
Total operating expense $ 744.0 $ 646.6 $ 97.4 15.1 %
% of net sales 18.4 % 20.3 % N/A (1.9) %
1.Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period. Percentage changes for percentages represent the net period-to-period change in basis points.
30
--------------------------------------------------------------------------------
Operating expense increased 15.1% to $744.0 million in 2022, from $646.6 million
in 2021. The comparative increase in operating expense was mainly influenced by
the following factors:
•a
•a
•a
Operating expense in 2022 includes the results of acquired branches, while operating expense in 2021 includes the results of divested branches that were included in continuing operations, the combined results of which drove a net increase of$12.8 million from 2021 to 2022.
Operating expense as a percent of sales was lower in 2022, driven by the positive impact from net sales growth as well as productivity gains.
Interest Expense, Financing Costs and Other
Interest expense, financing costs and other expense was$35.5 million in 2022, compared to$51.8 million in 2021. The comparative decrease is primarily due to decreased average debt balances during the respective periods and a lower weighted-average interest rate on our outstanding debt.
Loss on Debt Extinguishment
Loss on debt extinguishment was$60.2 million in 2021 and includes the write-off of debt issuance costs and payment of redemption premiums stemming from our 2021 Debt Refinancing. Income Taxes Income tax provision (benefit) was$79.9 million in 2022, compared to$22.3 million in 2021. The comparative increase in income tax provision was primarily due to higher pre-tax income from continuing operations. The effective tax rate, excluding any discrete items, was 26.0% in 2022, compared to 25.9% in 2021. We expect our 2022 effective tax rate, excluding any discrete items, will range from approximately 25.5% to 26.5%.
Net Income (Loss)/Net Income (Loss) Per Share
Net income (loss) from continuing operations was$230.3 million in 2022, compared to$69.3 million in 2021. Net income (loss) from discontinued operations was$0.9 million in 2021 (see Note 4 in the Notes to Condensed Consolidated Financial Statements for further discussion). Consolidated net income (loss) was$230.3 million in 2022, compared to$70.2 million in 2021. There were$12.0 million of dividends on preferred shares for both 2022 and 2021, making consolidated net income (loss) attributable to common stockholders$218.3 million and$58.2 million , respectively. We calculate net income (loss) per share by dividing net income (loss), less dividends on preferred shares and adjustments for participating securities, by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by utilizing the most dilutive result after applying and comparing the two-class method and if-converted method (see Note 6 in the Notes to Condensed Consolidated Financial Statements for further discussion). 31 --------------------------------------------------------------------------------
The following table presents all the components utilized to calculate basic and diluted net income (loss) per share (in millions, except per share amounts; certain amounts may not recalculate due to rounding):
Six Months Ended June 30,
2022 2021
Numerator:
Net income (loss) from continuing operations $ 230.3 $ 69.3
Dividends on Preferred Stock (12.0) (12.0) Undistributed income from continuing operations allocated to participating securities
(26.8) (6.9)
Net income (loss) from continuing operations attributable to common stockholders - Basic and Diluted (if-converted and two-class method)
191.5 50.4
Net income (loss) from discontinued operations - 0.9
Undistributed income from discontinued operations allocated to participating securities
- (0.2)
Net income (loss) from discontinued operations attributable to common stockholders - Basic and Diluted (if-converted and two-class method)
- 0.7
Net income (loss) attributable to common stockholders - Basic and Diluted (if-converted and two-class method)
Denominator:
Weighted-average common shares outstanding - Basic 69.1 69.8 Effect of common share equivalents 1.3 1.2 Weighted-average common shares outstanding - Diluted 70.4 71.0 Net income (loss) per share: Basic - Continuing operations$ 2.77 $ 0.72 Basic - Discontinued operations - 0.01 Basic net income (loss) per share
Diluted - Continuing operations$ 2.72 $ 0.71 Diluted - Discontinued operations - 0.01
Diluted net income (loss) per share (if-converted and two-class method)
Non-GAAP Financial Measures
To provide investors with additional information regarding our financial
results, we prepare certain financial measures that are not calculated in
accordance with generally accepted accounting principles in
•Adjusted Operating Expense. We define Adjusted Operating Expense as operating expense, excluding the impact of the adjusting items (as described below).
•Adjusted Net Income (Loss). We define Adjusted Net Income (Loss) as net income
(loss) from continuing operations, excluding the impact of the adjusting items
(as described below).
•Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) from continuing
operations, excluding the impact of interest expense (net of interest income),
income taxes, depreciation and amortization, stock-based compensation, and the
adjusting items (as described below).
We use these supplemental non-GAAP measures 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 our
non-GAAP financial measures consistently using the same methods each period.
We believe these non-GAAP measures are useful measures because they 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 we believe that these non-GAAP measures are useful to investors when
evaluating our business, they are not prepared and presented in accordance with
GAAP, and therefore should be considered supplemental in nature. These non-GAAP
measures should
32
-------------------------------------------------------------------------------- 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 relate. In addition, these non-GAAP financial measures may differ from similarly titled measures presented by other companies.
Adjusting Items to Non-GAAP Financial Measures
The impact of the following expense (income) items is excluded from each of our non-GAAP measures (the "adjusting items"):
•Acquisition costs. Represent certain costs related to historical acquisitions, including: amortization of intangible assets; professional fees, branch integration expenses, travel expenses, employee severance and retention costs, and other personnel expenses classified as selling, general and administrative; gains/losses related to changes in fair value of contingent consideration or holdback liabilities; and amortization of debt issuance costs. •Restructuring costs. Represent costs stemming from headcount rationalization efforts and certain rebranding costs; impact of the Interior Products and Solar Products divestitures; costs related to changing our fiscal year end; amortization of debt issuance costs; debt refinancing and extinguishment costs; and abandoned lease costs.
•COVID-19 impacts. Represent costs directly related to the COVID-19 pandemic.
The following table presents the impact of the adjusting items on our condensed
consolidated statements of operations for each of the periods indicated (in
millions):
Operating Expense Non-Operating Expense
Amorti- Interest Other (Income)
SG&A1 zation Expense Expense Income Taxes2 Total
Three Months Ended June 30, 2022
Acquisition costs $ 1.7 $ 21.5 $ 1.0 $ - $ - $ 24.2
Restructuring costs 2.9 - 0.3 - - 3.2
COVID-19 impacts 0.1 - - - - 0.1
Total adjusting items $ 4.7 $ 21.5 $ 1.3 $ - $ - $ 27.5
Three Months Ended June 30, 2021
Acquisition costs $ 0.8 $ 25.2 $ 1.2 $ - $ - $ 27.2
Restructuring costs3 1.7 - 0.7 50.8 - 53.2
COVID-19 impacts 0.4 - - - - 0.4
Total adjusting items $ 2.9 $ 25.2 $ 1.9 $ 50.8 $ - $ 80.8
Six Months Ended June 30, 2022
Acquisition costs $ 2.2 $ 42.9 $ 2.0 $ - $ - $ 47.1
Restructuring costs 4.6 - 0.6 - - 5.2
COVID-19 impacts 1.5 - - - - 1.5
Total adjusting items $ 8.3 $ 42.9 $ 2.6 $ - $ - $ 53.8
Six Months Ended June 30, 2021
Acquisition costs $ 1.4 $ 50.5 $ 3.1 $ - $ - $ 55.0
Restructuring costs3 4.7 2.3 1.5 60.3 - 68.8
COVID-19 impacts 0.9 - - - - 0.9
Total adjusting items $ 7.0 $ 52.8 $ 4.6 $ 60.3 $
- $ 124.7 1.Selling, general and administrative expense ("SG&A").
2.For tax impact of adjusting items, see Adjusted Net Income (Loss) table below.
3.Other (income) expense for the three and six months ended
33
--------------------------------------------------------------------------------Adjusted Operating Expense
The following table presents a reconciliation of operating expense, the most
directly comparable financial measure as measured in accordance with GAAP, to
Adjusted Operating Expense for each of the periods indicated (in millions):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Operating expense $ 395.8 $ 336.6 $ 744.0 $ 646.6
Acquisition costs (23.2) (26.0) (45.1) (51.9)
Restructuring costs (2.9) (1.7) (4.6) (7.0)
COVID-19 impacts (0.1) (0.4) (1.5) (0.9)
Adjusted Operating Expense $ 369.6 $ 308.5 $ 692.8 $ 586.8
Net sales $ 2,358.2 $ 1,872.1 $ 4,045.1 $ 3,190.1
Operating expense as % of net sales 16.8 % 18.0 % 18.4 % 20.3 %
Adjusted Operating Expense as % of net 15.7 % 16.5 % 17.1 % 18.4 %
sales
Adjusted Net Income (Loss)
The following table presents a reconciliation of net income (loss) from continuing operations, the most directly comparable financial measure as measured in accordance with GAAP, to Adjusted Net Income (Loss) for each of the periods indicated (in millions):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net income (loss) from continuing
operations $ 174.5 $ 79.8 $ 230.3 $ 69.3
Adjusting items:
Acquisition costs 24.2 27.2 47.1 55.0
Restructuring costs 3.2 53.2 5.2 68.8
COVID-19 impacts 0.1 0.4 1.5 0.9
Total adjusting items 27.5 80.8 53.8 124.7
Less: tax impact of adjusting items1 (7.4) (20.7) (13.9) (32.0)
Total adjustments, net of tax 20.1 60.1 39.9 92.7
Adjusted Net Income (Loss) $ 194.6 $ 139.9 $ 270.2 $ 162.0
Net sales $ 2,358.2 $ 1,872.1 $ 4,045.1 $ 3,190.1
Net income (loss) as % of sales 7.4 % 4.3 % 5.7 % 2.2 %
Adjusted Net Income (Loss) as % of sales 8.3 % 7.5 % 6.7 % 5.1 %
1.Amounts represent tax impact on adjustments that are not included in our
income tax provision (benefit) for the periods presented. The tax impact of
adjustments for the three months ended June 30, 2022 and 2021 were calculated
using a blended effective tax rate of 26.9% and 25.6%, respectively. The tax
impact of adjustments for the six months ended June 30, 2022 and 2021 were
calculated using a blended effective tax rate of 25.8% and 25.7%, respectively.
34
--------------------------------------------------------------------------------Adjusted EBITDA
The following table presents a reconciliation of net income (loss) from continuing operations, the most directly comparable financial measure as measured in accordance with GAAP, to Adjusted EBITDA for each of the periods indicated (in millions):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net income (loss) from continuing
operations $ 174.5 $ 79.8 $ 230.3 $ 69.3
Interest expense, net 19.1 23.2 36.3 52.8
Income taxes 61.0 27.1 79.9 22.3
Depreciation and amortization 40.4 40.3 79.3 82.5
Stock-based compensation 8.0 5.4 13.1 9.6
Acquisition costs1 1.7 0.8 2.2 1.4
Restructuring costs1 2.9 52.5 4.6 65.0
COVID-19 impacts 0.1 0.4 1.5 0.9
Adjusted EBITDA $ 307.7 $ 229.5 $ 447.2 $ 303.8
Net sales $ 2,358.2 $ 1,872.1 $ 4,045.1 $ 3,190.1
Net income (loss) as % of net sales 7.4 % 4.3 % 5.7 % 2.2 %
Adjusted EBITDA as % of net sales 13.0 % 12.3 % 11.1 % 9.5 %
1.Amounts represent adjusting items included in SG&A and other income (expense); remaining adjusting item balances are embedded within the other line item balances reported in this table.
Seasonality and Quarterly Fluctuations
The demand for building materials is closely correlated to both seasonal changes and unpredictable weather patterns, therefore demand fluctuations are expected.
In general, our net sales and net income are highest in quarters endingJune 30 ,September 30 andDecember 31 , which represent the peak months of construction and re-roofing. Conversely, we have historically experienced low net income levels or net losses in quarters endingMarch 31 , when winter construction cycles and cold weather patterns have an adverse impact on our customers' ability to conduct their business. Our balance sheet fluctuates throughout the year, driven by similar seasonal trends. We generally experience an increase in inventory and peak cash usage in the quarters endingMarch 31 andJune 30 , driven primarily by increased purchasing that is necessary to meet the rise in demand for our products during the warmer months. Accounts receivable, accounts payable, and cash collections are generally at their highest during the quarters endingJune 30 andSeptember 30 , when sales are typically at their peak.
At times, we experience fluctuations in our financial performance that are driven by factors outside of our control, including the impact that severe weather events and unusual weather patterns may have on the timing and magnitude of demand and material availability.
In addition, the impacts of the COVID-19 pandemic and resulting supply chain disruptions as well as inflation have caused, and may continue to cause, fluctuations in our financial results and working capital that are not aligned with the seasonality we generally experience.
Liquidity
Liquidity is defined as the current amount of readily available cash and the ability to generate adequate amounts of cash to meet the current needs for cash. We assess our liquidity in terms of our cash and cash equivalents on hand and the ability to generate cash to fund our operating activities, taking into consideration available borrowings and the seasonal nature of our business.
Our principal sources of liquidity as of
Significant factors which could affect future liquidity include the following:
•the adequacy of available bank lines of credit;
35
--------------------------------------------------------------------------------•the ability to attract long-term capital with satisfactory terms;
•cash flows generated from operating activities;
•working capital management;
•acquisitions; and
•capital expenditures.
Our primary capital needs are for working capital obligations and other general
corporate purposes, including acquisitions and capital expenditures. Our primary
sources of working capital are cash from operations and bank borrowings. We have
financed large acquisitions through increased bank borrowings and the issuance
of long-term debt and common or preferred stock. We then repay any such
borrowings with cash flows from operations or subsequent financings. We have
funded most of our capital expenditures with cash on hand, increased bank
borrowings, or equipment financing, and then reduced those obligations with cash
flows from operations. We may explore additional or replacement financing
sources in order to bolster liquidity and strengthen our capital structure.
We believe we currently have adequate liquidity and availability of capital to
fund our present operations, meet our commitments on our existing debt and fund
anticipated growth, including expansion in existing and targeted market areas.
We may seek potential acquisitions from time to time and hold discussions with
certain acquisition candidates. If suitable acquisition opportunities or working
capital needs arise that require additional financing, we believe that our
financial position, credit profile and earnings history provide a sufficient
base for obtaining additional financing resources at reasonable rates and terms.
We may also choose to issue additional shares of common stock or preferred stock
in order to raise funds.
The following table summarizes our cash flows for the periods indicated (in
millions):
Six Months Ended June 30,
2022 2021
Net cash provided by (used in) operating activities $ (187.0) $ 18.7
Net cash provided by (used in) investing activities (53.5) 810.4
Net cash provided by (used in) financing activities 69.6 (1,101.6)
Effect of exchange rate changes on cash and cash equivalents (0.3) -
Net increase (decrease) in cash and cash equivalents $ (171.2) $ (272.5)
Operating Activities
Net cash used in operating activities, including both continuing and
discontinued operations, was $187.0 million in 2022, compared to cash provided
by operating activities of $18.7 million in 2021. Cash from operations decreased
$205.7 million primarily due to an incremental cash outflow of $372.0 million
stemming from changes to our net working capital, mainly driven by an
unfavorable change in cash outflows related to accounts receivable and
inventories compared to the prior year, partially offset by a favorable change
in cash inflows related to accounts payable and accrued expenses. The
unfavorable change related to accounts receivable is largely driven by increased
sales, while the unfavorable change related to inventories and favorable change
related to accounts payable and accrued expenses are primarily due to product
cost inflation as well as a build-up of product inventories during our peak
selling season. The decrease was partially offset by an increase in net income
after adjustments for non-cash items of $166.3 million . Operating cash flows
used in discontinued operations for the six months ended June 30, 2021 were
$21.8 million .
Investing Activities
Net cash used in investing activities was$53.5 million in 2022, compared to cash provided by investing activities of$810.4 million in 2021. Cash provided by investing activities in 2021 primarily reflects proceeds from the sale of Interior Products, whereas cash used in investing activities in 2022 reflects cash used for purchases of property and equipment as well as acquired businesses. There were no investing cash flows from discontinued operations.
Financing Activities
Net cash provided by financing activities was$69.6 million in 2022, compared to cash used in financing activities of$1.10 billion in 2021. Cash used in financing activities in 2021 was primarily due to$1.05 billion in net repayments of borrowings, mostly in connection with the 2021 Debt Refinancing (as defined below). Cash provided by financing activities in 2022 reflects$467.8 million in net borrowings, partially offset by$338.1 million in cash used to repurchase our common stock and a$50.0 million advance payment for shares of our common stock, both under the Repurchase Program (as defined below). 36 --------------------------------------------------------------------------------
Share Repurchase Program
OnFebruary 24, 2022 , we announced a new share repurchase program (the "Repurchase Program"), pursuant to which we may purchase up to$500.0 million of our common stock. Shares repurchased under the Repurchase Program are retired immediately and are included in the category of authorized but unissued shares. As ofJune 30, 2022 , we had approximately$112.1 million remaining under the Repurchase Program. The pace of our repurchase activity will depend on factors such as our working capital needs, our cash requirements for acquisitions, our debt repayment obligations, our stock price, and economic and market conditions. OnMarch 10, 2022 , we entered into a Variable Tenor ASR Master Agreement (the "ASR Master Agreement") and Supplemental Confirmation (collectively, the "March 2022 ASR Agreement") withCitibank, N.A . ("Citi") to repurchase$125.0 million of our common stock. Under the terms of theMarch 2022 ASR Agreement, we paid$125.0 million to Citi and received an initial share delivery of 1,689,189 shares of our common stock, representing 80% of the then expected share repurchases under theMarch 2022 ASR Agreement, based on the closing price of our common stock of$59.20 onMarch 11, 2022 . OnJune 13, 2022 , we completed theMarch 2022 ASR Agreement and received an additional 406,200 shares of our common stock. In total, 2,095,389 shares of our common stock were delivered under theMarch 2022 ASR Agreement at an average price of$59.65 per share, which represents the daily volume-weighted average price of our common stock during the term of theMarch 2022 ASR Agreement, less a discount and adjustments pursuant to the terms of theMarch 2022 ASR Agreement. OnJune 13, 2022 , we entered into an additional Supplemental Confirmation (together with the ASR Master Agreement, the "June 2022 ASR Agreement") with Citi to repurchase an additional$250.0 million of our common stock. Under the terms of theJune 2022 ASR Agreement, we paid$250.0 million to Citi and received an initial share delivery of 3,480,077 shares of our common stock, representing 80% of the total expected share repurchases under theJune 2022 ASR Agreement, based on the closing price of our common stock of$57.47 onJune 13, 2022 . The final number of shares to be repurchased pursuant to the ASR Agreement will be determined upon settlement. As ofJune 30, 2022 , the remaining$50.0 million of the$250.0 million purchase price was evaluated as an unsettled equity forward contract indexed to our common stock and classified within stockholders' equity as a reduction to additional paid-in capital until the equity forward contract settles, when it will be reflected as a reduction in retained earnings. The final settlement of theJune 2022 ASR Agreement is expected to be completed in the fourth quarter of 2022.
During the six months ended
See Note 8 in the Notes to Condensed Consolidated Financial Statements for additional information.
Capital Resources
InMay 2021 , we entered into a series of financing arrangements to refinance certain debt instruments to take advantage of lower market interest rates (the "2021 Debt Refinancing"). Upon completion of the 2021 Debt Refinancing, the weighted-average interest rate on our outstanding debt was 3.43% as ofJune 30, 2022 , down from 4.21% as ofMarch 31, 2021 (prior to the 2021 Debt Refinancing).
As of
•the 2026 U.S. Revolver, an asset-based revolving line of credit in
•the 2026 Canada Revolver, an asset-based revolving line of credit in
•the 2028 Term Loan with an outstanding balance of
•two separate senior notes instruments, including the 2029 Senior Notes and 2026 Senior Notes, with outstanding balances of$346.6 million and$297.1 million , respectively.
See Note 10 in the Notes to Condensed Consolidated Financial Statements for additional information on our current financing arrangements and the 2021 Debt Refinancing.
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